The opinion of the court was delivered by: LASKER
Douglas J. Michelson is a resident of New Mexico and a rare metals trader who suffered heavy financial losses when the price of silver increased dramatically in the latter half of 1979 and in early 1980. Michelson, who appears pro se, has filed a sixty-one page complaint asserting thirty-six causes of action against twenty-four named defendants
contending that they participated in a conspiracy in 1979-80 to raise the price of silver in an effort to corner the silver market.
Currently pending are motions: (1) by Merrill Lynch to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) twenty-three claims and 22 paragraphs of factual allegations in the complaint based upon the doctrines of res judicata and/or collateral estoppel; (2) by the Exchanges to dismiss under Rule 12(b)(6) all claims against them for failure to state a claim; (3) by nine non-exchange defendants ("Certain Defendants")
to dismiss pursuant to Rule 12(b)(6) eight counts of the complaint for failure to state a claim; (4) by John J. Conheeny to dismiss the complaint under Rules 12(c), 12(b)(2), 12 (b)(5), or 12(b)(6) based upon insufficient service of process; and (5) by Norton Waltuch and ContiCommodity Services, Inc. under Rule 12(b)(5) to dismiss the complaint on the ground of insufficient service of process. For the reasons set forth below, Merrill Lynch's motion is granted in part and reserved in part; the motion of the Exchanges will be granted unless within thirty days Michelson amends his complaint; the non-exchange defendants' motion is granted in part, denied in part, and reserved in part and part will be granted unless Michelson amends his complaint within thirty days; and the motions of Conheeny, ContiCommodity Services, Inc. and Waltuch are granted.
This action traces its origins back to 1980 when Merrill Lynch filed suit against Michelson in the United States District Court for the District of New Mexico to recover a debt of approximately $118,000. From 1974 until January 9, 1980 Michelson traded silver, gold and copper futures on margin through an account at Merrill Lynch. Beginning in the latter half of 1979 and continuing through the first quarter of 1980, the price of silver rose to unprecedented levels, allegedly as a result of a conspiracy among the named defendants to corner the world's supply of silver. In January of 1980, Michelson held a number of short positions in the market and, when he failed timely to meet a margin call, Merrill Lynch liquidated his account on January 10, 1980 through purchases of gold and silver contracts. After the liquidation, Michelson continued to owe approximately $118,000 and Merrill Lynch initiated its suit to recover that amount.
Michelson's answer asserted sixteen counterclaims against Merrill Lynch. Merrill Lynch subsequently moved for summary judgment on its pleading and to dismiss the counterclaims and, in an August 1982 opinion, Judge Bratton dismissed eleven of the counterclaims with prejudice. The dismissed counterclaims alleged that Merrill Lynch was liable to Michelson as a result of its negligence (counts II, IV, VI & IX), breaches of fiduciary duty (counts I & V), failure to issue proper and accurate margin calls (counts II, VII & VIII), and its failure to give effect to a three-party security agreement between Michelson, Merrill Lynch, and the First National Bank of Albuquerque (counts XIII, XIV & XV), all of which allegedly violated Section 4b of the Commodity Exchange Act. 7 U.S.C. & 6b (1982). The remaining portions of Merrill Lynch's motion were denied due to the presence of material questions of fact. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Michelson, No. 80-0095 HB (D.N.M Aug. 12, 1982) (hereinafter "Merrill Lynch v. Michelson "), reprinted in Merrill Lynch's Memorandum of Law in Support of Its Motion to Dismiss, at Exhibit C.
Merrill Lynch moved for reconsideration of this decision and in an opinion dated August 3, 1983 was awarded summary judgment on its pleading. The opinion was confined to the issue of whether Merrill Lynch was empowered to liquidate Michelson's account notwithstanding the fact that a statement by the Merrill Lynch official in charge of the account to Michelson created the inference that a partial payment of the margin call would satisfy Merrill Lynch. Judge Bratton found that the agreement between Michelson and Merrill Lynch relating to the account "gave Merrill Lynch the right to liquidate Michelson's account whenever in its discretion it considered that action necessary for its protection[,]" and that "Merrill Lynch considered liquidation ... to be necessary for its protection." Merrill Lynch v. Michelson, No. 80-095 HB, slip op. at 3 (D.N.M. Aug. 3, 1983), reprinted in Merrill Lynch's Memorandum of Law, at Exhibit D.
