Nagel v. Adm Investor Services, Inc., 96 CV 2675.

• Decision Date: 11 February 1998
• Docket Number: No. 96 CV 2972.,No. 96 CV 5215.,No. 96 CV 2741.,No. 96 CV 2879.,No. 96 CV 2675.,96 CV 2675.,96 CV 2741.,96 CV 2879.,96 CV 2972.,96 CV 5215.
• Citation: 995 F.Supp. 837
• Parties: Dennis NAGEL and Darlene Nagel, et al., Plaintiffs, v. ADM INVESTOR SERVICES, INC., et al., Defendants. Duane STEINER, et al., Plaintiff, v. ADM INVESTOR SERVICES, INC., et al., Defendant. Wilson FARM, et al., Plaintiff, v. ADM INVESTOR SERVICES, INC., et al., Defendant. Richard SCHRUMPF, et al., Plaintiff, v. ADM INVESTOR SERVICES, INC., et al., Defendant. Phillip W. BROWN, et al., Plaintiff, v. ADM INVESTOR SERVICES, INC., et al., Defendant.
• Court: U.S. District Court — Northern District of Illinois

995 F.Supp. 837

Dennis NAGEL and Darlene Nagel, et al., Plaintiffs, v. ADM INVESTOR SERVICES, INC., et al., Defendants.

Duane STEINER, et al., Plaintiff, v. ADM INVESTOR SERVICES, INC., et al., Defendant.

Wilson FARM, et al., Plaintiff, v. ADM INVESTOR SERVICES, INC., et al., Defendant.

Richard SCHRUMPF, et al., Plaintiff, v. ADM INVESTOR SERVICES, INC., et al., Defendant.

Phillip W. BROWN, et al., Plaintiff, v. ADM INVESTOR SERVICES, INC., et al., Defendant.

No. 96 CV 2675.

No. 96 CV 2741.

No. 96 CV 2879.

No. 96 CV 2972.

No. 96 CV 5215.

United States District Court, N.D. Illinois, Eastern Division.

February 11, 1998.

Adam K. Hollander, Mayer, Brown & Platt, Chicago, IL, Joel J. Bellows, Laurel G. Bellows, Nicholas P. Iavarone, Christopher L. Gallinari, Bellows & Bellows, Rebecca J. Wing, Chicago, IL, for Plaintiffs.

Timothy C. Klenk, Richard J. Rappaport, Alison C.B. Laing, Amy Beth Manning, Ross & Hardies, P.C., Chicago, IL, for ADM Investor Services, Inc.

Mark M. Lyman, Henry Karl Becker, Daniel G. Dolan, Jr., John D. Ruark, Henderson, Becker & Lyman, Chicago, IL, Jeffry Mark Henderson, Patrick Gerard King, Henderson and Lyman, Chicago, IL, for Brighton Commodities, Inc.

James L. Fox, Abramson & Fox, Chicago, IL, Kenneth M. Snodgrass, Jr., James Roland Grebe, Goldsworthy, Fifield & Hasselberg, Peoria, IL, for Oberbeck Feed Co.

MEMORANDUM AND ORDER

MANNING, District Judge.

The following motions are before the court: (1) defendant ADM Investor Services' motion to dismiss all claims in plaintiffs' consolidated complaint (# 49-1); (2) ADMIS's motion to strike (# 52-1); (3) defendant Oberbeck Feed's motion to strike paragraphs 4 and 5 and Counts XV and XVI of plaintiffs' amended complaint (# 45-1); (4) Oberbeck's motion to dismiss (# 45-2); and (5) defendant Brighton Commodities and Agro Systems' joint motion to dismiss plaintiff's consolidated complaint (# 50-1).

For the reasons stated below, the court's September 29, 1997 order is modified. The confusing nature of the amended complaint makes it impossible for the court to resolve the threshold question of whether the hedge-to-arrive contracts that are the subject of this case are cash-forward or futures contracts at this time. This distinction impacts the motions to dismiss because cash forward contracts are outside the ambit of the Commodity Exchange Act. See 7 U.S.C. § 1a(11). Thus, if the hedge-to-arrive contracts are cash forward contracts, the plaintiffs' Commodity Exchange Acts claims fail. To forestall a potential additional round of briefing, however, we will consider the motions to dismiss filed by the defendants to the extent presently possible.

Oberbeck's motion to dismiss for lack of venue is denied. Its motion to dismiss for lack of subject matter jurisdiction and its motion to dismiss the plaintiffs' supplemental state law claims are denied without prejudice. Because the amended complaint fails to comply with Fed.R.Civ.P. 8, ADMIS's motion to dismiss is granted and the amended complaint is dismissed in its entirety without prejudice. ADMIS's motion to strike, therefore, is denied as moot. Finally, in light of our disposition of ADMIS and Oberbeck's motions to dismiss, Brighton and Agro's joint motion to dismiss is denied without prejudice.

The plaintiffs are granted leave to replead within 28 days of the date of the entry of this order, consistent with their Rule 11 obligations. If the plaintiffs do not replead by this date, or the date of any extensions, the dismissals shall convert to dismissals with prejudice.

