United States District Court, N.D. Illinois, Eastern Division
KEVIN DRISCOLL, in his capacity as court-appointed receiver of AlphaMetrix Group, LLC, Plaintiff,
JURIS KINS and DAVIS MCGRATH, LLC, Defendants.
MEMORANDUM OPINION AND ORDER
Z. LEE UNITED STATES DISTRICT JUDGE
Kevin Driscoll, the court-appointed receiver of AlphaMetrix
Group, LLC (AMG), has sued AMG's former lawyers,
Defendants Juris Kins and Davis McGrath, LLC (“Davis
McGrath”), alleging that they committed legal
malpractice against AMG. Defendants have moved to dismiss the
complaint for lack of standing pursuant to Federal Rule of
Civil Procedure (“Rule”) 12(b)(1) and for failure
to state a claim pursuant to Rule 12(b)(6). For the reasons
set forth below, Defendants' motion to dismiss is denied.
to this litigation, the U.S. Commodity Futures Trading
Commission (CFTC) sued Alphametrix, LLC (AML), a
CFTC-registered commodity pool operator and commodity trading
advisor, and its parent company, AMG, for injunctive relief,
disgorgement of misappropriated funds, and monetary
penalties. See CFTC v. AlphaMetrix, LLC, No.
13-cv-7896 (N.D. Ill. filed Nov. 4, 2013) (“CFTC
Action”). The Commission alleged that AML, rather than
reinvesting approximately $2.8 million of rebates back into
commodity pools as it was obligated to do under rebate
agreements with commodity pool participants, misappropriated
the funds by unlawfully transferring them to bank accounts of
its parent company, AMG. See id., ECF No. 1, Compl.
¶¶ 15-16. In this way, the CFTC alleged that AMG,
which had never been registered with the CFTC, received pool
participant funds to which it had no legitimate interest or
entitlement. Id. ¶ 16. In a letter to pool
participants, Aleks Kins,  President and Chief Executive Officer
of AML and Managing Member of AMG, admitted AML's failure
to reinvest the rebates. Id. ¶ 19. The
CFTC's lawsuit resulted in the appointment of a receiver.
See CFTC Action, ECF Nos. 33, 257.
Receiver then filed a separate lawsuit against AML's and
AMG's former officers for breach of fiduciary duty and
for repayment of outstanding loans. See Driscoll v. Aleks
Kins et al., No. 14-cv-2472 (N.D. Ill. filed Apr. 7,
2014) (“Officer Action”). The lawsuit against the
officers was resolved by a settlement agreement whereby the
officers agreed to pay $4 million to the receivership.
See id., ECF No. 96.
instant case, the Receiver alleges that Aleks's father,
Defendant Juris Kins, as well as Juris's law firm,
Defendant Davis McGrath, committed legal malpractice as
AMG's attorneys from 2005 through December 18,
2013. Compl. ¶ 8, ECF No. 1. Juris, acting
as general counsel, advised and represented AMG regarding
financial contracts, a dispute with a former employee, and
copyright infringement matters. Id. During 2012 and
2013, AMG paid Davis McGrath $39, 574.64 for services that
were rendered to AMG. Id. ¶ 10. Davis McGrath
also submitted an invoice to AMG dated October 30, 2013, in
the amount of $1, 735 for work performed in 2013.
Aleks was a Managing Member of AMG from 2005 through December
18, 2013, he appointed the following people as officers of
both AMG and AlphaMetrix: (1) Aleks's best friend,
Charley Penna, as Chief Risk Offer; (2) Aleks's
brother-in-law, George Brown, as Chief Financial Officer; and
(3) Aleks's wife's best friend, Geoff Marcus, as
Chief Strategic Officer. Id. ¶ 7. AMG loaned
money to Aleks, Penna, Brown, and Marcus during the course of
their employment, and Juris represented AMG in connection
with these transactions. Id.
began borrowing money from AMG in January 2006, but the loans
were not formally documented and did not have repayment
deadlines, interest rates, or default protection for AMG.
Id. ¶ 11. By March 2012, Aleks's total debt
to AMG was at $1, 156, 877.37. Id. By that time,
AMG's auditor had become increasingly concerned about the
undocumented receivable and requested that the amount be
memorialized. Id. ¶ 12. To allay the
auditor's unease, Juris prepared a promissory note
(“2012 Note”), dated and signed on March 15,
2012, that required Aleks to repay $1, 156, 877.37 in monthly
installments of $7, 500 with a final balloon payment due on
December 31, 2015. Id. Aleks began paying AMG $7,
500 each month as required by the 2012 Note. That said,
however, Alek also took new, undocumented loans from AMG
totaling $141, 666 during 2013. Id. ¶ 13.
2011 through September 2013, AMG also made undocumented loans
to other officers in the following amounts: (1) $50, 000 to
Penna; (2) $41, 666.66 to Brown; and (3) $223, 422 to Marcus.
Id. ¶¶ 14-15. These undocumented loans
were payable on demand. Id. Juris was aware of these
undocumented loans. Id.
the course of audits in 2011 and 2012, AMG's auditor
expressed reservations about the value of AMG as a going
concern, and by 2012, AMG was experiencing serious cash flow
problems that continued to worsen. Id. ¶ 16. By
February 2013, AMG and AlphaMetrix had almost $4.2 million in
payables that were over ninety days past due. Id. At
that point, AMG's primary lender, White Oak Global
Advisors, LLC (“White Oak”), claimed AMG was in
violation of certain financial covenants, and White Oak
received additional guarantees from AMG and other AMG-related
knew about the auditor's apprehension regarding AMG's
value as a going concern. Id. ¶ 17. Juris was
also privy to AMG's worsening cash flow problems and
White Oak's escalating demands. Id. By August
31, 2013, Juris was aware that AMG was insolvent.
in September 2013, Juris prepared amended promissory notes
(“Amended Notes”) with respect to AMG's
previous loans to Aleks, Penna, Brown, and Marcus. These
Amended Notes, among other things, eliminated the
borrowers' obligations to make monthly payments to AMG
and extended the due dates for the payment of the loans'
balances from December 31, 2015, to December 31, 2023.
Id. ¶¶ 19-20, 23. The Amended Notes also
eliminated AMG's protection against default in the event
that any of the officers were the subject of bankruptcy
proceedings. Id. ¶¶ 21, 23. The Amended
Notes were executed on September 30, 2013. Id.
¶¶ 19, 24.
Receiver alleges that Juris committed legal malpractice
against AMG by preparing the Amended Notes without first
advising AMG that the amendments stripped AMG of the ability
to demand immediate payment of $1.4 million in loans and
effectively transferred these assets from AMG's balance
sheet to Juris's son, Aleks, and his friends.
Id. ¶ 25. As a result of Defendants'
malpractice, the Receiver contends that AMG has incurred
damages in the amount of obligations under the Amended Notes.
Id. ¶ 33.