In an accompanying opinion issued at the same time, Judge Bratton also dismissed without prejudice Michelson's five remaining counterclaims on the ground that Michelson's pro se pre-trial order submitted sometime in the summer of 1983 did not "inform the court or Merrill Lynch of the factual basis of [Michelson's] claims or the legal theories on which he relies." Merrill Lynch v. Michelson, No. 80-095 HB, slip op. at 3 (D.N.M. Aug. 3, 1983), reprinted in Merrill Lynch's Memorandum of Law, at Exhibit E. Michelson's counsel had withdrawn from the case in June of 1981 and Michelson has appeared pro se since that time.
Michelson filed the complaint at issue in this case in July of 1983 in the District of New Mexico. The complaint embodies the fifteen counterclaims pleaded in the earlier action and added as defendants various foreign and domestic individuals and institutions who allegedly participated, along with Merrill Lynch, in the conspiracy to manipulate the silver market in 1979-80. In addition, Michelson adopted and expanded upon the thirty-three paragraphs of factual allegations supporting his counterclaims to allege, in 136 paragraphs, inter alia, that the defendants conspired to raise the price of silver so as to force silver trades holding short positions out of the market (para. 70); that the Exchanges acted in bad faith by failing to take "emergency actions" to preserve orderly market conditions (paras. 72-79); and that Merrill Lynch acted in furtherance of the above conspiracy by executing many "wash sales" so as to create volume in the silver market and establish the appearance of a legitimate market (paras. 130-31). Michelson now alleges that one or more defendants have violated the federal Racketeer Influenced and Corrupt Organizations ("RICO") Act, 18 U.S.C. §§ 1961-68 (1982), various provisions of the Commodity Exchange Act, extortion, mail and wire fraud statutes, 18 U.S.C. §§ 1951, 1341 & 1343 (1982), and New Mexico's antitrust, RICO, unfair trade practice and criminal laws.
After the complaint was dismissed as to a number of defendants by Judge Bratton for lack of personal jurisdiction, Michelson's case was transferred sua sponte to this District in December of 1983. Proceedings were delayed for more than one year owing to a dispute between the parties regarding the sufficiency of Michelson's service of process upon a number of defendants. At a conference held on January 30, 1985 we granted Michelson until March 15, 1985 to re-serve the defendants and the defendants were subsequently granted until April 15, 1985 to move to dismiss or to answer the complaint. The motions discussed here constitute the fruits of these directives.
Merrill Lynch's principal argument in support of its motion to dismiss twenty-three of the claims asserted against it
is that res judicata and/or collateral estoppel, applicable as a result of Judge Bratton's grants of summary judgment in 1982 and 1983, bar, Michelson from pleading any claim or alleging any facts in this action which relate to his Merrill Lynch account and which have already been the subject of a final adjudication.
Merrill Lynch contends that Michelson's complaint consists of four categories of claims precluded on res judicata grounds"
(1) claims dismissed with prejudice in the New Mexico proceeding (counts XXV-XXXII & XXXIV); (2) claims asserted only against Merrill Lynch which relate to Michelson's Merrill Lynch account and which Michelson should have raised in the earlier proceeding (counts XIV-XV, XXIII-XXIV, & XXXV-XXXVI); (3) claims pleaded against all of the defendants but which are precluded to the extent that they relate to Michelson's account (counts III, VII, IX, XII & XIII); and (4) claims dismissed without prejudice in the earlier proceeding but which should now be dismissed on the merits because Merrill Lynch was awarded judgment on its pleading by Judge Bratton (counts XXI-XXII & XXXIII). Merrill Lynch also argues that collateral estoppel bars the allegations in the complaint relating to Michelson's account (complaint paras. 90-92, 96, 98, 108-111, 113-118, 121-24, 126-27 & 136).
Although Michelson proffers numerous arguments as to why res judicata or collateral estoppel ought not bar his claims, we find of particular relevance to the issues raised by this motion his assertion that Merrill Lynch did not obtain a final judgment on the merits in the New Mexico proceedings. Michelson contends, inter alia, that the New Mexico judgment is void because the case was decided through summary judgment, thereby denying him his constitutional right to a jury trial, and that there was no final judgment as to his counterclaims which were dismissed without prejudice.
Res Judicata bars parties to a lawsuit from relitigating claims or defenses which were actually adjudicated or might have been litigated or adjudicated in an earlier action between them in which there has been a final judgment on the merits. See Commissioner v. Sunnen, 333 U.S. 591, 597-98, 92 L. Ed. 898, 68 S. Ct. 715 (1948) ("Once a party has fought out a matter in litigation with the other party, he cannot later renew that duel"); Tucker v. Arthur Andersen & Co., 646 F.2d 721, 727 (2d Cir. 1981); Browning Debenture Holders' Committee v. DASA Corp., 605 F.2d 35, 39 (2d Cir. 1978). Whether res judicata bars litigation of claims in a second action depends, as the Court of Appeals for this Circuit has explained, upon
whether a different judgment in the second action would impair or destroy rights or interests established by the judgment entered in the first action, whether the same evidence is necessary to maintain the second cause of action as was required in the first, and whether the essential facts and issues in the second were present in the first.
