The Howard Family Charitable Found. Inc. v. Trimble

Decision Date27 June 2011
Docket NumberNo. 107,796.,107,796.
PartiesThe HOWARD FAMILY CHARITABLE FOUNDATION, INC.; Howard Investments, LLC; Robert E. Howard, II, an Individual; Marilyn Patricia Kelly, an Individual; Scott and Carlita Beauvais, Husband and Wife; Greg and Jill Castro, Husband and Wife; Jimmie M. Richardson, an Individual; Dennis Davis, an Individual; Don Koebelin, an Individual; Chris Fleming, an Individual; David Shear, an Individual; Brian Lorentz, an Individual; Gead Investments, LLC; David Hudiburg and Steve Hudiburg, as Trustees of the Paul Hudiburg 1997 Dynasty Trust; Steve Hudiburg, an Individual; Harry Patterson, an Individual; Bobby Masterson, an Individual; Hal Steinke, an Individual; Metropolitan Auto Dealers Association, a Trade Group; Peter and Crystal Hodges, Husband and Wife; Aaron London, an Individual; and Ken Wilkins, an Individual, Plaintiffs/Appellants,v.Mark S. TRIMBLE, Individually; Phidippides Capital Management, LLC; MF Global, Inc.; and Archway Technology Partners, L.L.C., Defendants/Appellees.
CourtUnited States State Court of Criminal Appeals of Oklahoma. Court of Civil Appeals of Oklahoma

OPINION TEXT STARTS HERE

Released for Publication by Order of the Court

of Civil Appeals of Oklahoma, Division No. 1.

Appeal from the District Court of Oklahoma County, Oklahoma; Honorable Vicki L. Robertson, Trial Judge.AFFIRMED IN PART, REVERSED IN PART AND REMANDED.Joseph H. Bocock, Spencer F. Smith, Kristin M. Simpsen, McAfee & Taft, Oklahoma City, Oklahoma, and Kurtis J. Ward, Law Offices of Kurtis J. Ward, Oklahoma City, Oklahoma, for Plaintiffs/Appellants.Jon Epstein, Hall, Estill, Hardwick, Gable, Golden & Nelson, P.C., Oklahoma City, Oklahoma, and Heather L. Cupp, Hall, Estill, Hardwick, Gable, Golden & Nelson, P.C., Tulsa, Oklahoma, and Anthony L. Paccione, Matthew D. Parrott, Katten, Muchin, Rosenman, LLP, New York, New York, for Defendant/Appellee, MF Global, Inc.Matthew C. Kane, Keith J. Klein, Grant M. Lucky, Ryan, Whaley, Coldiron, Shandy, P.C., Oklahoma City, Oklahoma, for Defendant/Appellee, Archway Technology Partners, LLC.WM. C. HETHERINGTON, JR., Presiding Judge.

¶ 1 Plaintiffs appeal dismissal of their causes of action in which they claim Archway Technology Partners, L.L.C. (Archway) and MF Global, Inc. (MFG) are liable for damages pursuant to 71 O.S.Supp.2004 § 1–509(G) as aiders and abetters of a fraudulent hedge fund investment scheme perpetrated by Mark S. Trimble (Trimble) and Phidippides Capital Management, L.L.C. (PCM). The trial court concluded defects in Plaintiffs' Second Amended Petition could not be remedied by further pleading and sustained MFG's Motion to Dismiss for Lack of Personal Jurisdiction and Failure to State a Claim Upon Which Relief Can be Granted and Archway's Motion to Dismiss premised upon preemption of jurisdiction by the federal commodities scheme, a failure to state a claim as a matter of law, failure to plead fraud with requisite specificity, improper venue based upon a forum selection clause, and the failure of either specific, or general personal jurisdiction. After the dismissal, Plaintiffs' Motion for New Trial was denied. The trial court made the express findings necessary pursuant to 12 O.S.2001 § 994(A) to allow appellate consideration of this judgment.

¶ 2 We conclude Plaintiffs' causes of action against MFG based upon aiding and abetting fraudulent commodities transactions are pre-empted under federal law and no amendments to the pleadings may cure this defect. However, Plaintiffs' claims against Archway include a period of time when investments were within the scope of the Oklahoma Uniform Securities Act of 2004, 71 O.S.Supp.2004 § 1–101 et seq.(the Act). Plaintiffs' Second Amended Petition raises causes of action cognizable under the Act and raises facts both showing minimum contacts sufficient to allow an exercise of jurisdiction in conformity with due process and averring fraud with sufficient particularity. Consequently, we affirm the trial court's order in part, reverse it in part, and remand for further proceedings.

STANDARD OF REVIEW

¶ 3 Review of a trial court's dismissal for failure to state a claim upon which relief may be granted involves a de novo consideration as to whether the petition is legally sufficient. Indiana National Bank v. State of Oklahoma Department of Human Services, 1994 OK 98, ¶ 2, 880 P.2d 371, 375. When a motion to dismiss includes evidentiary materials outside the pleadings, it is treated as one for summary judgment. 12 O.S.Supp.2004 § 2012(B).

