UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION
November 16, 1989
GUSTAVO OLMOS, Plaintiff,
RONALD GOLDING, Individually, and LIND-WALDOCK & COMPANY, an Illinois Corporation, Defendants
The opinion of the court was delivered by: NORGLE
CHARLES R. NORGLE, UNITED STATES DISTRICT JUDGE
Before the court is the motion of defendants, Ronald Golding and Lind-Waldock & Company, brought pursuant to Fed. R. Civ. P. 56(b), for summary judgment on the Second Amended Complaint of plaintiff, Gustavo Olmos. Briefing on this summary judgment motion has spawned two motions by defendants to strike affidavits submitted by Olmos and his attorney, Leslie A. Blau, in support of Plaintiff's Brief in Opposition to Defendants' Summary judgment Motion. The motions to strike are denied and, for the reasons set forth below, summary judgment is entered in favor of defendants.
The parties have complied with Local Rule 12. Plaintiff has raised objections to the defendants' statement of undisputed facts. A dispute about a material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). Plaintiff has raised genuine disputes. However, after close examination, the court concludes that the plaintiff has not raised an issue of material fact and finds the following facts undisputed.
Olmos is a United States citizen residing in California. Lind-Waldock is an Illinois corporation engaging in the discount commodity brokerage business and is registered with the Commodity Futures Trading Commission under the Commodity Exchange Act as a futures commission merchant. See 7 U.S.C. § 2. Golding, an Illinois resident, has been employed by Lind-Waldock since 1981 and is currently a vice-president and branch office manager.
On May 28, 1985, Olmos opened a commodity trading account with Lind-Waldock by executing a written account application (the "Agreement") which set forth the terms and conditions of the relationship between himself and Lind-Waldock.
The following paragraphs of the Agreement are pertinent to the issues at hand:
1. All transactions by Broker on Customer's behalf shall be subject to the applicable constitution, rules, regulations, customs, usages, ruling and interpretations of the exchange or market (such as the Chicago Board of Trade and the Chicago Mercantile Exchange) and its clearing houses, if any, on which such transactions are executed by Broker or its agents for Customer's account, and to all applicable governmental acts and statutes (such as the Commodity Exchange Act) and to rules and regulations made thereunder; Broker shall not be liable to Customer as a result of any action taken by Broker or its agents to comply with any such constitution, rule, regulations, usage, ruling, interpretation, act or statute. . . .
. . . .
2. THIS IS THE ENTIRE AGREEMENT BETWEEN THE BROKER AND CUSTOMER AND NO PROVISIONS HEREOF SHALL IN ANY RESPECT BE WAIVED OR MODIFIED UNLESS IN WRITING AND SIGNED BY A PRINCIPAL OF BROKER. CUSTOMER ACKNOWLEDGES THAT NO PERSON OTHER THAN A PRINCIPAL HAS AUTHORITY TO MODIFY OR WAIVE THE PROVISIONS OF THE AGREEMENT OR TO ESTABLISH CUSTOMS AND PRACTICES OF TRADING CONTRARY TO THE TERMS OF THIS AGREEMENT. (emphasis in original)
. . . .
6. Customer agrees at all times to maintain such margins in this account as Broker may from time to time require, in its sole discretion, and will promptly meet all margin calls. Margin requirements may be increased at Broker's discretion and may be retroactive. Customer agrees when requested, whether through telephone order or other communication, to wire transfer margins or any funds required by Broker, and to furnish broker with the names of Bank officers and information necessary for immediate verifications. If at any time Customer's account does not contain the amount of margin required, Broker may, but is not obligated to at any time without notice, close out Customer's positions in whole or in part and take any actions as noted in Paragraph 8.
. . . .
