Peregrine Financial Group, Inc. v. Martinez

• Decision Date: 25 May 1999
• Docket Number: No. 1-98-2331.,1-98-2331.
• Citation: 238 Ill.Dec. 757,305 Ill. App.3d 571,712 N.E.2d 861
• Parties: PEREGRINE FINANCIAL GROUP, INC., an Iowa Corporation Authorized to do Business in Illinois, Plaintiff-Appellee, v. Pedro MARTINEZ and Mariana Martinez, Defendants-Appellants (Robert Gruntz, Defendant).
• Court: United States Appellate Court of Illinois

712 N.E.2d 861

305 Ill. App.3d 571

238 Ill.Dec. 757

PEREGRINE FINANCIAL GROUP, INC., an Iowa Corporation Authorized to do Business in Illinois, Plaintiff-Appellee, v. Pedro MARTINEZ and Mariana Martinez, Defendants-Appellants (Robert Gruntz, Defendant).

No. 1-98-2331.

Appellate Court of Illinois, First District, Second Division.

May 25, 1999.

Rehearing Denied June 24, 1999.

Laurel G. Bellows, Wendy A. Grossman, Bellows and Bellows, P.C., Chicago, for Appellee.

Francis J. Leyhane III, Boyle & Leyhane, Ltd., Chicago, for Appellant.

Presiding Justice GORDON delivered the opinion of the court:

Peregrine Financial Group, Inc. (Peregrine), a commodity brokerage business, filed the instant action against Pedro Martinez, Mariana Martinez, and Robert Gruntz. Count I, against the Martinezes, alleged breach of a customer account agreement and sought recovery of a margin deficit relative to the Martinezes' customer account. Count II, against the Martinezes and Gruntz, the Martinezes' agent, alleged fraud. Pursuant to the Martinezes' motion, Peregrine's action against them was stayed pending arbitration of the Martinezes' claims against Peregrine. After the Martinezes obtained an arbitration award in their favor, in the amount of $1,020, Peregrine returned to the circuit court to obtain relief on its complaint. Thereafter, the trial court granted partial summary judgment to Peregrine on the issue of liability on count I and later assessed damages on that count in the amount of $108,430.09, which included as an offset the $1,020 credit awarded to the Martinezes in arbitration. After entry of that judgment, Peregrine voluntarily dismissed count II of its complaint. The Martinezes appeal.

On appeal the Martinezes argue that the trial court erred in granting summary judgment to Peregrine on its breach of contract claim. They argue that the arbitrators decided that claim against Peregrine and that the arbitrators' decision was conclusive because it was not attacked by Peregrine in a petition to vacate (see 710 ILCS 5/12 (West 1996)). Since we find that the arbitration award did not conclusively determine Peregrine's breach of contract claim or any issues relative to that claim, we affirm the judgment entered in Peregrine's favor.

BACKGROUND FACTS

On or about October 21, 1995, the Martinezes entered into a "Customer Account Agreement" with Peregrine whereby the Martinezes engaged Peregrine to act as their agent for the purchase and sale of commodity futures on various exchanges. The Martinezes simultaneously entered into an "Arbitration Agreement" with Peregrine whereby the Martinezes agreed to submit all future disputes with Peregrine to arbitration. Pursuant to the customer account agreement, Peregrine retained the right to choose arbitration or circuit court adjudication of any claims it could assert against the Martinezes.

Among other things, the customer account agreement required the Martinezes to maintain sufficient funds in their commodity futures trading account to satisfy Peregrine's margin requirements. If the Martinezes failed to maintain a sufficient margin, Peregrine had the right, at its discretion, to liquidate the Martinezes' account. In the event of liquidation, the Martinezes would be liable for any deficiency as well as interest and Peregrine's costs of collection including attorney fees.

Peregrine filed its action against the Martinezes on February 23, 1996. In count I, the breach of contract count, which is the subject of the instant appeal, Peregrine alleged that the Martinezes' customer account incurred a margin deficit on February 5, 1996; that Peregrine issued a demand for additional margin; that the Martinezes failed to comply with that demand; and that Peregrine liquidated their account on February 23, 1996. Peregrine sought recovery of the margin deficit totalling $54,318.54 plus interest and costs including attorney fees.

On or about July 1, 1996, the Martinezes and Gruntz filed a demand for arbitration and complaint against Peregrine with the National Futures Association (NFA). On July 12, 1996, they filed a motion in the circuit court to stay Peregrine's breach of contract and fraud action pending arbitration. They withdrew that motion on August 15, 1996 because Robert Gruntz, the Martinezes' agent for entering orders for the purchase and sale of commodities futures and options, pursuant to a "Limited Power-of-Attorney" agreement, was not subject to arbitration before the NFA. The motion for stay was renewed on October 11, 1996. Peregrine filed a response in opposition to that motion. On October 24, 1996, the trial court granted the motion for stay but only as to the Martinezes.

