The opinion of the court was delivered by: Decker, District Judge.
MEMORANDUM OPINION AND ORDER
This is a suit for damages and other relief with respect to
two contracts for the sale of Government National Mortgage
Association ("GNMA") certificates. Plaintiffs, Jerome and
Betty Abeles ("the Abeleses"), and members of the class they
seek to represent, allegedly contracted with defendants,
Oppenheimer & Co., Inc., and Oppenheimer Government
Securities, Inc. (collectively "Oppenheimer"), to buy GNMA
certificates. For reasons discussed in more detail below, the
parties did not perform in accordance with those contracts.
The case is before the court on defendants' motion to dismiss
pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim
upon which relief can be granted.
A GNMA certificate represents an interest in a pool of
mortgage loans. In that sense, it is like a share in a mutual
fund, which represents an interest in a stock portfolio. The
GNMA, an agency of the federal government, guarantees the
timely payment of the principal and interest payments on the
loans. The issuers are usually mortgage bankers who earn their
compensation by organizing the pools. The purpose of the
pooling is to make individual long-term mortgages more
In addition to this market risk, the sellers and buyers face
the risk that the other party to the contract will not perform
on the settlement date. If the price of the certificate falls
in the interim period, the buyer may refuse to pay the
contract price and accept delivery. Conversely, the seller
might refuse to deliver the certificates at the contract price
if the certificates have risen in value in the interim.
One way to ensure against this risk is to have one or both
of the parties deposit with the other or a third party a sum
of money to be forfeited if performance is not forthcoming.
SEC regulations require such a deposit from the dealer to the
issuer in forward sales of GNMA certificates.
24 C.F.R. § 390.52(a)(1). The amount of the deposit may vary as price
changes indicate that a greater or lesser sum is necessary to
ensure performance. The same device is used to secure
performance of commodities futures contracts traded on
commodities exchanges; in that situation, the commodities
exchanges set the minimum deposit requirements. See Johnson,
Commodities Regulation § 1.10, p. 32.
Some GNMA certificates with future delivery dates are traded
on organized commodity exchanges and are thus subject to their
deposit rules. Bache Halsey Stuart, Inc. v. Affiliated Mortgage
Investments, Inc., 445 F. Supp. 644, 646 (N.D.Ga. 1977). Many,
including those at issue in this case, are not. Because these
are contracts between dealers and buyers, rather than issuers
and dealers, the SEC regulations which require deposits in GNMA
transactions do not apply. Since they occur off the exchanges,
the exchange rules also are inapplicable. These dealer-buyer
transactions are, however, individually negotiated, id., and
the parties may use contract terms to protect themselves from
the risk that on the settlement date the other party will
refuse to perform.
In ruling on a motion to dismiss, the court must "take [the
plaintiff's] allegations to be true, and view them, together
with reasonable inferences to be drawn therefrom, in the light
most favorable to the plaintiff." Powe v. City of Chicago,
664 F.2d 639, 642 (7th Cir. 1981). The parties join issue in their
briefs as to the precise nature of the contracts between them,
but these factual disputes are inappropriate when the case is
before the court on a motion to dismiss. The facts as outlined
below are those which the plaintiffs allege in their complaint.
The Abeleses "purchased" GNMA certificates from Oppenheimer,
and the parties agreed that Oppenheimer would deliver the
certificates at a later date. Complaint ¶ 15. From the use of
the word "purchase," the court infers that the plaintiffs
allege that the parties intended to transfer title to the
certificates to the Abeleses as of the trade date, or as soon
thereafter as Oppenheimer acquired the certificates. The
contracts provided that if the price of the certificates rose
before the delivery date, the Abeleses would sell them back to
Oppenheimer at a profit. Complaint ¶ 12(d).
The price of the certificates purchased by the plaintiffs
decreased between the trade date and the delivery date.
Complaint ¶ 16. Oppenheimer called for additional security,
which was not forthcoming, and Oppenheimer ...