CASE 0:12-cv-00269-MJD-FLN Document 10 Filed 02/28/12 Page 1 of 12 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA R.J. ZAYED, in his capacity as court ) appointed receiver for the Estates of ) Trevor G. Cook, Patrick J. Kiley, Jason ) Bo-Alan Beckman, UBS Diversified ) Growth, LLC, Market Shot, LLC, Oxford ) Global Advisors, LLC, Oxford Global ) Case No. 12-cv-00269 Oxford Growth FX L.P., and other ) Receivership Entities, ) ) The Receiver, ) ) v. ) ) PEREGRINE FINANCIAL GROUP, ) INC., ) ) Defendant. ) MEMORANDUM IN SUPPORT OF MOTION TO TRANSFER NOW COMES Defendant, Peregrine Financial Group, Inc. ( PFG ), by and through its undersigned attorneys, and for its Memorandum in Support of PFG s Motion to Transfer, states as follows: I. STATEMENT OF FACTS In November of 2009, R. J. Zayed was appointed as Receiver in connection with actions filed by the Securities and Exchange Commission ( S.E.C ) and the Commodity Futures Trading Commission ( CFTC ) against the receivership entities named herein (the Receivership Entities ). The Receiver has been charged with the administration of the estates of the Receivership Entities, with the primary purpose being the recovery of
CASE 0:12-cv-00269-MJD-FLN Document 10 Filed 02/28/12 Page 2 of 12 funds on behalf of investors in the various estates. The Receiver has, in turn, filed this action against PFG, a futures commission merchant ( FCM ) registered pursuant to the provisions of the Commodity Exchange Act, 7 U.S.C. 1, et seq. However, the Receiver is attempting to advance this cause in an improper forum. Of critical importance here is the well-settled principle that a receiver stands in the shoes of the entity for which the receiver has been appointed with no greater or better rights than it had. Keyes v. First Nat. Bank, 25 F.2d 684, 689 (8th Cir. 1928); see also Witherspoon v. Choctaw Culvert & Machinery Co., 56 F.2d 984, 987 (8th Cir. 1932). This has been the law in the Eighth Circuit and elsewhere for nearly a century. See id.; Knauer v. Jonathon Roberts Financial Group, Inc., 348 F.3d 230, 236 (7th Cir. 2003) (A receiver stands precisely in the shoes of the entity for which the receiver has been appointed); Wuliger v. Manufacturers Life Ins. Co. (USA), 567 F.3d 787, 798-9 (6th Cir. 2009) (receiver s rights as plaintiff are subject to the same claims and defenses as the received entity he represents); Javitch v. First Union Securities, Inc., 315 F.3d 619, 625 (6th Cir. 2003) ( Because they stand in the shoes of the entity in receivership, receivers have been found to lack standing to bring suit unless the receivership entity could have brought the same action ); Lank v. New York Stock Exchange, 548 F.2d 61, 67 (2d Cir. 1977) ( A receiver stands in the shoes of the corporation and can assert only those claims which the corporation could have asserted ); Central Hanover Bank & Trust Co. v. President and Directors of Manhattan Co., 105 F.2d 130, 131 (2d Cir. 1939) (an equity receiver has no better title than the defendant whose possession he takes over). Each of the Receivership Entities have signed a contract with PFG providing that all litigation 2
CASE 0:12-cv-00269-MJD-FLN Document 10 Filed 02/28/12 Page 3 of 12 arising in connection with that Entity s relationship with PFG shall be adjudicated in an Illinois forum in accordance with Illinois law. On July 25, 2005, UBS Diversified Growth, LLC d/b/a UBS Diversified LLC ( UBS ) entered into an independent Forex broker agreement with PFG, which contains a choice of law provision: This Agreement shall be governed by the substantive laws of the State of Illinois. See 25 of Exhibit A to the Declaration of Susan O Meara (the O Meara Declaration ) that is itself attached as Exhibit A to the Motion to Transfer. The independent Forex broker agreement further states: The parties agree that all actions, disputes, claims or proceedings, including, but not limited to, any arbitrations proceeding, arising directly or indirectly in connection with, out of, or related to or from this Agreement, any other agreement between the Independent Broker and PFG, whether or not initiated by PFG, shall be adjudicated only in courts or other dispute resolution forums whose situs is within the City of Chicago, State of Illinois. Independent Broker hereby specifically consents and submits to the jurisdiction of any State or Federal Court, or arbitration proceedings located within the City of Chicago, State of Illinois. Id. Market Shot, LLC, Oxford FX Growth, LP, Oxford Global FX, LLC, Trevor G. Cook ( Cook ), and Christopher Pettengill ( Pettengill ) each executed a customer agreement with PFG when their various Forex and futures accounts were opened. Likewise, the customer agreements signed by these Receivership Entities also contain an Illinois choice of law provision: This Agreement, and the parties rights and obligations hereto, shall be governed by, construed and enforced in all respects by the laws of the State of Illinois. 3
