author: SOFAER, District Judge.

text:
    Rex C. CAUBLE, Plaintiff, v. MABON NUGENT & CO., et al., Defendants.
    No. 82 Civ. 7176 (ADS).
    United States District Court, S.D. New York.
    Aug. 28, 1984.

      Gersten, Savage & Kaplowitz, New York City, for plaintiff; Marvin Gersten, Paul J. Giacomo, Jr., New York City, of counsel.
    Cadwalader, Wickersham & Taft, New York City, for defendants; Michael Gerard Dolan, Earl H. Nemser, Joseph Polizzotto, New York City, of counsel.
   OPINION AND ORDER

SOFAER, District Judge.

Plaintiff Rex Cauble (“Cauble”) brought this action against Mabon, Nugent and Co. (“Mabon”), a commodities brokerage partnership, and two of its general partners, Jeffrey Pollack and Leon Pollack, seeking relief on nine causes of action under both the Commodity Exchange Act (“CEA”) and state law. Four counts — including fraudulent trading under § 4b of the CEA, 7 U.S.C. § 6b (1982), aiding and abetting under § 13 of the CEA, 7 U.S.C. § 13c (1982), negligence and gross negligence under state law — stem from the allegedly wrongful liquidation of Cauble’s commodity account by Mabon on July 8, 1982. Four additional counts — including fraudulent inducement under § 4b of the CEA and under state law, conversion, and aiding and abetting under § 13 of the CEA — arise out of a settlement agreement between the parties and Cauble’s payment of $174,-755.00 to Mabon on August 4, 1982. Plaintiff also alleges that in late August 1982, Mabon interfered with Cauble’s business relationship with the clearing house of Bear, Stearns & Co., and caused the clearing house to cancel a commodities account for Cauble with Miller, Tabak and Hirsch. Defendants initially moved to dismiss the complaint and on February 25, 1983 this court dismissed the claim for punitive damages. After additional discovery, defendants now move for summary judgment on all nine counts, and incorporate the affidavits submitted on the motion to dismiss.

Cauble, a Texas resident, opened an account with Mabon in April 1982 for the purpose of trading in commodity and financial futures. Though Mabon maintained an office in Houston, Texas, where Cauble’s cousin Alan Harp was a registered representative, Cauble’s orders were placed through Mabon’s New York office where Mabon partner, defendant Leon Pollack, and a Mabon employee, Joe Belanoff, generally managed the transactions. Cauble also assumed financial responsibility for accounts opened with Mabon for his son, Lewis Cauble, and for a friend, Fern Lynch.

On April 20, 1982, Leon Pollack sent Cauble a letter explaining how his trades would be executed and enclosed forms which were provided to Mabon by Goodman-Manaster & Co. (“Goodman”). He explained that Mabon, though a registered futures commodity merchant (FCM), was not a clearing member of the Chicago Board of Trade or the international monetary market of the Chicago Mercantile Exchange where the financial futures Cauble was interested in were traded. Cauble’s orders would therefore be executed by Goodman, a clearing broker on those exchanges. According to Pollack’s letter, Goodman would send daily confirmations of trades directly to Cauble but Cauble would have direct contact only with Mabon in submitting orders and providing sufficient margin to maintain the positions in his account. Cauble signed and returned the Goodman customer application, agreement, and risk disclosure. Among other things, the customer agreement signed by Cauble provided for the closing of all positions in the account without prior notice or demand if the proper margin was not maintained in the account.

A course of dealing was established between the parties whereby Cauble communicated with Mabon directly, by telephone, on a daily basis. His account was non-discretionary and therefore his authorization was required for each transaction. Cauble received daily statements of transactions and sent periodic payments by checks drawn on the Cauble family bank to Mabon via Federal Express to meet margin requirements. Mabon normally extended credit to Cauble by forwarding its own funds to satisfy Cauble’s initial and maintenance requirements directly to Goodman. Cauble then made up the deficits created in his accounts by either transferring checks or off-setting trades.

By June 1982, the trading activity in Cauble’s account reached very high levels. On July 2,1982, Cauble’s account showed a deficit of over $500,000. Although Cauble failed at that time to settle-up with Mabon, he was allowed to continue trading in his account as usual. The deficit in his account at the close of business on July 6 was $563,112.50. On July 7, an agreement was made between Cauble and Joe Belanoff, the normal account executive assigned to his accounts, that his position would be offset to reduce it to 100 financial futures contracts and a long position in 30 silver futures contracts. At the close of trading on July 7, the deficit in Cauble’s account was $394,050. That same day, Jeffrey Pollack and John Friel decided not to accept any new orders from Cauble, and advised him on .the morning of July 8 to send in the required margin so that Mabon could continue accepting his trades. Cauble did not clear up his margin deficiency but nevertheless attempted to place a trade to sell short 50 U.S. Treasury Bond futures, a transaction defendants claim they did not execute. Instead, when Cauble’s margin check did not arrive by 1:00 p.m. in Mabon’s usual Federal Express delivery, Mabon placed orders with Goodman that effectively closed out all positions in Cauble’s account.

After liquidation, there was a deficit in Cauble’s account at Mabon. From July 23 to August 3, -Cauble actively negotiated with Joe Belanoff and Leon Pollack over payment of the deficit balance in his account, in addition to the $69,000 deficit in the Lewis Cauble and Fern Lynch accounts which had been closed with Cauble’s agreement. Upon the completion of a long series of negotiations between Cauble and Mabon, an agreement was reached for the exchange of a payment by Cauble to Mabon of $174,785 in return for a promised release. Plaintiff alleges that the release was to contain a number of specific provisions agreed upon by the parties. Instead, Mabon sent a standard release after receiving Cauble’s check. Cauble rejected the standard release and demanded the return of his check.

On August 24, 1982, Joe Belanoff, who had left Mabon to join Miller, Tabak and Hirsch (“MT & H”), contacted Cauble and obtained his agreement to open a new commodity trading account at MT & H. The Cauble account at MT & H was cleared through Bear, Stearns & Co. After a week, the account was closed out by Bear, Stearns. Cauble alleges that this liquidation was the result of a negative report circulated throughout the investment community by Mabon.

I. Claims of Unauthorized Liquidation

Cauble claims in Count One of his complaint that Mabon violated section 4b of the CEA by unauthorized and fraudulent trading in the closing of Cauble’s account without notice. A futures commission merchant, or broker, may not effect a transaction, purchase, or sale for the account of any customer without specific authorization. See 17 CFR § 166.2. A broker’s closing out of open positions in a commodity account without a margin call for additional funds constitutes unauthorized trading in violation of § 4b. See Schultz v. Incomco [1980-82 Transfer Binder] Comm. Fut.Law Rep. (CCH) ¶ 21.280 [CFTC 1981], Margin call notice requirements may be altered or waived by contract, however, and this is done typically in customer agreements which authorize the broker to liquidate any customer property in its possession to satisfy account deficiencies whenever an account becomes undermargined. See Jacobs v. Paine, Webber, Jackson and Curtis Inc., [1977-1980 Transfer Binder] Comm.Fut.Law Rep. (CCH) 11 20,-893, at 23,626 (FCTC 1979); Chipser v. Kohlmeyer & Co., 600 F.2d 1061, 1066-67 (5th Cir.1979).

Liquidation provision in customer agreements have been upheld by the Commodity Futures Trading Commission and the courts where sufficient equality of bargaining power exists, as between a-sophisticated, experienced investor and a broker, and where the liquidation provisions are commercially reasonable. Geldermann & Co., Inc. v. Lane Processing, Inc., 527 F.2d 571, 575-76 (8th Cir.1975) The clause at issue in Geldermann provided: “In case of my [the customer’s] failure to maintain with you [the broker] at all times such margin as you may deem adequate for your protection, you may, without prior demand or notice to me, Sell and/or Purchase such commodities as you may consider necessary-to fully protect my account.” Id. at 574. The Geldermann court ruled the liquidation provision was not unconscionable, and upheld its validity on the basis of policy considerations designed to counterbalance the business risks inherent in futures trading:

It is clear that the liquidation provision promoted the interest and protection of the commission merchants, their customers and the investing public as a whole. Investors or speculators who have failed to deposit sufficient maintenance margins may have insufficient financial resources to withstand substantial losses on the market and, if so, continued trading on that account is a financial risk for the commission merchant, and ultimately for the commodities exchange if the loss suffered by the commission merchant exceeds its capital account.

