source: Caselaw Access Project

author: LASKER, District Judge.

license: Public Domain

text:
    Mahmoud FUSTOK, Plaintiff, v. CONTICOMMODITY SERVICES, INC., Conticapital Management, Inc., Continental Grain Company, Walter M. Goldschmidt, Norton Waltuch, Tom Waldeck and Ivan Auer, Defendants.
    No. 82 Civ. 1538(MEL).
    United States District Court, S.D. New York.
    Sept. 20, 1985.
    Curtis, Mallet-Prevost, Colt & Mosle, New York City, for plaintiff; Herbert Stoller, New York City, of counsel.
    Sidley & Austin, New York City, for defendant Continental Grain Co.; Lawrence H. Hunt, Jr., David T. Pritikin, Marc J. Gottridge, New York City, of counsel.
    Parker Auspitz Neesemann & Delehanty P.C., New York City, for defendant Walter Goldschmidt; Jack C. Auspitz, Hollis L. Hyans, New York City, of counsel.
   LASKER, District Judge.

In another of a seemingly unending stream of motions by all parties defendants Walter Goldschmidt and Continental Grain Company (“ContiGrain”) move pursuant to Federal Rule of Civil Procedure 12(c) for judgment on the pleadings dismissing Fustok’s twenty-first claim. The facts in this action for fraud in connection with various silver transactions involving Fustok’s commodity trading account with ContiCommodity Services, Inc. (“Conti”) are set forth in, among other decisions, Fustok v. ContiCommodity Services, Inc., 577 F.Supp. 852, 853-55 (S.D.N.Y.1984).

According to the allegations in the Second Amended Complaint, which we accept as true for the purposes of this motion, in 1979-1980 Goldschmidt was an officer and employee of ContiGrain (a corporation engaged in the business of trading and dealing in commodities and futures contracts) and president of Conti, a registered Futures Commission Merchant (“FCM”) and a wholly owned subsidiary of ContiGrain. The twenty-first claim asserts that Goldschmidt breached his duty under 17 C.F.R. 166.3 to “diligently supervise” defendant Norton Walduch’s handling of Fustok’s account in 1979-1980. Fustok asserts that ContiGrain also is liable for Goldschmidt’s alleged failure to supervise. Although it is not clear from the Second Amended Complaint, Fustok’s theory in this regard apparently is that ContiGrain is liable under the doctrine of respondeat superior. See Plaintiff’s Memorandum in Opposition at 3 (filed Feb. 5, 1985). The defendants move for judgment on the pleadings dismissing the claim for failure to state a cause of action on the ground that there is no implied right of action under Rule 166.3. For the reasons set forth below the motion is granted.

Rule 166.3 was promulgated by the Commodities Futures Trading Commission (“CFTC” or “the Commission”) pursuant to its rulemaking authority under the Commodity Exchange Act (“CEA” or “the Act”), 7 U.S.C. §§ 1-24 (1976 and Supp. Ill 1979). The rule states in relevant portion: § 166.3 Supervision

Each Commission registrant ... must diligently supervise the handling of all commodity interest accounts carried, operated or advised by the registrant and all other activities of its partners, officers, employees and agents (or persons occupying a similar status or performing a similar function) relating to its business as a Commission registrant.

The defendants argue, first, that Merrill Lynch, Pierce, Fenner & Smith v. Curran, 456 U.S. 353, 102 S.Ct. 1825, 72 L.Ed.2d 182 (1982) does not recognize an implied cause of action under Rule 166.3. They assert further, upon the Curran Court’s reasoning, that since a right of action under Rule 166.3 had not been implied before 1974, the date that comprehensive amendments to the CEA were passed, it should not be created thereafter. Fustok responds that, contrary to the defendants’ interpretation of the decision, Curran supports the existence of a private right of action because Curran held that there is a right of action under CEA § 4b, 7 U.S.C. § 6b, and Rule 166.3 was enacted pursuant to the Commission’s rulemaking authority under that section.

We do not consider Curran to be controlling here because whether Rule 166.3 may support a private right of action was not raised by the parties, nor considered by the Court. See Taylor v. Bear Stearns & Co., 572 F.Supp. 667, 676-77 (N.D.Ga.1983). Curran held that investors may sue a broker for fraud pursuant to, inter alia, CEA § 4b, 7 U.S.C. § 6b, see Curran, 456 U.S. at 390-91, 102 S.Ct. at 1845-46, and that “exchanges can be held accountable for breaching their statutory duties to enforce their own rules____” Id. at 394, 102 S.Ct. at 1847. Justice Stevens, writing for the five to four majority, explained that on the facts before the Court, the controlling question was not whether Congress intended to create a new cause of action when it passed the 1974 amendments to the CEA but rather, whether Congress intended to eliminate remedies already available under the Act. Id. at 378-79, 102 S.Ct. at 1839-40. The Curran majority then concluded that the comprehensive reevaluation of the CEA undertaken by Congress and resulting in the Commodities Futures Trading Commission Act of 1974, 88 Stat. 1389, left unchanged the statutory provisions pursuant to which federal courts had previously implied a cause of action and that this was “evidence that Congress affirmatively intended to preserve that remedy.” Id. at 381-82, 102 S.Ct. at 1840-41.

The Curran rationale does not foreclose implying a private right of action after 1974 under Rule 166.3 because the rule was not enacted until 1978. See generally 43 Fed.Reg. 31,886-91 (1978). Congress’ action in 1974 does not have the same implication as to a rule passed in 1978 as the Curran court held that it did concerning pre-1974 provisions.

Nor is Fustok’s argument persuasive. The authority for the proposition that Rule 166.8 was promulgated pursuant to the Commission’s rulemaking power under CEA § 4b, 7 U.S.C. § 6b, appears in the preamble to Part 166 of the C.F.R. which reads: “AUTHORITY: . . . 7 U.S.C. 6b, 6c(b), 6g(1), 6Z, 6o and 12a(5)____” However, Part 166 includes several different provisions and it is unclear whether each provision is enacted pursuant to all of the sections enumerated. Nonetheless, even assuming that Fustok is correct, in our view it would be an unwarranted analytical leap to conclude that in the absence of allegations sufficient to invoke section 4b ah independent right of action exists based solely on Rule 166.3 since the Commission, as a regulatory agency, does not have the authority to broaden the scope of the Act beyond what Congress intended. See Securities Industry Association v. Board of Governors of the Federal Reserve System, — U.S. -, 104 S.Ct. 2979, 2983, 82 L.Ed.2d 107 (1984); Federal Election Commission v. Democratic Senatorial Campaign Commission, 454 U.S. 27, 32, 102 S.Ct. 38, 42, 70 L.Ed.2d 23 (1981); Securities Exchange Commission v. American Board of Trade, Inc., 593 F.Supp. 335, 339 (S.D.N.Y.1984).

In sum, we conclude that Curran neither supports nor precludes an implied right of action under Rule 166.3. The issue apparently is one of first impression in this Circuit. But cf. Sherman v. Sokoloff 570 F.Supp. 1266, 1271 (S.D.N.Y.1983) (Court assumes without discussion that right of action may exist under Rule 166.3 but grants summary judgment for the defendants.)

The primary ground upon which the defendants attack the twenty-first claim is that, Curran aside, Congress never intended to provide for a private right of action under Rule 166.3. In this regard the defendants argue that Fustok’s claim against Goldschmidt for breach of his supervisory duties is a form of “derivative” or “secondary” liability, i.e., based solely on his status as supervisor, without proof of any involvement in the underlying scheme. They assert that this claim is therefore analogous to a claim under the CEA for aiding and abetting, and liability imposed upon “controlling persons”. See Commodities Exchange Act §§ 13(a) and (b), 7 U.S.C. § 13c(a) (1976) and 7 U.S.C.A. § 13e(b) (Supp.1985). Based upon this analogy the defendants argue that implying a right of action from Rule 166.3 would be contrary to congressional intent because (1) there was no provision imposing liability on a “controlling person” until the 1982 CEA amendments and those amendments limit “controlling person” liability to enforcement actions brought by the CFTC; (2) until 1983 the CEA limited liability for aiding and abetting to administrative proceedings; and (3) Rule 166.3 does not include the safeguards that Congress included in the 1983 amendments restricting the circumstances under which “aiding and abetting” and “controlling person” liability may be imposed.

Fustok responds that Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975), supports an implied right of action pursuant to Rule 166.3 because (1) Fustok is a member of the class for whose “especial benefit” the rule was enacted, see id. at 78, 95 S.Ct. at 2087; (2) there is no record of the Legislature’s- intent to deny such a remedy; and (3) such an action is consistent with the antifraud prohibitions in the CEA’s overall regulatory scheme.

