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