Id. at 577.

The liquidation provision in Cauble’s customer agreement is strikingly similar to the one upheld in Geldermann. It provides:

If at any time Customer’s account does not contain the amount of margin required, Broker may, in its sole and absolute discretion, without notice or demand to Customer, close out Customer’s open positions in whole or in part or take any other action it deems necessary to satisfy such margin requirements.

Both agreements establish the right to close out the customer’s open positions for failure to maintain adequate margin. And since Cauble was a highly sophisticated investor, with ample bargaining power, .the liquidation provision in the agreement he signed is commercially reasonable and valid. See Geldermann, 527 F.2d at 575-76.

An additional problem exists in this case because the liquidation provision relied upon by Mabon to justify defendants’ action and orders appears in the customer agreement between Cauble and Goodman. Cauble argues that Mabon cannot rely on a customer agreement to which Mabon was not a party. It is true that the “broker”— clearly and exclusively identified as Goodman throughout the contract — has the sole right to acquire, manage and dispose of the property in the customer account, including the sole and absolute discretion to establish margin requirements (¶ 2), to liquidate without notice and demand (¶ 3), and to execute trades on any exchange (¶ 10). Nevertheless, defendants assert that Mabon is entitled to enforce the provisions as a third party beneficiary; they claim that the circumstances surrounding the opening of the commodity account and the structure of the trading apparatus set up by Mabon reveal a clear intent by the parties that the customer agreement primarily benefit Mabon.

A third party may sue as a beneficiary to a contract if the parties intended their performance to benefit the third party. Port Chester Electrical Construction Corp. v. Atlas, 40 N.Y.2d 652, 655, 357 N.E.2d 983, 985-86, 389 N.Y.S.2d 327, 330 (1976). The Restatement Second of Contracts takes the position that, “unless otherwise agreed,” if “recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties,” the beneficiary will be protected when “the circumstances indicate that the promissee intends to give the beneficiary the benefit of the promised performance.” Restatement (Second) of Contracts § 302. The customer agreement does not explicitly grant or deny Mabon a right to enforce any of its terms. The manner in which Cauble’s trading account was handled, however, demonstrates that performance of Cauble’s contractual obligations under the Goodman customer agreement was to be monitored and controlled by Mabon. At the time of the agreement’s execution, Cauble and Goodman were both aware of Ma-hon’s control of the functioning of Cauble’s account. Leon Pollack’s letter to Cauble on April 20, 1982 delineated the basic terms of the relationship between Cauble and Mabon. Mabon was to have supervisory powers over the Cauble account — including authority to collect margins for Goodman— and to have direct, daily contact with Cauble, while Goodman was to do no more than clear trades. Where performance is to be rendered directly to a third party under the terms of an agreement, that party must be considered an intended beneficiary. See Goodman-Marks Associates, Inc. v. Westbury Post Associates, 70 A.D.2d 145, 148, 420 N.Y.S.2d 26, 28-29 (2d Dep’t 1979) (per curiam).

If Mabon was an intended beneficiary of those terms of the customer agreement governing the management of property in the customer account and margin calls, it should also be regarded an intended beneficiary of the liquidation provision. Goodman, in relying on Mabon for collecting margin payments, had a clear interest in providing Mabon with the power to make margin calls on Cauble and to otherwise determine whether any shortfall in margin payments merited liquidation. Mabon’s interest in having the power to liquidate is even more obvious; any loss due to delayed liquidation of Cauble's account might well have ultimately fallen on Mabon, because of its separate obligations to Goodman. In light of Mabon’s central position in the Cauble/Mabon/Goodman relationship, Mabon should be recognized as a third party beneficiary of Goodman’s customer agreement, including the right to liquidate Cauble’s account, without demand or notice, for failure to maintain adequate margin. See Okcuoglu v. Hess, Grant & Co., Inc., 580 F.Supp. 749, 751-52 (E.D.Pa.1984) (broker managing account may rely on arbitration clause in customer’s agreement with clearing house).

Though Mabon is entitled to rely on the Goodman customer agreement, the agreement itself is ambiguous as to whether the broker has absolute authority to liquidate. All transactions are subject to the rules of the exchanges on which trades are executed; Rule 209 of the Chicago Board of Trade requires a margin call and reasonable time thereafter before liquidation of undermargined accounts. Dean Witter & Co., Inc. v. Tiger Tail Farms, Inc., [1980-1982 Transfer Binder] Comm. FutRep. (CCH) ¶ 21,352 at 25,664 to 25,666 (Tenn.Ct.App.1982). Moreover, where a customer agreement is in effect, the broker does not have unbridled discretion to liquidate an account; its power to liquidate must be exercised in good faith under the existing facts and circumstances. See Selvig v. Shearson Hayden Stone, Inc., [1980-1982 Transfer Binder] Comm. Fut.Law Rep. (CCH) ¶ 21,150, at 24,711 (CFTC 1981). Cauble claims no margin call was ever made in this case, that he traded down on July 7, 1982 to what was agreed with Joe Belanoff as zero margin, and that at no time was he asked to post additional margin. The Mabon partners and Joe Belanoff claim that Cauble refused to post additional funds after a request to do so.

In view of the evidence presented on this issue, summary judgment for the defendants would be inappropriate on Count One of the complaint, since material issues of fact remain in dispute. Mabon may rely on the terms of the Goodman customer agreement. Whether the agreement justified liquidation, however, depends upon the circumstances, which are in material dispute. See Heyman v. Commerce and Industry Insurance Co., 524 F.2d 1317, 1320 (2d Cir.1975) (summary judgment improper where contractual language is susceptible of two reasonable interpretations). Whether Mabon made a margin call and then acted reasonably in light of the circumstances is a question for the jury.

In his second and third causes of action for negligence and gross negligence, plaintiff asserts that defendants Mabon and Jeffrey Pollack breached the duty owed by a broker to his customer under state law by closing out his account without authorization or notice. Defendants seek.to dismiss these claims on the grounds that Mabon had no duty either to continue trading in or to maintain Cauble’s undermargined account according to the provisions of the Goodman customer agreement. Under New York law, however, Mabon, as Cauble's broker and agent, had a fiduciary duty to use reasonable efforts to give its principal information relevant to affairs Cauble had entrusted to the broker. See Schenck v. Bear, Stearns & Co., 484 F.Supp. 937, 946-47 (S.D.N.Y.1979). Cauble has alleged and sworn that Mabon reassured Cauble on July 7 and 8 that his account would not be liquidated and that Mabon, in fact, continued executing orders on July 8 after claiming that they would accept only offsetting trades. Furthermore, some evidence exists that Jeffrey Pollack and John Friel, with whom Cauble had previously refused to trade, deliberately undermined the Cauble/Mabon course of trading by arranging to liquidate at a time when none of the regular Mabon contacts upon whom Cauble relied would be available to countermand their plan. Leon Pollack was on vacation and Joe Belanoff was ordered to stay home, allegedly as part of a plan to deceive Cauble about the firm’s determination to refuse trades.

Defendants further contend that the claims based on gradations of allegedly negligent conduct provide no separate ground for relief. Under New York law, however, gross negligence is a tort differing from ordinary negligence in kind rather than degree. Gross negligence implies willful or intentional misconduct. It is defined as the thoughtless disregard of consequences which may ensue from an act, and an indifference to the rights of others. Unlike the failure to use ordinary and reasonable care in simple negligence, gross negligence justifies the imposition of liability and damages, even when the parties have provided in a contract against liability. See Hong Kong Export Credit Ins. Corp. v. Dun and Bradstreet, 414 F.Supp. 153, 160 (S.D.N.Y.1975); Denmark v. New York Telephone Co., 97 Misc.2d 205, 411 N.Y.S.2d 506 (Civ.Ct., Kings Cty. 1978). The proof offered on this motion thus requires a trial on both the negligence claims. Sadowy v. Sony Corp., 496 F.Supp. 1071, 1076 (S.D.N.Y.1980).