To maintain a cause of action based upon Rule 166.3 Fustok must establish that a right of action existed at the time his claim arose in 1979-1980. See Bennett v. E.F. Hutton Co., 597 F.Supp. 1547 (N.D.Ohio 1984). Congress did not discuss whether a private individual could maintain an action under the CEA until 1982 when it once again examined the Act with a special emphasis on, inter alia, enforcement and remedies for violations of the Act. Futures Trading Act of 1982, Pub.L. No. 97-444, 96 Stat. 2322. The legislative activity resulted in several amendments which became effective in 1983, including, for the first time, an express provision granting private rights of action. Id. § 235. It is true that Congress never explicitly discussed the availability (or non-availability) of a private action resting on Rule 166.3. Nor is the provision of the 1983 amendments providing private rights of action retroactive. See Commodities Exchange Act § 22(d), 7 U.S.C.A. § 25(d) (Supp.1985). For these two reasons the 1983 amendments and the legislative history surrounding them have no direct bearing on Fustok’s twenty-first claim. Nevertheless, to the extent that the 1982 legislative history is not inconsistent with Congress’ previous expressions, it is a relevant consideration in determining whether implying a right of action under Rule 166.3 is consistent with the regulatory scheme of the Act. Cf. Sam Wong & Son, Inc. v. New York Mercantile Exchange, 735 F.2d 653, 676 n. 30 (2d Cir.1984) (agreeing with the district court’s statement that although the 1983 amendment providing for private rights of action has only prospective effect, the policies of the new provision are relevant considerations “where accrued rights have not yet been identified.” Jordon v. New York Mercantile Exchange, 571 F.Supp. 1530, 1540 (S.D.N.Y.1983)).

A person may be held liable under the CEA for aiding and abetting when he assists another to commit a (prohibited) act. See, e.g., H.R.REP. NO. 565, 97th Cong., 2d Sess. 53, reprinted in 1982 U.S.CODE CONG. & AD.NEWS 3871, 3902. Nonetheless, such liability is not premised solely on the acts of another, but upon his own acts which he carries out for the purpose of assisting another to violate the CEA. Accordingly, we do not consider “aiding and abetting” liability to be a true form of “derivative” liability. We therefore find the aiding and abetting provisions, and the accompanying legislative history, inapplicable to the question presented here.

On the other hand, CEA § 13(b), 7 U.S. C.A. § 13c(b) provides:

Any person who, directly or indirectly, controls any person who has violated any provision of this chapter or any of the rules, regulations, or orders issued pursuant to this chapter may be held liable for such violation in any action brought by the Commission to the same extent as such controlled person. In such action, the Commission has the burden of proving that the controlling person did not act in good faith or knowingly induced, directly or indirectly, the act or acts constituting the violation, (emphasis supplied).

The provision was enacted to “make clear that a person who directly or indirectly controls another person (or entity) which violates the Act, would himself be liable as a principal to the same extent as the controlled person.” H.R.REP. NO. 565 at 53, reprinted in 1982 U.S.CODE CONG. & AD.NEWS at 3902.

This basis of liability is “derivative” as we interpret that term, and is similar to the type of liability which Fustok seeks to impose on Goldschmidt as Waltuch’s supervisor. Indeed, the language of the statute and the House Report could well have been describing Fustok’s twenty-first claim. Accordingly, we look to the “controlling person” provision in the CEA to provide us with some insight as to where this form of secondary liability fits in the regulatory scheme envisioned by Congress.

The plain language of both the statute and the House Report limit the relief under the provision to actions brought by the Commission. Moreover, when Congress did not wish to limit a remedy to an action brought only by the CFTC it made its intention clear by affirmatively deleting such restrictive language. Compare CEA § 13(b), 7 U.S.C. § 13c(b) (controlling person) with CEA 13(a), 7 U.S.C. § 13c(a) (aiding and abetting). See also CEA § 22(a)(1), 7 U.S.C. § 25(a)(1) (providing for private rights of action for aiding and abetting); compare also CEA § 13(a), 7 U.S.C. § 13c(a) (1976) with CEA § 13(a), 7 U.S.C.A. § 13c(a) (Supp.1985) (deleting provision which restricts relief for aiding and abetting to “administrative proceedings”). Further, Congress’ concern in limiting liability under this provision is apparent throughout the legislative debates. Notably, Congress rejected the version of the controlling persons provision which was advocated by the CFTC that would have imposed a broader scope of liability than the statute does in its present form. See, e.g., H.R.REP. NO. 565 at 126, reprinted in U.S.CODE CONG. & AD.NEWS at 3975. (“This proposal met with strong resistance____”) We find the congressional expressions to be evidence that Congress did not intend derivative liability actions of this nature to be brought by private citizens. Accordingly, we conclude that a private right of action under Rule 166.3 may not be implied.

Fustok’s not capricious argument that Rule 166.3 was enacted for the “especial benefit” of customers like himself does not compel a contrary conclusion. In asserting this proposition Fustok correctly points to one of the criteria identified in Cort v. Ash, 422 U.S. at 78, 95 S.Ct. at 2087, for determining whether a cause of action should be implied. Nonetheless, the critical, indeed dispositive, focus of the inquiry is whether “Congress intended to create, either expressly or by implication, a private cause of action.” Touche Ross & Co. v. Redington, 442 U.S. 560, 575, 99 S.Ct. 2479, 2488, 61 L.Ed.2d 82 (1979).

It is true that Rule 166.3 was enacted by the CFTC as one of several “Customer Protection Rules”, see 43 Fed.Reg. 31,886-91 (1978), and that the CFTC stated that the rules were “to provide greater protections to the customers of commodity firms.” Id. at 31,886. However, the expressions of the CFTC as a regulatory agency may or may not be consistent with or probative of Congress’ purpose, see Securities Industry Association v. Board of Governors of the Federal Reserve System, 104 S.Ct. at 2983, and, in any event, are not a part of the legislative history of the Act.

Nor, as Fustok seems to believe, does it automatically follow that a rule which inheres to the customers’ benefit gives rise to a federal private right of action. As we view the legislative history of the CEA, Congress intended to provide for a dual regulatory scheme with the right to bring actions for violations shared by the CFTC and private litigants. However, we find nothing in the legislative history which indicates that Congress intended the rights of the CFTC and the rights of investors to be identical. Indeed, the House Report makes clear that the Commission bears the primary responsibility of insuring compliance with the Act and the rules and regulations promulgated thereunder:

The availability of these remedies-reparations, arbitration and private rights of action-supplements, but does not substitute, for the regulatory and enforcement program of the CFTC and self-regulatory agencies. The [Agricultural] Committee fully expects that these agencies will vigorously use the tools at its command to protect the investing public so that it does not become necessary to rely on private litigants as a policeman [sic] of the Commodity Exchange Act. H.R. REP. NO. 565 at 57, reprinted in U.S. CODE CONG. & AD.NEWS at 3906. (Emphasis supplied).

As is frequently the case when the courts are called upon to divine legislative intent, resolution of the issue is not free from doubt. Nonetheless, for the foregoing reasons we conclude that Fustok may not maintain an action based solely on a violation of Rule 166.3. Since such a right is a necessary predicate for Fustok’s claim against ContiGrain, this claim also fails.

Judgment is granted on the twenty-first claim of the Second Amended Complaint and the claim is dismissed.

Submit judgment on notice.

      . The defendants filed a motion for judgment on the pleadings dismissing the twenty-first claim in the Amended Complaint on January 16, 1985. Fustok subsequently filed a Second Amended Complaint on August 6, 1985 which contains the identical twenty-first claim. Accordingly, we treat the defendants' motion as a motion for judgment on the pleadings dismissing the twenty-first claim of the Second Amended Complaint.

      . The twenty-first claim also alleges that Goldschmidt was under a duty to supervise under common law and under the CEA, 7 U.S.C. §§ 1 et seq. However, Fustok apparently concedes that, as the defendants argue, (1) he has not alleged the elements of a CEA fraud claim, and (2) the common law does not recognize the duty he describes.

      . At issue in Curran were CEA §§ 4b, 9(b), 4a, 5(d) and 5a(8), 7 U.S.C. §§ 6b, 13(b), 6a, 7(d) and 7a(8) (1976 and Supp. IV), respectively. See 456 U.S. at 372 n. 49, 102 S.Ct. at 1836 n. 49.

      . In a May 1985 letter to the court Fustok has brought to our attention a decision in which an administrative law judge held that the vice president of a commodity brokerage firm was liable to a customer for breaching his responsibilities under Rule 166.3. Kalkstein v. Delphi Commodities, Inc., [Current Transfer Binder] Comm.Fut.L.Rep. (CCH) ¶ 22,555 (CFTC April 18, 1985). However, in 1979-80 when Fustok’s rights accrued, not every remedy available in an administrative proceeding could also be pressed in a federal action. Cf. Strax v. Commodity Exchange, Inc., 524 F.Supp. 936, 944 (S.D.N.Y.1981) (holding an "aider and abettor’’ could only be held liable in administrative proceedings). We therefore consider Kalkstein to have limited precedential value.


text:
    Mahmoud FUSTOK, Plaintiff, v. CONTICOMMODITY SERVICES, INC., Conticapital Management Inc., Continental Grain Company, Walter M. Goldschmidt, Norton Waltuch, Tom Waldeck and Ivan Auer, Defendants.
    No. 82 Civ. 1538(MEL).
    United States District Court, S.D. New York.
    Sept. 20, 1985.
    Curtis, Mallet-Prevost, Colt & Mosle, New York City, for plaintiff; Herbert Stoller, Eliot Lauer, Scott J. McKay Wolas, New York City, Andrew S. Montgomery, Law Clerk, of counsel.
    Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for defendants ContiCommodity Services, Inc. Tom Waldeck and Ivan Auer.
    Kaye, Scholer, Fierman, Hays & Handler, New York City, for defendant Norton Waltuch, Steven J. Glassman, New York City, of counsel.
   LASKER, District Judge.

