section by refusing "to honor the plaintiffs' demands to liquidate their investments in the Schindler Companies and the Global Futures Fund, Ltd." (Compl. P 47) Fifteen plaintiffs sent these demands to Schindler at F.I.C. Inc., and sent copies to Robert Fivian, Vice Chairman of LIT. (Id. Ex. A-P) Plaintiffs never received their money. Although plaintiffs sent these demands to Schindler, plaintiffs assert "upon information and belief" that these demands were communicated to M. Rose and that LIT and M. Rose ignored the demands. (Id. P 38) Unlike claims of fraud, claims of conversion are not governed by Rule 9(b) unless the conversion itself is premised on fraudulent conduct. Bank of Vermont v. Lyndonville Savs. Bank & Trust Co., 906 F. Supp. 221, 227 (D. Vt. 1995).
Plaintiffs' argument appears to be that M. Rose was LIT's agent, that Schindler was M. Rose's agent, and that therefore LIT may be held vicariously liable for Schindler's refusal to honor plaintiffs' demands for liquidation. But even assuming that M. Rose was LIT's agent, and that LIT made Schindler its agent -- an assumption that requires several leaps of faith -- plaintiffs have not alleged anything to indicate that Schindler's refusal to liquidate plaintiff's funds in his accounts was within the scope of any agency relationship he may have had with LIT, as required by the respondeat superior provision of the CEA, 7 U.S.C. § 4. The demand letters ask only that Schindler terminate and refund money from plaintiffs' accounts with Schindler's company, F.I.C. Inc. The letters say nothing about accounts at LIT and make no requests of Fivian or anyone else at LIT. Moreover, the complaint is devoid of allegations linking LIT specifically to F.I.C. Inc. or empowering LIT to act on behalf of F.I.C. To hold LIT responsible for acting on plaintiffs' demands would require an inference inverse to the thrust of the complaint -- the inference that LIT was either Schindler's or F.I.C.'s agent, rather than Schindler being theirs. To be sure, LIT was Schindler's investment agent, in that LIT traded Schindler's money on the futures exchange. But there is absolutely no fact alleged that suggests Schindler empowered LIT to liquidate his accounts absent express instructions from him. Accordingly, plaintiffs claim that LIT violated § 4d of the CEA must be dismissed.
Plaintiffs contend also that defendants were negligent under New York law for doing business with an unregistered commodities trader. Defendants first challenge plaintiffs' claim on the ground that it is preempted by the CEA. But the numerous issues surrounding the extent and source of preemption themselves present a decisional thicket. Compare American Agric. Movement, Inc. v. Board of Trade, 977 F.2d 1147, 1155-57 (7th Cir. 1992) (relying on 7 U.S.C. § 2, the jurisdictional provision of the CEA, and holding that "laws of general application . . . are preempted only when plaintiffs attempt to use them in a manner that would, in effect, regulate the futures markets") with Kotz v. Bache Halsey Stuart, Inc., 685 F.2d 1204, 1207-08 (9th Cir. 1982) (relying on the same provision, 7 U.S.C. § 2, but concluding that the CEA preempts state laws only if they would "render the regulatory scheme ineffective") with Strobl v. New York Mercantile Exch., 561 F. Supp. 379, 385 (S.D.N.Y. 1983) (holding that 7 U.S.C. § 2 preempts state regulation of commodities markets, but does not preempt all state common law remedies) with Sall v. G.H. Miller & Co., 612 F. Supp. 1499, 1504 (D.C.Colo. 1985) (looking to an entirely different provision, 7 U.S.C. § 25(a)(2) and concluding that it preempts alternative state-law theories of CEA liability, but that it does not preempt state common law remedies). Mercifully, I need not negotiate that thicket. I am saved that task by the utter inadequacy of plaintiffs' negligence claim. To put it quite simply, there is nothing to preempt.
To prevail on a claim of negligence in New York, plaintiff must show that: (1) defendant owed a duty of care to plaintiff, (2) defendant breached that duty, (3) defendant's breach proximately caused injury to plaintiff. Stagl v. Delta Airlines, Inc., 52 F.3d 463, 467 (2d Cir. 1995). Plaintiffs here have failed to plead a basic element of a negligence claim -- the existence of a duty of care. Securities brokers do not owe a general duty of care or disclosure to the public simply because they are market professionals. Moss v. Morgan Stanley, Inc., 719 F.2d 5, 15 (2d Cir. 1983) (broker had no duty to disclose), cert. denied, 465 U.S. 1025 (1984). A duty of care arises only when the broker does business with the plaintiff. Then, the duty of the broker is to attend to the plaintiff's business with due care.
