United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
R. Wood United States District Judge
Edwin Johnson is a former officer and managing member of
Defendant 3Red Group of Illinois, LLC (“3Red”), a
propriety trading firm. Besides Johnson, the only other
member of 3Red was Defendant Igor B. Oystacher, who was also
3Red's principal trader. In 2011, government regulators
began scrutinizing Oystacher's trading practices at 3Red.
While Johnson initially believed Oystacher was acting within
the law, he later came to harbor serious concerns regarding
the legality of Oystacher's trading practices. When
Johnson raised the issue with Oystacher, however, Oystacher
formed a plan to force Johnson out of 3Red. Ultimately,
Oystacher strong-armed Johnson into entering an agreement
under which he was terminated from 3Red while also forgoing
certain protections and benefits to which he would otherwise
have been entitled upon termination. In his Second Amended
Complaint (“SAC, ” Dkt. No. 77), Johnson asserts
claims against Oystacher, 3Red, and Defendant Stephen
Strohmer under the Racketeer Influenced and Corrupt
Organizations Act (“RICO”), 18 U.S.C. § 1961
et seq., and state law. Defendants now ask this
Court to dismiss the case, claiming that when Johnson agreed
to resign, he also released any and all claims he had against
Defendants that arose prior to his termination. (Dkt. No.
84.) For the reasons that follow, Defendants' motion to
dismiss is granted.
purposes of deciding the motion to dismiss, the Court accepts
the well-pleaded facts in the SAC as true and views them in
the light most favorable to Johnson. See, e.g., Anicich
v. Home Depot USA, Inc., 852 F.3d 643, 648 (7th Cir.
2017). The SAC alleges as follows.
to his termination, Johnson was the managing member and Chief
Risk Officer for 3Red, a high-frequency proprietary trading
firm. (SAC ¶¶ 5, 8, 10, 29.) Johnson owned 10% of
3Red; Oystacher owned the remaining 90% and was also the
firm's principal trader. (Id. ¶¶ 6,
in November 2011, government regulators and futures exchanges
began to scrutinize 3Red's trading practices.
(Id. ¶ 12.) Specifically, they believed
Oystacher was engaged in “spoofing, ” an illegal
trading practice whereby a trader manipulates the market by
“placing bids or offers in a futures market with the
intent to cancel said bid or offer prior to execution.”
(Id.) Oystacher and other 3Red traders' spoofing
allowed 3Red to reap substantial profits while causing
significant losses to other market participants who joined
the spoof orders. (Id. ¶¶ 22, 25.) In
December 2012, in his capacity as 3Red's Chief Risk
Officer, Johnson testified before the Commodity Futures
Trading Commission (“CFTC”) that, in his opinion,
Oystacher's trading practices did not constitute
spoofing. (Id. ¶ 13.) His opinion was informed
by industry and legal experts who told Johnson that
Oystacher's method of trading was legal. (Id.
after the CFTC clarified the types of trading activities that
constitute spoofing in May 2013, Johnson changed his mind
concerning the legality of Oystacher's trading practices.
(Id. ¶ 15.) Consequently, Johnson confronted
Oystacher and demanded that he stop spoofing or else Johnson
would use his power as Chief Risk Officer to suspend
Oystacher's trading privileges. (Id. ¶ 16.)
In response to that threat, Oystacher looked not only to
remove Johnson as 3Red's Chief Risk Officer but also as
its managing member. (Id. ¶ 28.) Standing in
the way of Oystacher's objective was 3Red's operating
agreement, which prevented Johnson's removal as Chief
Risk Officer without his written consent. (Id.
¶ 29.) Moreover, the agreement provided that if Johnson
was removed as managing member-whether for cause or without
cause-Johnson would receive a severance payment equivalent to
five times his salary and a buyout of his ownership interest
equal to five times his highest capital distribution.
and Strohmer consulted 3Red's corporate counsel to
devise a strategy to circumvent the provisions in the
operating agreement hindering Johnson's ouster.
(Id. ¶¶ 31-33.) 3Red's counsel advised
against involuntarily terminating Johnson. (Id.
¶ 36.) Instead, the counsel recommended 3Red accuse
Johnson of bad acts that could serve as the basis for his
termination, threaten to terminate him because of those bad
acts, and then convince Johnson to resign as Chief Risk
Officer and managing member voluntarily and renegotiate his
severance and buyout payments to a lower amount.
(Id.) In carrying out those recommendations,
Oystacher hired another law firm to investigate Johnson for
wrongdoing that could serve as the basis for his termination.
(Id. ¶¶ 37-38.) An attorney from that firm
drafted a letter to Johnson accusing him of fraudulently
misrepresenting his capital contributions to 3Red, improperly
withdrawing over $120, 000 from 3Red, improperly using 3Red
funds for unauthorized travel with family, and submitting a
fake operating agreement to 3Red's accountants giving
Johnson complete control over the company. (Id.
