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BAGHDADY v. ROBBINS FUTURES

February 11, 2003

MAHMOUD BAGHDADY, PLAINTIFF,
v.
ROBBINS FUTURES, INC., ROBBINS TRADING COMPANY, JOEL ROBBINS, AND MARK MARTIN, DEFENDANTS.



The opinion of the court was delivered by: Levin, United States Magistrate Judge.

MEMORANDUM OPINION AND ORDER

Before the Court is Defendants' Motion for Summary Judgment as to Plaintiff's Second Amended Complaint in the cause. For the reasons set forth below, the Court denies Defendants' Motion for Summary Judgment.

BACKGROUND FACTS

On September 11, 1997, Plaintiff Mahmoud Baghdady (hereinafter "Plaintiff") entered into a written agreement to compete in a commodities futures trading competition; namely, the World Cup Championship of Futures Trading Contest (hereinafter "Futures Contest"). (Defs.' LR56.1(a)(3) St. ¶ 5*fn1; Defs.' Ex. 1, attached to Defs.' Mem.) In order to enter the Futures Contest, Plaintiff deposited $50,000 plus a $1,000 entry fee into a commodities account with Defendant Robbins Trading Company ("RTC"), the sponsor of the Futures Contest, and Defendant Robbins Futures, Inc. ("RFI"), the broker of the account.*fn2 (Id. ¶ 7; 2nd Am. Complt. ¶¶ 6, 9.) Plaintiff signed a Customer Agreement, a World Cup Championship of Futures Trading Agreement, and a Risk Disclosure Statement for Futures and Options (hereinafter "Disclosure") (Defs.' Exs. 1, 2 & C, attached to Defs.' Mem.) In signing the Disclosure, Plaintiff acknowledged that futures and options trading "carry a high degree of risk." (Defs.' Ex. 2, attached to Defs.' Mem.)

Before opening his account, Plaintiff told Defendants' principal, Lawrence Herst (hereinafter "Herst"), that he would be using a trading program that took advantage of discrepancies that occasionally appear in the markets. (Defs.' LR56.1(a)(3) St. ¶ 8.) Plaintiff explained to Defendants that he was essentially a delta neutral trader*fn3 and that he would need to adjust his positions in such a way that the positions would remain delta neutral so that the market fluctuations would not jeopardize his account and expose it to risk. (Id. ¶ 9.) Plaintiff further explained that in order to trade using his delta neutral trading approach, his account would have to be margined based on SPAN*fn4 margin requirements. (Defs.' LR56.1(a)(3) St. ¶ 10.) The application of SPAN margin requirements would have the effect of offsetting Plaintiff's positions; thereby, reducing the amount of margin required to keep his position in the Futures Contest. (2nd Am. Complt. ¶ 12(b).) Defendants told Plaintiff that his account would be margined according to SPAN margin principles.*fn5 (Defs.' LR56.1(a)(3) St. ¶ 12.)

Plaintiff began trading pursuant to the parties' agreement on September 18, 1997. (Defs.' LR56.1(a)(3) St. ¶ 13.)

On October 15, 1997, Plaintiff was short S&P futures and S&P put options. (Defs.' LR56.1(a)(3) St. ¶ 14.) Plaintiff's position at the time was delta neutral at the market price. (Id.) On October 16, 1997 and October 17, 1997, the S&P futures market dropped substantially causing Plaintiff's short futures positions to generate a profit. (Id.) However, at the same time, the price of the S&P put options was increasing which meant that Plaintiff would need to recalculate his deltas and take the necessary action to neutralize his position. (Id; 2nd Am. Complt. ¶ 24.)

On the morning of October 17, 1997, Defendant Martin called Plaintiff and told him that he owed a $100,000 margin call.*fn7 (Defs.' Reply at 4-5.) Defendant Martin requested that Plaintiff wire additional funds to cover the margin call. (Defs.' LR56.1(a)(3) St. ¶ 17.) Plaintiff indicated that he would send a wire transmitting additional funds and faxed Defendant Martin a copy of his instruction to his bank to wire $40,000. (Id. ¶ 18.) In addition to wiring funds, Plaintiff liquidated many of his positions based on the margin call. (Defs.' Ex. 10, Oct. 17, 1997 12:35-12:46 phone conversation b/t Baghdady and Martin).