The twenty-fourth claim of the Second Amended Complaint alleges that “Conti, Conti Grain and Conti Management (or in the alternative, Conti, Conti Grain, Conti Management, Advicorp and/or Nahas) were an enterprise ..., as defined in 18 U.S.C. § 1961(4) engaged in, and the activities of which affected, interstate and foreign commerce”; that “the defendants, being individuals and entities employed by and associated with the enterprise, unlawfully, wilfully and knowingly did conduct and participate, directly and indirectly, in the conduct of the affairs of the enterprise through a pattern of racketeering activity ...”; that such conduct violated 18 U.S.C. §§ 1962(c) and (d); and that Fustok was injured by the defendants’ conduct.

All of the defendants move pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss the twenty-fourth claim for failure to state a claim upon which relief can be granted. The single argument advanced by the defendants is that the RICO claim is defective because Conti, Conti Grain and Conti Management, who are among the named defendants, cannot as a matter of law simultaneously be RICO “enterprises” and “persons” liable to Fustok under that statute. For the reasons set forth below the motion is denied.

18 U.S.C. § 1962(c) (1982) provides that [i]t shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.

The Court of Appeals for the Second Circuit has recently followed the majority of the circuits in holding that “under section 1962(c) a corporate entity may not be simultaneously the ‘enterprise’ and the ‘person’ who conducts the affairs of the enterprise through a pattern of racketeering activity.” Bennett v. United States Trust Co., 770 F.2d 308, 315 (2d Cir.1985); see also B.F. Hirsch v. Enright Refining Company, Inc., 751 F.2d 628, 633-34 (3rd Cir.1984); Haroco v. American National Bank and Trust Company, 747 F.2d 384, 399-402 (7th Cir.1984), aff'd on other grounds, — U.S. -, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985); United States v. Computer Sciences Corp., 689 F.2d 1181, 1190-91 (4th Cir.1982), cert. denied, 459 U.S. 1105, 103 S.Ct. 729, 74 L.Ed.2d 953 (1983); Bennet v. Berg, 685 F.2d 1053, 1061-62 (8th Cir.1982), aff'd on rehearing, 710 F.2d 1361 (en banc), cert. denied, 464 U.S. 1008, 104 S.Ct. 527, 78 L.Ed.2d 710 (1983); but see United States v. Hartley, 678 F.2d 961, 987-90 (11th Cir.1982), cert. denied, 459 U.S. 1170, 103 S.Ct. 815, 74 L.Ed.2d 1014, 459 U.S. 1183, 103 S.Ct. 834, 74 L.Ed.2d 1027 (1983). In sum, the defendants have correctly stated the relevant law. Nevertheless, because we find that the Second Amended Complaint alleges the existence of an enterprise with an identity that is distinct from the defendants Fustok seeks to hold liable under RICO, the motion is denied.

It is Fustok’s position that the association in fact of the three corporations constitutes an “enterprise” within the meaning of RICO, and that the association is an entity that is “separate and distinct” from the individual corporation defendants themselves. The defendants reply that while it is permissible under the statute to allege that the parent corporation is an enterprise whose affairs are conducted by its (defendant) subsidiary, a RICO enterprise may not consist of a parent and subsidiary, when that parent and subsidiary are also alleged to be the “persons” through which the enterprise’s affairs were conducted.

18 U.S.C. §§ 1961(3) and (4) provide that (3) “person” includes any individual or entity capable of holding a legal or beneficial interest in property; ■
(4) “enterprise” includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity;____

In United States v. Huber, 603 F.2d 387, 393-94 (2d Cir.1979), cert. denied, 445 U.S. 927, 100 S.Ct. 1312, 63 L.Ed.2d 759 (1980), the Court of Appeals for this Circuit held that a group of corporations may constitute a “group of individuals associated in fact” within the meaning of section 1961(4). Moreover, an association in fact which constitutes a RICO enterprise is not merely a synonym for the collective of “individuals” which form the association, but instead, it is a distinct entity. As the court stated in Haroco, supra:

Where persons associate “in fact” for criminal purposes, see [United States v. Turkette, 452 U.S. 576, 584, 101 S.Ct. 2524, 2529, 69 L.Ed.2d 246 (1981) ], each person may be held liable under RICO for his, her or its participation in conducting the affairs of the association in fact through a pattern of racketeering activity. But the nebulous association in fact does not itself fall within the RICO definition of “person”. We doubt that an “association in fact” can, as such, hold any interest in property or even be brought into court. In the association in fact situation, each participant in the enterprise may be a “person” liable under RICO, but the association itself cannot be. 747 F.2d at 401.

See also Hudson v. LaRouche, 579 F.Supp. 623, 628 (S.D.N.Y.1983); cf. Rich-Taubman Association v. Stamford Restaurant Operating Co., 587 F.Supp. 875, 878 (S.D.N.Y.1984) (association consisting of all “builder and vendor defendants” was properly alleged RICO “enteprise”).

It is true that the Second Amended Complaint does not explicitly allege that the three corporations were “associated in fact”. However, the relevant paragraph in the complaint relies upon section 1961(4) which contains that language. See Second Amended Complaint at ¶ 102. We read the complaint to assert that a group of corporations formed an enterprise for the purpose of engaging in commodities trading, or alternatively, manipulating the silver market, and in any event, the business of the enterprise was conducted through a pattern of racketeering, i.e., the perpetration of fraudulent transactions concerning Fustok’s account. Moreover, we find that the allegations as to the enterprise, i.e., the association, separate and distinguish it from the individual entrepreneurs, i.e., the named defendants. It follows that the twenty-fourth claim is legally sufficient.

Nonetheless, Fustok’s request for Rule 11 attorney’s fees in connection to his costs in defending against the motion is denied. In view of the complexities of the RICO statute (the interpretation of which is still evolving through the courts) and particularly where, as here, courts have come to different conclusions in answering the legal questions raised by the defendants’ motions, the defendants’ motions cannot be regarded as frivolous and Fed.R.Civ.P. 11 has not been violated. See generally Wells v. Oppenheimer & Co., 101 F.R.D. 358, 359 (S.D.N.Y.1984).

The motion to dismiss the twenty-fourth claim in the Second Amended Complaint is denied.

It is so ordered.

      . United States v. Huber, supra, involved criminal RICO charges. However, “the essential elements of a substantive § 1962 RICO offense are the same in both criminal and civil RICO actions.” Kaufman v. Chase Manhattan Bank, N.A., 581 F.Supp. 350, 357 (S.D.N.Y.1984); accord Haroco v. American National Bank & Trust Co., 747 F.2d at 400.

      . Or, in the alternative, Conti, Conti Grain, Con-ti Management, Nahas and/or Advicorp are separate "individuals".


text:
    Mahmoud FUSTOK, Plaintiff, v. CONTICOMMODITY SERVICES, INC., Conticapital Management, Inc., Continental Grain Company, Walter M. Goldschmidt, Norton Waltuch, Tom Waldeck and Ivan Auer, Defendants.
    No. 82 Civ. 1538(MEL).
    United States District Court, S.D. New York.
    Sept. 20, 1985.

      Curtis, Mallet-Prevost, Colt & Mosle, New York City, (Herbert Stoller, Kevin R. Kopelson, New York City, of counsel), for plaintiff.
    Sidley & Austin, New York City, (Marc J. Gottridge, New York City, Lawrence H. Hunt, Jr., David T. Pritikin, Sidley & Austin, Chicago, 111., Sheldon L. Berens, Gen. Counsel, New York City, of counsel), for Continental Grain Co.
    Parker Auspitz Neesemann & Delehanty P.C., New York City, (Jack C. Auspitz, Hollis L. Hyans, New York City, of counsel), for Walter M. Goldschmidt.
    Paul, Weiss, Rifkind, Wharton & Garrison, New York City, (Mark H. Alcott, Cameron Clark, Richard A. Rosen, New York City, of counsel), for ContiCapital Management, Inc.
   LASKER, District Judge.

Defendants Continental Grain Company (“Conti Grain”),. Walter M. Goldschmidt, and ContiCapital Management, Inc. (“Conti Management”) move pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss as to them the fifth, twenty-first, and twenty-fourth claims alleged in plaintiff Mahmoud Fustok’s Second Amended Complaint.

