Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

HAGSTROM v. BREUTMAN

October 3, 1983

WILLIAM HAGSTROM, VICTOR BERGER, EDWIN FALLOON, AND EDUARDO NIJENSOHN, PLAINTIFF,
v.
MARTIN E. BREUTMAN, MEB INVESTMENTS, LTD., AND BEVERLY ASSOCIATES, DEFENDANT.



The opinion of the court was delivered by: Will, District Judge.

MEMORANDUM OPINION

This is an action brought under section 4b of the Commodity Exchange Act ("CEA"), 7 U.S.C. § 6b and 28 U.S.C. § 1331, alleging fraud. In addition, as pendent state claims, plaintiffs charge, among other things, breach of fiduciary duty and unjust enrichment. Defendants have moved, pursuant to Rule 12(b), Fed.R.Civ.P., for the entry of an order dismissing plaintiffs' complaint. Defendants claim that 1) we lack jurisdiction over the subject matter of this suit*fn1; 2) plaintiffs have failed to join a party under Rule 19*fn2; 3) plaintiffs have failed to state a claim upon which relief can be granted; and 4) the claims asserted are claims that the parties have previously agreed to arbitrate. For the reasons hereinafter stated, we 1) grant defendants' motion to dismiss count X of plaintiffs' complaint, without prejudice; 2) deny defendants' motion to dismiss count I; 3) stay the action pending arbitration; and 4) hold that Beverly Associates ("Beverly") is a properly joined party.

I.

On January 24, 1983, plaintiffs filed a complaint pursuant to section 4b of the CEA, 7 U.S.C. § 6b, alleging that defendants had committed fraud. Plaintiffs also claimed that defendants had breached their fiduciary duty and had been unjustly enriched. On April 14, 1983, defendants moved to dismiss the complaint based upon lack of subject matter jurisdiction, failure to state a claim upon which relief can be granted, failure to join a party required to be joined under Rule 19, Fed.R.Civ.P., and because the contract between the parties provided for arbitration of any claim arising out of their agreement. (R. 10)

On April 14, 1983, we entered defendants motion to dismiss and gave plaintiffs until April 25, 1983 to file an amended complaint. (R. 12) On April 27, we granted plaintiffs' first motion for an extension of time (R. 14), and on May 5, we granted plaintiffs' motion for a second extension of time. (R. 16) On May 6, 1983, plaintiffs filed an amended complaint. (R. 17) It is this complaint which is the subject of defendants' motions.

II.

On July 15, 1978, in an Agreement of Limited Partnership of Beverly Associates ("Agreement"), the plaintiffs, and other physicians, formed a limited partnership with MEB Investments, Ltd. ("MEB"), Martin E. Breutman, also a physician, and Morris A. Kravitz, as general partners, for the purpose of investing in commodity futures. The general partners were to have exclusive management and control of the partnership business. The general partners agreed to contribute $10,000 and each of the nine limited partners, $10,000. The four plaintiffs each contributed $10,000. The corporate general partner, MEB, was entitled to receive a management fee of 22% of the aggregate net cash profits from realized commodity transactions computed on a quarterly basis and to receive 50% of the commissions charged by the exclusive broker, Rufenacht, Bromagen & Hertz, Inc. MEB is wholly owned by Breutman and was formed for the purpose of participating in the commodity futures market.

Article XVI of the Agreement contained an arbitration clause which provided that:

    Any controversy or claim of any kind or nature
  arising out of or relating to this agreement, or the
  relationship of the parties by virtue of this
  agreement or any breach thereof, shall be settled by
  arbitration in accordance with the rules then
  existing of the American Arbitration Association, and
  judgment upon the award rendered may be entered in
  any court having jurisdiction thereof.

Article XVII states that Illinois law will apply to any matters arising between the partners.

From 1978 through January 21, 1981, the general partners, Breutman and MEB, used the limited partners', Beverly, assets to trade commodities*fn3 on the Chicago Mercantile Exchange, the Chicago Board of Trade and the Commodity Exchange through Rufenacht, Bromagen & Hertz, Inc., with Breutman and MEB acting as the sole account executives.

III.

Plaintiffs' Amended Complaint of May 6, 1983 contains eleven counts. Counts I and X allege that defendants violated section 4b of the CEA, 7 U.S.C. § 6b*fn4, by (count I) cheating and defrauding plaintiffs and by (count X) excessively trading and churning plaintiffs' account. Jurisdiction is based upon 28 U.S.C. § 1331.

The remaining nine counts are based upon alleged violations of state law. They are brought under the doctrine of pendent jurisdiction. United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966). Count II alleges a duty to account for and a fiduciary duty in the conduct of commodities trading for plaintiffs' benefit. Count III alleges that Breutman breached his contracts with plaintiffs by failing to execute trades in commodity futures contracts in accordance with duly authorized instructions and by using or permitting the use of plaintiffs' assets to benefit other persons. Counts IV, V, VI and VIII allege breach of fiduciary duty. Count VII alleges that MEB breached its contract with plaintiffs by using or permitting the use of plaintiffs' assets to finance the unauthorized purchase and sale of ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.