Here, plaintiffs once again urge me to focus on the tours. They state: "we first need only look to [defendants'] voluntary actions to see that their association with Christian Schindler for purposes of the 'dog and pony' show (tours of Refco's offices in New York and visits to Refco's and M. Rose (agent for LIT) on the floor of the futures exchanges in New York over a period of a year) and interaction with the Plaintiffs, triggered a duty." (Pl. Mem. at 33) Plaintiffs' theory appears to be that although defendants did not have a duty solely because of their status, defendants voluntarily undertook to act on behalf of plaintiffs and thereby assumed a duty to act with care.
In support, plaintiffs cite Kurzweg v. Hotel St. Regis Corp., 309 F.2d 746, 747 (2d Cir. 1962) (holding that when it provided a doorman, hotel undertook obligation to ensure that doorman would act with care), Brown v. Stinson, 821 F. Supp. 910, 915 (S.D.N.Y. 1993) (defendant undertook a duty of care by taking plaintiff's money and purchasing an African mask on plaintiff's behalf), and Dashinsky v. Santjer, 32 A.D.2d 382, 385, 301 N.Y.S.2d 876, 881 (2d Dep't 1969) (holding that a breach of a statutory duty to a person within the protected class creates civil liability). Although these cases illustrate that one who voluntarily assumes responsibility must exercise that responsibility with care, they do not aid plaintiffs' negligence claim because they all present facts that establish clearly the one element absent here -- that defendants undertook a duty to act with care with respect to plaintiffs.
The hotel that decided to provide a doorman in Kurzweg and the investment advisor that agreed to execute a transaction in Brown both voluntarily accepted responsibilities to others that they otherwise would not have been required to fulfill. Here, defendants' only contacts with plaintiffs were the tours of the NYFE trading floor and Refco's offices. Plaintiffs have not alleged that defendants said anything to plaintiffs on these tours, or on any other occasion, by which they assumed a duty of care. Dashinsky also is inapposite, because there the defendant directly breached a statutory duty. Here, although Schindler violated the CEA in his failure to register, defendants have not violated any federal or state statute in their failure to remedy Schindler's omission. Accordingly, plaintiffs' state law negligence claim must be dismissed.
Counts IV and VIII of plaintiffs' complaint allege that LIT and Refco and Alpert, respectively, breached their fiduciary duty to plaintiffs. The complaint states, inter alia, that defendants "were fiduciaries with respect to the Plaintiffs and occupied a position of special trust and confidence with them because of the power and authority over which their agent Christian Schindler controlled their accounts." (Compl. PP 54, 71) This claim suffers from the same defect as plaintiffs' negligence claim and must be dismissed because plaintiffs have failed to allege facts that demonstrate any duty owed by defendants to these plaintiffs. Just as plaintiffs have failed to allege facts demonstrating that defendants owed them a duty of care, so they also have failed to allege facts demonstrating that defendants owed them fiduciary duties of trust, confidence or loyalty. That plaintiffs may have regarded defendants as their fiduciaries is not enough to establish a fiduciary duty when that duty otherwise would not exist.
In their brief, plaintiffs' claim for breach of fiduciary duty has been transformed into a claim for participating in another's breach of fiduciary duty. To prove that claim under New York law, a claimant must allege: (1) a breach by a fiduciary of obligations to another, (2) that the defendant knowingly participated in the breach, and (3) that the plaintiff suffered damages as a result of the breach. S & K Sales Co. v. Nike, Inc., 816 F.2d 843, 847-48 (2d Cir. 1987). This cause of action is based on the principle that "one who knowingly participates with a fiduciary in a breach of trust is liable for the full amount of the damage caused thereby to the cestuis que trust." Id. at 848 (citations omitted).
Plaintiffs' new theory seems to be that Schindler owed a fiduciary duty to plaintiffs, he breached that duty, defendants knowingly participated in that breach, and plaintiffs suffered damages as a result. Because plaintiffs' belated claim does not appear anywhere in the complaint, even under the most generous reading, it is inappropriate to address that claim in this opinion. If, after reading this opinion, plaintiffs wish to replead their claim for participation in a breach of fiduciary duty, the terms upon which they may do so will be discussed at a forthcoming conference.
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For the reasons explained in this opinion, defendants' joint motion to dismiss is granted.
Dated: New York, New York
April 24, 1996
Michael B. Mukasey,
U.S. District Judge
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