The fifth and twenty-first claims assert implied private rights of action for violations of the Commodity Exchange Act (“CEA”), 7 U.S.C. §§ 1-24 (1976 & Supp. III 1979). The fifth claim alleges that Conti Grain, Goldschmidt, and Conti Management, along with others, reallocated to Fustok’s ContiCommodity Services, Inc. trading account 200 losing silver futures contracts originally purchased for someone else. The twenty-first claim alleges that Conti Grain and Goldschmidt failed diligently to supervise defendant Norton Waltuch’s handling of Fustok’s account. The twenty-fourth claim asserts a cause of action under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961-68 (1982), alleging acts of mail and wire fraud by Conti Grain, Goldschmidt, and Conti Management, in addition to other defendants.

Defendants argue that all three claims are timebarred by the applicable statutes of limitations. It is agreed that Fustok did not assert any claims against Conti Grain, Goldschmidt, or Conti Management until at least four and one-half years from the date of the last transaction upon which the claims are based. Defendants contend that the two CEA claims are governed by a two-year statute of limitations and that the RICO claim is subject to a three-year statute of limitations. Defendants also maintain that because the requirements of Federal Rule of Civil Procedure 15(c)(2) have not been met, the addition of Conti Grain, Goldschmidt and Conti Management as defendants in the litigation may not relate back to the date of the original complaint so as to avoid the application of the statutes of limitations. Fustok counters that a six-year statute of limitations applies to both the CEA claims and the RICO claim, and that in any event, Rule 15(c) does permit the claims against Conti Grain and Goldschmidt to relate back to the date of the original complaint.

For the reasons set forth below, the defendants’ motion to dismiss the fifth, twenty-first, and twenty-fourth claims is denied.

Statute of Limitations for the CEA Claims

The fifth and twenty-first claims, which assert implied private rights of action under the CEA, are not governed by any expressly applicable statutes of limitations. In such a situation a federal court must “ ‘borrow’ the most suitable statute or other rule of timeliness from some other source.” DelCostello v. International Brotherhood of Teamsters, 462 U.S. 151, 158, 103 S.Ct. 2281, 2287, 76 L.Ed.2d 476 (1983). The general rule has been that federal courts will “look to the limitation periods of their forum states governing the most nearly analogous cause of action.” Bache Halsey Stuart, Inc. v. Namm, 446 F.Supp. 692, 693 (S.D.N.Y.1978) (implied right of action under the CEA).

Defendants argue, however, that the most suitable rule of limitations for a private action under the CEA is the two-year period already embodied in the federal regulatory scheme in Sections 14(a), 7 U.S.C. § 18(a) (1982) (administrative reparations proceedings) and 22(c), 7 U.S.C. § 25(c) (1982) (private right of action), of the CEA. In support of this suggestion, they cite DelCostello, supra, in which Justice Brennan stated:

[Rjesort to state law remains the norm for borrowing of limitations periods. Nevertheless, when a rule from elsewhere in federal law clearly provides a closer analogy than available state statutes, and when the federal policies at stake and the practicalities of litigation make that rule a significantly more appropriate vehicle for interstitial lawmaking, we have not hesitated to turn away from state law.

462 U.S. at 171-72, 103 S.Ct. at 2294. Defendants argue that the two-year statute of limitations provided in Section 14 of the CEA, 7 U.S.C. § 18, for the initiation of administrative reparations proceedings should apply because it governs a closely related form of relief. They also point out that the 1982 amendment that created in Section 22 of the CEA, 7 U.S.C. § 25, an express private right of action with a two-year statute of limitations constitutes “the closest possible analogy to an implied right of action” under the statute and provides “the best indication of congressional intent” as to how to fill the statute of limitations gap. Defendants’ Memorandum of Law at 6. At least one court has thus far adopted defendants’ theory. See Stephens v. Clayton Brokerage Co., No. 82-5786, slip op. (N.D.Ill. Apr. 19, 1984) (noting a need for uniformity).

Fustok takes the position that the norm for borrowing limitations periods remains a resort to state law, in spite of the Supreme Court’s holding in DelCostello that drawing upon a related federal statutory scheme is also appropriate. He maintains that because his CEA claims sound in fraud and breach of contract, the New York law prescribing a six-year statute of limitations applies. See N.Y.Civ.Prac.Law §§ 213(2) (contract) and 213(8) (fraud) (McKinney Supp.1984).

Although defendants’ argument for the application of a two-year statute of limitations is provocative, it fails on two grounds. First, apparently no reported decision has ever, in an implied right of action context, borrowed the two-year limitation period from Section 14(a) of the CEA, which since 1974 has provided for administrative reparations proceedings. In fact, several decisions have explicitly rejected such an idea. See Shelley v. Noffsinger, 511 F.Supp. 687, 690-91 (N.D.Ill.1981); Grayson v. ContiCommodity Services, Inc., [1978-80 Transfer Binder] Comm.Fut.L.Rep. (CCH) ¶ 20,-858 at 23,518 (D.D.C.1980); Jones v. B.C. Christopher & Co., 466 F.Supp. 213, 228 (D.Kan.1979). Moreover, the courts have adhered to the practice of applying state statutes of limitations (usually those governing either fraud or securities actions) to implied rights of action under the CEA even after the passage of the 1982 amendment creating an express right of action under the CEA with a two-year statute of limitations and after the Supreme Court rendered its decision in DelCostello. See Bernicker v. Pratt, 595 F.Supp. 1034, 1035 (E.D.Pa.1984); Cardoza v. CFTC, 588 F.Supp. 621, 628 (N.D.Ill.1984).

Second, it is not clear what significance is to be attributed to the 1982 amendment to the CEA creating in Section 22 an express right of action with a two-year statute of limitations. Section 22(d) states that “the enactment of [the amendment] shall not affect any right of any parties which may exist with respect to causes of action accruing prior to [January 11, 1983].” 7 U.S.C. § 25(d). Although under certain circumstances it may be permissible to consider the 1982 statute in order to divine Congress’ intent as to the earlier provisions of the CEA even in the face of the non-retroactivity provision, see de Atucha v. Commodity Exchange, Inc., [Current Transfer Binder] Comm.Fut.L.Rep. (CCH) 1122, 580 at 30,504 (S.D.N.Y.1985) (citing Sam Wong & Son, Inc. v. New York Mercantile Exchange, 735 F.2d 653, 676 n. 30 (2d Cir.1984)), the law,in this Circuit would appear to preclude the application of a two-year limitations period to Fustok’s preamendment implied right of action. The Court of Appeals for the Second Circuit was faced with a similar problem in EEOC v. Enterprise Association Steamfitters Local 638, 542 F.2d 579, 590 (2d Cir.1976) (Oakes, J.), cert. denied, 430 U.S. 911, 97 S.Ct. 1186, 51 L.Ed.2d 588 (1977). In that case, the district court had applied a statute of limitations which was enacted by Congress to govern backpay actions only after the Steamfitters plaintiffs had initiated their actions. In the Steamfitters situation as in this case, pre-enactment courts as a rule had looked to analogous state statutes of limitations. Holding that “the subsequent enactment cannot be indicative of prior congressional intent,” the Court of Appeals reversed the lower court and applied the most analogous state limitations period. 542 F.2d at 590.

Accordingly, the statute of limitations which should be applied to Fustok’s CEA claims is the six-year period provided by New York law, N.Y.Civ.Prac.Law §§ 213(2) & 213(8), for actions based on breach of contract and on fraud. Plaintiffs fifth and twenty-first claims therefore are not time-barred.

Statute of Limitations for the RICO Claim

The twenty-fourth claim asserts a cause of action under RICO, which does not contain its own statute of limitations. The parties do not dispute that in this situation the court must apply the most appropriate limitations period provided by state law. See Johnson v. Railway Express Agency, 421 U.S. 454, 462, 95 S.Ct. 1716, 1721, 44 L.Ed.2d 295 (1975).

Defendants contend that the most appropriate statute of limitations is the three-year period given by N.Y.Civ.Prac.Law § 214(2) (McKinney Supp.1984), which applies to “an action to recover upon a liability, penalty or forfeiture created or imposed by statute.” Id. In support of their contention, defendants cite the opinion of the Second Circuit Court of Appeals in Durante Bros. & Sons v. Flushing National Bank, 755 F.2d 239 (2d Cir.1985). In Durante the Court reversed the lower court’s application of a one-year statute of limitations to a RICO claim grounded in the collection of an unlawful debt. Even though N.Y.Civ.Prac.Law § 215(6) specified a one-year limitations period for actions to recover overcharges of interest or to enforce a penalty for such overcharges, the Court pointed out that many more elements were needed to make out a RICO claim than to establish a simple usury allegation and concluded that “[tjhere [is] no state law analog to the present civil RICO claim.” 755 F.2d at 248-49. The Court therefore proceeded to apply the three-year period provided by Section 214(2) to govern actions to enforce a liability created by statute. Defendants contend that Durante stands for the proposition that Section 214(2)’s three-year limitation period is uniformly applicable to all RICO claims, regardless of the predicate offense involved.