¶ 4 When reviewing a motion to dismiss, the appellate court must take as true all of a challenged pleading's allegations together with all reasonable inferences which may be drawn from them. Hayes v. Eateries, Inc., 1995 OK 108, ¶ 2, 905 P.2d 778, 780. “A pleading must not be dismissed for failure to state a legally cognizable claim unless the allegations indicate beyond any doubt that the litigant can prove no set of facts which would entitle him to relief.” Frazier v. Bryan Memorial Hospital Authority, 1989 OK 73, ¶ 13, 775 P.2d 281, 287. (Emphasis in original).

¶ 5 Motions to dismiss are generally viewed with disfavor, and to withstand a motion to dismiss it is not necessary for a plaintiff to either identify a specific theory of recovery or set out the correct remedy or relief which may apply. When the trial court is considering a motion to dismiss, the court “should not ask whether the petition points to an appropriate statute or legal theory, but whether relief is possible under any set of facts that could be established consistent with the allegations.” Indiana National Bank v. State Department of Human Services, 1994 OK 98, ¶ 4, 880 P.2d 371, 375–6. (Emphasis in original, citations omitted.)

THE PARTIES

¶ 6 Trimble, a resident of Oklahoma, is the manager of PCM and a member of the Chicago Mercantile Exchange, a designated market for trading commodity futures contracts. PCM is an Oklahoma limited liability company with offices in Oklahoma which allegedly held itself out as an exempt commodities pool operator. PCM is the general partner in Phidippides Capital LP, (PC) a Delaware limited partnership with offices in Oklahoma.

¶ 7 Plaintiffs are investors in a hedge fund begun by Trimble which was originally named Phidippides Fund LP (Fund). After he changed Fund's investment strategy from stocks to futures in December of 2008, Trimble, according to Plaintiffs, “configured a new limited partnership named Phidippides Capital LP.” 1

¶ 8 MFG is a Futures Commission Merchant which acted as a clearing broker for Trimble and PCM. MFG is a Delaware corporation with offices in Illinois and New York and no offices in Oklahoma. MFG provided clearing and execution services for accounts opened with it by Trimble and PCM. MFG also provided Trimble and PCM with software which allowed them to execute trades.

¶ 9 Archway, an Indiana limited liability company formed in 2002, has one office in Indiana and another in New York. It sells a web-based software application named ATWeb which consists of a suite of accounting modules for investment professionals such as fund managers. It also offers outsourcing services during which Archway employees input data obtained from their fund manager customers into a Client Database, operate accounting modules, and perform other services, such as uploading mailing listing information provided by a fund manager so that investor information will appear on web-based statements.

THE FACTS ALLEGED

¶ 10 Plaintiffs' Second Amended Petition states that Trimble and PCM maintained Fund was exempt from registration because its investors were either “accredited investors” or “qualified eligible persons,” 2 and neither Trimble nor PCM were registered as commodity pool operators or commodity trading advisors. Plaintiffs contend Trimble has never held any licenses which would allow him to solicit “sales of any security.” Plaintiffs allege MFG, by serving as a Futures Commission Merchant, was bound to follow rules of the National Futures Association, it was obligated not to make trades for a person or entity required to be a licensed member but not so licensed, and it had a duty of due diligence to take reasonable steps to verify the licensing status of those for whom it made trades.

¶ 11 According to MFG, Trimble ran PCM, began the Phidippides hedge fund 3 (Fund) in 2004, and he received consideration for investment advice provided to its investors. In late December of 2004, Trimble opened a personal commodities account with MFG, and in October of 2007 PCM opened a commodities account with MFG.4

¶ 12 Plaintiffs' Second Amended Petition alleges that by at least October of 2007, Trimble and PCM began to issue false statements to Fund's investors and paid themselves more than $2,000,000 in fees based on false and inflated profit figures. Plaintiffs allege that Trimble and PCM obtained more than $34,000,000 from approximately sixty investors for investment in Fund.

¶ 13 According to Plaintiffs, in July of 2007, Trimble and PCM claimed a hardware failure necessitated a change in the periodic reports to investors. In April of 2008, Trimble altered the investment strategy of Fund from day trading in stocks to 100% commodities futures. Trimble and PCM moved Fund's accounts from other companies 5 to MFG after April of 2008. Between May of 2007 and January of 2008, i.e., prior to when Fund's accounts were moved to MFG, its investors allegedly sustained losses of $19,101,976.46 via Plaintiffs' purchases of pro rata shares in the Fund from Trimble and PCM.

¶ 14 In early 2007, Trimble contacted Archway about its ATWeb software applications. On October 15, 2007, Archway and PCM entered into a licensing agreement under which Archway provided hosted services consisting of installing and providing access to a PCM Client Database on its ATWeb software application. Archway and PCM entered into an “Operations Outsourcing” agreement on November 15, 2007,...

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