9. Whenever Broker deems it necessary or advisable for Broker's protection, Broker is authorized, at its sole discretion and for Customer's account, to cover any position Customer may have with Broker through purchase or sale on any Exchange, and to sell as Broker deems appropriate any collateral deposited with broker, whether or not customer has actually received notice of Broker's intention to effect the foregoing, it being understood that a prior tender, demand or call of any kind from Broker, or prior notice from broker, of the time and place of such sale or purchase shall not be considered a waiver of Broker's right to sell or buy any positions or collateral at any time as hereinafter provided period. After deducting costs and expenses in connection with any such transactions, Broker may apply any remaining proceeds to the payment of any liabilities Customer may have to Broker, and in the event such proceeds are insufficient for the payment of all liabilities, Customer shall promptly upon demand, pay to Broker the deficit, together with interest thereon and all costs of collection, including ". . . reasonable attorneys' fees."
The Rules of The Commodity Exchange, Inc., which were incorporated into the Agreement, provide in pertinent part:
. . . no member or member firm shall carry an outright or spread position in a futures or option contact for a customer unless the member or member firm . . .
(2) has received or expects to receive on a timely basis the additional original margin, maintenance margin, or premium required for each futures contract or option position which the member or member firm carries for such customer. (emphasis supplied)
. . . if a customer fails to remit any payment demanded pursuant to this Chapter 6 ("Margin Rules") on a timely basis, the carrying member or member firm shall exercise reasonable care to close out such portion of the customer's positions as will leave the remaining unliquidated positions (if any) fully margined. . . .
Rule 6.07(b) provides:
. . . A member or member firm shall not be required to close out a customer's account . . . if
(2) market movements favorable to the customer which equal or exceed the amount of payment demanded occur within a reasonable time after demand for payment is made.
A written "Notice to Customers", which accompanied the Agreement, clearly informed Olmos that Lind-Waldock required that all customers meet demands for margin by bank wire the same day that the demand was made. Second Amended Complaint Exhibit B; Defendants' Statement Of Material Facts In Support Of Their Motion For Summary Judgment Exhibit XVI. Olmos had previously met all margin demands the same day by bank wire. Olmos Deposition p. 47-49; Letter of April 2, 1988 from Olmos to Golding.
On February 4, 1986, Olmos purchased for his account ten futures contracts of July Silver at the price of $ 5.98 per oz. On March 25, 1986, Olmos purchased for his account ten futures contracts of September Silver at the price of $ 5.770 per oz. These contracts were contracts as defined in the Rules of Commodity Exchange, Inc. ("COMEX"), and each comprised 5000 ounces. Thus, Olmos owned and controlled 50,000 ounces of July COMEX Silver and 50,000 ounces of September COMEX Silver.
On March 31, 1986, Lind-Waldock's margin requirements for COMEX silver were as follows:
Initial margin requirement $ 2,500.00 per
to purchase contact: contract
Maintenance margin to $ 2,000.00 per
hold contract: contract
As of the close of the Silver Market (11:20 P.M. PST) on March 31, 1986, the respective prices of July COMEX Silver and September COMEX Silver were $ 5.231 and $ 5.298 per ounce. The total value of Olmos' account at the close of the COMEX Silver Market on March 31, 1986, was $ 6,058.86. At that time, based upon the above prices, Olmos' account was on margin call to the extent of $ 43,941.14.
At or about 11:15 a.m., PST, March 31, 1986, Olmos was advised by defendant Golding that his account was undermargined and that, unless Olmos wire transferred sufficient funds to meet the margin call that day, in time to be confirmed before the open of the Silver Market the next day, stop loss orders would be placed to protect the account from becoming a deficit. Second Amended Complaint para. 2; Olmos Deposition p. 46; Golding Affidavit p. 1-2. Olmos never contacted his bank after 11:15 a.m., PST, March 31, 1986 for the purpose of ordering a wire transfer of funds to his trading account with Lind-Waldock, and, further, never thereafter deposited any funds by any means into his trading account.