Plaintiff Fustok, on the other hand, asserts that the six-year statute of limitations governing an action based on fraud, N.Y.Civ.Prac.Law § 213(8), should be applied to the RICO claim in this case since the twenty-fourth claim alleges acts of mail and wire fraud. In essence, plaintiff advances the theory that the applicable limitations period varies with the offense underlying each RICO claim. Fustok reads Durante as holding only that Section 214(2) provides the appropriate limitations period for a RICO claim based on the collection of an unlawful debt, the predicate offense in that case.

The question of what limitations period to apply to a civil RICO action has not been answered with unanimity by the courts. Within the Second Circuit itself, district court judges writing before the Court of Appeals’ decision in Durante have arrived at diametrically opposed conclusions on the issue. Compare Estee Lauder, Inc. v. Harco Graphics, Inc., 621 F.Supp. 689 (S.D.N.Y.1984) (holding that a civil RICO action based on fraud is governed by New York’s six-year fraud limitations period; explicitly rejecting a uniform statute of limitations for all RICO actions) with Teltronics Services, Inc. v. Anaconda-Ericsson, Inc., 587 F.Supp. 724, 733 (E.D.N.Y.1984) (finding a uniform three-year statute of limitations given by Section 214(2) applicable to RICO claims; rejecting a theory of variable limitations periods). Courts in other circuits are also divided although the weight of authority appears to lean in favor of the particularistic approach, at least when the gravamen of the RICO complaint is fraud. See Steven Operating, Inc. v. Home State Savings, 105 F.R.D. 7, 12 (S.D.Ohio 1984); Kirschner v. Cable/Tel Corp., 576 F.Supp. 234, 240-41 (E.D.Pa.1983); State Farm Fire & Casualty Co. v. Estate of Catón, 540 F.Supp. 673, 684-85 (N.D.Ind.1982); but see Compton v. Ide, 732 F.2d 1429, 1433 (9th Cir.1984) (choosing limitations period for “actions based on statute” for all RICO claims); Seawell v. Miller Brewing Co., 576 F.Supp. 424, 427 (M.D.N.C.1983) (same).

Were the leading Second Circuit case, Durante, unequivocal in its support of a uniform statute of limitations for RICO actions, this court’s task would be an easy one. Judge Kearse’s opinion in Durante, however, leaves some doubt on the subject. On the one hand, Durante made clear that the RICO claim in that case differed significantly from a simple action to recover damages for the collection of an unlawful debt. The Court stated:

RICO is concerned with evils far more significant than the simple practice of usury. Based on its findings that organized crime uses money gained through illegal activities such as loansharking to infiltrate legitimate businesses, Congress enacted RICO in an effort “to seek the eradication of organized crime in the United States ... by establishing new penal prohibitions, and by providing enhanced sanctions and new remedies to deal with the unlawful activities of those engaged in organized crime.” Organized Crime Control Act of 1970, Pub.L. No. 91-452, 84 Stat. 922 (1970) (Statement of Findings and Purpose), reprinted in 1970 U.S.Code Cong. & Ad.News 1073.

755 F.2d at 248-49. Such language is consistent with defendants’ view that all RICO actions state a claim for which there is no analogous state law action. On the other hand, Durante narrowly frames its conclusion in finding “no state analog to the present civil RICO claim.” Id. at 249 (emphasis added). The opinion is puzzling in that it is not clear to us whether the court intended to establish a general rule for RICO limitation periods, and in any event the opinion does not state a rule of general applicability in haec verba.

If Durante does not settle the question, there is considerable authority, as indicated above, to support the proposition that the New York statute of limitations governing the state action which most closely resembles the basis for the RICO claim should apply. On that line of reasoning, if any state statute of limitations applies to the allegations contained in the twenty-fourth claim asserted by Fustok, it is surely the six-year period provided by N.Y.Civ.Prac.Law § 213(8) to cover actions based on fraud, since the complaint here alleges fraud in vivid detail.

Strong, practical considerations also support denial of this motion. This case is about to go to trial and the bulk of discovery has been completed; therefore, proof of the RICO allegations will impose no substantial further pre-trial burdens on the moving defendants. Keeping the RICO claim in the case also will not add significantly to the length of the trial since little additional proof will need to be adduced to establish the RICO claim that will not otherwise be necessary to make out the several other causes of action grounded in fraud. Dismissal of the RICO claim runs the risk of a costly retrial in the event that the Court of Appeals subsequently clarifies its position on the appropriate limitations period in agreement with plaintiff’s understanding. Such a rerun would not only constitute a significant and unnecessary extra demand on judicial resources, but also on the resources of the parties themselves. Bearing in mind these legal and policy considerations, we conclude that the motion to dismiss the twenty-fourth claim as time-barred should be denied.

In view of the court’s decision that a six-year limitations period governs both the CEA claims and the RICO claim, consideration of whether the addition of defendants Goldschmidt and Conti Grain and the assertion of claims against them in the Second Amended Complaint may relate back to the date of the original complaint pursuant to Federal Rule of Civil Procedure 15(c) is unnecessary to the disposition of this motion.

The motion by Conti Grain, Goldschmidt, and Conti Management to dismiss as to them the fifth, twenty-first and twenty-fourth claims in the Second Amended Complaint is denied.

It is so ordered.

      . Commodity Futures Trading Commission Act of 1974, Pub.L. No. 93-463, § 106, 88 Stat. 1389, 1393.

      . Futures Trading Act of 1982, § 235, Pub.L. No. 97-444, 96 Stat. 2294, 2324.

      . In DelCostello the Court applied a six-month limitations period provided in the National Labor Relations Act to govern charges of unfair labor practices brought before the NLRB, to private actions by an employee against her employer for breach of a collective bargaining agreement and against her union for breach of a duty of fair representation.

      . In DelCostello Justice Brennan agreed with an earlier concurrence by Justice Stewart in United Parcel Service v. Mitchell, 451 U.S. 56, 68 n. 4, 101 S.Ct. 1559, 1567 n. 4, 67 L.Ed.2d 732 (1981), that a conclusion that Congress intended courts to apply the most closely analogous state statute of limitations
      makes more sense as applied to a cause of action expressly created by Congress than as applied to one found by the courts to be implied in a general statutory scheme — especially when that general statutory scheme itself contains a federal statute of limitations for a related but separate form of relief.

      462 U.S. 151, 159 n. 12, 103 S.Ct. 2281, 2287 n. 12, 76 L.Ed.2d 476 (1983) (emphasis added).

      . Both plaintiff and defendants appear to agree, without addressing the issue directly, that New York statutes of limitations should provide the time periods if state law is to be consulted.

      . It would seem that if a single act of fraud is subject to a six-year limitations period under New York law, it would not be unreasonable to apply the same statute of limitations to the multiple acts of fraud, inter alia, required to make out a RICO claim.

      . Defendants Conti Grain and Goldschmidt also moved for judgment on the pleadings dismissing the twenty-first claim pursuant to FED.R.CIV.P. 12(c). That motion has been granted contemporaneously in a separate memorandum decision.


text:
    Mahmoud FUSTOK, Plaintiff, v. CONTICOMMODITY SERVICES, INC., Conticapital Management, Inc., Continental Grain Company, Walter M. Goldschmidt, Norton Waltuch, Tom Waldeck and Ivan Auer, Defendants.
    No. 82 Civ. 1538(MEL).
    United States District Court, S.D. New York.
    Sept. 20, 1985.

      Curtis, Mallet-Prevost, Colt & Mosle, New York City, for plaintiff; Herbert Stoller, Kevin R. Kopelson, New York City, of counsel.
    Sidley & Austin, New York City, for defendant Continental Grain Co.; Marc J. Gottridge, New York City, Lawrence H. Hunt, Jr., David T. Pritikin, Sidley & Austin, Chicago, 111., Sheldon L. Berens, Gen. Counsel, Continental Grain Co., New York City, of counsel.
    Parker Auspitz Neesemann & Delehanty P.C., New York City, for defendant Walter M. Goldschmidt; Jack C. Auspitz, Hollis L. Hyans, New York City, of counsel.
    Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for defendants ContiCommodity Services, Inc., Tom Waldeck, Ivan Auer, and ContiCapital Management, Inc.; Mark H. Alcott, Cameron Clark, Richard A. Rosen, New York City, of counsel.
    Kaye, Scholer, Fierman, Hays & Handler, New York City, for defendant Norton Waltuch; Steven J. Glassman, New York City, of counsel.
   LASKER, District Judge.

