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Ironbeam, Inc. v. Evert

United States District Court, N.D. Illinois, Eastern Division

October 21, 2019

IRONBEAM, INC., Plaintiff/Counter-Defendant,
v.
ERIK EVERT, Defendant/Counter-Plaintiff.

          OPINION AND ORDER

          SARA L. ELLIS, UNITED STATES DISTRICT JUDGE.

         Defendant Erik Evert had a terrible, horrible, no good, very bad day on August 14, 2017, when in the span of a few hours, his newly opened trading account suffered losses in excess of $120, 000, he learned that his account had no default risk protections in place to halt those losses, he had to admit he allowed a third party to trade using his account in violation of his customer agreement, and Plaintiff Ironbeam, Inc. (“Ironbeam”), a commodity broker registered as a Futures Commission Merchant (“FCM”) with the Commodity Futures Trading Commission (“CFTC”), sought payment from him of both the debit balance in the account as well as the liquidation fee - putting him on the hook for over $150, 000. After the close of fact discovery, Ironbeam filed a motion for summary judgment against Evert for breach of contract for failure to pay the debit balance remaining on trades made with his user ID, or in the alternative, for breach of their settlement contract. In response, Evert asserts two affirmative defenses: (1) that the original contract, the Customer Service Agreement (“Agreement”), is a contract of adhesion, procedurally and substantively unconscionable, and therefore, void; and (2) that there was no meeting of the minds and no definite terms for the settlement agreement; therefore, the settlement agreement is unenforceable. Evert also brings two counterclaims asserting consumer fraud, in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”), 815 Ill. Comp. Stat. 505/10a, and breach of fiduciary duty. Because the Court finds that the Agreement is a valid contract, not a contract of adhesion or unconscionable, and that Ironbeam did not engage in consumer fraud or breach a fiduciary duty, the Court grants Ironbeam's motion for summary judgment and enters judgment against Evert on the complaint and counterclaims.

         BACKGROUND[1]

         On August 5, 2017, Evert responded to a Craigslist advertisement entitled “let a high level trader make you money.” Doc. 40-1, Ex. E at 1. Following a brief email exchange, Evert and the Craigslist advertiser, Lon Richardson[2], entered into an agreement under which Evert would open a trading account funded with at least $10, 000 and Richardson would use that account to turn a daily profit of $1, 000 by trading crude oil futures.

         On August 10, Evert opened a commodity futures trading account with Ironbeam through DeepDiscountTrading.com (“Deep Discount”). Evert electronically signed the contract labeled “Ironbeam Customer Agreement, ” which included “Acknowledged Customer Agreements and Risk Disclosure Statements.” Id., Ex. A at 3-11. The Agreement lays out several specific obligations for the Customer: that the Customer agrees to “provide to and maintain with Ironbeam sufficient funds to meet the applicable initial and maintenance margin requirements, ” id. at 4 ¶ 7, to “immediately wire transfer funds to Ironbeam in order to adequately meet additional margin when and as required and demanded by Ironbeam, ” id., and that the Customer would at all times “be liable for the payment of any debit balance upon demand by Ironbeam and shall be liable for any deficiency remaining in Customer's account(s) in the event of the liquidation thereof, ” id. at 5 ¶ 8. Additionally, the Customer agreed that Ironbeam could debit his or her account for “customary brokerage and commission charges and for charges for any other services rendered by Ironbeam, including . . . margin call/risk liquidation fees.” Id. at 5-6 ¶ 11. Finally, though not exhaustively, the Agreement includes a provision for the Customer to pay Ironbeam's attorneys' fees in the collection of a debit balance. Id. at 11 ¶ 40.

         In his account application, Evert represented that he had ten years of futures and options trading experience, a net worth of $20, 000, 000, an annual income of $250, 000, and an approximate risk capital of $100, 000. He also represented that there was no third-party discretionary trader for his account. Evert had not seen any Ironbeam advertisements before opening his account; indeed, he did not know of Ironbeam until after he opened the account. Evert believed his contract and account were with Deep Discount.