At or about 8:00 a.m., CST on April 1, 1986, Lind-Waldock caused to be placed stop loss orders for the account of Olmos. The stop prices were established at or near the price that Olmos' account would sustain a deficit,
and were placed to sell all twenty contracts held by Olmos. Olmos was advised of the fill prices on the stop loss orders at or about 8:30 a.m., PST on April 1, 1986. The stop loss orders were filled prior to 10 a.m., CST, and Olmos account value was, based upon his said fill prices, $ 1,523.26. On April 1, 1986, the COMEX Silver Market further moved against Olmos' positions closing for July and September contracts, respectively, at $ 5.19 and $ 5.25 per ounce.
Olmos' Second Amended Complaint pleads five counts, breach of contract, common law fraud, unauthorized trading under 7 U.S.C. § 6b, breach of fiduciary duty and violation of the Illinois Consumer Fraud and Deceptive Business Practice Act, Ill. Rev. Stat. ch. 121-1/2, para. 262, and seeks both compensatory and punitive damages. Defendants have denied all liability and asserted various defenses, among which is that defendants' actions in the transaction out of which plaintiff's claims arose were consistent both with defendants' rights and plaintiff's obligations under both the Agreement and applicable rules and regulations governing the trading of commodities.
Rule 56(c) of the Federal Rules of Civil Procedure provides that a summary judgment "shall be rendered forthwith if the pleadings, deposition, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). A dispute about a material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). A plaintiff cannot rest on mere allegations of a claim without any significant probative evidence which support his complaint. Id.; see First National Bank of Arizona v. Cities Service Co., 391 U.S. 253, 20 L. Ed. 2d 569, 88 S. Ct. 1575 (1968). "One of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims and defenses." Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986). Accordingly, the nonmoving party is required to go beyond the pleadings, affidavits, depositions, answers to interrogatories and admissions on file to designate specific facts showing a genuine issue for trial. Id.
The undisputed material facts require judgment as a matter of law be granted in favor of defendants. The Agreement explicitly gives Lind-Waldock the authority, "in its sole discretion," to set and increase margin requirements for Olmos' account. Margin requirements could even be retroactive. Olmos undertook a corresponding obligation, at all times, to maintain such margins in his account as Lind-Waldock would from time to time require. Specifically, Olmos agreed, among other things, to wire transfer margins or any funds required by Lind-Waldock. In the event Olmos' account was to become underfunded for any reason, such as failure to meet a margin call, Lind-Waldock had the authority under the Agreement, in its sole discretion, for its own protection and without notice to Olmos, to close out Olmos' position by placing stop loss orders.
It is undisputed that on March 31, 1986 Olmos' account was on margin call to the extent of $ 43,931.14. It is similarly undisputed that Golding telephoned Olmos on March 31, 1986 at 11:30 a.m., PST, and, entirely consistent with Lind-Waldock's express rights under the Agreement, advised Olmos both that his account was undermargined and that, unless he wire transferred funds that day in time for confirmation prior to the opening of the silver market on April 1, 1986, stop loss orders would be placed on his account. Olmos Deposition, p. 46; Golding Affidavit p. 1-2. Olmos never wire transferred the funds. Stop loss orders were placed on his account the next day and his contracts ultimately sold, again, all within Lind-Waldock's authority under the Agreement.
In Stotler and Company v. Khabushani, 703 F. Supp. 738 (N.D. Ill. 1989), the similar actions of a commodities broker in closing out an undermargined account were found not to constitute a breach of an account agreement virtually identical to the one in the instant case. Id. at 740. That the customer's account in Stotler was underfunded from the outset does not serve to distinguish it from this case. There is no indication that the Stotler court considered the fact that the customer initiated the account with a check drawn on insufficient funds. Rather, the result therein was mandated by the existence of a valid and enforceable contractual term authorizing the broker to close out an undermargined account with or without notice to the customer. The same result is required here.
Furthermore, Lind-Waldock's actions were consistent with the Commodity Exchange rules which prohibit a broker from carrying a customer's undermargined position unless the broker expects to receive the margin funds on a timely basis and, where a margin call is not met, specifically authorize the broker to close out the customer's position.
