The opinion of the court was delivered by: Haight, District Judge:
MEMORANDUM OPINION AND ORDER
In this action arising under the Commodity Exchange Act,
7 U.S.C. § 1 et seq., defendant moves under the Federal
Arbitration Act, 9 U.S.C. § 1, 4 to stay the action and compel
arbitration; or, in the alternative, to dismiss the complaint
for failure to allege fraud with the particularity required by
Rule 9(b), Fed.R.Civ.P., and to direct the joinder of an
additional party defendant under Rule 19(a).
The amended complaint*fn1 alleges that plaintiff Philip
Karasyk is an individual engaged primarily in the business of
the purchase and sale of commodity futures contracts on behalf
of himself and others. Defendant Marc Commodities Corp. is a
corporation registered pursuant to the Commodity Exchange Act
as a futures commission merchant, and is also a clearing member
and member firm of the New York Mercantile Exchange (the
"NYMEX"). NYMEX is registered with the Commodities Futures
Commission, pursuant to 7 U.S.C. § 7(a), as a contract market
for the trading of futures contracts. It is located at 4 World
Trade Center, New York City.
The complaint further alleges that the Chicago Corporation
("Chicago Corp.") is registered under the Commodity Exchange
Act as a futures commission merchant, and is also a clearing
member and member firm of NYMEX. Chicago Corp. maintains a
business office at 71 Broadway, New York, New York. It carries
a customer futures account on behalf of plaintiff.
The complaint's factual allegations are as follows:
9. Upon information and belief, on or about March 1, 1990,
person or persons unknown to plaintiff entered into futures
transactions executed on NYMEX for the purchase of certain
crude oil futures contracts. In accordance with the by-laws and
rules of NYMEX, said contracts were obligated to be cleared in
a customer segregated or house account carried by a clearing
member of NYMEX.
10. Upon information and belief, on or about March 1, 1990,
person or persons unknown to plaintiff caused the above
mentioned futures transaction to be placed into plaintiff's
customer futures account carried by Chicago Corp.
11. Upon information and belief, on or about March 2, 1990,
Chicago Corp. transferred such futures transactions as
instructed by defendant to a segregated account maintained by
defendant on behalf of a customer.
12. Defendant accepted such futures transactions and cleared
such trades in its normal course of business and further
maintained this position up to March 6, 1990.
13. On March 6, 1990 defendant, acting in contravention of
NYMEX rules and applicable laws, began to transfer said trades
back to the account of plaintiff at Chicago Corp.
15. As a result of defendant's refusal to accept responsibility
for said trades, plaintiff's clearing agent, Chicago Corp. was
required to clear such trades on behalf of plaintiff.
Thereafter, plaintiff liquidated the trades and suffered a
serious financial loss in his futures trading account.
On the basis of these allegations, Karasyk asserts three causes
of action against defendant Marc Commodities Corp. The first
alleges that Marc "knowingly, deliberately and with an attempt
to deceive, . . . transferred trades previously carried in
segregated accounts for the account of its customers to the
plaintiff's account without the plaintiff's knowledge or
consent," in violation of § 4b of the Commodity Exchange Act.
Amended complaint, ¶ 17. Defendant is alleged to have acted in
this manner "for the purposes of generating commissions while
rejecting other transactions and transferring them to the
plaintiff's account." ¶ 18.
The second cause of action alleges that defendant "falsely and
fraudulently represented to plaintiff's clearing agent, the
Chicago Corp., that the futures transactions previously cleared
by defendant as of March 1, 1990 were owned by the plaintiff;"
and further represented to Chicago Corp. that "transactions
were to be transferred and given up to Chicago Corp. on behalf
of plaintiff." ¶ 22. Those representations are alleged to have
been "false and fraudulent," in that defendant "knew that said
futures contracts did not belong to plaintiff but rather were
owned and executed by person or persons unknown to plaintiff
but who were customers of the defendant." ¶ 23. The amended
complaint further alleges that these representations "were
known by the defendant to be false when made and were made with
the intent to deceive the plaintiff and induce the plaintiff's
clearing agent, Chicago Corp., to accept the transfer of said
futures contracts." Chicago Corp. is alleged to have "believed
said representations and in reliance thereupon, was induced to
accept the transfer of said futures transactions from the
defendant." ¶ 24. Plaintiff's second cause of action further
alleges that defendant cleared and retained futures
transactions in its own account or accounts maintained by
defendant for its customers "for a period of time in excess of
that which was permitted to the by-laws and rules of NYMEX." ¶
Plaintiff's third cause of action sounds in negligence and is
pleaded on the basis of pendent and ancillary jurisdiction.
Defendant moves to stay these proceedings and to compel
arbitration, relying upon provisions of the National Futures
Association Code of Arbitration. Judging by the motion papers,
the parties agree that this Code applies to the conduct in
which they were engaged. They dispute whether, in the
circumstances of the case, arbitration is mandatory. In that
regard, it is pertinent to note that plaintiff is an Associate
Member of the National Futures Association ("NFA"). The parties
do not appear to dispute that status.
If arbitration is not compelled, defendant argues that the
claim must be dismissed for failure to plead fraud with the
specificity required by Rule 9(b). Defendant also contends
that, if the litigation goes forward, Chicago Corp. must be
joined as a party defendant under Rule 19(a).