Resolution Trust Corp. v. Krantz

• Citation: 757 F. Supp. 915
• Decision Date: 31 January 1991
• Docket Number: No. 89 C 166.,89 C 166.
• Court: U.S. District Court — Northern District of Illinois
• Parties: The RESOLUTION TRUST CORPORATION, as successor to American Security Federal Savings and Loan Association, a federal association, Plaintiff, v. Scott KRANTZ, d/b/a Scott M. Krantz Associates and Stotler & Company, a partnership, Marion Eugene Bogner, Edwin A. Hansen, John J. Chadonic, Thomas F. Kolter, Vincent J. Ciaglia, Karsten Mahlmann, Thomas M. Egan, James W. Mulka, Robert K. Ferber, Howard A. Stotler, Morris B. Fox and Robert W. Stotler, Defendants.

757 F. Supp. 915

The RESOLUTION TRUST CORPORATION, as successor to American Security Federal Savings and Loan Association, a federal association, Plaintiff, v. Scott KRANTZ, d/b/a Scott M. Krantz Associates and Stotler & Company, a partnership, Marion Eugene Bogner, Edwin A. Hansen, John J. Chadonic, Thomas F. Kolter, Vincent J. Ciaglia, Karsten Mahlmann, Thomas M. Egan, James W. Mulka, Robert K. Ferber, Howard A. Stotler, Morris B. Fox and Robert W. Stotler, Defendants.

No. 89 C 166.

United States District Court, N.D. Illinois, E.D.

January 31, 1991.

Ray G. Rezner, Wendi Sloane Weitman, Barack, Ferrazzano, Kirschbaum & Perlman, Chicago, Ill., for plaintiff.

John L. Huff, Don Milner Sowers, Huff & Gaines, Chicago, Ill., for defendants Stotler & Co., Morris B. Fox and Robert W. Stotler.

Tyrone C. Fahner, Susan J. Irion, Marshall E. Hanbury, Mayer, Brown & Platt, Chicago, Ill., for defendants Vincent J. Ciaglia and Karsten Mahlmann.

Ronald P. Kane, Diane Christine Fischer, Siegan, Barbakoff & Gomberg, Chicago, Ill., for defendant Thomas M. Egan.

Thomas F. Kolter, Stotler & Co., Chicago, Ill., for defendant James W. Mulka.

Ted S. Helwig, Kenneth Michael Kliebard, Katten, Muchin & Zavis, Chicago, Ill., for defendant Robert K. Ferber.

Lawrence X. Pusateri, Peterson & Ross, Chicago, Ill., for defendant Howard A. Stotler.

MEMORANDUM OPINION AND ORDER

PLUNKETT, District Judge.

Plaintiff Resolution Trust Corporation ("RTC"), as successor to American Security Federal Savings & Loan Association ("American Security"), has filed a six count second amended complaint against Scott Krantz d/b/a Scott M. Krantz Associates ("Krantz"), Stotler and Company, a partnership ("Stotler partnership"), and its twelve partners (listed above in the caption). Before us today are Stotler partnership's and the individual partners' motion for summary judgment as to all counts on the ground that the RTC's claims are timebarred, or, alternatively, to dismiss Counts Two and Six¹ (described below) for failure to state claims upon which relief can be granted. For the reasons set out below, we deny Stotler partnership's and the individual partners' motion for summary judgment on the second amended complaint. In addition, we deny Stotler partnership's and the individual partners' alternative motions to dismiss Counts Two and Six.

Background Facts

The following facts are essentially undisputed. Disputed facts will be specifically noted. Because the facts of this case are relatively complicated, we proceed in simple chronological order. From the period of 1962 through August of 1988, Stotler was a partnership and did business (and was registered with the Commodity Futures Trading Commission) as a futures commission merchant² ("FCM"). On August 29, 1986, pursuant to federal regulations, Stotler entered into a Guarantee Agreement with Krantz. Under the terms of the Guarantee Agreement, Krantz served as a "introducing broker," whereby he would bring in clients who would open accounts with Stotler. Krantz would manage the accounts he brought in and share the commissions generated through trading activity with Stotler. In addition to serving as the FCM for Krantz's customers, Stotler guaranteed Krantz's obligations. The Guarantee Agreement provides, in part:

Stotler guarantees performance by the introducing broker Krantz of, and shall be jointly and severally liable for, all obligations of the introducing broker under the Commodity Exchange Act, as it may be amended from time to time, and the rules, regulations and orders which have been or may be promulgated thereunder with respect to the solicitation of and transactions involving all ... option customer accounts of the introducing broker entered into on or after the effective date of this agreement.