Whether or not an investor was given a reasonable amount of time in which to comply with a margin call before liquidating an account, under certain circumstances, has been held to be a question of material fact precluding summary judgment. See Nanlawala v. Jack Carl Associates, Inc., 669 F. Supp. 204, 207 (N.D. Ill. 1987). Yet, in a case where a Chicago Board of Trade Rule provided that one hour was a reasonable time in which to require an investor to meet a margin call, the Eighth Circuit upheld the provision against a challenge of unconscionability. See Geldermann and Company, Inc. v. Lane Processing, Inc., 527 F.2d 571 (8th Cir. 1975).
The defendants, though citing Geldermann, have not specifically invoked any regulatory definition of the "timely basis" or reasonable time in which a margin call must be met. Yet, here Olmos was given an entire day in which to meet the margin call. Olmos' letter of April 2, 1986, which in part confirms certain portions of Olmos' conversations of March 31, 1986 with Lind-Waldock representatives, renders it an undisputed fact that Olmos informed Lind-Waldock that he was not going to meet the margin call that day in time for confirmation prior to the opening of the silver market on April 1, 1986.
Therefore, in the alternative, the court holds, as a matter of law, that, in light of the speed in which extreme price fluctuations can occur in the commodities market and the need for brokers to minimize their risk as guarantors of the investor's trades (Agreement para. 16), Lind-Waldock acted pursuant to applicable regulations as it gave Olmos a reasonable time in which to meet the margin call by requiring him to do so by the end of the day and it placed stop loss orders on Olmos' account only once it could not reasonably expect Olmos to meet the margin call on a "timely basis."
Olmos places great reliance on his prior discussions on March 31, 1986, with a Lind-Waldock representative (Olmos claims he spoke to Golding), in which Olmos alleges that he was instructed that he was not required to meet the margin call that day, but rather had until the next day to wire the funds. Second Amended Complaint para. 8. Defendants deny making such a statement. However, even assuming that Olmos' allegation is true and contained in a taped conversation, Olmos cannot prevail, as any previous instructions that Olmos was given were properly countermanded by Golding in his subsequent conversation with Olmos at 11:30 a.m., PST, the same day. Pursuant to the Agreement, Lind-Waldock could, in its sole discretion, set margin requirements, even making them retroactive. The Notice to Customers required that margin calls be met the same day they were made. Therefore, Golding was acting within the terms of the Agreement and consistent with the Notice to Customers when he, on behalf of Lind-Waldock, informed Olmos that he was required to meet the margin call by wire transferring funds that day.
As a further attempt to avoid Lind-Waldock's defense, Olmos effectively contends that the contract was modified. He relies upon a state court decision, Dean Witter and Co. v. Tiger Tail Farms 674 S.W.2d 699, 703 (Tenn. 1984), for the proposition that where there is a course of dealing allowing a customer a certain period in which to met margin calls, it may be unreasonable to impose a shorter period. Olmos then argues that because an outright misrepresentation as to when a margin is due is more serious than a course of dealing, the court should find Lind-Waldock to have acted unreasonably in requiring Olmos to meet a same day margin call.
Deviation from the express terms and conditions of a contract may be justified where a party asserts de facto or implied modification based upon a course of dealing. This is because the other parties conduct in the course of dealing, where consistent with the alleged modification, is tangible evidence of the modification asserted. Here there was no course of dealing between Olmos and Lind-Waldock which could support the conclusion that based upon prior transactions Olmos was not required to immediately meet margin calls. Olmos himself acknowledges that he had wire transferred funds the same day in response to previous margin calls. Olmos Deposition pp. 48-49; Letter of April 2, 1986 from Olmos to Golding.
Furthermore, the court is not persuaded that an alleged misrepresentation is a stronger reason than is a course of dealing for the effective modification of contractual obligations. Unlike a course of dealing, where the other parties prior established conduct stands as strong evidence (presuming the absence of a no waiver clause) of the claimed deviation from contractual terms, there is no evidence, except for Olmos' disputed allegation, that Lind-Waldock intended to abandon rights expressly reserved to it in the Agreement. Certainly, plaintiff's misrepresentation claims might have had some merit if the sequence of events were transposed and Olmos had been instructed by a Lind-Waldock representative that he had an additional day to wire the funds after Golding instructed him to meet the margin call the same day. But, this was not the case.