II. Claims Relating to the Settlement.

Cauble’s fraudulent inducement claim under state law asserts that Mabon deceived Cauble into making a $175,785.00 payment on the account deficit by promising special releases which Mabon never tendered. Under New York law the essential elements of a cause of action for fraudulent inducement in the making of an agreement are (1) representation of a material fact, (2) falsity of that representation, (3) scienter, (4) reliance, and (5) damages. Newman v. Silver, 553 F.Supp. 485, 497 (S.D.N.Y.1982) modified on other grounds, 713 F.2d 14 (2d Cir.1983); Brown v. Lockwood, 76 A.D.2d 721, 730, 432 N.Y.S.2d 186, 193 (2d Dep’t 1980). The action cannot be predicated solely upon promissory statements relating to future acts which constitute the contractual obligations themselves; the failure to perform such promises of future acts is actionable in a suit for breach of contract, not fraud. Robbins v. Ogden Corp., 490 F.Supp. 801, 809 (S.D.N.Y.1980); Wegman v. Dairylea Cooperative, Inc., 50 A.D.2d 108, 113, 376 N.Y.S.2d 728, 734-35 (4th Dep’t 1975). But one who makes a contractual promise with the undisclosed intention to breach it can be held liable for fraud. Sherkate Sahami Khass Rapol v. Henry R. Jahn and Son, Inc., 531 F.Supp. 1048, 1061 (S.D.N.Y.1982), modified on other grounds, 701 F.2d 1049 (2d Cir.1983). Proof of such intention, however, must be based on more than a mere showing of nonperformance. DiRose v. Pk Management Corp., 691 F.2d 628, 632-33 (2d Cir.1982), cert. denied, 461 U.S. 915, 103 S.Ct. 1896, 77 L.Ed.2d 285 (1983).

The record in this case indicates that something more than a dispute or misunderstanding about the terms and form of the release prevented completion of the August 3 agreement. Cauble expected a near simultaneous exchange — a payment from Cauble that would release all obligations to Mabon sent by Federal Express to arrive on August 4 for a release or letter stating the circumstances of the account closing signed by Mabon partners to be discussed by phone on August 4 and sent by the same means on August 5. Plaintiff’s Exhibit C. Mabon failed to respond until August 10, after Cauble’s check had been deposited and cleared, and then Mabon merely sent standard releases. Despite Leon Pollack’s earlier recorded reassurances, his letter to Cauble dated August 25 flatly states “the letter obviously was not to be an admission that we had done anything incorrectly.” Pollack Affidavit Ex. F. In addition, Leon Pollack knew during the negotiations that Belanoff was ordered to remain at home so that he could not execute any further trades in the Cauble account, and that Belanoff knew of the Mabon partners’ decision to refuse Cauble’s trades on July 7. These fácts and contentions constitute sufficient evidence, beyond mere nonperformance of the promise, that Mabon intended to breach its promises to Cauble when they were made, so that summary judgment for the defendants on this count is inappropriate.

The plaintiffs claim for fraudulent inducement based on the same facts under section 4b of the CEA, however, must be dismissed; the scope of section 4b does not encompass settlement negotiations undertaken after an account is closed. By its express language section 4b prohibits fraudulent conduct on the part of brokers, their agents, and employees in connection with the taking of orders or the disposition of commodity contracts:

It shall be unlawful ... for any member of a contract market in or in connection with any order to make, or the making of, any contract of sale ... made, or to be made, on or subject to the rules of any contract market, for or on behalf of any other person ... to cheat or defraud ... such other person____

7 U.S.C. § 6b (1982).

The broad range of customer transactions covered by the statute includes unauthorized trading in an account, Haltmier v. Commodity Futures Trading Commission, 554 F.2d 556 (2d Cir.1977), misrepresentations made to induce transactions in an account, In the Matter of Clancy [1977-1980 Transfer Binder] Comm.Fut.L.Rep. (CCH) ¶ 20,905, at 23,675 (1979), misrepresentations made prior to liquidation, Chipser, 600 F.2d at 1068, and by extension fraudulent solicitations relating to the opening of an account, Hirk v. Agri Research Council, Inc., 561 F.2d 96, 103-04 (7th Cir.1977). By contrast, however, the disputed negotiations concerning Cauble’s deficit payment and the releases, occurring after all trading had terminated, was not conduct “in connection” with contract trading although it arose out of trading activity! The distinction may be illustrated by contrasting the narrow language of § 4b of the CEA with the broad definition of “claim or grievance” in the regulation promulgated under the arbitration provision of the CEA, 7 U.S.C. § 7a(ll): “The term ‘claim or grievance’ as used in this part shall mean any dispute which arises out of any transaction on or subject to the rules of the contract market executed by or effected through a member of that contract market____” 17 CFR § 180.1. Accordingly, Court Six — the fraudulent inducement claim under the CEA — is dismissed.

Defendants assert that plaintiff has no implied right of action under the CEA for aiding and abetting based on a 1983 amendment to 7 U.S.C. § 13c which expressly provides that those who intentionally assist others in violating the CEA can be held responsible as principals. Defendants contend that, before the enactment of the 1983 amendment to § 13c, aiders and abettors could be held responsible only in administrative proceedings and that, since plaintiff began this action prior to 1983, no private right of action existed. Even before 1983, however, a private right of action for damages against violators had been generally, though not uniformly, recognized in federal courts under the aiding and abetting section. See Arnold v. Bache & Co., Inc., 377 F.Supp. 61, 65 (M.D.Pa.1973); Barlas v. Munir, [1980-1982 Transfer Binder] Comm.Fut.L.Rep. (CCH) ¶ 21,-224 at 25,109 (E.D.N.Y.1981). But see Strax v. Commodity Exchange, Inc., 524 F.Supp. 936, 944 (S.D.N.Y.1981). Following the Supreme Court’s resolution of the issue in Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 388, 102 S.Ct. 1825, 1844, 72 L.Ed.2d 182 (1982) (private cause of action under the CEA survived the 1974 amendments), Congress amended the statute by eliminating the restrictive language of section 13. The amendment was intended to ensure consistent treatment of aiders and abettors in both an administrative forum and before the courts, not to create a new cause of action for enforcement of the Act’s provisions. See H.R.Rep. No. 565, Part I, 97th Cong. 2nd Sess. 4, reprinted in 1982 U.S. Code Cong. & AD News 3871, 3902. The legislative history and case law reveal, however, that the purpose of the provision was to allow the Commodity Futures Trading Commission and the courts to reach those who instigated, controlled, or supervised violations of the Act but who were shielded by legal entities of corporations or partnerships. H.R.Rep. supra at 3902; In the Matter of International Commodity Options Ltd., [1977-1980 Transfer Binder] Comm.Fut.L.Rep. ¶ 20,876, at 23,575 (CFTC 1979); In the Matter of Taylor Commodity Corp. [1980-1982 Transfer Binder] Comm.Fut.L.Rep. (CCH) ¶ 21,037, at 24,096 (CFTC 1980). Mabon and its general partners, Leon and Jeffrey Pollack, are already charged as principals in this action on the same facts in Counts One and Six under the CEA. In addition, Mabon is a partnership organized in accordance with New York law under which all partners and the partnership are jointly and severally liable for the wrongful acts of a partner or employee acting in the ordinary course of the partnership’s business. See Partnership Law § 24-26 (McKinney 1982). Absent any allegation or evidence that - an entity or individual acting outside the scope of the Mabon partnership was induced or controlled by Mabon to violate the CEA by liquidating the Cauble account or negotiating payment, Counts Four and Seven under section 13c of the CEA are duplicative and are therefore dismissed.