In the current round of submissions in this litigation the defendants collectively attack the legal sufficiency of the fourth, fifth, eighth, ninth, twelfth through twentieth and twenty-third claims in Fustok’s Amended Complaint. Subsequent to the filing of this “omnibus motion” Fustok filed a Second Amended Complaint which alleges in identical form the claims under siege here. Accordingly, we treat the defendants’ motion as if it were addressed to the claims in the Second Amended Complaint.

The defendants move (1) to dismiss pursuant to Rule 12(b), Fed.R.Civ.P., the seventeenth through twentieth claims for failure to state a cause of action; (2) for summary judgment dismissing claims thirteen through sixteen pursuant to Federal Rule of Civil Procedure 56(b), and in the alternative (3) to dismiss the fourteenth and fifteenth claims for failure to state a claim; (4) to dismiss the eighth, twelfth and sixteenth claims for failure to state a claim under Illinois law; (5) to dismiss the twenty-third claim as barred by the statute of limitations; and (6) to dismiss the fourth, fifth, eighth, ninth, twelfth, thirteenth and sixteenth claims for failure to plead essential elements of fraud and/or for failing to comply with Federal Rule of Civil Procedure 9(b).

For the reasons set forth below the motion is denied.

I.

The seventeenth and eighteenth claims are based upon the March 4, 1980 purchase of 100 Comex silver contracts for Fustok’s account. Fustok asserts that “under the rules of the Comex then in effect, the 100 May Comex silver contracts should not have been purchased for Account No. 38055 on March 4, 1980 unless there was margin of at least $4 million (i.e. $40,000 per contract) then in or in transit to that account.” Second Amended Complaint at 1177. The plaintiff asserts that the defendants purchased the contracts without sufficient equity in, or in transit to, Fustok’s account and in so doing breached the' fiduciary duty owed to plaintiff (seventeenth claim) and were negligent (eighteenth claim).

The nineteenth and twentieth claims are pleaded in the alternative to claims seventeen and eighteen, respectively. The claims allege that the defendants purchased 40 silver contracts on the London Metals Exchange (“LME”) on February 29, 1980, and 90 LME silver contracts on March 5 and 7, 1980 and that the contracts “were unsupported by any equity or other margin.” Second Amended Complaint at ¶¶ 84, 85. Fustok asserts that the transactions were made in breach of the defendants’ fiduciary obligations (nineteenth claim) and that the defendants’ conduct was negligent (twentieth claim).

The defendants move to dismiss the seventeenth through twentieth claims for failure to state a cause of action on the ground that a broker’s violation of the Comex margin requirements, standing alone, does not give rise to a cause of action in the customer’s favor. Fustok does not directly respond to this proposition. Instead, he argues that a cognizable claim exists where margin violations are alleged in the context of a scheme to defraud. He asserts, moreover, that the allegations state valid common law claims for negligence and breach of fiduciary duty.

The defendants respond that the decisions upon which Fustok relies are inapplicable because they involve violations of securities margin rules which are “drastically different” than in the commodities industry, and that, in any event, the seventeenth through twentieth claims should be dismissed because they are duplicative of Fustok’s first and second claims for unauthorized trading and fraud.

Inasmuch as Fustok apparently concedes, or at least does not discuss whether, absent fraud or bad faith, a violation of the margin requirements gives rise to a cause of action, the focus of the inquiry here is not on the various functions of margin rules in the commodities industry versus the securities industry. The issue is whether the claims support a cause of action for commodities fraud. Cf. Evans v. Kerbs and Co., 411 F.Supp. 616, 624 (S.D.N.Y.1976) (“The securities acts are essentially directed against fraud and the gravamen of plaintiff’s complaint is a fraudulent inducement to engage in margin transactions through knowing and willful misrepresentations of the applicable margin requirements.”) In making such an inquiry courts frequently look to the securities laws and related decisions for guidance, and there is merit in this approach. See Leist v. Simplot, 638 F.2d 283, 298 n. 14 (2d Cir.1980), aff'd sub nom. Merrill Lynch Pierce, Fenner & Smith v. Curran, 456 U.S. 353, 102 S.Ct. 1825, 72 L.Ed.2d 182 (1982) (“While there are differences between the commodities and securities fields, what is relevant to the present question is the common legislative objective of insuring fair dealing for investors on what are important public markets, and the common legislative approach to attaining this objective.”)

An investor has a private right of action for commodities fraud. See, e.g., id. Although the courts continue to wrestle with the task of defining what behavior will support this type of claim, it is evident that a broker’s failure to obey margin requirements may form part of a fraudulent commodities scheme. Moreover, the law appears to support the proposition that such conduct is actionable if it is properly pleaded. For example, in Klein v. Merrill Lynch, Pierce, Fenner & Smith, Inc., [1978 Transfer Binder] FED.SEC.L.REP. (CCH) ¶96,523 (E.D.N.Y.1978), the court read the complaint as alleging that “[plaintiffs ... were injured by defendant’s fraudulent and manipulative purchases and sales of call options for plaintiffs’ respective accounts and by various intentional and wrongful acts which culminated in the liquidation of plaintiffs’ margin accounts,” and concluded that it was unnecessary to decide whether there was a right of action based upon a failure to comply with margin rules because the margin violations were part of a claim for fraud which was pleaded in compliance with Rule 9(b). Id. at 94,054. See also Evans v. Kerbs and Co., 411 F.Supp. at 624; cf. Friedman v. Dean, Witter & Co., [1980-82 Transfer Binder] COMM.FUT.L.REP. (CCH) ¶ 21,307 (CFTC Nov. 13, 1981) (distinguishing between mere violations of margin rules and regulations and margin violations committed in bad faith or in furtherance of fraud).

Here, however, the pleadings of the seventeenth through twentieth claims are woefully inadequate to make out a claim for fraud. The claims allege simply that the defendants purchased certain silver contracts that should not have been purchased because there was inadequate margin or other equity in Fustok’s account. Even under the most liberal reading of the complaint such allegations do not amount to fraud. It follows that the claims fall short of compliance with the specificity required by Federal Rule of Civil Procedure 9(b). See generally Minpeco, S.A. v. ContiCommodity Services, Inc., 552 F.Supp. 332, 338-39 (S.D.N.Y.1982) (requirements of Rule 9(b)).

Accordingly, if the sole basis for the seventeenth through twentieth claims were an alleged private right of action under the commodities regulations, dismissal of the claim would be compelled, for the reasons set forth above. However, Fustok asserts that his allegations give rise to common law claims for negligence and breach of fiduciary duty. The defendants’ one-sentence response is that “[m]argin violations were of course unknown to the common law,” quoting Hornblower & Weeks-Hemphill, Noyes v. Burchfield, 366 F.Supp. 1364, 1367 (S.D.N.Y.1973) (Lasker, J.).

Hornblower is not relevant here inasmuch as the counterclaims at issue in that case were all based on statutory violations rather than on liability arising under the common law. Here, even if statutory margin requirements did not exist, Fustok could still maintain an action for breach of fiduciary duty based upon the principal/agent status which the common law applies to a broker/customer relationship. Of course, the same basic concepts, e.g., the existence of a duty and a breach of that duty (along with the element of causation), will support a substantive tort claim for negligence.

During oral argument on the motion Fustok’s counsel asserted that the defendants’ deviation from industry norms is sufficient to support the common law claims. Transcript at 46 (May 10, 1985) (“hereafter “Tr. at —”). This is not specifically pleaded in the Second Amended Complaint. Nonetheless, we conclude that Fustok’s allegations that the defendants purchased millions of dollars in silver contracts without sufficient equity in the account and that the purchases were “wrongful” and in violation of established rules are sufficient to put the defendants on notice as to the bases for Fustok’s claims of negligence and breach of fiduciary duty.

II.

Claims thirteen through sixteen of the Second Amended Complaint assert causes of action for fraud, breach of fiduciary duty, negligence and violation of N.Y.GEN.BUS.LAW § 352-c (McKinney 1984) (“the Martin Act”), respectively. All rely on the same allegations, namely, that the defendants, acting on instructions of Advicorp Advisory and Financial Corporation S.A. (“Advicorp”), purchased 400 Comex silver receipts from Gilion Financial for Fustok’s account with knowledge that Advicorp’s principals were also principals of Gilion who were “self dealing”. Fustok accuses the Conti defendants of executing the purchase to provide Gilion with funds to meet a margin call by Conti.

The defendants move for summary judgment dismissing the thirteenth through sixteenth claims. They assert that the undisputed facts establish that the purchase complained of was executed on December 3, 1979; that the 400 silver receipts represented title to 2,023,504.38 troy ounces of physical silver bullion; that the official spot price for silver bullion on December 3, 1979 was $19.84 per ounce; that Fustok [through his agents] paid $18.26 per ounce for the silver; and that the immediate effect of the transaction was to generate a paper profit for Fustok of $3,197,136.92. See Affidavit of Cameron Clark at Point “A” (filed Jan. 14, 1985) (“Clark Aff.”) and Exhibit 1 (attached). They add that it is further established that the price of silver rose following the Gilion transaction until it reached a peak of $48.00 per ounce on January 21, 1980; and that until March 17, 1980 the price paid for the Gilion silver was less than the market price. Id. at ¶ 6 and Exh. 2. Fustok’s counsel stated during oral argument “that in all likelihood the evidence at trial will show that the transaction took place in late November and there was no built-in profit at the time____” Tr. at 48. However, Fustok has failed to submit any competent evidence to support this assertion. Accordingly, on the present state of the record the undisputed facts set forth by the defendants must form the bases of determination.

