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Watseka Farmers Grain Cooperative Co. v. F C Stone Group

December 15, 2006


The opinion of the court was delivered by: David G. Bernthal U.S. Magistrate Judge


In May 2006, Plaintiff, Watseka Farmers Grain Cooperative Company, filed a Complaint for Damages (#1) against Defendants F. C. Stone Group, Inc., Michael Wanninger, and Charles Cameron.*fn1 Jurisdiction is based on federal question pursuant to 28 U.S.C. § 1331 because some of Plaintiff's claims are based on federal law.

In August 2006, Defendants F. C. Stone and Michael Wanninger filed a Motion To Dismiss (#13). After reviewing the parties' pleadings and memoranda, this Court GRANTS in part and DENIES in part Defendant F.C. Stone, LLC's and Michael Wanninger's Motion To Dismiss (#13).

I. Background

Unless otherwise noted, the following background is taken from the complaint. Plaintiff is an Illinois cooperative grain elevator corporation. Defendant F.C. Stone Group (hereinafter "Stone") is a "futures commission merchant" registered with the Commodity Futures Trading Commission. Stone was formed in July 2001 after the merger of Saul Stone and Company and Farmers Commodities Corporation.*fn2 Defendant Wanninger is a registered commodities broker who worked for Stone or its predecessor companies in Stone's Champaign office at relevant times.

As part of its financial goals, Plaintiff has engaged in hedging its grain positions on the futures market. In August 1995, Plaintiff entered into a customer agreement (hereinafter "Agreement") to open a commodity trading account with Defendant Stone to "purchase and sell Commodity Contracts for Customer in accordance with Customer's oral and written instructions." (Agreement, #1-2, ¶ 1.) At that time, Plaintiff informed Stone that its financial objectives were primarily to guard against fluctuation in grain prices so as to avoid substantial losses and that its trading account should be used for hedge transactions commensurate with its financial goals. (#1, ¶ 11.)

In 1995, Defendant Charles was Plaintiff's general manager. (Agreement, #1-2, p. 8.) He was authorized to give instructions to Stone for purchases, sales, and other account transactions. (#1-2, p. 9.) In 1996, Defendant Wanninger began placing orders from Charles on wheat futures that were speculative because they took Plaintiff "out of position" on wheat. As a result of routine oversight of accounts, Dean Chestnut, manager of Stone's Champaign office, noticed that Wanninger was day-trading Plaintiff's account and placing speculative wheat contracts. Chestnut informed Plaintiff's board of directors that Wanninger had accepted Charles's orders and had day-traded the Watseka accounts and placed Plaintiff out of position on wheat. The board was unaware of Wanninger's and Charles's speculative activity and had not authorized it. (#1, ¶ 12.) The board then instructed Stone, through its agent Chestnut, not to engage in grain speculation of Watseka's accounts. Stone reprimanded Wanninger and replaced him with another broker. Stone assured the board that speculation of its accounts would not occur again. (#1, ¶ 13.)

In October 2003, Defendant Wanninger again began placing orders from Defendant Charles that converted Plaintiff's soybean hedge positions into unauthorized speculative positions. (#1, ¶ 15.) As a result of the unauthorized speculative trading of its account, Plaintiff accumulated a net long soybean futures position of approximately 1.2 million bushels. Thus, Defendants Stone and Wanninger placed Plaintiff at substantial financial risk in the soybean futures market. (#1, ¶ 16.) When the soybean futures market declined sharply, Stone instituted margin calls on the long positions that Plaintiff could not meet, resulting in liquidation of Plaintiff's accounts in an amount in excess of four million dollars. This forced Plaintiff into liquidation. Plaintiff closed on May 24, 2004, and surrendered its grain dealer and warehouse licenses to the Illinois Department of Agriculture. (#1, ¶ 17.)

Plaintiff's complaint alleges the following thirteen counts. Count I alleges that Defendant Wanninger violated 7 U.S.C. § 6b of the Commodities Exchange Act (hereinafter "CEA") by placing orders for unauthorized speculative trading in soybeans and failing to disclose the trading to Plaintiff's board of directors. Count II alleges that Wanninger violated 7 U.S.C. § 6b by churning Plaintiff's account. Count III alleges that Defendant Stone violated 7 U.S.C. § 2(a)(1)(B) because Wanninger's fraudulent conduct occurred within the scope of his employment. Count IV alleges that Wanninger violated 7 U.S.C. § 25(a)(1)(B) when he engaged in speculative trading. Count V alleges that Stone violated 7 U.S.C. § 25(a)(1)(B) by willfully aiding and abetting Wanninger's unauthorized speculative trading. Count VI alleges that Wanninger and Stone violated 18 U.S.C. § 1962 of the Racketeer Influenced and Corrupt Organizations Act (hereinafter "RICO"). Counts VII and VIII, against Stone, allege breach of fiduciary duty and negligent supervision, respectively. Count IX, against Wanninger and Stone, allege negligence per se. Count X alleges that Wanninger, Stone, and Charles conspired to defraud Plaintiff. Count XI alleges that Wanninger and Stone violated Section 2 of the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILL. COMP. STAT. 505/2) (hereinafter "CFDBPA"). Count XII, against Stone, alleges breach of contract. Count XIII, against Wanninger and Stone, alleges fraud.

II. Standard

The purpose of a motion to dismiss is to test the sufficiency of the complaint, not to decide the merits of the case. Miller v. Reebie Storage and Moving Co., Inc., No. 93 C 3986, 1993 WL 414689, *1 (N.D. Ill. Oct. 15, 1993). The Court should dismiss the case only if the nonmoving party can prove no set of facts consistent with the allegations of the complaint that would entitle him to relief. Turner/Ozanne v. Hyman/Power, 111 F.3d 1312, 1319-20 (7th Cir. 1997). When considering a motion to dismiss, the Court must accept as true all well-pleaded factual allegations in the claim and draw all reasonable inferences in the light most favorable to the nonmoving party. Gutierrez v. Peters, 111 F.3d 1364, 1368-69 (7th Cir. 1997).

III. Analysis

Defendants argue that the Court should dismiss the complaint for the following reasons:

(1) The one-year statute of limitations set forth in the Agreement bars the claims; (2) the two-year statute of limitations in the CEA bars the claims in Counts I through V because all trades occurred before May 23, 2004; (3) the complaint fails to state any claims because the Agreement authorized Defendant Charles to place trades; (4) Count IX fails to state a ...

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