Plaintiffs argue that reliance is "inexorably linked" to the question of materiality; thus, if the omission or misrepresentation were material, then the cause of action should proceed. (Pls.' Mem. Opp. at 53-55.) The court flatly disagrees. Every case cited here lists "a false statement of material fact" (or, in certain cases, omission of a material fact) as an element of Illinois common-law fraud, and this element is distinct from that of reliance. Plaintiffs cannot escape the burden of showing reliance merely by asserting that Defendants' alleged omissions or misrepresentations were material. Consequently, Plaintiffs' bald assertions that they would not have acted as they did had they known otherwise is immaterial. (See Pls.' Mem. Opp. at 52-53.) They must show reliance and materiality, not simply one or the other.
Plaintiffs do present some evidence of actual reliance in the form of affidavits from a few individuals who claim that they actually did rely on Defendants' alleged misstatements. (Pls.' Mem. Opp. at 52, 53.) At best, such evidence goes only to support claims of common-law fraud by these particular individuals; it is wholly inadequate to establish reliance by the entire class. Courts in this district have made clear that "common-law actions for fraud . . . require each individual to prove that he relied on the alleged misrepresentation." Good v. Zenith Electronics Corp., 751 F. Supp. 1320, 1323 (N.D. Ill. 1990) (emphasis added), quoting Katz v. Comdisco, Inc. 117 F.R.D. 403, 412 (N.D. Ill. 1987). Good was a case involving a class action claim for fraud in the securities market. The court noted that a class action would be inappropriate for such a claim because it "would be extremely difficult" to prove reliance on an individual-by-individual basis, as required under Illinois law. 751 F. Supp. at 1323 (granting defendant's motion for summary judgment on fraud claim). Other courts have been similarly unwilling to replace actual reliance with the fraud-on-the-market presumption in securities cases. See, e.g., In re Information Resources, Inc. Securities Lit., No. 89 C 3772, 1994 WL 124890, *2-3, 4-6 (N.D. Ill. April 11, 1994) (requiring actual reliance to show fraud and granting defendant's motion for summary judgment in light of "wholly insufficient" evidence of each plaintiff's reliance); Schwartz v. System Software Assocs., 813 F. Supp. 1364, 1368 (N.D. Ill. 1993) (dismissing common-law fraud claim sua sponte and abstaining from determining whether Illinois courts would allow securities fraud plaintiff to substitute fraud-on-the-market theory for proof of actual reliance). The same caution is appropriate here.
Finally, Plaintiffs cite several other cases in support of their theory, such as Minpeco, S.A. v. ContiCommodity Servs., Inc., 552 F. Supp. 327 (S.D. N.Y. 1982), Minpeco S.A. v. Hunt, 718 F. Supp. 168 (S.D. N.Y. 1989), and United States v. Brown, 5 F. Supp. 81 (S.D. N.Y. 1933), aff'd 79 F.2d 321 (2d Cir.), cert. denied sub nom., McCarthy v. United States, 296 U.S. 650, 80 L. Ed. 462, 56 S. Ct. 309 (1935). These cases involve New York laws, however, and have nothing to say about Illinois. Similarly, the court is unconvinced by Plaintiffs' attempt to draw an analogy to Rule 10b-5 under the Securities Exchange Act, where a plaintiff's allegations concerning omissions of a material fact creates a rebuttable presumption of reliance. Absent any showing that such a standard has even been applied under Illinois common-law fraud, Plaintiffs are left simply clutching at straws.
In sum, the court finds that Plaintiffs cannot rest their common-law fraud claim upon a general "fraud-on-the-market" theory, which is not recognized under the laws of Illinois. Rather, Plaintiffs must be prepared to show actual reliance by each plaintiff in the class. Given that the difficulty of showing actual reliance by each class member may defeat the very purpose for which the class was created, the court recommends that Plaintiffs' common-law fraud claim be dismissed without prejudice so that each individual class member may elect whether to pursue it at his or her will outside this class action.
The court's findings may be summarized as follows. The court recommends that Defendants' motion on Plaintiffs' claim for manipulation of soybean futures market (Count I) be denied because there are genuine issues of material fact regarding each of the major elements of Defendants' claim--specifically, Defendants' ability to influence prices, the existence of artificial prices, and Defendants' causation of such prices, as well as whether Central Soya had the requisite intent to be held liable for manipulation. In addition to these main elements, there are mixed questions of law and fact regarding the tests that Plaintiffs must employ in order to establish each of these elements. In particular, Plaintiffs' allegation that Defendants manipulated prices through a combination of disinformation and market power, rather than market power alone, raises questions regarding whether or to what degree Plaintiffs must show that Defendants controlled the relevant cash and futures market, not to mention the definition of the relevant market itself. Earlier cases tended to focus solely on the question of market power, thus limiting their precedential value.
With regard to Plaintiffs' claim for excessive speculation (Count II), the court recommends that Defendants' motion be granted. The Commodity Exchange Act does not recognize a private right of action for excessive speculation but leaves violations of the CFTC's speculative limits to administrative enforcement alone. Plaintiffs, therefore, have no standing to bring a separate claim on this issue. The court's earlier denial of Defendants' motion for judgment on the pleadings is not a bar to summary judgment at this point, given that the court did not actually decide this issue--explicitly or implicitly--at that time. Moreover, to the extent that Plaintiffs are arguing that Defendants were not engaged in bona fide hedging or violated the speculative limits as part of their scheme to manipulate prices, Plaintiffs' "claim" should be merged with their first claim for price manipulation.
Finally, Defendants' motion for summary judgment on Plaintiffs' fraud claim (Count III) should be granted. As above, the law-of-the-case doctrine does not apply here because the court had not earlier decided this issue on the merits. Also, Plaintiffs' fraud-on-the-market theory is not recognized under Illinois law and thus cannot serve as the basis for a valid claim. Plaintiffs must be prepared to show actual reliance for each class member, a task that would make the class action extremely unwieldy. Plaintiffs' claim should be dismissed without prejudice, however, so that individual class members may pursue their own claims apart from this action, as they see fit.
Date: March 28, 1995
REBECCA R. PALLMEYER
United States Magistrate Judge
Counsel have ten days from the date of service to file objections to this Report and Recommendation with the Honorable Charles R. Norgle, Sr. See FED. R. CIV. P. 72(b); 28 U.S.C. § 636(b)(1). Failure to object constitutes a waiver of the right to appeal. Egert v. Connecticut General Life Ins. Co., 900 F.2d 1032, 1039 (7th Cir. 1990).