III. Interference with Business Dealings.

Cauble alleges in Count Eight that Mabon interfered with his business dealings with Miller, Tabak and Hirsch, and with Bear Stearns & Co., by circulating a highly prejudicial report about him throughout the industry. The evidence presented by the plaintiff in response to the defendants’ motion for summary judgment on this charge is an unauthenticated tape transcript of a conversation between Alan Harp and Dennis Gartman, then a broker with A.G. Becker, indicating that Gartman had seen such a report in the files of his firm.

Because the transcript relied on here is unauthenticated, it is inadmissible. (A recorded telephone conversation is admissible in evidence at trial only if the identity of the speaker is satisfactorily established.) See United States v. Albergo, 539 F.2d 860, 863-64 (2d Cir.1976), cert. denied, 429 U.S. 1000, 97 S.Ct. 529, 50 L.Ed.2d 611 (1976); United States v. McKeever, 169 F.Supp. 426, 429-31 (S.D.N.Y.1958). No admissible evidence having been presented to create any génuine dispute of material fact, summary judgment for the defendants on this count is granted.

IV. Alleged Conversion.

Cauble alleges in Count Nine that Mabon’s deposit and retention of his check for $174,785.00 in settlement of the deficit in his accounts constitutes a conversion of those funds, since Mabon liquidated his account without notice or authorization. When stocks carried on margin or commodities contracts are unlawfully sold without notice, the broker is liable for conversion and the customer is entitled to damages based on the higher of either (1) the value of the contracts at the time of liquidation, or (2) the highest intermediate value between notice of the conversion and a reasonable time thereafter during which the contracts could have been replaced had that been desired. See Mayer v. Monzo, 221 N.Y. 442, 446, 117 N.E, 948, 950 (1917); Schultz v. Commodity Futures Trading Commission, 716 F.2d 136, 140-41 (2d Cir.1983). Thus the deficit, representing the loss realized by the sale of unprofitable contracts, might have been offset, as Cauble asserts, by potential profits lost as a result of Mabon’s wrongful liquidation at an unfavorable time.

Nevertheless, Mabon’s retention of the $175,785.00 does not constitute conversion of funds from wrongfully sold contracts within the meaning of Monzo and Schultz. Conversion of property is an unauthorized exercise of dominion or control over property by one who is not its owner which interferes with another person’s superior possessory rights. United States v. Paladin, 539 F.Supp. 100, 103 (W.D.N.Y.1982); Meese v. Miller, 79 A.D.2d 237, 242, 436 N.Y.S.2d 496, 500 (4th Dep’t 1981). In this case Cauble sent the check after extended negotiations at arm’s length with Leon Pollack over the valuation of the contracts and mutual releases. The sum included $69,000 indisputably owed Mabon on the Fern Lynch and Lewis Cauble accounts, both of which were closed with Cauble’s authorization. It also included $106,000 ($56,000 less than the deficit figure Mabon claimed), representing the amount Cauble acknowledged at the time was due Mabon based on a valuation of both the treasury bond contracts, following Mabon’s usual method of determining daily deficits, and silver contracts valued at the time of sale. By his actions acknowledging the deficit, negotiating the amount, and conveying the check, Cauble indicated that Mabon had a right to possession of the check. See Silver, 553 F.Supp. at 498 (negotiated lawyer’s fees willingly turned over held not to be converted even though later established by the court as excessive). Moreover, subsequent disagreements with Mabon resulting in Cauble’s demand for the return of the.check concerned the form of the releases and the alleged breach of the exchange agreement, not a repudiation of the deficit in the amount of $174,785.00 previously acknowledged by Cauble.

Therefore, defendants’ motion for summary judgment is granted on Counts Four and Seven for aiding and abetting under § 13 of the CEA, Count Six for fraudulent inducement under § 4b of the CEA, Count Eight for tortious interference with Cauble’s business relations with Bear Stearns & Co. and Miller Tabak & Hirsch, and Count Nine for conversion of the $174,-785.00 check under state law. F.R.C.P. 56. Defendants’ motion for summary judgment is denied with respect to Count One for fraudulent trading under § 4b of the CEA in the liquidation of the Cauble account, Counts Two and Three for negligence and gross negligence arising from the unauthorized 'liquidation under state law, and Count Six for fraudulent inducement under state law stemming from the settlement agreement.

V. Potential Damages.

Even if the plaintiff can prevail on the remaining counts, the measure of damages in a case of wrongful liquidation is a matter of law and the appropriate measure will be the difference between the liquidation prices of the contracts and the “highest intermediate prices reached by the identical contracts during a reasonable period after the wrongful sale.” Letson v. Dean Witter Reynolds, Inc., 532 F.Supp. 500, 503 (N.D.Cal.1982), aff’d, Shearson Loeb Rhoades, Inc. v. Bryant, 730 F.2d 769 (9th Cir.1984).

Cauble contends that a reasonable period to determine damages caused by Mabon’s liquidation is the time between July 8, when Mabon closed his account, and August 26, when he was able to open a new account. Cauble’s calculation of lost profits during that period amounts to $352,000.00. Cauble claims that his criminal conviction made it difficult to establish a new account relationship, a difficulty he claims was foreseeable by Mabon, and thereby implies that Mabon’s liquidation was the proximate cause of Cauble’s inability to open a new account until August 26. Mabon’s liquidation certainly forced Cauble to establish a new account with another broker if he wanted to continue trading, but this cannot be considered the proximate cause of his inability to do so until August 26. The only other account he opened was on solicitations by his Mabon broker, Belanoff. And although Cauble asserts that he attempted to open other accounts, see Cauble Depo. Tr. at 128, 141-42, 165, the record is devoid of concrete evidence to support his claim. If anything made it difficult for Cauble to open a new account, it was his criminal conviction. Cauble has thus far presented no admissible evidence that Mabon tortiously interfered with his prospective business relations. Absent such evidence, and considering Cauble’s experience and capabilities as a trader and his immense wealth, a reasonable period to use to determine damages would be two trading days. See Letson, 532 F.Supp. at 504.

Cauble’s claim for $793,750.00 in damages for orders for Treasury Bond contracts which Mabon refused to place is similarly unfounded. The cases cited in Plaintiffs Memorandum of Law in Response to Order Dated June 13, 1984 Requesting Briefing on Certain Issues involved transactions that were never actually executed by the broker, who nevertheless represented to the trader that they were in fact completed or were in the process of being completed. In this case, Mabon refused to accept the purchase order. The measure of damages, if any, will be the difference between the price at which the order should have been executed and the price at which the customer could subsequently have executed the order within the next two trading days. See Parman v. London Commodity Options, Ltd. et al [1977-80] Comm. Futures Law Rep. ¶ 20,-804 at 23,274 (C.F.T.C.1979).

If defendants are prepared to pay the damages resulting from this analysis, even though they claim no liability, the Court will enter an appropriate judgment for the amounts involved and a trial on the open claims can be avoided. Meanwhile, judgment will be entered dismissing Counts Four, Six, Seven, Eight, and Nine. FRCP 56.

SO ORDERED.


source: Caselaw Access Project

author: FLANNERY, District Judge.

license: Public Domain

text:
    MARINE POWER AND EQUIPMENT COMPANY, INC., Plaintiff, v. The UNITED STATES, Defendant.
    Civ. A. No. 84-2469.
    United States District Court, District of Columbia.
    Aug. 31, 1984.

      Gilbert J. Ginsburg, Epstein, Becker, Borsody & Green, Washington, D.C., for plaintiff.
    John Bayly, Asst. U.S. Atty., Washington, D.C., for defendant.
   MEMORANDUM

FLANNERY, District Judge.

This matter came before the Court on plaintiff’s motion for a preliminary injunction and on motions to dismiss filed by defendant and defendant-intervenor. For the reasons stated herein, plaintiff’s motion for a preliminary injunction is denied, the motions to dismiss are granted, and this case is dismissed.