CASE 0:12-cv-00269-MJD-FLN Document 10 Filed 02/28/12 Page 4 of 12 See 30 of Exhibits B through J of the O Meara Declaration. Further, each of these customer agreements of the other Receivership Entities contain the following forum selection clause: Customer agrees that all actions, disputes, claims or proceedings, including, but not limited to, any arbitrations proceeding, including NFA arbitrations, arising directly or indirectly in connection with, out of, or related to or from this Agreement, any other agreement between the Customer and PFG or any orders entered or transactions effected for Customer s Account, whether or not initiated by PFG, shall be adjudicated only in courts or other dispute resolution forums whose situs is within the City of Chicago, State of Illinois. Customer hereby specifically consents and submits to the jurisdiction of any State or Federal Court, or arbitration proceedings located within the City of Chicago, State of Illinois. See 40 or 42 of Exhibits B through J of the O Meara Declaration. Regarding the accounts themselves, all funds for the accounts were sent to the attention of PFG in Chicago, Illinois and were deposited in financial institutions located in Chicago, Illinois. O Meara Declaration at 13A and 13B. All orders submitted for the accounts were received by PFG in Chicago, Illinois and executed there. O Meara Declaration at 13C and 13D. All account opening documents related to the accounts were received and approved by PFG personnel located in Chicago, Illinois. O Meara Declaration at 13E. The PFG personnel who received and executed the orders are also located in Chicago, Illinois. O Meara Declaration at 13F. All orders related to the accounts were received and executed by PFG personnel located in Chicago, Illinois. O Meara Declaration at 13F. All wire-transfer requests related to the accounts were received and approved by PFG personnel located in Chicago, Illinois. O Meara Declaration at 13G. The independent Forex broker agreement executed by UBS was 4
CASE 0:12-cv-00269-MJD-FLN Document 10 Filed 02/28/12 Page 5 of 12 received and approved by PFG in Chicago, Illinois. O Meara Declaration at 13H. All requests for commissions by UBS were either approved or disapproved by PFG personnel located in Chicago, Illinois. O Meara Declaration at 13I. PFG personnel located in Chicago, Illinois accomplished all compliance-related reviews of the accounts. O Meara Declaration at 13J. Also, all conversations with PFG personnel with the persons and entities named in this litigation occurred with PFG personnel located in Chicago, Illinois. O Meara Declaration at 13K. Finally, the persons on whose behalf the Receiver is seeking recovery are located throughout the United States and are not concentrated in Minnesota. The lead attorneys for the Receiver have their offices in Texas and New York City. And, the persons and entities named in the Complaint on whose behalf the Receiver is attempting to recover funds had entered into contracts with PFG (UBS Diversified Growth, LLC d/b/a/ UBS Diversified LLC ( UBS ) had entered into an independent Forex broker agreement with PFG, while the other persons and entities had entered into PFG s standard customer agreement). II. ARGUMENT A. The Receiver Stands In The Shoes of the Receivership Entities, and Cannot Bring Litigation Against PFG in a Forum in Which the Receivership Entities Could Not Initiate Litigation Against PFG on Their Own Behalf As stated in the foregoing, the Receiver stands in the shoes of the Receivership Entities, and obtains no greater rights than the Receivership Entities themselves 5
CASE 0:12-cv-00269-MJD-FLN Document 10 Filed 02/28/12 Page 6 of 12 possessed. See, e.g., Javitch, 315 F.3d 619 at 625; Witherspoon, 56 F.2d 984 at 987. All causes advanced by the Receiver on behalf of the Receivership Entities are subject to the same defenses. Wuliger, 567 F.3d at 798-9. In the case at bar, each of the Receivership Entities signed a contract with PFG mandating that all litigation arising in connection with that Receivership Entity s relationship with PFG be adjudicated in an Illinois forum in accordance with Illinois law. These contractual provisions bind the Receiver. As discussed below, this forum clause, as well as the other factors to be considered in deciding a motion to transfer venue pursuant to 28 U.S.C. 1404(a), requires that this matter be transferred forthwith to the United States District Court for the Northern District of Illinois, Eastern Division. B. The Forum Selection and Choice of Law Provisions Are Mandatory The UBS independent broker agreement employs broad forum selection language:... all actions, disputes, claims or proceedings, including, but not limited to, any arbitrations proceeding, arising directly or indirectly in connection with, out of, or related to or from this Agreement... See 25 of Exhibit A to the O Meara Declaration (emphasis supplied). The PFG customer agreements contain the same broad forum selection language:... all actions, disputes, claims or proceedings, including, but not limited to, any arbitrations proceeding, arising directly or indirectly in connection with, out of, or related to or from this Agreement, any other agreement between the Independent Broker and PFG, whether or not initiated by PFG. See 40 or 42 of Exhibits B through J of the O Meara Declaration (emphasis supplied). Therefore, 6