That same day, on October 17, 1997, Defendant Robbins*fn8 directed that Plaintiff's trading account be liquidated because he had not meet the $100,000 margin call and a significant debit remained in his account. (Defs.' LR56.1(a)(3) St. ¶ 19; Defs.' Reply at 6.) Defendant Martin spoke with Plaintiff and told him that Defendant Robbins had made the decision to liquidate Plaintiff's account. (Defs.' LR56.1(a)(3) St. ¶ 19.) Plaintiff's account was subsequently liquidated that day.*fn9 (Id.) After the account was liquidated, Plaintiff called Defendants' trading desk employees and Defendant Martin a total of about twenty times, but no one would take Plaintiff's calls or orders. (Id. ¶ 20.)

Plaintiff seeks recovery of the $91,142.29 loss incurred by the liquidation of his account (i.e., net debit balance), the profits he lost from the liquidation of his account, and the monetary award for winning the Futures Contest.*fn11 (2nd Am. Complt. ¶¶ 43, 44, 51, 52; Defs.' LR56.1(a)(3) St. ¶ 21.)

LEGAL STANDARD

Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). See also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party has produced evidence to show that it is entitled to summary judgment, the party seeking to avoid such judgment must affirmatively demonstrate that a genuine issue of material fact remains for trial. LINC v. Fin. Corp. v. Onwuteaka, 129 F.3d 917, 920 (7th Cir. 1997).

In deciding a motion for summary judgment, a court must "review the record in the light most favorable to the nonmoving party and to draw all reasonable inferences in that party's favor." Vanasco v. National-Louis Univ., 137 F.3d 962, 964 (7th Cir. 1998). See also Anderson v. Liberty Lobby Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Nevertheless, the nonmovant may not rest upon mere allegations, but "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). See also Linc, 129 F.3d at 920. A genuine issue of material fact is not shown by the mere existence of "some alleged factual dispute between the parties," Anderson, 477 U.S. at 247, 106 S.Ct. 2505 or by "some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Rather, a genuine issue of material fact exists only if "a fair-minded jury could return a verdict for the [nonmoving party] on the evidence presented." Anderson, 477 U.S. at 252, 106 S.Ct. 2505.

ANALYSIS

In essence, Defendants contend that summary judgment should be granted in their favor because there are no genuine issues of material fact with respect to Plaintiff's claims that: (1) he was not allowed to trade as a delta neutral trader using SPAN requirements; (2) SPAN margin requirements were not actually used to adjust his account; (3) the margin call was erroneously calculated as to his positions; (4) his account was liquidated in bad faith; and (5) after he wired the requested funds to meet the margin call, his account was liquidated without notice.

ISSUES

The Court has reviewed the issues raised in Defendants' summary judgment motion and finds that genuine issues of material fact exist with respect to these issues, as follows:

A. $40,000 Wire

Defendants first assert that the parties' Customer Agreement gave them the right to liquidate Plaintiff's account if he was unable to meet the $100,000 margin call. (Defs.' Reply at 4-6.) Paragraph 8 of the Customer Agreement states that if Plaintiff "fails to deposit sufficient funds to . . . satisfy any demands for original and/or variation margin. . . [Defendants] . . . may, without prior demand or notice, when and if [Defendants] deem appropriate . . . liquidate the positions in [Plaintiff's] account . . ." (Defs.' Ex. C, attached to Defs.' Mem.) Furthermore, Paragraph 9 of the Customer Agreement provides that "[Plaintiff] acknowledges that [he] shall be liable for all losses in [his] account(s), including but not limited to losses incurred through a liquidation of [Plaintiff's] account(s) . . . including, but not limited to, interest, costs, expenses and attorneys' fees . . ." (Defs.' Ex. C, attached to Defs.' Mem.) Therefore, Defendants contend that because Plaintiff only wired $40,000 of the $100,000 margin call, they appropriately liquidated his account in accordance with the terms of the Customer Agreement. (Defs.' Reply at 2-5.)

Defendants further assert, based on a tape recorded phone conversation between Plaintiff and Defendant Martin on October 17, 1997, that Plaintiff was clearly aware of the fact that he was on margin call:

Baghdady: Meolo. All right. My question to you now is, since basically I'm out of the competition, why don't you just fund the account with the money you have, plus the money that's going to come so that I can — so they're getting wiped out, I can do something.
Martin: Well. You're still on call though. I mean, you're on call for about 400 thousand. (Defs.' Ex. 5, Oct. 17, 1997 9:03-9:06 p.m taped phone conversation b/t Baghdady and Martin, p. 1.)

(The call was reduced to $100,000)*fn12

Baghdady: How much more do ...

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