BACKGROUND

This is the fourth in a series of cases arising out of a United States Coast Guard procurement in which the Coast Guard seeks fifteen patrol boats (“WPBs”) on an expedited basis to combat drug smuggling in the Gulf Coast area. See Marine Power & Equipment Co. v. United States, (1984) 5 Cl.Ct. 795 [hereinafter “MPE I”]; Bollinger Machine Shop & Shipyard, Inc. v. United States, 594 F.Supp. 903 (D.D.C.1984) [hereinafter “Bollinger”]; Eastern Marine, Inc. v. United States, 5 Cl.Ct. 34 (1984), appeal docketed, No. 84-1444 (Fed.Cir. July 19, 1984) [hereinafter “Eastern Marine"]. On May 11, 1984, the Coast Guard awarded the contract to plaintiff Marine Power & Equipment Company (“MPE”). Bollinger Machine Shop and Shipyard, Inc. (“Bollinger”), the only other bidder left in the competition immediately prior to the award, filed the Bollinger action in this Court shortly after the contract was awarded to its competitor. Bollinger alleged that the Coast Guard interpreted the Circular of Requirements (“COR”) for the WPB procurement too broadly, and argued that a proper interpretation of the COR would reveal that MPE’s proposal involving 12-cylinder WPB engines was nonresponsive and that Bollinger’s 16-cylin-der proposal was responsive. Bollinger sought an injunction setting aside the MPE award and requiring the Coast Guard to award the contract to Bollinger. MPE, whose entitlement to the contract award was being attacked directly in Bollinger, chose not to intervene. However, MPE actively assisted the Coast Guard during tHe course of the Bollinger proceedings. After two motions hearings and a hearing on the merits, and after consideration of numerous documents and extensive testimonial evidence, the Court set aside the Coast Guard’s award to MPE. The crux of the Court’s decision was that the Coast Guard ignored the explicit requirements of the COR and abandoned its stated commitment to the “Parent Craft” concept by permitting MPE engine size deviations from the Parent Craft which were simply determined to be “to the advantage of the WPB mission.” Bollinger, 594 F.Supp. at 914-915. In doing so, the Court held, the Coast Guard clearly violated its own regulations, which were carefully designed to ensure expeditious delivery of low-risk patrol boats needed to satisfy the agency’s urgent need for reliable craft. This impermissible action, the Court held, was prejudicial to Bollinger, which had submitted a conservative proposal that was, unlike the MPE 12-cylinder engine proposal, well within the specifications established by the COR.

In Bollinger, plaintiff Bollinger alleged in its complaint that its WPB bid was the only responsive offer. Bollinger Complaint ¶ 17. Defendant Coast Guard denied that Bollinger’s proposal was “responsive ” but admitted that Bollinger was “fully responsive and capable of performing in accordance with its offer and the RFP”. Defendant’s Answer in Bollinger at ¶ 17. After expedited discovery, the parties, with MPE’s knowledge, stipulated that Bollinger’s proposal was “an acceptable technical proposal from a responsible source, within the competitive range for this solicitation, conformed fully to the essential requirements of the solicitation, and was eligible for the award of the subject contract.” After reviewing extensive evidence presented regarding Bollinger’s proposal, this Court adopted the stipulation as fact. Bollinger, at 908-909. Bollinger argued that because it was a responsive bidder, the Court should award it the contract if it found MPE’s 12-cylinder proposal to be nonresponsive. Although the Court agreed that Bollinger was responsive, it refused to award it the contract because an additional bid was still before the agency, and uncertainty regarding that bid’s responsiveness was created by a stipulation regarding MPE Parent . Craft engine size. As the Court explained,

the record reflects that MPE submitted a second bid involving WPB’s with 16-cylin-der engines. Although the parties stipulated for purposes of this action that the MPE Parent Craft could be treated as if it contained 20-cylinder engines, it may have contained 16-cylinder engines. If so, MPE’s alternate 16-cylinder WPB bid may be responsive. It is not clear to the Court that multiple WPB bids are permissible, or that MPE’s 16-cylinder bid is in fact responsive, because these issues have not been litigated here. If MPE’s Parent Craft contained 20-cylinder engines, then its 16-cylinder proposal will probably face the same difficulty as its 12-cylinder proposal [dissimilar and not possessing “superior power” ], but even that is not clear from this, record.

Id. at 915. The Court went on to state that because Bollinger’s bid was responsive, the Coast Guard certainly had the “option of expeditiously awarding the WPB contract to plaintiff.” Id. at 915. Due to the presence of the MPE 16-cylinder bid, however, the Court remanded the case back to the Coast Guard for final selection, and directed that it take “appropriate action not inconsistent with the Court’s decision.” Id., Judgment Order. The Court has since learned that MPE’s Parent Craft contained 20-cylinder engines, a fact that was not before it in Bollinger.

Shortly after this Court’s Bollinger decision, the Coast Guard issued a stop-work order to MPE. Before the Coast Guard took further action, MPE filed MPE I in the United States Claims Court. There, MPE sought injunctive relief enjoining the Coast Guard from awarding the WPB contract to anyone other than MPE. MPE I, 5 Cl.Ct. at 796, 800. MPE there argued that the Eastern Marine decision estopped this Court in Bollinger from finding MPE to be nonresponsive, that this Court did not have jurisdiction to litigate the Bollinger case, and that this Court’s interpretation of the COR was incorrect because it ignored the Coast Guard’s statutory duty to procure nothing more than vessels that would meet its “minimum needs.” Id. at 797-798. The MPE I Court noted that MPE was not arguing that Bollinger’s proposal violated the requirements of the solicitation. Id. at 800 n. 8. The Court held that MPE’s preliminary injunction motion was without merit, and granted defendant’s motions to dismiss.

On August 8, 1984, the Coast Guard awarded the WPB contract to Bollinger. On August 10, 1984, MPE, now an unsuccessful bidder, filed this action. Count I of plaintiff MPE’s complaint now alleges thatBollinger’s WPB proposal was not responsive to the solicitation. Count II alleges that the Coast Guard was obligated after the Bollinger decision to discuss with MPE the deficiencies in its proposals and to offer MPE an opportunity to revise its proposals before the contract was re-awarded. Count III alleges that the specifications of the COR, as interpreted by this Court, are too restrictive because they do not reflect the minimum needs of the Coast Guard, as allegedly required by law. Plaintiff requests preliminary and permanent injunctive relief directing the Coast Guard to set aside its award to Bollinger, discuss with MPE the deficiencies in its proposals, and amend its COR to reflect its minimum needs.

Shortly after commencement of this case, plaintiff filed a motion for expedited discovery and a motion for a preliminary injunction. Bollinger filed a motion to intervene, and defendant United States Coast Guard and Bollinger filed -motions to dismiss. The Court granted Bollinger’s motion to intervene; and a hearing was held on plaintiff’s expedited discovery motion oh August 16, 1984. Later that day, the Court denied plaintiff’s motion for expedited discovery, ordered that both sides submit affidavits relevant to the preliminary injunction motion, and ordered that a hearing on the preliminary injunction motion and the motions to dismiss filed by the Coast Guard and defendant-intervenor Bollinger [hereinafter “defendants”] be held on August 23, 1984. Memorandum Order filed August 16, 1984. The issue's were fully briefed and argument was heard. DISCUSSION

The Court is intimately familiar with the essential facts and legal issues involved in this case because it is the second case it has been called upon to decide involving the same procurement. In fact, as discussed in Part B below, many of the issues plaintiff seeks to litigate here have already been litigated. The Court has decided, however, to rule separately on plaintiff’s motion for a preliminary injunction and defendants’ motions to dismiss.

A. Plaintiffs Motion for a Preliminary Injunction.

A party seeking the extraordinary remedy of a preliminary injunction must show (1) that it has a likelihood of succeeding on the merits of the complaint; (2) that it will be irreparably injured without the granting of the injunction; (3) that the issuance of the injunction will not substantially harm other parties interested in the proceedings; and (4) that the grant of a preliminary injunction would be in the public interest. Washington Metropolitan Transit Commission v. Holiday Tours, Inc., 559 F.2d 841, 843 (D.C.Cir.1977). In considering plaintiff’s motion for a preliminary injunction, the Court will assess plaintiff’s likelihood of prevailing on the merits while assuming, argUendo, that plaintiff is not es-topped from asserting its claims. At this point, the Court will consider MPE’s involvement in relating litigation only insofar as it affects the Court’s balancing of the equities.