Beginning in June of 1987, Krantz began sending letters to American Security in an attempt to retain American Security as a client. The parties dispute the precise efforts that Krantz undertook in this attempt, but agree the attempt was successful when, on November 2, 1987, American Security executed a Stotler partnership Customer Agreement form. The parties agree that Krantz gave to American Security a Stotler advertising publication which related to the nature of Stotler's business and its relationship with introducing brokers such as Krantz. During November and December of 1987, Krantz and American Security negotiated a "Hedge Policy Statement" whereby Krantz agreed to advise American Security on commodity option transactions in accord with the policy statement. American Security's board of directors approved the Hedge Policy Statement on December 14, 1987. On January 13, 1988, Stotler partnership accepted and executed the Stotler partnership Customer Agreement with American Security. There is no dispute that both the advertising publications given to American Security by Krantz and the Customer Agreement between American Security and Stotler make it clear that American Security was dealing with Stotler & Company, a partnership.

From January of 1988 through April 29, 1988, Krantz caused American Security to trade financial futures on American Security's account with Stotler. American Security alleges in its complaint (all versions) that during this period Krantz ran up trading commissions of $250,000 at the rate of $15 per trade and incurred losses of over $1.7 million in American Security's account. These losses and expenses form the basis of American Security's claims in this action.

In April of 1988, the Federal Home Loan Bank Board ("FHLBB") examined the books and records of American Security and informed it that the financial futures trades that Krantz initiated for its accounts were (allegedly) not in compliance with the Hedge Trading Policy which American Security had adopted. Upon learning this, American Security began to investigate the losses it had suffered and ceased all trading activity on April 29, 1988.

On August 12, 1988, the Stotler partnership, pursuant to a publicly-announced Exchange Agreement, transferred substantially all of its business assets, liabilities, accounts and operations to a corporation also called "Stotler & Company". In return, the Stotler partnership received all of the common stock of the Stotler corporation. As part of the same transaction, the Stotler partnership transferred all of its Stotler corporation common stock to the Stotler Group, Inc. ("SGI"), an Illinois corporation that served as a holding company, in exchange for approximately 75% of SGI's common stock. Stotler corporation thereafter carried on the business activities previously conducted by the Stotler partnership. Specifically, the Stotler corporation was substituted as the FCM on all of the Stotler partnership's accounts.

American Security commenced this action when it filed its original complaint on January 9, 1989, naming only Krantz and the Stotler corporation as defendants. On March 15, 1989, the Federal Savings and Loan Insurance Company ("FSLIC") became the conservator of American Security. The FSLIC was abolished by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), 12 U.S.C. § 1441a(b)(6), which was enacted on August 9, 1989. On November 1, 1989, American Security replaced its original counsel with its present counsel. On November 30, 1989, the RTC was substituted as plaintiff because the FSLIC's interest in this case had been transferred to the RTC. The RTC specifically adopted all of American Security's prior pleadings. On May 25, 1990, the parties filed the Final Pretrial Order. On July 30, 1990, the RTC filed its first amended complaint. This first amended complaint added causes of action, but again only Krantz and the Stotler corporation were named defendants.

On August 24, 1990, Stotler corporation filed a Voluntary Bankruptcy Petition in the United States Bankruptcy Court for the Northern District of Illinois and was adjudicated bankrupt. On September 27, 1990, the RTC received notice of the stay of litigation pursuant to 11 U.S.C. § 362. One week later, on October 4, 1990, the RTC filed its second amended complaint. The second amended complaint added no new causes of action, but merely replaced the Stotler corporation as defendant with the Stotler partnership and all twelve individual partners (hereinafter referred to as "the new defendants").

The second amended complaint (hereinafter "complaint") attempts to allege six causes of action. Count One alleges fraudulent misrepresentation and churning in violation of 7 U.S.C. § 6c(b) and 17 C.F.R. § 33.10. Count Two alleges fraudulent misrepresentation and churning in violation of section 2 of the Illinois Consumer Fraud and Deceptive Business Practices Act, Ill. Rev.Stat. ch. 121½, ¶ 262. Count Three alleges common law fraudulent misrepresentation. Count Four alleges common law negligence. Count Five alleges a common law breach of a fiduciary duty. Count Six alleges common law breach of contract. American Security alleges in all counts that the new defendants are jointly and severally liable under the Illinois Uniform Partnership Act, Ill.Rev.Stat. ch. 106½, ¶ 15. Before us today is the new defendants' motion for summary judgment on all claims against them on the ground that they are time-barred under the applicable limitations period. In the alternative, the new defendants argue that Counts Two and Six fail to allege claims upon which relief can be granted.

Discussion

1. The Motion for Summary Judgment.

The new defendants move for summary judgment on the ground that all of the claims asserted against them in the complaint are time-barred under the applicable limitations period. New defendants argue that the contract between them and American Security has a one-year contractual limitations period which has passed. In addition, new defendants argue that the second amended complaint does not relate back to the original complaint under Fed.R. Civ.P. 15(c) (hereinafter "Rule 15(c...