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RAND BOND OF NORTH AMERICA,INC. v. SAUL STONE & CO

November 15, 1989

RAND BOND OF NORTH AMERICA, INC., Plaintiff,
v.
SAUL STONE & COMPANY, Defendant


Milton I. Shadur, United States District Judge.


The opinion of the court was delivered by: SHADUR

MILTON I. SHADUR, UNITED STATES DISTRICT JUDGE

 Rand Bond of North America, Inc. ("Rand Bond") initially sued four defendants -- Jack Rudman & Co. and Jack Rudman individually (collectively "Rudmans"), Saul Stone & Co. ("Stone") and T&S Commodities, Inc. ("T & S") *fn1" -- in a multi-count Complaint charging the several defendants with commodities fraud, negligence and breach of contract. Then Rand Bond's June 13, 1989, ended Complaint (the "Complaint") restated its claims against just Rudmans and Stone. Next Rudmans were dismissed out by agreement of the parties on August 21, leaving alive three counts against Stone only:

 
1. Count I labeled "Fraud under the Commodities Exchange Act, 7 U.S.C., Section 6b";
 
2. Count II captioned "Breach of Contract as Against Saul Stone & Company"; and
 
3. Count IV headed "Negligence of Broker in Failure to Sell Silver Futures as Directed."

 Now Stone has filed alternative motions seeking:

 
1. dismissal of Count I under Fed.R.Civ.P. ("Rules") 9(b) and 12(b)(6) and Count IV under Rule 12(b)(6); or
 
2. dismissal of the entire Complaint (and really of this action) based on an arbitration agreement between the parties.

 For the reasons stated in this memorandum opinion and order Stone's motion for total dismissal is granted.

 Facts2

 In April 1987 *fn3" Rand Bond, a California corporation doing business in San Diego, was a customer of California broker C & S Commodities ("C & S"). *fn4" In January of that year C & S had entered into an agreement with Stone under which the latter would act as the clearing firm for accounts of customers introduced by C & S.

 On April 27 Rand Bond placed an order with C & S to sell 100,000 ounces of May silver futures at a stop order price of $ 9.20 per ounce. At 12:33 p.m. C & S placed that order to sell, not with Stone but directly with Rudmans, on the floor of the New York Commodities Exchange ("Comex"). Although May silver futures went through the stated stop order price several times and although several offers to purchase at or about said price were made openly on the Comex floor, Rudmans failed to execute Rand Bond's order. Neither Rudmans nor Stone informed Rand Bond of the failure to execute. By the time Rand Bond learned of that failure (about 1-1/2 hours later), it had to sell at the then market price: $ 7.60 an ounce. That sequence generated a $ 1.60 per ounce loss to Rand Bond -- $ 160,000 in all.

 Exactly the same thing happened that day to another Rand Bond order. It placed an order with C & S to sell 50,000 ounces of April silver futures at $ 8.28 or best per ounce. C & S also placed that sell order with Rudmans, who failed to execute it even though the price of April silver futures went through the order price several times. Again neither Rudmans nor Stone told Rand Bond of that failure, and Rand Bond was able to sell off those contracts too only at $ 7.60 an ounce -- a loss of $.68 per ounce, totalling $ 34,000.

 On May 4 Rand Bond entered into an entire set of agreements dealing with the arrangement among C & S, Stone and Rand Bond. Under the Introduced Customer Agreement, C & S was designated as the Introducing Broker and Stone as the Futures Commission Merchant for the purchase and sale of futures contracts based on Rand Bond's instructions to C & S, relayed in turn to Stone. One of the documents -- expressly specified as not being a necessary condition of the parties' entry into the other agreements -- was the Arbitration Agreement attached as Exhibit A to this opinion.

 Stone's Contentions

 As already stated, Stone advances three contentions here, two targeting individual counts of the Complaint and the other directed against Rand Bond's entire action:

 
1. Count I assertedly fails to plead its fraud claim with the particularity required by Rule 9(b).
 
2. Rand Bond assertedly alleges nothing to establish an agency relationship between Stone and Rudmans -- the necessary precondition to any liability on Stone's part under ...

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