The Martinezes' arbitration complaint sought damages in the amount of $39,000 (actual damages of $13,000 trebled) against Peregrine and Tim Mouton, Martin Batiola, and the Chicago Trading Group.¹ They sought recovery on the basis of breach of fiduciary duty, breach of contract and material misrepresentation. In support of their claims, they alleged that "the clearing firm" guaranteed direct floor access, flexible margin policies, "a margin department that worked with each individual customer," and a clearing rate of $11.50 per contract. They further alleged that the defendants constantly and arbitrarily changed their margin policies, that the defendants made numerous unauthorized money transfers between accounts and that the Martinezes had sufficient monies to meet any margin calls.

On July 22, 1996, in a responsive letter to the NFA's request for clarification of claims, the Martinezes stated that they would not have opened their account with the respondents but for the respondents' representations that they would have a reasonable period of time to respond to margin calls and that respondents had "an experienced and well staffed [sic] margin department that would work with each individual customer." The letter further stated that "the Respondents breached their fiduciary duties by misrepresenting and changing the margin policies, making false and misleading statements regarding their firm, and fraudulently inducing Claimants to open accounts."

The Martinezes' arbitration claim proceeded to hearing before the NFA in California. On February 24, 1997, an arbitration award in the amount of $1,020 was entered in favor of the Martinezes and against Peregrine, the Chicago Trading Group, Mouton and Badiola,² jointly and severally. The text of the award provided as follows:

"The following issues were presented to and decided by the undersigned Arbitrators: whether Claimants' account was properly liquidated; whether Claimants failed to meet margin calls; whether Respondents breached the customer agreement; whether Respondents made material misrepresentations to Claimants; whether Respondents breached their fiduciary duty to Claimants; whether Respondents made unauthorized money transfers between Claimants' commodity account and their securities account; whether Respondent Mouton informed Claimants' agent, Robert Gruntz, to ignore margin notices; whether Respondents guaranteed direct access to the floor, and if so, did they fail to provide such; whether Respondents guaranteed `flexible' margin policies, and if so, did they fail to provide such; whether Respondents guaranteed a margin department that `worked with' each individual customer, and if so, did they fail to provide such; whether Respondents guaranteed a clearing rate of $11.50 per contract; whether Respondents changed their margin policies during the time period the Claimants' account was opened; whether the Claimants' account was frozen; and whether Claimants' account was restricted.

We, being the majority of the Arbitrators selected to hear and determine this matter in accordance with the Code of Arbitration (`Code') of the National Futures Association, hereby determine that the following relief shall be granted:

RESPONDENTS, JOINTLY & SEVERALLY shall pay to CLAIMANTS

Compensatory Damages $1,020.00 Punitive Damages -0- Treble Damages -0- Interest -0- Attorneys' Fees -0- Other Costs -0- Total Amount of Award $1,020.00 "

On March 7, 1997, the arbitration respondents, including Peregrine, filed a motion to modify the award. They sought modification to reflect that the $1,020 compensatory damage award was a "commission adjustment" that "should be an offset against Claimants' deficit, rather than remaining a penalty that Respondents must pay to Claimants, directly." The motion also sought the recovery of respondents' attorney fees in the amount of $28,542.04 because "[t]he Award reflects the fact that Claimants could not prevail on any allegation of the Complaint." The NFA case administrator refused to forward respondents' motion to the arbitration panel. She wrote to respondents' attorney on March 13, 1997 in pertinent part as follows:

"You are asking the arbitrators to offset the amount awarded to the Claimants against the debit balance owed to your clients. However, the debit balance was not an issue before the arbitrators. Since the Award has already been rendered, it is too late to raise this issue now.

Furthermore, a review of the record of hearing indicates that you requested attorneys' fees pursuant to the customer agreement or if the panel found that a frivolous case had been filed. It is clear from the Award, however, that the Claimants prevailed in this case. Therefore, your request is moot. Moreover, there is no provision of the Code that allows a party to request to re-open the record in order to submit additional information once an Award has been issued. See Sections 9(g) and 10(c) of NFA's Code of Arbitration."

The letter concluded by stating, "The Award that was served on February 28, 1997 is final and binding."

The arbitration respondents then filed a successful motion in the circuit court seeking an order that the motion to modify the arbitration award be submitted to the arbitration panel. On April 7, 1997, the Martinezes...