In this case, plaintiff MPE has demonstrated little, or no, likelihood of prevailing on the merits of any of its three claims. Plaintiff faces the heavy burden of demonstrating either that “(1) the procurement official’s decision on matters committed primarily to its own discretion had no rational basis, or (2) the procurement procedure involved a clear and prejudicial violation of applicable statutes and regulations.” Kentron Hawaii, Limited v. Warner, 480 F.2d 1166, 1169 (D.C.Cir.1973). Bollinger was one of the rare eases in which the plaintiff satisfied this heavy burden; plaintiff here cannot do so.

The Court is convinced that plaintiff cannot prevail in its Count I claim that Bollinger’s bid is nonresponsive. As discussed in Part B below, this Court is quite familiar with Bollinger’s WPB proposal. Plaintiff now contends that Bollinger’s WPB proposal is impermissibly “dissimilar” from Bollinger’s Parent Craft because of changes in the WPB’s electrical switchboard, the use of a governor in the WPB engine, and an increase in the potential horsepower of the WPB engine. The Court disagrees. Unlike the MPE 20 to 12-cylinder engine switch, the Bollinger engine substitution was necessitated by the unavailability of its Parent Craft' engine. Unlike MPE’s switch, the Bollinger substitution was clearly permissible under the COR and fully consistent with the Parent Craft concept. The complained-about changes in the,Bollinger WPB electrical system, as well as Bollinger’s use of a governor to ensure horsepower equivalence, are clearly the types of technical changes the Coast Guard had the discretion to approve, and the Court must defer to such technical judgments as it did in Bollinger, see Bollinger, 594 F.Supp. at 912-914. Most importantly, the Bollinger substitution of a new 16-cylinder engine for an outmoded 16-cyl-inder engine does not violate the explicit requirements of COR § 042. Under the liberal interpretation of the “similarity” requirement in the first part of § 042 approved in Bollinger, at 913-914, an engine substitution is clearly impermissible only if it violates the explicit requirements of the clause in § 042 which reads:

When lesser dimensions and weights and superior power, service, material, and maintenance characteristics are demonstrable and are to the advantage of the WPB’s mission, the proposed item will be acceptable provided all other criteria are met.

Plaintiff does not contest that Bollinger’s engine substitution involves a new engine that is approximately the same size as the Parent Craft engine, see Declaration of Frank N. MeCarthey at ¶ 18. Hence the requirements of § 042, which apply only to smaller engines, may not even apply. Even if they do, it is also uncontested that the Bollinger WPB engine contains superi- or power, id. at ¶¶ 14-17, and the MeCarthey affidavit and evidence adduced in Bollinger convince the Court that the new engine also has better maintenance characteristics and material than the replaced Parent Craft engine, id. In short, the Bollinger engine substitution clearly meets the requirements of the language of § 042 cited above. That section does not, as plaintiff argues, forbid any WPB engine that contains different horsepower or internal structure than the Parent Craft engine — it simply establishes requirements that must be met when substitutions are made. In fact, in stark contrast to MPE’s substitution of a less powerful 12-cylinder engine for the MPE 20-cylinder Parent Craft, Bollinger reduced the dissimilarity of its engine substitution even further by inserting a governor that would create identical horsepower and avoid the need to restructure the craft’s propulsion system. Bollinger’s approach to this procurement was quite conservative, see Bollinger, at 908-909, 915, and plaintiff simply cannot prevail in its claim that Bollinger’s substitutions rendered its WPB proposal nonresponsive or violated the Parent Craft requirements.

Neither can plaintiff prevail on Count II of its complaint — that the Coast Guard was obligated to discuss MPE’s WPB proposals with MPE after the Bollinger decision and to provide MPE an opportunity to cure its deficiencies. As discussed in detail in Part B below, even if plaintiff’s allegations are accepted as true, this claim must be dismissed as a matter of law.

Plaintiff’s Count III claim — that the COR impermissibly required more than the Coast Guard’s “minimum needs” — is equally meritless. Even if the collateral estoppel and res judicata problems that bar this claim are brushed aside, the Court believes that the COR for this procurement did no more than require proposals that met the Coast Guard’s minimum needs. Plaintiff’s argument on this count is based on the preBollinger opinion of Coast Guard technical officers that MPE’s proposal was a satisfactory technical proposal. But in this procurement, the Coast Guard legitimately sought more than technically acceptable Patrol Boats. The Coast Guard, through the COR, stressed that it needed WPB’s that would be tested, relatively risk-free, and capable of expeditious production and use. That is why the “Parent Craft” concept was developed and stressed throughout the procurement. The Coast Guard’s “minimum need” — in fact its paramount need — in this procurement was for boats that did not deviate from proven Parent Crafts and so could be manufactured quickly and without the risks that would accompany a normal procurement, see Bollinger, at 905-906. As reflected in Sections 200 and 042 of the COR, the Coast Guard was particularly concerned that WPB engines be identical to or similar to Parent Craft engines, and was particularly averse to substitution of smaller engines that could deliver less power than the Parent Craft. Given the Coast Guard’s urgent need for reliable patrol boats that could achieve speeds necessary for use in drug interdiction missions, these requirements were eminently reasonable and central to the procurement. It is precisely because the Coast Guard ignored these critical requirements — explicitly established by the COR— that this Court invalidated the MPE award in Bollinger. If this Court were to hold that the Coast Guard is not permitted to establish such requirements, as plaintiff argues, it would be forbidding' the agency to establish requirements essential to its stated mission.

Plaintiff is not only unlikely to prevail on the merits of its claims, but has failed to convince the Court that a balancing of the equities favors issuance of a preliminary injunction. As Judge Margolis eloquently stated in MPE I, plaintiff is in no position to seek equitable relief at this point, having “slept on its rights” in a manner that estops it from seeking injunctive relief. MPE I, 5 Cl.Ct. at 800-801. Plaintiff chose not to intervene in Bollinger, in which it could have argued that Bollinger's WPB proposal was nonresponsive and that the MPE proposal met the Coast Guard’s “minimum needs.” Plaintiff could have argued in MPE I that Bollinger’s proposal was nonresponsive, but failed to do so. MPE I, at 800 n. 8. It now seeks a third opportunity for court review of this procurement, and finally' comes to this Court to argue that it will be irreparably injured if injunctive relief is not immediately granted. If this Court were to permit such litigation- tactics, there would be no end to procurement disputes, as each bidder would sit back to see if the other bidder’s court challenge is successful before intervening to protect its own rights. The Coast Guard in this case has an urgent need for Patrol Boats, and this Court is convinced that Bollinger’s proposal is responsive. Similarly, the public has a strong interest in production of the boats in an expeditious manner to combat drug smuggling. Issuance of a preliminary injunction in these circumstances would do no more than delay an urgent mission for the benefit of a nonresponsive bidder that stands little, if any, chance of proving that its remaining proposals are acceptable or that its competitor’s proposal is not acceptable. The Court will not exercise its discretionary authority to issue a preliminary injunction and thereby further interfere with this procurement.

B. Defendants’ Motions to Dismiss.

Notwithstanding the Court’s view that plaintiff’s chances of prevailing on Counts I and III of its claims are remote, the Court believes that plaintiff is estopped from litigating those claims here. Count II of plaintiffs complaint, although not barred, must be dismissed under Fed.R.Civ.P. 12(b)(6) for failure to state a claim.