         Despite his representations in his account application, Evert provided his login and password to Richardson, who is not affiliated with Ironbeam. On August 11, Evert deposited $10, 000 into his account to be used in trading futures. On August 14, Richardson entered several trades into Evert's account. Although the Ironbeam clerks who set up new customers' accounts are supposed to enable default risk procedures, the clerk who set up Evert's account failed to do so. Ironbeam had not put any trading limitations on Evert's account; however, the same morning that Richardson had entered these trades, Ironbeam noticed the activity and called Evert to discuss the positions in his account. Evert indicated that he had not logged into his account but did not disclose the fact that he had given Richardson access to the account and authority to make trades. Ironbeam called Evert again less than twenty minutes later to “try[] to figure out” the “weird activity” going on in Evert's account. Doc. 40 ¶ 19. Evert still did not disclose Richardson's role in this activity. About ten minutes later, Evert called Ironbeam and indicated that “something goofy” was going on. Id. ¶ 20. In this phone call, Evert first disclosed that he had “an advisor” but that he now could not reach the advisor. Id. After further questioning, and after Ironbeam informed Evert that someone using his user ID placed the trades, Evert admitted that the “advisor” was trading the account on Evert's behalf.

         At the time of the last call, the debit balance in Evert's account was negative $77, 000 and Ironbeam indicated that it would be liquidating the positions. By the time Ironbeam was able to fully liquidate the positions, the debit balance in the account grew to negative $126, 183.36. Ironbeam's standard liquidation fee is $50 per contract. Richardson had entered 750 futures contracts in Evert's account, amounting to a $37, 500 total liquidation fee. Had the default risk procedures been in place, Evert should have only been able to place around twenty contracts. Because Ironbeam is the guarantor of Evert's account, Ironbeam had to pay the commodity futures exchange clearinghouse the full amount of Evert's debit balance.

         Ironbeam then demanded that Evert pay for reimbursement because Evert agreed to cover all trading losses and debit balances in the Customer Agreement. On August 16, Evert paid $5, 000. By email on August 17, Evert proposed a payment plan of $10, 000 due on August 30, with a monthly payment of $10, 000 to $15, 000 for the first “couple of months” and monthly payments escalating after that until he paid the debit balance in full. Id. ¶ 24. On August 31, and again on September 29, Evert made a payment to Ironbeam of $10, 000. Evert did not make another payment. The current debit balance in his account is $101, 286.96.

         After Ironbeam liquidated Evert's account, Justin Dendinger, whose relation to either party is unknown to the Court, called Ironbeam to ask about account creation and risk management. Ironbeam told him “that it is virtually impossible for such a problem to occur since Ironbeam has risk management procedures in place to where positions would be closed when the account was down to 25%.” Doc. 40 ¶ 46. However, Ironbeam has no system or procedure to close out positions to refuse trades when an account suffers a 25% loss or any predetermined loss. Id. ¶ 50-51. Thus, it is commonplace for customer accounts to suffer losses greater than the amount of funds in the account and thereby suffer a debit balance. Id. ¶ 53.

         LEGAL STANDARD

         Summary judgment obviates the need for a trial where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56. To determine whether a genuine issue of fact exists, the Court must pierce the pleadings and assess the proof as presented in depositions, answers to interrogatories, admissions, and affidavits that are part of the record. Fed.R.Civ.P. 56 & advisory committee's notes. The party seeking summary judgment bears the initial burden of proving that no genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In response, the non-moving party cannot rest on mere pleadings alone but must use the evidentiary tools listed above to identify specific material facts that demonstrate a genuine issue for trial. Id. at 324; Insolia v. Philip Morris Inc., 216 F.3d 596, 598 (7th Cir. 2000). Although a bare contention that an issue of fact exists is insufficient to create a factual dispute, Bellaver v. Quanex Corp., 200 F.3d 485, 492 (7th Cir. 2000), the Court must construe all facts in a light most favorable to the non-moving party and draw all reasonable inferences in that party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

         ANALYSIS

         Ironbeam argues that this is a straightforward contract claim: the Agreement includes a provision by which Evert agreed to pay all trading losses and debits and Evert has not done so; therefore, Ironbeam is entitled to performance. In the alternative, Ironbeam claims that the parties had a valid and enforceable settlement agreement and that Evert had begun to ...


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