CASE 0:12-cv-00269-MJD-FLN Document 10 Filed 02/28/12 Page 7 of 12 the claims asserted by the Receiver fall within the purview of the above forum selection clause. Terra Intern., Inc. v. Mississippi Chemical Corp., 119 F.3d 688 (8th Cir. 1997). While other factors must be considered in determining a 28 U.S.C. 1404(a) motion, a valid forum selection clause is a significant factor that figures centrally in the district court's calculus in deciding a motion to transfer. Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29, 108 S.Ct. 2239, 2243-44, 101 L.Ed.2d 22 (1988) (emphasis supplied). Further, [A] forum selection clause is enforceable unless it is invalid or enforcement would be unreasonable and unjust. Dominium Austin Partners v. Emerson, 248 F.3d 720, 726 (8th Cir. 2001); see also M.B. Rests., Inc. v. CKE Rests., Inc., 183 F.3d 750, 752 (8th Cir. 1999) ( Forum selection clauses are prima facie valid and are enforced unless they are unjust or unreasonable or invalid for reasons such as fraud or overreaching. Here, the forum selection clauses are mandatory, employing the words shall and only, as do the choice of law provision specifying Illinois law. Dunne v. Libbra, 330 F.3d 1062, 1064 (8th Cir. 2003). Moreover, enforcement of the forum selection clauses in the agreements at issue here will not deprive the opposing parties of their fair day in court as the case will be transferred to the United States District Court for the Northern District of Illinois, Eastern Division. M.B. Rests, Inc., 183 F.3d at 752 ( [Forum selection clauses] are enforceable unless they would actually deprive the opposing party of his fair day in court. (citing Carnival Cruise Lines Inc. v. Shute, 499 U.S. 585, 590-95, 113 L. Ed. 2d 622, 111 S. Ct. 1522 (1991)). 7
CASE 0:12-cv-00269-MJD-FLN Document 10 Filed 02/28/12 Page 8 of 12 C. The Other Factors Also Weigh In Favor of Transfer The other factors in addition to the forum selection clauses that must be considered by the Court when considering a Motion to Transfer Venue pursuant to 1404(a) are:... (1) the convenience of the parties, (2) the convenience of the witnesses- -including the willingness of witnesses to appear, the ability to subpoena witnesses, and the adequacy of deposition testimony, (3) the accessibility to records and documents, (4) the location where the conduct complained of occurred, and (5) the applicability of each forum state's substantive law. Under the category titled Interest of Justice the court also considered (1) judicial economy, (2) the plaintiff's choice of forum, (3) the comparative costs to the parties of litigating in each forum, (4) each party s ability to enforce a judgment, (5) obstacles to a fair trial, (6) conflict of law issues, and (7) the advantages of having a local court determine questions of local law. Terra, 119. F.3d, at 696 (internal citation omitted). These considerations parallel the factors that courts typically analyze under section 1404(a). Id. (citing Jumara v. State Farm Ins. Co., 55 F.3d 873, 879-80; Chrysler Credit Corp. v. Country Chrysler, Inc., 928 F.2d 1509, 1516 (10th Cir.1991) (quoting Texas Gulf Sulphur Co. v. Ritter, 371 F.2d 145, 147 (10th Cir.1967)). While it might be more convenient for the Receiver to have the case retained in this Court, as the Eighth Circuit explained, the Supreme Court s decision in M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), places a heavy burden on any argument that inconvenience trumps a forum selection clause: Following Bremen, we have held that mere "inconvenience to a party is an insufficient basis to defeat an otherwise enforceable forum selection clause." M.B. Restaurants, 183 F.3d at 753. 6 Instead, a party seeking to avoid his promise must demonstrate that proceeding in the contractual 8
CASE 0:12-cv-00269-MJD-FLN Document 10 Filed 02/28/12 Page 9 of 12 forum will be so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court. Dominium Austin Partners., LLC v. Emerson, 248 F.3d 720, 727 (8th Cir.2001) (quoting Bremen, 407 U.S. at 18, 92 S.Ct. 1907). 6. Indeed, Bremen explicitly rejected mere inconvenience as a reason for avoiding enforcement of a bargained-for forum selection clause, reasoning that the parties contemplated such inconvenience when they entered into their agreement. 407 U.S. at 17-18, 92 S.Ct. 1907. Servewell Plumbing, LLC v. Federal Ins. Co., 439 F.3d 786, 790 (8th Cir. 2006) (emphasis supplied). Turning to the first consideration, convenience of the parties, while the Receiver is located in Minnesota, PFG and all of its witnesses reside in Illinois, as do its attorneys, whereas the lead attorneys for the Receiver reside in Dallas, Texas and New York City. Therefore, this factor clearly favors transferring the case to the Northern District of Illinois. Since the Receiver s case turns on the supposed red flags ignored by PFG s personnel, the overwhelming number of witnesses, if not all the witnesses other than the Receiver s expert witness, will be from Chicago. It would be extremely costly for PFG to transport and board those witnesses in Minneapolis. Given the volatile nature of the commodity and Forex markets, having a succession of crucial PFG employees waiting to testify in Minneapolis could severely impact PFG s ability to conduct its business. See O Meara Declaration at 14. Similarly, the executing brokers and financial institutions whose employees would potentially be called by PFG, are also located in Chicago, Illinois. See O Meara Declaration at 13B, 13C, and 13D. All of PFG s records and documents, as well as that of the financial institutions where the funds at issue were 9