Plaintiffs Count I claim — that Bollinger’s WPB bid is nonresponsive under this Court’s interpretation of the COR — is barred under the related doctrines of collateral estoppel and res judicata. As noted above, plaintiff MPE chose not to intervene in Bollinger, even though its contract award was being challenged and its interests were at stake. However, MPE actively assisted the Coast Guard in that action. It furnished affidavits, did legal research and suggested arguments, consulted with the Coast Guard on discovery matters, benefited by a stipulation regarding its Parent Craft engine size that preserved its proprietary privilege, was on notice of the case from the outset, and attended all court proceedings. As the Supreme Court held in Montana v. United States, 440 U.S. 147, 154, 99 S.Ct. 970, 975, 59 L.Ed.2d 210 (1979), the interests fostered by the doctrines of collateral estoppel and res judicata are implicated when non-parties assume control over litigation “in which they have a direct financial or proprietary interest” if they “then seek to redetermine issues previously resolved.” In fact, the Court went so far as holding that one who “assists in the prosecution or defense of an action in aid of some interest of his own ... is as much bound ... as he would be if he had been a party to the record.” Id., citing Schnell v. Peter Eckrich & Sons, Inc., 365 U.S. 260, 262 n. 4, 81 S.Ct. 557, 559, 5 L.Ed.2d 546 (1961). Under this reasoning, courts have held that a party that fails to intervene in an action directly challenging its interests may be barred from bringing a later collateral attack, see Society Hill Civic Association v. Harris, 632 F.2d 1045, 1052 (3d Cir.1980); see also Southwest Airlines Co. v. Texas International Airlines, 546 F.2d 84, 102 (5th Cir.) cert. denied, 434 U.S. 832, 98 S.Ct. 117, 54 L.Ed.2d 93 (1977); Expert Electric, Inc. v. Levine, 554 F.2d 1227, 1233-34 (2d Cir.) cert. denied, 434 U.S. 903, 98 S.Ct. 300, 54 L.Ed.2d 190 (1977). Thus, for purposes of the Court’s estoppel analysis, MPE is bound by the Bollinger litigation as if it had been a party.'

Under the doctrine of collateral estoppel, once an issue is “actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive in subsequent suits based on a different cause of action involving a party [or an active non-party] to the prior litigation.” Montana, 440 U.S. at 153, 99 S.Ct. at 973 (citations omitted). With regard to Count I of plaintiff’s instant complaint, then, the critical issue for purposes of collateral estoppel analysis is whether Bollinger’s responsiveness under the terms of the COR was “actually and necessarily determined” by this Court in Bollinger. As noted above, Bollinger alleged in its complaint that it was responsive, and the Coast Guard denied the allegation, although it admitted that Bollinger was responsible and capable of performing in accordance with its offer and the RFP. It does not appear that the Coast Guard initially admitted that Bollinger met the requirements of the COR as interpreted by Bollinger and eventually by the Court. During the course of that litigation, however, the parties stipulated to Bollinger’s responsiveness. In support of Bollinger’s argument that it deserved an injunction ordering that it be awarded the contract and in addition to the stipulation, Bollinger presented testimony and documentary evidence regarding the technical specifications of its WPB bid. After evaluating this evidence, the Court adopted the stipulation as -fact, and relied upon the facts thereby established in fashioning its injunctive relief. The Court in Bollinger held that the Bollinger bid was responsive to the COR as interpreted by the Court, Bollinger, 594 F.Supp. at 908, 915, 916. Because the possibility of another responsive bidder existed, however, the Court did not accept Bollinger’s argument that it was the only remaining responsive bidder, and so declined to order that Bollinger be awarded the contract and remanded the case to the Coast Guard.

A strange estoppel issue is thus presented: MPE argues that the Court’s finding that Bollinger was responsive was not “necessary” to the Court’s decision, because a remand would have been required due to its alternative bid regardless of Bollinger’s responsiveness. But the only reason the Court could not conclude that Bollinger was the only responsive bidder was because of the uncertainty created by a second stipulation regarding the engine size of MPE’s Parent Craft. That stipulation, which stated that the MPE Parent Craft contained either 16 or 20-cylinder engines, was developed to protect MPE’s proprietary privilege. If MPE’s Parent Craft contained a 16-cylinder engine, then MPE’s alternative 16-cylinder craft might have been responsive. If the Court had known the truth — that the MPE Parent Craft contained a 20-cylinder engine — then it would have been in a position to determine that MPE’s alternative 16-cylinder bid was also nonresponsive due to dissimilarity in engine size, see Bollinger, at 915. Under such circumstances, Bollinger’s proposal, which was clearly responsive, would have been deemed the only responsive bid and the contract would have been awarded to Bollinger. But for the misleading stipulation, then, the Court would have had to determine whether Bollinger’s bid was responsive before awarding it the WPB contract, and the Court’s finding on this issue would have been “necessary.” It would be inequitable at this point to give credence to MPE’s argument that the Bollinger responsiveness issue was not “necessary” to the Bollinger decision, since determination of the issue would have been “necessary” had the Court been told the truth about the MPE Parent Craft engine size during the Bollinger litigation.

A similar problem is presented with regard to the issue of whether Bollinger’s stipulated responsiveness was “actually litigated.” Although the issue was originally contested by the Coast Guard, a stipulation was reached. MPE argues that the stipulation was binding only for purposes of the Bollinger action, and has no binding effect on MPE, a non-party. Had MPE intervened and objected to the stipulation, however, the issue would have had to have been thoroughly litigated because its determination was necessary to the Court’s fashioning of equitable relief, see supra. MPE is now attempting to shield itself from the estoppel consequences it would have faced if it had intervened. If MPE is treated as a party under the Montana reasoning, then it should be bound by the stipulation. In addition, the Court heard extensive testimony on the responsiveness of Bollinger’s bid, and found’as a fact that it was responsive. This action involves the same procurement and the same COR that was the subject of Bollinger, and, as discussed in Part A, no evidence has been presented here that persuades the Court that its prior finding that Bollinger was responsive was incorrect. Again, it would be inequitable and a waste of judicial resources to permit MPE to litigate this issue again.

Even if MPE is not technically collaterally estopped from litigating the issue of Bollinger’s responsiveness, it is clearly barred by the doctrine of res judicata from doing so. Under res judicata, “a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action.” Allen v. McCurry, 449 U.S. 90, 94, 101 S.Ct. 411, 414, 66 L.Ed.2d 308 (1980) (emphasis added). Clearly, MPE “could have” and should have raised the issue of Bollinger’s responsiveness in the United States Claims Court in MPE I. When that action was filed, and by virtue of this Court’s Bollinger order, the original MPE award was set aside and the Bollinger and MPE 16-cylin-der proposals were the only proposals that were even arguably eligible for the award. In MPE I, MPE sought an injunction against the award to any bidder except MPE. Clearly, the allegation that Bollinger was nonresponsive and therefore not eligible would have been an appropriate one which, assuming this Court’s Bollinger decision did not bar such an allegation, could have been litigated in the Claims Court. Had the issue been raised there, the Claims Court, if it concluded that the issue was not collaterally estopped by Bollinger, could have litigated it fully, and, if it decided in plaintiff’s favor, could have granted the requested injunction against award to any bidder other than MPE — because MPE would then have been the only remaining bidder. But MPE chose not to raise the issue of Bollinger’s responsiveness in the Claims Court, MPE I, 5 Cl.Ct. at 800 n. 8, and now seeks to raise the issue here. As the Court held in Marrese v. American Academy of Orthopedic Surgeons, 726 F.2d 1150, 1152 (7th Cir.) (en banc), cert. granted in part, — U.S. —, 104 S.Ct. 3553, 82 L.Ed.2d 854 (1984), the doctrine of res judicata forbids a plaintiff from splitting his cause of action by bringing a suit on one theory and then, after he has lost, trying again on a different theory. See Federated Department Stores, Inc. v. Moitie, 452 U.S. 394, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981). The final judgment in MPE I, which involved the same procurement as is at issue here, bars plaintiff from bringing its Count I claim.