What Olmos is really arguing is that Lind-Waldock is bound by the earlier alleged representation because it constituted an oral modification of the Agreement, whereby Lind-Waldock gave up the right in its sole discretion to set margins, demand funds by immediate wire transfer and close out undermargined accounts. Yet, the Agreement expressly precludes oral modification. Agreement para. 2. The certainty of contracting parties' rights and obligations, both in predictability of future conduct and in ease of measuring performance, which is promoted by reducing the parties' agreement to writing is greatly reduced where one party is allowed to prevail upon a claim that contractual terms had been orally modified. This is why parties include no oral modification clauses and courts enforce them. This court rejects Olmos' claim of oral modification. See Stotler, 703 F. Supp. at 740.
The court need not spend much time grappling with the final factual excuse proffered by Olmos. He alleges that he would have been able to immediately wire transfer the margin funds earlier in the day when he was allegedly told that he did not have to do so until the next day, but by the time Golding informed him that he must meet the margin call that day, in time for confirmation prior to the opening of the silver market on April 1, 1986, it was no longer possible for him to go to his bank to order a wire transfer. Plaintiff's Rule 12(m) Statement of Contested Material Facts p. 2. This is because Olmos alleges that he had to attend a class from which he would be dropped if he went to the bank to order the wire transfer rather than attend. Additional Facts Submitted by Plaintiff #32, Olmos Affidavit. Olmos, therefore, also implicitly relies upon the time difference resulting from his west coast residence, defendants' Chicago location, and the Silver Market in New York. That it would have been inconvenient for Olmos to comply with his contractual obligations or that compliance would have carried with it an opportunity cost neither excuses his compliance nor transforms actions by Lind-Waldock, which were entirely consistent with its rights under the Agreement, into actionable conduct. See Stotler, 703 F. Supp. at 740-41. Any inconvenience suffered by Olmos does not justify imposing additional risk upon Lind-Waldock.
Concluding that the undisputed facts require a judgment as a matter of law that Lind-Waldock did not breach the Agreement, but rather acted consistent with its express terms and applicable Exchange rules, necessarily requires judgment as a matter of law in Lind-Waldock's favor on the remainder of Olmos' claims.
Count II, Olmos' fraud claim, must fail. In light of Lind-Waldock's rights under the Agreement, any reliance on Olmos' part on an alleged earlier instruction giving him an additional day in which to meet the margin call was not justified after Golding informed him that the margin call must be met that day. See Stotler, 703 F. Supp. at 741. Neither can defendants' actions, consistent with the Agreement and applicable regulations, be the basis for Commodity Exchange Act Fraud as pled in Count III. Count IV, which pleads a breach of fiduciary duty must also fail for the same reasons discussed above with respect to Count I and because of the absence of any allegations to support a finding of a fiduciary relationship. Moreover, to find a fiduciary relationship of the nature necessary to support Olmos' claim would be directly contrary to the terms of the Agreement.
Count V in which Olmos seeks reformation of the Agreement to provide for attorney's fees for Olmos in the event he prevails, is mooted by the above decisions adverse to him. However, the court must note that it considers this claim to border on frivolousness. The Agreement required disputes to be adjudicated in Illinois and only allowed Lind-Waldock to recover attorneys fees in the event it prevailed. Lind-Waldock bargained for these terms. Olmos was not fraudulently induced nor forced to enter into the Agreement. Choice of law provisions and agreements with respect to attorneys' fees, of this sort, are valid and enforceable and not a deceptive business practice. To reform the Agreement under California law because this action was originally wrongfully brought there by Olmos would be to reward Olmos for disregarding an express forum selection provision, thereby setting a dangerous precedent.
Summary judgment is entered in favor of Lind-Waldock and Golding and against Olmos on all claims.
IS SO ORDERED.