¶ 39.) Each of those accusations was false, ginned up
for the purpose of supplying a basis for Johnson's
termination. (Id. ¶¶ 40-41.)
a meeting with Oystacher, Strohmer, and 3Red's counsel,
Johnson was informed of the accusations against him,
threatened with criminal prosecution for fraud, and told that
his employment with 3Red was being terminated. (Id.
¶¶ 7, 46.) Johnson demanded that he receive his
severance and buyout payments as set out in 3Red's
operating agreement. (Id. ¶ 48.) Over the
ensuing days, the parties engaged in settlement negotiations.
(Id. ¶¶ 65-66.) Facing threats of criminal
prosecution and locked out of a distribution of 3Red profits
to which he was entitled, Johnson ultimately executed a
settlement agreement with Defendants on August 15, 2013
(“Settlement Agreement”). (Id.
¶¶ 55, 74.)
entering into the Settlement Agreement, Johnson relinquished
his positions as Chief Risk Officer and managing member of
3Red along with his ownership interest in the company in
exchange for $450, 000-far less than the buyout and severance
payments to which he was entitled under 3Red's operating
agreement-paid in installments of $10, 416.66 per month. (SAC
¶¶ 107-08; Defs.' Mot. to Dismiss, Ex. 1 §
1, Dkt. No. 83-1.) The Settlement Agreement further provides
that, if any regulatory body or governmental agency imposes a
fine or penalty greater than $1, 000, 000 on 3Red or suspends
its trading activities for longer than five months, 3Red will
cease any further payments toward the $450, 000. (SAC ¶
73; Defs.' Mot. to Dismiss, Ex. 1 § 1.) In addition,
the Settlement Agreement contains a confidentiality provision
that requires Johnson to notify Defendants in writing if he
receives any subpoena, written demand, request for documents,
or interview or deposition from any regulatory body regarding
3Red. (Defs.' Mot. to Dismiss, Ex. 1 § 11(f).)
Johnson also must provide notification if he seeks to meet
with, interview, or provide documents to any regulatory body
or governmental agency. (Id.) And he agrees not to
object to the presence of Defendants' counsel at any
interview or deposition he gives to a regulatory body.
(Id.) Finally, the Settlement Agreement contains a
provision under which Johnson agrees to release
“Oystacher and 3 Red Group . . . [3Red's]
subsidiaries, parent and affiliated corporations, and [their]
agents [and] employees . . . from any and all legal,
equitable or other claims . . . existing from the beginning
of the world to the date of this Settlement Agreement.”
(Id. § 3.)
December 10, 2014, 3Red and Oystacher filed a lawsuit against
Johnson in Illinois state court alleging, among other things,
that Johnson breached certain provisions in the Settlement
Agreement prohibiting him from disclosing the existence of
the Settlement Agreement and other confidential information
regarding 3Red and Oystacher. (Defs.' Mot. to Dismiss, Ex.
2, Dkt. No. 84-4.) Several months later, Johnson filed the
present lawsuit against Defendants 3Red, Oystacher, and
Strohmer. In his First Amended Complaint, Johnson brought
claims against Defendants under RICO § 1962(b), and the
anti-retaliation provisions of the Commodity Exchange Act, 7
U.S.C. § 1 et seq., as well as a number of
state law claims. (Dkt. No. 22.) Defendants then moved to
dismiss the First Amended Complaint, a request which this
Court granted. (Dkt. Nos. 70, 71.) Johnson was given leave to
amend his complaint. Shortly thereafter, Johnson filed his
SAC. (Dkt. No. 77.) The SAC sets forth four claims. First,
Johnson again asserts a RICO claim, this time under §
1962(c), along with a RICO conspiracy claim under §
1962(d). Johnson also brings state law claims seeking
declarations that the Settlement Agreement is illegal and
void and that the 3Red's operating agreement was valid
and enforceable at the time of Johnson's termination.
survive a motion under Federal Rule of Civil Procedure
12(b)(6), “a complaint must contain sufficient factual
allegations, accepted as true, to ‘state a claim to
relief that is plausible on its face.'”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). This pleading standard does not necessarily require
a complaint to contain detailed factual allegations.
Twombly, 550 U.S. at 555. Rather, “[a] claim
has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged.” Adams v. City of Indianapolis, 742
F.3d 720, 728 (7th Cir. 2014) (quoting Iqbal, 556
U.S. at 678).
both Defendants and Johnson argue the merits of Johnson's
claims at length in their briefs, this Court must first
address the threshold issue of whether Johnson released his
claims when he entered into the Settlement Agreement.
Defendants contend that, other than the claim for a
declaration that the Settlement Agreement is void and
unenforceable, the claims in the SAC were released under that
agreement. As to the enforceability of the Settlement
Agreement, Defendants contend that Johnson is precluded (or,
put another way, collaterally estopped) from relitigating the
issue here because the state trial court has already ruled
that the agreement is valid and enforceable. For his part,
Johnson does not appear to dispute that the Settlement
Agreement contains a broad release that covers his claims.
Nonetheless, he argues that the state trial court's
ruling on the enforceability of ...