Herendeen v. Champion International Corp., 525 F.2d 130, 133-34 (2d Cir. 1975) (footnotes omitted).
In this case, res judicata bars many of the claims asserted against Merrill Lynch notwithstanding the fact that Michelson was not afforded an opportunity to present his case to a jury in New Mexico, or the fact that five of Michelson's counterclaims were dismissed without prejudice. Merrill Lynch obtained a final judgment on the merits in the New Mexico proceeding dismissing with prejudice eleven of Michelson's counterclaims (counts I-VIII & XIII-XV), and awarding Merrill Lynch summary judgment on its pleading. See Merrill Lynch v. Michelson, No. 80-095 HB (D.N.M. Oct. 21, 1983); aff'd mem., Nos. 83-2473 & 83-2595 (10th Cir. Jan. 22, 1985), reprinted in Merrill Lynch's Reply Letter in Support of Its Motion to Dismiss, May 29, 1985, at Exhibits 1 and 3. Claims adjudicated through summary judgment are regarded as final judgments on the merits, see, e.g., Weston Funding Corp. v. Lafayette Towers, Inc., 550 F.2d 710, 713-15 (2d Cir. 1977) (noting that dismissals of claims prior to trial may be on the merits), and thus may be accorded res judicata effect. While Michelson is correct that the five counterclaims dismissed without prejudice were not final adjudications on the merits, see In re Greenwald, 48 Bankr. 263, 270 (S.D.N.Y. 1984), res judicata bars Michelson from attempting to litigate again claims of his which were dismissed with prejudice after full consideration in the New Mexico proceeding.
The claims in Michelson's complaint most obviously barred on res judicata grounds are those which Judge Bratton previously dismissed with prejudice in his 1982 decision. See Merrill Lynch v. Michelson, No. 80-0095 (D.N.M. Aug. 12, 1982), reprinted in Merrill Lynch's Memorandum of Law, at Exhibit C.
Michelson seeks to re-plead these claims in this action as counts XXV-XXXII and they are dismissed with prejudice.
Similarly precluded for reasons of res judicata are the counts in the complaint relating to Merrill Lynch's issuance of proper and accurate margin calls and the propriety of Merrill Lynch's decision to liquidate Michelson's account that might have been litigated or adjudicated in the New Mexico proceedings. Count XXII falls into this category by alleging that Merrill Lynch breached its contract with Michelson when it liquidated his account. Although Judge Bratton found that a fact question existed as to this issue, see note 3 supra, and dismissed the corresponding counterclaim without prejudice, we now hold that res judicata bars Michelson's claim because a finding adverse to Merrill Lynch on this issue would impair or destroy rights or interests acquired when Judge Bratton awarded Merrill Lynch judgment on its pleading.
The same reasoning applies to counts XXIII and XXIV, which allege that Merrill Lynch did not take delivery of silver related to Michelson's account and that this conduct was a breach of contract (count XXIII) and a fraud perpretrated upon Michelson contrary to Section 4b of the Commodity Exchange Act, 7 U.S.C. § 6b (1982), (count XXIV). Additionally, counts XXXV and XXXVI allege that Merrill Lynch conducted unauthorized trades in Michelson's account which respectively were in violation of Commodity Exchange Act Section 4b and were negligent. All four claims relate exclusively to the fact that Merrill Lynch actually liquidated Michelson's account and therefore cannot be re-litigated here. Accordingly, counts XXII-XXIV and XXXV-XXXVI are also dismissed with prejudice.
Merrill Lynch also moves to dismiss on res judicata grounds five claims asserted against all the defendants to the extent that they relate to or arise out of Michelson's account with Merrill Lynch. Counts III and VII allege that Merrill Lynch, its fellow brokers, and the Exchanges respectively violated the Robinson-Patman Act, 15 U.S.C. § 13 (1982), and New Mexico's anti-price discrimination statute, N.M. STAT. ANN. §§ 57-14-1 to 57-14-9, by discriminating on the basis of price among purchasers of silver. While these claims appear to relate to the complaint's allegations that Merrill Lynch participated in the general conspiracy among the defendants to increase ...