Count III of plaintiff’s complaint is similarly barred by the doctrines of collateral estoppel and res judicata. The central issue in Bollinger was the proper interpretation of the COR for this procurement. Plaintiff’s “minimum needs” argument is no different from the arguments presented by the Coast Guard in Bollinger. The Coast Guard there argued that MPE’s 12-cylinder proposal was acceptable under Section 042 of the COR because it was deemed “to the advantage of the WPB mission.” Bollinger, 594 F.Supp. at 914. The Coast Guard argued that because it had made that technical determination, the Court should not interfere and should not interpret the COR as requiring more. That argument was rejected in light of the explicit language of § 042 requiring “superi- or power and maintenance” for smaller engine substitutions. Id. at 914-915. These explicit requirements, the Court determined, were consistent with the COR’s stated reliance on the “Parent Craft” concept, which was designed to fulfill the Coast Guard’s urgent need for reliable and proven boats. Id. at 905-906, 915. Thus, this Court has already faced and rejected the “minimum needs” argument, albeit not couched in those exact terms. MPE is therefore collaterally estopped from relitigating that issue here.

In addition, MPE presented its “minimum needs” argument to the Claims Court, MPE I, 5 Cl.Ct. at 798, 799, 800 n. 9. That Court decided that MPE was estopped from litigating the issue there because it was already litigated in Bollinger, id. at 914 n. 9. This Court agrees, and refuses to give plaintiff a third chance to litigate its meritless position.

Plaintiff is correct that the doctrines of res judicata and collateral estoppel do not bar its Count II claim .that the Coast' Guard was required to discuss the deficiencies in the MPE proposals prior to awarding the WPB contract to Bollinger. But this claim is clearly meritless, and is properly dismissed under Fed.R.Civ.P. 12(b)(6). Given this Court’s Bollinger decision — in which the Coast Guard was explicitly given the option of expeditiously awarding the contract to Bollinger, the Coast Guard acted reasonably in so doing. Plaintiff alleges that the Burnley Memorandum, attached to Plaintiff’s Supplemental Brief in Opposition to Defendant and Defendant-Intervenor’s Motions to Dismiss as Exhibit A, shows that the Coast Guard failed to consult with MPE and did nothing more than assess the viability of its options in light of the Bollinger decision before deciding to award the contract to Bollinger. The Court accepts these allegations as true, but holds that the Burnley affidavit demonstrates that the Coast Guard took “appropriate action in accordance with” this Court's Bollinger decision as directed, and that the agency was obligated to do nothing more. As discussed in detail above, the only reason the Court remanded the Bollinger case to the Coast Guard was because MPE’s alternative 16-cylinder proposal may have been responsive if its Parent Craft had contained 16-cylinder engines, which would have given the CoastGuard the option of awarding the contract to MPE for that proposal instead of to' Bollinger for its responsive proposal. But. the Court also stated in Bollinger that, in the event that. MPE’s Parent Craft in fact contained 20-cylinder engines, then MPE’s 16-cylinder proposal would be nonresponsive also, Bollinger, at 915. MPE now admits what was known already by the Coast Guard — that its Parent Craft contained 20-cylinder engines. Thus, the Coast Guard was faced with only three “best and final offers”: the MPE 12-cylin-der proposal, which this Court held to be nonresponsive; the 16-cylinder MPE proposal, which this Court strongly indicated to be nonresponsive; and the Bollinger proposal, which this Court held to be responsive. The Coast Guard’s selection of the Bollinger proposal was clearly in accordance with this Court’s directive.

MPE contends that the Coast Guard was nevertheless obligated to give MPE a chance to discuss its deficiencies and to cure them. It cites several procurement regulations in support thereof, but those regulations have since been replaced by the Federal Acquisition Regulations System, which now governs all federal procurements, see 48 Fed.Reg. 42103 et seq. Plaintiff would argue that the “discussions” requirements set forth in FAR § 15.609-610, 48 Fed.Reg. 42202, required the Coast Guard to reopen discussions with MPE and Bollinger after this Court set aside the original award to MPE. The Court disagrees. Section 15.611(e), 48 ' Fed.Reg. 42203, explicitly states that “after receipt of best and final offers, the contracting officer should not reopen discussions unless it is clearly in the Government’s interest to do so.” In this case, in which the Coast Guard’s urgent need for WPB’s has already been delayed by litigation, it is clearly not in the Government’s interest to reopen discussions — especially in light of this Court’s Bollinger decision, which makes the responsiveness of Bollinger’s proposal clear and the nonresponsiveness of MPE’s two “best and final offers” equally obvious. Further, as defendants have pointed out, even if the Coast Guard reopened discussions, MPE’s chances to “cure” its WPB proposals would be remote and such action would be very time-consuming. Because the MPE Parent Craft contains 20-cylinder engines, both the 12 and 16-cylinder proposals could only be made “similar” by insertion of 20-cylinder engines. Such a substitution would involve prohibitive cost and would require extensive technical modifications from MPE’s two existing offers. Even if the. Coast Guard were to permit such time-consuming changes, evidence adduced in Bollinger established that a 20-cylinder WPB would not be responsive either, because it could not meet cruising range requirements. Bollinger, at 909. In fact, it was because of this deficiency that MPE initially decided to substitute smaller engines. Id. at 913. Hence, even if there is some requirement, not known to the Court, that the Coast Guard give MPE a second chance to modify its proposals, and even if that requirement was violated,- the violation is not “prejudicial” to MPE because MPE cannot' cure its deficiencies to meet the requirements of the COR given its present Parent Craft. Absent a prejudicial violation of agency regulations, a disappointed bidder is not entitled to relief, Kentron Hawaii, 480 F.2d at 1169. Plaintiff here, however, cannot even point the Court to an applicable regulation that has been violated, and the Court declines to invent a requirement that federal procurements be reopened every time an award is set aside by a Court in favor of a responsive competing bidder. Such a requirement would stifle the government procurement process and prejudice bidders that have faithfully adhered to an agency’s explicit procurement requirements in favor of those that have persuaded an agency to bend its requirements impermissibly.

For the reasons discussed above, this case is dismissed. An appropriate Order accompanies this Memorandum.

ORDER

This matter came before the Court on plaintiff’s motion for a preliminary injunction, and on motions to dismiss filed by defendant and defendant-intervenor. For the reasons stated in an accompanying Memorandum, after careful consideration of the motions filed, the oppositions thereto, the arguments of counsel, and the entire record in this case, it is, by the Court, this 31st day of August, 1984,

ORDERED, that plaintiff’s motion for a preliminary injunction is denied; and it is further

ORDERED, that the motions to dismiss filed by defendant and defendant-intervenor are granted; and it is further

ORDERED, that this case be, and hereby is, dismissed with prejudice.

      . The factual background for this case is further presented in Bollinger, 594 F.Supp. at 903-910.

      . See Bollinger, at 905 n. 1; MPE I, 5 Cl.Ct. at 797 n. 2, 800 n. 8; Government Exhibits 2, 3, & 4, attached to Defendant United States’ Memorandum in Opposition to Plaintiff’s Motion for Expedited Discovery.

      . The Court in Montana explained that the preclusion of active non-parties, as discussed above, falls under the rubric of collateral estoppel rather than res judicata. Montana, 440 U.S. at 154, 99 S.Ct. at 974.

      . It is undisputed that MPE knew of the Bollinger stipulation, objected thereto, but chose not to intervene.

      . The court in MPE 1 granted defendants’ motions to dismiss under Fed.R.Civ.P. 12(b)(6), which is the equivalent of.a judgment on the merits. Federated Department Stores, Inc. v. Moitie, 452 U.S. 394, 399 n. 3, 101 S.Ct. 2424, 2428 n. 3, 69 L.Ed.2d 103 (1981).

      . Plaintiff also argues that Section M-2 of the Request for Proposals ("RFP”) for this procurement required the Coast Guard to reopen discussions. But this argument fails for the same reason — the RFP only requires negotiations before submission of "best and final offers," and explicitly states that "negotiations, if held, will be closed simultaneously with all offerors in the final competitive range with the submission of a best and final offer.” RFP § M-2(7). The RFP contains no requirement that the negotiations process be reopened, subsequent to the submission of best and final offers, if a reviewing court determines that one or more of those offers is nonresponsive.