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Clearing Corp. v. Financial and Energy Exchange Limited

July 16, 2010


The opinion of the court was delivered by: Judge James B. Zagel



In 2006, Defendant Financial and Energy Exchange Limited ("FEX"), an Australian public company with its principal business in Sydney, had begun building the infrastructure for the FEX Exchange, a commodities and energy futures and options exchange also based in Sydney. Australian law requires such an infrastructure to include clearing and settlement services for the listed products. FEX decided to out-source these services and contacted Plaintiff The Clearing Corporation ("CCorp"), a derivatives clearing organization that provides clearing and settlement services for futures markets across the United States. CCorp is a Delaware corporation, with its principal place of business in Chicago, Illinois.

FEX needed a partner who could "provide the necessary regulatory, technological, and operational infrastructure to allow the FEX Exchange to function properly[,]" and who could obtain the necessary licenses, ensure "an operating platform capable of receiving and processing data from FEX," and provide infrastructure that could accommodate several different time zones. Beginning in 2006, CCorp conducted a preliminary design study, funded by FEX. FEX ultimately chose CCorp as its clearing house partner, and in October 2007, the parties executed a Clearing Services Agreement ("CSA"). According to FEX, it relied upon three key criteria in choosing CCorp as a clearing partner: (1) CCorp's independence; (2) "CCorp's operational capabilities and ability to meet FEX's operational requirements;" and (3) the costs of CCorp's services.

In its counterclaim, FEX alleges that CCorp was incapable of delivering the services FEX required, and that prior to executing the agreement CCorp made several false representations to FEX. The representations include several statements that CCorp could meet FEX's operational and independence requirements, would work to satisfy FEX's needs, and would "apply for an Australian Clearing & Settlement Facility (C&SF) License to clear the FEX market[.]" But, according to FEX, at the time CCorp made these statements, it was planning to restructure its business and shift its focus away from the clearing and settlement services it was contracted by FEX to provide. FEX alleges that as early as 2006, CCorp was planning this restructuring, and that just one month after the parties executed the CSA, the restructuring was announced. Ultimately, IntercontinentalExchange ("ICE") purchased CCorp, which stripped CCorp of its independence.

In its counterclaim against CCorp, FEX alleges Fraudulent Misrepresentation (Count I), and Breach of Contract (Count II), Unjust Enrichment (Count III), and Violations of the Illinois Deceptive Trade Practices Act (Count IV). FEX seeks damages, as well as declaratory relief (Count V). CCorp now moves to dismiss Counts I and IV, as well as to strike FEX's affirmative defense based on fraud/fraudulent concealment.


A Motion to Dismiss under Rule 12(b)(6) requires that I analyze the legal sufficiency of the complaint, and not the factual merits of the case. Autry v. Northwest Premium Servs., Inc., 144 F.3d 1037, 1039 (7th Cir.1998). I must take all facts alleged in Plaintiff's complaint as true and draw all reasonable inferences from those facts in favor of Plaintiff. Caldwell v. City of Elwood, 959 F.2d 670, 671 (7th Cir.1992). Plaintiff, for its part, must do more than solely recite the elements for a violation; it must plead with sufficient particularity so that their right to relief is more than a mere conjecture. Bell Atl., Corp. v. Twombly, 550 U.S. 544, 555 (2007). Plaintiff must plead its facts so that, when accepted as true, they show the plausibility of its claim for relief. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). Plaintiff must do more than plead facts that are "consistent with Defendants' liability" because that only shows the possibility, not the plausibility, of its entitlement to relief. Id. (internal quotations omitted).

Allegations of fraud must conform to a heightened pleading standard set forth by Federal Rule of Civil Procedure 9(b) and require that Plaintiff plead all averments of fraud with particularity. Although states of mind may be pleaded in general terms, Plaintiff must state "with particularity," "the who, what, when, and how" of the fraud. DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990).


A. Count I - Fraudulent Misrepresentation

A claim for fraud must include the following elements: (1) a false statement of material fact; (2) defendant's knowledge that the statement was false; (3) defendant's intent that the statement induced the plaintiff to act; (4) plaintiff's reasonable reliance on the statement; and (5) plaintiff's damages resulting from reliance upon the truth of the statement. Tricontinental Indus. v. Pricewaterhouse Coopers, LLP, 475 F.3d 824, 841 (7th Cir. 2007) (internal citations omitted); Chicago Export Packing Co. v. Teledyne Industries, Inc., 566 N.E.2d 326, 329 (Ill. App. Ct. 1990). CCorp moves to dismiss Count I, arguing that: (1) its failure to perform is not a false statement of fact; and (2) CCorp's statements regarding independence were not false statements. For the following reasons CCorp's motion to dismiss Count I is denied.

CCorp argues that the statements at issue are not false statements of material fact, and that statements that CCorp was able to meet performance requirements, had the capacity to do so, and was confident in its ability to do are mere "puffery" or promises and are not actionable as fraud. In order for a statement to be actionable in fraud, "it must state a past or present fact; and expressions of opinions, expectations, or future contingent events do not qualify." Enterprise Warehousing Solutions, Inc. v. Capital One Services, Inc., No. 01 C 7725, 2002 WL 406976, at *6 (N.D. Ill. March 15, 2002).

First, CCorp maintains that the statements that CCorp was able to meet performance requirements were neither false nor factual. They are statements of puffery, since they do not misrepresent existing facts that can be proven false. In support, CCorp cites Century Universal Enterprises, Inc. v. Triana Development Corp., 510 N.E.2d 1260, 1273 (Ill. App. Ct. 1987), in which the Court affirmed that statements that a contracting party would use its best efforts in the management and operation of the project were "mere puffery" and not actionable in fraud. However, unlike the capability to perform a service, "best efforts," are not measurable or quantifiable. CCorp also cites Spiegel v. Sharp Electronics Corp, 466 N.E.2d 1040, 1044 (Ill. App. Ct. 1984), where the Court affirmed dismissal of a fraud claim based on advertised statements that the copier leased by the plaintiff would make "picture perfect copies" and "reduce error and paper waste." In that case, dismissal was premised on the fact that it was not the defendant who made the statements at issue, and, that the statements were "mere commendation or opinion[.]" But in this case, FEX ...

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