CASE 0:12-cv-00269-MJD-FLN Document 10 Filed 02/28/12 Page 10 of 12 deposited, and the executing brokers involved in effecting the customers trades and the depositing of their funds are also located in Chicago, Illinois. Therefore, the second and third factors (convenience of the parties and location of records) also strongly favor transfer of this matter to the Northern District of Illinois. The losses did not occur in Minnesota as alleged by the Receiver but, instead, occurred in accounts located at PFG in Chicago, and relate directly to funds deposited in banks also located in Chicago for aggrieved investors located throughout the country. The alleged missing of the red flags that is the gist of the Receiver s complaint occurred entirely in Chicago, Illinois. Therefore, the fourth factor, location of the conduct at issue, also heavily favors the transfer of this case to the Northern District of Illinois. As to the fifth factor, the applicability of the forum state s law, clearly Illinois law controls pursuant to the above agreements. However, since this is a case being decided in federal district court, regardless of whether Illinois or Minnesota law is applicable, whatever district court hears the case is fully capable of applying the law of another state, a frequent endeavor in diversity cases. Therefore, the fifth factor, applicability of the forum state s law, is neutral. As to the seven factors listed as Interests of Justice discussed by the Eighth Circuit in Terra, supra, this matter is a separate case from the S.E.C. proceeding, so there is no judicial economy in having the case heard in Minnesota as opposed to Illinois. The respective cost to the parties, as stated above, favors transfer to the Northern District of Illinois, given that it is in that district where the overwhelming number of witnesses 10
CASE 0:12-cv-00269-MJD-FLN Document 10 Filed 02/28/12 Page 11 of 12 reside and virtually all the relevant documents are stored. Factors such as each party s ability to enforce a judgment, obstacles to a fair trial, conflict of law issues, and the advantages of having a local court determine questions of local law are neutral since a district court in either state can effectively deal with those issues. Therefore, the only factor that weighs against transfer is the Receiver s choice of forum; however, that has been waived by the forum selection clauses in the contracts. Moreover, the Receiver cites to the PFG Customer Agreement in its Complaint, arguing that specific sections of the Agreement are applicable to the instant matter. See Complaint at pp. 39-41. It is well established that contracts should be interpreted as a whole. DeJong v. Sioux Ctr., 168 F.3d 1115, 1120 (8th Cir. 1999). As the Receiver is seeking relief under one section of the contract, it is essentially conceding that the Agreement s terms are effective. Therefore, the other sections of the Agreement, including the forum selection clause, would also be applicable. D. Inconvenience, Even Considerable Inconvenience, Does Not Outweigh A Valid Forum Selection Clause Clearly, the factors to be considered in determining a 1404(a) motion weigh, decidedly, in favor of transferring this matter to the Northern District of Illinois, Eastern Division. However, even assuming, arguendo, that, on balance, the other factors to be considered favor the Minnesota District Court retaining jurisdiction, those factors do not outweigh the forum selection clauses agreed upon by the parties. As stated by the Eighth Circuit in Terra, supra: 11
CASE 0:12-cv-00269-MJD-FLN Document 10 Filed 02/28/12 Page 12 of 12 Even if we tend to believe that the convenience factors weigh in favor of an Iowa forum, however, we cannot say that they so overwhelmingly favor Iowa as to outweigh the significance of the agreed-upon forum selection clause and moreover, to such a degree that the district court abused its discretion in concluding that a transfer was warranted. Terra, 119 F.3d at 697 (emphasis supplied). III. CONCLUSION For the reasons stated herein PFG respectfully requests that this Court enter an Order transferring this matter to the United States District Court for the Northern District of Illinois, Eastern Division. KUTAK ROCK LLP Dated: February 28, 2012 By: s/ Jessica L. Roe Jessica L. Roe, #250867 U.S. Bank Plaza South 220 South Sixth St., Suite 1750 Minneapolis, MN 55402 612-334-5000 612-334-5050 (fax) 12