Upon these facts the defendants contend that, assuming, arguendo, that Advicorp was self-dealing and that the defendants executed the purchase of the 400 silver receipts with full knowledge of Advicorp’s misconduct, summary judgment should nonetheless be granted for the defendants because their conduct did not cause Fustok any injury. They assert that any loss which Fustok ultimately incurred was proximately caused by “market forces” and not by the defendants’ actions.

Fustok responds that he did not authorize the disputed transactions. He maintains that by March 1980 when he learned of the purchase the “paper profit” to which the defendants point had evaporated and he had incurred a “paper loss” of $14,920,000. To the extent that this argument is based on a claim of unauthorized trading in general it is no longer viable since that claim was dismissed subsequent to the filing of the instant motion. See Fustok v. ContiCommodity Services, Inc., 610 F.Supp. 986 (S.D.N.Y.1985) (granting summary judgment and dismissing claims one through three of the amended complaint). However, we did not then, and do not now conclude that Fustok authorized trading on his behalf involving self-dealing, the claim Fustok makes here.

Under both Illinois and New York law, questions of proximate cause are questions of fact. See, e.g., Ney v. Yellow Cab Co., 2 Ill.2d 74, 84, 117 N.E.2d 74, 80 (1954); Havas v. Victory Stock Paper Co., 49 N.Y.2d 381, 388, 402 N.E.2d 1136, 1139, 426 N.Y.S.2d 233, 237 (1980); accord Cullen v. BMW of North America, 691 F.2d 1097, 1103 (2d Cir.1982), cert. denied, 460 U.S. 1070, 103 S.Ct. 1525, 75 L.Ed.2d 948 (1983) (Oakes, J., dissenting). Although the defendants have established that on the date of the transaction at issue a “paper profit” was generated, they do not dispute the fact that Fustok ultimately sustained a loss. Nor have the defendants provided evidence which establishes as a matter of law that the then prevailing market conditions were the proximate cause of Fustok’s injury. This case is currently set for trial before a jury on December 2, 1985. While a jury may conclude that market forces in 1979-1980 rather than the defendants’ conduct caused Fustok’s injury, it is nonetheless particularly within the factfinder’s province to do so. Havas v. Victory Stock Paper Co., 49 N.Y.2d at 388, 402 N.E.2d at 1139, 426 N.Y.S.2d at 237.

The motion is denied.

III.

In the alternative to a motion for summary judgment the defendants move to dismiss the fourteenth and fifteenth claims for failure to state a cause of action on the ground that they owed no duty to Fustok to disclose the purported self-dealing of Advicorp in connection with the purchase of 400 Comex silver receipts. They argue that the fiduciary duty a broker owes to its customer is limited, and that the conduct of which Fustok complains is beyond its scope. Fustok answers that, particularly where, as here, the account in dispute is a discretionary one, it is the affirmative duty of a broker to disclose to his customer all material information the broker possesses that may influence the customer’s decision to trade, including the economic self-interest and self-dealing of the principals involved in a transaction executed for the customer’s account.

The commodities decision upon which the defendants primarily rely is Sherman v. Sokoloff, 570 F.Supp. 1266 (S.D.N.Y.1983) (Knapp, J.). In Sokoloff, the plaintiffs entered into an agreement giving defendant Sokoloff, a registered floor broker, authority to trade platinum futures on the plaintiffs’ behalf. Sokoloff opened the platinum account with Rosenberg Commodities (“Rosenberg”), a futures commission merchant (“FCM”), and Rosenberg executed the trades per Sokoloff’s instructions. Unfortunately for the plaintiffs, shortly after the first month of trading ended their account began to sustain losses which amounted to $300,000 by the time the account was closed. Id. at 1267. Plaintiffs sued Rosenberg and Sokoloff for, among other things, fraud. Rosenberg moved for summary judgment which, after reviewing relevant commodities decisions in some detail, the court granted, stating:

Our own research has located no case where a broker (or FCM) in Rosenberg’s position has been saddled with the obligation of monitoring and reporting the trading pattern of a person in no way affiliated to him, let alone a partner of plaintiffs. We decline the invitation to impose such a duty.

Id. at 1270.

The similarities between Sokoloff and the facts alleged by Fustok are apparent: Advicorp, like Sokoloff, is Fustok’s agent and was charged with the discretionary management of Fustok’s commodities account; Advicorp opened Fustok’s account with the defendant FCM; and Fustok asserts that Advicorp engaged in misconduct of which the defendants were aware but failed to disclose to Fustok. Nor do the similarities end there. Here, as in Sokoloff, Fustok “suppose[s] that much of the weight of [his] argument is carried merely by the conclusion that [the defendant], as FCM, was an ‘agent’ of plaintiff[ ].” Id. at 1269, n. 10.

In responding to the plaintiffs’ assertions the Sokoloff court stated:

To be sure, the FCM is indeed an agent of the client and owes him, accordingly, a fiduciary duty. See, e.g., Monette v. Premex, Inc., (CFTC 1983) 2 Comm.Fut.L. Rep. (CCH) ¶ 21,733 at 26,882 (citing cases); Graves v. Shearson, Hayden Stone (CFTC 1981) [1980-1982 Trans. Binder] Comm.Fut.L.Rep. (CCH) ¶21,301 at 25,521. Cf. Schenck v. Bear, Sterns & Co., (S.D.N.Y.1979) 484 F.Supp. 937 (securities brokers). That conclusion, however, does not end the inquiry, it merely frames it. The question is, “What is the scope of the agency?”

Id. We find this analysis sound. Nevertheless, notwithstanding the similarities between Sokoloff and the case at hand, for the reasons set forth below we conclude that Fustok has alleged facts sufficient to state claims resting upon a breach of a fiduciary duty.

The thirteenth claim alleges that the “[defendants executed Advicorp’s instructions to purchase the 400 Comex silver receipts from Gilion Financial for the 055 account in order to provide Gilion Financial with funds to meet a margin call by defendant Conti.” Second Amended Complaint at ¶ 64. It is true that this allegation is not specifically incorporated into the fourteenth and fifteenth claims (which are the claims at issue in this motion); however, it is evident that the fourteenth and fifteenth claims are based upon the conduct alleged in claim thirteen. Moreover, paragraph 64 is incorporated into the fourteenth and fifteenth claims by reference. See id. at ¶¶ 66 and 69.

Accordingly, we conclude that, when fairly read, Fustok’s accusations charge more than mere knowledge of wrongdoing, but instead allege that the defendants had improper economic motives of their own for executing the disputed transaction. Such conduct touches the core of the broker/customer relationship between Fustok and the defendants, who did the actual purchasing and executing of trading for Fustok’s account. Cf. Sokoloff, supra, 570 F.Supp. at 1269 n. 10 (“We would have no hesitation to conclude that the FCM owes his client a fiduciary duty in the performance of the activities described in 17 C.F.R. § 1.3(p) (1982) — taking orders, executing trades, dealing with customer funds. See, e.g., 17 C.F.R. §§ 1.20-1.28 (1982) (obligations regarding customer funds).”). We conclude that the defendants owed Fustok a duty to perform their limited obligations vis-a-vis his account without improper motives.

However, in so concluding we do not accept Fustok’s argument that the defendants’ responsibilities to him are so broad as to include a duty to keep Fustok apprised of the conduct of Advicorp. We hold only that if the defendants purchased the 400 silver receipts predominantly for their own economic benefit they will have breached their fiduciary duty. The allegations in the complaint which form the basis for this conclusion are, admittedly, scant. Nevertheless, taking the allegations as true for the purposes of this motion, we conclude the complaint is not legally insufficient for failure to state a claim as argued by the defendants.

IV.

The eighth, twelfth and sixteenth claims allege violations of the Martin Act (N.Y.GEN.BUS.LAW § 352-c) in connection with various transactions made on Fustok’s behalf. The defendants argue that the claims should be dismissed because Illinois law governs the disputes concerning Fustok’s account. They rely on paragraph 10 of the customer agreement that Fustok signed to open Fustok's account, which states in relevant part that “[t]his agreement and its enforcement shall be governed by laws of the State of Illinois.” See Clark Aff., Exh. 3.