I. Background

This case arises from hybrid grain contracts, which are also known as hedge-to-arrive contracts, for the sale and purchase of grain between grain producers and grain elevators. The plaintiffs' 16-count amended complaint is before the court. The plaintiffs allege violations of RICO, 18 U.S.C. § 1961 et seq. against ADMIS, Agro, and Brighton (Counts I — III), the Commodity Exchange Act, 7 U.S.C. § 1 et seq., against ADMIS, Brighton, Oberbeck, Staley, DeLong, and Demeter (Count IV), ADMIS, Agro, and Brighton (Count VI), and Oberbeck and Staley (Count VII), and the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq. (Count VIII) against ADMIS, Agro, and Brighton. In addition, they include claims based on state contract law against Oberbeck, Staley, DeLong, and Demeter (Counts IX and XIII), breach of fiduciary duty against ADM, Agro, and Brighton (Counts X and XV), Oberbeck, Staley, DeLong, and Demeter (Count XI), and ADMIS, Agro, Brighton, and Oberbeck (Count XVI), fraud against ADMIS, Agro, and Brighton (Count XII), and negligence against Oberbeck, Staley, DeLong, and Demeter (Count XIV).¹

II. Discussion

A. Defendant Oberbeck Feed's Motion to Strike and Dismiss

Oberbeck argues that: (1) this court lacks jurisdiction over Count IV, which asserts violations of the Commodities Exchange Act and is the sole federal claim against Oberbeck; (2) due to the lack of federal subject matter jurisdiction, supplemental jurisdiction over the plaintiffs' state law claims is improper; (3) venue is improper as to Oberbeck; and (4) the plaintiffs' state law counts fail to state a claim for which relief can be granted. Oberbeck seeks to strike Paragraphs 4 and 5 and Counts XV and XVI (breach of fiduciary duty) and to dismiss all other counts of plaintiffs' amended complaint directed against it for lack of jurisdiction.

In order to state a claim against Oberbeck under the Commodities Exchange Act, the hedge-to-arrive contracts that are the subject of this case must be futures rather than cash-forward contracts. See 7 U.S.C. § 1a(11) (contracts involving the "sale of any cash commodity for deferred shipment or delivery" are not "futures contracts" as defined by the Act). In order to make this determination, we need to evaluate, at a minimum, the plaintiffs' complaint. We cannot do this because, for the reasons discussed below, we are dismissing it pursuant to Fed.R.Civ.P. 8.

As Oberbeck's motion to dismiss turns on only a few paragraphs of the complaint, however, it is possible to analyze it despite the deficiencies in the complaint discussed below. In order to conserve the parties' and the court's resources and prevent another potential round of briefing, the court will address Oberbeck's contentions that the plaintiffs failed to plead damages sufficiently to state a claim under the Commodities Exchange Act and that venue is improper despite the fact that we have not yet determined whether the hedge-to-arrive contracts are futures contracts or not. With this in mind, for the following reasons, Oberbeck's motions to dismiss for lack of subject matter jurisdiction, to dismiss the plaintiffs' supplemental state law claims, and to strike Paragraphs 4 and 5 and Counts XV and XVI are denied without prejudice, and its motion to dismiss for lack of venue is denied.

1. Oberbeck's Motion to Dismiss Based on Lack of Subject Matter Jurisdiction

We assume that Oberbeck's motion to dismiss for lack of subject matter jurisdiction is based on Fed.R.Civ.P. 12(b)(1). Count IV of the plaintiffs' complaint contains the only federal claim against Oberbeck and alleges violations of the Commodity Exchange Act, 7 U.S .C. § 1, et seq. First, as noted above, Oberbeck argues that the hedge-to-arrive contracts at issue in this case are cash forward contracts rather than futures contracts and thus are exempt from the Act. If this is true, the plaintiffs cannot state a claim under the Commodities Exchange Act against Oberbeck. Due to the defects with the plaintiffs' complaint discussed below, this issue will have to wait for another day.

Second, Oberbeck contends that we lack subject matter jurisdiction over Count IV in any event because the plaintiffs have failed to allege that they suffered actual damages as required by Section 25 of the Commodity Exchange Act, 7 U.S.C. § 25(a)(1)(A-D).² Oberbeck also appears to be alleging that the plaintiffs' complaint is defective because it does not include damages in a specific dollar amount. Finally, Oberbeck claims that the plaintiffs cannot cure their defective complaint because the types of damages identified by the plaintiffs are not "actual damages" within the meaning of the Commodity Exchange Act.

In response, the plaintiffs contend that jurisdiction is proper, arguing that the Commodities Exchange Act is applicable. They also assert that specificity is not required when pleading damages. In addition, they point to five types of actual damages purportedly alleged in the complaint:

(1) "[T]he lost value of [plaintiffs'] crops, what they would have been cash forwarded for if not for Defendants' violations, less what was ultimately received for the grain after the July 1996 rally was concluded" (Plaintiffs' Opposition at 12);

(2) "Out-of-pocket ... fees charged by Agro and/or Brighton for advising Plaintiffs to enter into the off-exchange HTA contracts and the related on-exchange spread transactions. Complaint ¶ 58." (id. at 12-13);

(3) "Out of pocket ... losses incurred by [plaintiffs] in connection with the on-exchange spread transactions that their trading advisors urged them to enter into Complaint ¶ 60." (id. at 13);

(4) Attorneys' fees and costs (id. at 13); and

(5) Damages measured by the benefit of the bargain losses, as opposed to out-of-pocket losses. (id. at 13-14).

Rule 8 does not require plaintiffs to plead damages with particularity. Instead, it requires plaintiffs to include "a demand for judgment for the relief the pleader seeks. Relief in the alternative or of several different types may be demanded." Fed.R.Civ.P. 8(a). In other words, the federal rules do not require claimants to set out in detail the facts upon which they base their damages claims. Nevertheless, plaintiffs must include either direct or inferential allegations concerning all material elements necessary for recovery under the chosen legal theory. See Glatt v. Chicago Park Dist., 847...