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MCBLAINE v. JACK CARL ASSOCS.

February 2, 1989

FRANCES McBLAINE, Plaintiff,
v.
JACK CARL ASSOCIATES, INC., et al., Defendants


Suzanne B. Conlon, United States District Judge.


The opinion of the court was delivered by: CONLON

SUZANNE B. CONLON, UNITED STATES DISTRICT JUDGE

 Plaintiff Frances McBlaine ("McBlaine") commenced this action against defendants Jack Carl Associates, Inc. ("Jack Carl"), Chicago Commodity Corp. ("Chicago Commodity") and Chicago Commodity executives W. R. Diamond II ("Diamond") and Marty Sachs ("Sachs") (collectively, "defendants"), alleging fraud in violation of the Commodity Exchange Act ("the Act"). 7 U.S.C. § 6c(b). Jurisdiction is based on 28 U.S.C. § 1332. The defendants move to dismiss the complaint under Fed.R.Civ.P. 9(b) and 12(b)(6).

 FACTS

 McBlaine is a resident of Decatur, Indiana. Jack Carl is an Illinois corporation with its principal place of business in Chicago. Chicago Commodity is a Florida corporation with its principal place of business in Miami, Florida. Both Jack Carl and Chicago Commodity are engaged in the business of buying and selling commodity futures contracts and options for their own accounts and for the accounts of customers. Complaint paras. 5, 6. Both companies also provide advice to customers on commodities, commodity futures contracts and options on commodity futures contracts. Id.

 The complaint alleges that Jack Carl agreed to compensate Chicago Commodity executives for business referrals. Id. at paras. 10, 11. Pursuant to this agreement, Sachs contacted McBlaine on October 19, 1984, and urged her to open a commodity options account with Jack Carl. Id. at para. 12. Sachs repeatedly emphasized the potential for large profits; however, he did not warn McBlaine of the risks associated with these investments. Id. Sachs also assured McBlaine of his own expertise in commodities investments. Id. McBlaine informed Sachs that she was only interested in conservative investments designed to achieve long-term capital appreciation. Id. at para. 13. Sachs assured McBlaine that Jack Carl would meet her investment goals. Id. Relying on these assurances, McBlaine opened an account with Jack Carl with an opening balance of $ 28,977. Id. at para. 15.

 The trading in McBlaine's account commenced on October 19, 1984, and continued until September 24, 1986. Throughout this period, McBlaine's account was controlled exclusively by Sachs and Diamond. Id. at para. 14. Sachs and Diamond solicited and recommended all authorized trades. Id. Without exception, McBlaine followed each recommendation. Id.

 On January 30, 1985, McBlaine received an unsolicited telephone call from Diamond urging her to continue trading commodity options with Jack Carl. Id. at para. 16. During this conversation, Diamond repeatedly emphasized the large profit potential associated with commodity options trading. Id. However, he did not discuss the risks associated with these investments. Id. McBlaine informed Diamond that she was only interested in conservative investments and long-term capital appreciation. Id. at para. 17. She expressly asked Diamond to avoid high risk investments. Id. Diamond agreed to follow McBlaine's instructions, and reassured her that he would personally monitor the trading in her account. Id.

 McBlaine alleges fraud in violation of Sections 32.9 and 33.10 of the regulations of the Commodity Exchange Act. 17 C.F.R. §§ 32.9, 3.10 (1988). *fn1" She claims that the defendants conspired to defraud her by churning her account for the purpose of generating commission income. *fn2" McBlaine claims that from October 19, 1984 through September 24, 1986, Jack Carl made 31 trades totalling $ 248,924, including $ 69,023 in commissions. Complaint at para. 24. Based on this data, McBlaine alleges that Jack Carl turned over her initial investment of $ 28,977, 8.5 times. *fn3" Id. at para. 26.

 McBlaine also claims that Sachs and Diamond, acting in concert with Jack Carl and Chicago Commodity, made intentional misrepresentations by falsely reassuring her that (1) they could and would recommend conservative investments; (2) commodity options contracts were not high risk investments; (3) commodity options trading was consistent with her stated investment objectives; and (4) that a 40 percent commission rate was usual in the industry. Id. at para. 27.

 Finally, McBlaine claims that the defendants engaged in reckless and fraudulent acts by failing to timely execute her sell orders. Id. at para. 26. She seeks damages of $ 187,530.67. Id. at para. 32.

 DISCUSSION

 When considering a motion to dismiss, the court must view the allegations of the complaint in the light most favorable to the plaintiff, and accept as true, all well pleaded material facts. City of Milwaukee v. Saxbe, 546 F.2d 693, 704 (7th Cir. 1976); Bruss Co. v. Allnet Communications Services, Inc., 606 F. Supp. 401, 404 (N.D. Ill. 1985). The complaint will not be dismissed unless it appears beyond doubt that no facts are alleged to support the claim. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957). Because McBlaine commenced an action under a federal statute designed to prevent fraud, the allegations in her complaint will be ...


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