Contractual choice of law provisions are generally enforced if the designated state’s law bears a reasonable relationship to the contract. See, e.g., Jaksich v. Thomson McKinnon Securities, Inc., 582 F.Supp. 485, 502 n. 16 (S.D.N.Y.1984); Hunter v. H.D. Lee Co., Inc., 563 F.Supp. 1006, 1009 (N.D.N.Y.1983). Nevertheless, as Fustok correctly points out, it has been held that under New York’s conflict of law rules a contractual choice of law provision “does not bind [the parties] as to causes of action sounding in tort.” Klock v. Lehman Bros. Kuhn Loeb Inc., 584 F.Supp. 210, 215 (S.D.N.Y.1984) (quoting Knieriemen v. Bache Halsey Stuart Shields, Inc., 74 A.D.2d 290, 293, 427 N.Y.S.2d 10, 12-13 (1st Dept.1980)); see also Fantis Foods v. Standard Importing Co., 63 A.D.2d 52, 55, 406 N.Y.S.2d 763, 767 (1st Dept.1978), rev’d on other grounds, 49 N.Y.2d 317, 402 N.E.2d 122, 425 N.Y.S.2d 783 (1980).

The defendants reply that Fustok should not be allowed to circumvent his contractual agreement to abide by Illinois law. They assert, further, that courts tend to ignore the distinction between tort and contract claims which Fustok has raised.

For a number of reasons, the decisions upon which the defendants rely do not support their arguments. For instance, in The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 2, 92 S.Ct. 1907, 1909, 32 L.Ed.2d 513 (1972) (choice of forum clause), the disputed provision applied broadly to all disputes arising between the parties, and in Zerman v. Ball, 735 F.2d 15, 19-20 (2d Cir.1984), the provision referred explicitly to the type of claim which plaintiff was asserting, in that case, a usury claim. On the other hand, some of the decisions, for example, Jaksich v. Thompson McKinnon Securities, Inc., 582 F.Supp. at 502 n. 16, do not set forth the provisions of the clause in stating the facts of the case. Finally, in Teledyne Industries Inc. v. Eon Corp., 401 F.Supp. 729, 736 (S.D.N.Y.1975), aff'd on opinion of district court, 546 F.2d 495 (2d Cir.1976), the choice of law was apparently undisputed by the parties. Indeed, if the authority cited by the defendants provides support at all relevant to the facts of this case it is for the proposition that the circumstances of each case must be individually scrutinized.

Here, the choice of law provision does not contain broad language, but instead refers to the “enforcement of this agreement.” Clark Aff., Exh. 3, ¶ 10. Nor do we interpret Fustok’s complaint as alleging a breach of contract claim in tort disguise. Cf. Altshul Stern & Co. v. Mitsui Bussan Kaisha, Limited, 385 F.2d 158, 159 (2d Cir.1967) (“Plaintiff cannot avoid the broad language of the arbitration clause by casting its complaint in tort.”). In sum, we find no compelling reason for ignoring the tort/contract distinction which the New York courts have adopted.

V.

The twenty-third claim of the Second Amended Complaint alleges that:

Commencing on June 17, 1980 and at various times thereafter, defendant Conti debited the 055 account with interest charges exceeding $1.5 million. The interest charges were illegal and wrongful, having been computed on balances which plaintiff did not owe to defendant Conti and at interest rates which were illegal and improper.

On December 5, 1984 we granted Fustok leave to file an amended complaint which included, inter alia, the twenty-third claim alleged here. See Fustok v. ContiCommodity Services, Inc., 103 F.R.D. 601 (S.D.N.Y.1984). In allowing Fustok to amend his complaint we rejected the defendants’ argument that the additional claims which Fustok was seeking to assert were time barred because we concluded “the claims fall within the six year statute of limitations governing fraud actions. See N.Y.CIV.PRAC.LAW § 213(2) (McKinney Supp. 1983-84”, id. at 604, and that in any event the proposed claims related back to the original complaint. Id. at 601 n. 1.

The defendants now argue that the twenty-third claim is nevertheless time barred because under New York law “an action to recover any overcharge of interest or to enforce a penalty for such overcharge” must be commenced within one year, N.Y.CIV.PRAC.LAW § 215(6), which Fustok has failed to do. Fustok responds that the defendants have misconstrued the twenty-third claim which, he asserts, is based upon his accusations of fraud. He maintains that the twenty-third claim seeks to recover the interest charged on trades that never should have been placed. The defendants reply that if the claim merely seeks recovery of charges based upon fraudulent transactions, it should be dismissed as duplicative.

The defendants correctly assert that since Fustok is not a New York resident and the defendants’ actions in connection to charging interest occurred in Illinois, New York’s borrowing statute requires the application of the statute of limitations which is found to be shorter after comparing the laws of New York and Illinois. See N.Y.CIV.PRAC.LAW § 202. In this instance the New York statute applies. Accordingly, if Fustok’s claim was merely to recover overcharges in interest it would be time barred since Fustok did not bring this action until February 26, 1982, which was well over one year after his account with the defendant was closed on October 10, 1980. See N.Y.CIV.PRAC.LAW § 215(6). However, as we interpret the Second Amended Complaint, Fustok is alleging that the defendants’ actions in charging Fustok interest on the basis of fraudulent trades constituted fraud and that the overcharges were fraudulent, or, at least part of the overall fraudulent scheme. Neither Illinois nor New York’s statute of limitation bars this claim.

Moreover, we do not consider the twenty-third claim to be duplicative. It is true that for Fustok to recover on the twenty-third claim he will have to prevail on at least one of his other causes of action. However, the converse is not necessarily true, i.e., if he prevails on one of the other claims it does not automatically follow that Fustok will prevail on the twenty-third claim.

VI.

The defendants assert that the Second Amended Complaint fails fully to comply with Federal Rule of Civil Procedure 9(b), which requires a plaintiff to give every defendant notice as to the specific wrongs with which that defendant has been charged. Minpeco, S.A. v. ContiCommodity Services, Inc., 552 F.Supp. at 339. Fustok's response to the defendants’ assertion does little more than to reiterate the allegations of the complaint.

The complaint alleges that:

Defendant Waltuch and others, in the regular course of their employment by defendants Conti and Conti Management, and defendant Goldschmidt, acting as an officer of Conti in the regular course of his employment by Conti Grain, caused defendant Conti to reallocate and transfer said 200 Comex silver contracts from defendant Conti and/or the persons for whom they had originally been purchased to the plaintiff in violation of the provisions of Section 4b of the Commodity Exchange Act (7 U.S.C. § 6b).

Second Amended Complaint at ¶ 37. Similar language describing the defendants’ conduct is used in claims four, nine, twelve and thirteen of the Second Amended Complaint. See id. at ¶¶133, 50 and 62.

In Minpeco, S.A. v. ContiCommodity Services, Inc., we stated that:

If Minpeco means to allege that, within the “groups,” the activities of the individual defendants were identical, then it should set forth such allegations specifically. If, on the other hand, Minpeco does not have a good faith basis for alleging that the defendants acted monolithically, then each defendant is entitled to notice in the pleadings as to its alleged role in the fraud.

552 F.Supp. at 338-39.

The defendants’ characterization of Fustok’s claims is not completely without merit. However, from reading the Second Amended Complaint in its entirety, including the descriptions of the various parties, it is possible to divine the nature of the fraud of which each defendant is accused. Nevertheless, in light of the numerous transactions and various claims, as an aid to the defendants as well as to the court, Fustok is required to attach an appendix to the Second Amended Complaint in the form of a chart or grid which sets forth, with respect to each claim, which defendants are named, the allegedly culpable conduct of each defendant, the theory of liability as to each named defendant, and where possible, the damages claimed in each cause of action.

For the foregoing reasons the motion is denied on condition that Fustok comply with the ruling above.

5(5 * * * * *

The defendants’ motion for partial summary judgment and to dismiss certain claims in the [Second] Amended Complaint is denied.

It is so ordered.

      . Very recently, in Bennett v. United States Trust Company of New York, 770 F.2d 308 (2d Cir.1985), the Second Circuit held there is no private right of action under Regulation U or under Section 7 of the Securities Exchange Act of 1934 (dealing with margin requirements). Although Evans cites Pearlstein v. Scudder & German, 429 F.2d 1136 (2d Cir.1970), cert. denied,
        401 U.S. 1013, 91 S.Ct. 1250, 28 L.Ed.2d 550 (1971), which Bennett overrules, Evans is not stripped of its precedential value because the Evans court never reached the issue of a statutory right of action, holding that the plaintiff had sufficiently alleged common law fraud.

      . Since we conclude that Fustok has asserted valid common law claims we need not decide what might be the significance of the fact that the LME does not have minimum margin rules.

      . The defendants have previously asserted that Illinois law governs the dispute here. See Fustok v. ContiCommodity Services, Inc., 577 F.Supp. 852, 856 n. 16 (1984). In connection to the current motion the defendants raise the issue only in connection to the eighth, twelfth, and sixteenth claims. Nonetheless, as set forth above, the result does not change whether Illinois or New York law is applied here.

      . New York’s choice of law rules govern here. Zerman v. Ball, 735 F.2d 15, 19-20 (2d Cir.1984).