United States Commodity Futures Trading Commission v. Paron Capital Management, LLC et al

Filing 57


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1 IN THE UNITED STATES DISTRICT COURT 2 FOR THE NORTHERN DISTRICT OF CALIFORNIA 3 4 5 UNITED STATES COMMODITY FUTURES TRADING COMMISSION, Plaintiff, 6 v. 7 8 PARON CAPITAL MANAGEMENT, LLC, and JAMES D. CROMBIE, 9 ORDER DENYING DEFENDANT JAMES D. CROMBIE’S MOTION TO DISMISS AND TO STRIKE (Docket No. 17) Defendants. 10 United States District Court For the Northern District of California No. C 11-4577 CW ________________________________/ 11 12 Defendant James D. Crombie moves to dismiss the complaint filed against him by Plaintiff United States Commodity Futures 13 Trading Commission. Plaintiff opposes Defendant’s motion.1 The 14 15 Court has taken the motion under submission on the papers. 16 considered the papers filed by the papers, the Court DENIES 17 Defendant’s motion. 18 Having BACKGROUND 19 Plaintiff is an independent federal regulatory agency charged 20 by Congress with the administration and enforcement of the 21 Commodity Exchange Act. Compl. ¶ 12. 22 23 The National Futures Association (NFA) is a private 24 corporation registered as a futures association with Plaintiff 25 26 27 28 1 LLC See the and On December 1, 2011, Defendant Paron Capital Management, also filed an opposition to Mr. Crombie’s motion to dismiss. Docket No. 39. This filing was filed after November 28, 2011, opposition deadline. The Court STRIKES the untimely filing deems Mr. Crombie’s additional reply thereto to be moot. 1 pursuant to 7 U.S.C. § 21. 2 authority, NFA is responsible for some aspects of the regulation 3 of certain futures entities who are NFA members, including 4 commodity trading advisors (CTAs). 5 6 Id. at 12. Pursuant to delegated Id. Defendant Paron Capital Management is a Delaware corporation that has been listed with Plaintiff as a CTA under an NFA 7 identification number since August 2, 2010. Id. at ¶ 14. Paron 8 9 Capital Management was originally founded in 2005 as JDC Ventures, United States District Court For the Northern District of California 10 LLC, an entity solely owned and managed by Mr. Crombie. Id. 11 According to Paron Capital Management’s June 2, 2010 Limited 12 Liability Company Agreement, Mr. Crombie was obliged to transfer 13 all rights, title and interest in the property and assets of JDC 14 Ventures, LLC to Paron Capital Management. Id. at ¶ 18. Mr. 15 Crombie possessed a seventy-five percent initial interest in Paron 16 Capital Management. Id. at ¶ 13. Paron Capital Management has 17 18 two other members, Peter J. McConnon and Timothy D. Lyons, who are 19 not named in the present action. 20 Id. at ¶¶ 14, 16-17. Plaintiff alleges that, between August 2010 and March 2011, 21 Defendants “used promotional materials” that “omitted material 22 information and contained material misrepresentations and 23 misstatements about the historical rate of return achieved by Mr. 24 Crombie and Paron Capital Management’s predecessor-in-interest, 25 26 JDC Ventures, LLC,” in order to “cheat or defraud clients by 27 soliciting customers to trade commodity futures with Paron.” 28 Compl. ¶¶ 3, 22, 53. In March 2011, Mr. Crombie allegedly made 2 1 repeated “false, fictitious, or fraudulent statements” to NFA 2 “during an NFA investigation and audit of Paron conducted pursuant 3 to NFA’s official duties under the Commodity Exchange Act” in 4 order to prevent NFA from discovering these activities and to 5 “impede NFA’s investigation and audit of Paron.” 6 Id. at ¶¶ 1-2, 23-39. 7 One specific alleged false statement concerns a $50,000 8 9 payment from JDC Ventures, LLC to Mark Steele. Id. at ¶ 36. United States District Court For the Northern District of California 10 Plaintiff alleges that Mr. Crombie told NFA that the payment was 11 for services that Mr. Steele and Mr. Steele’s company had provided 12 to JDC Ventures, LLC, but that this statement was false and that 13 Mr. Steele stated “that the $50,000 payment he had received from 14 JDC was repayment of a personal loan owed to him by Crombie.” Id. 15 Based on the above allegations, Plaintiff filed a complaint 16 with this Court on September 15, 2011, alleging that Defendants 17 18 committed various violations of the Commodity Exchange Act. Mr. Crombie moves to dismiss Plaintiff’s complaint under 19 20 Federal Rule of Civil Procedure 12(b)(7) for failure to join Mr. 21 McConnon and Mr. Lyons as defendants to this action. 22 also moves to strike the allegations related to Mr. Steele from 23 Mr. Crombie Plaintiff’s complaint. 24 DISCUSSION 25 26 27 28 I. Motion to Dismiss under Rule 12(b)(7) Under Federal Rule of Civil Procedure 12(b)(7), a party may bring a motion to dismiss if a plaintiff has failed “to join a 3 1 party under Rule 19.” 2 Crombie bears the burden of persuasion. 3 Verity, 910 F.2d 555, 558 (9th Cir. 1990). 4 motion to 5 “as true the allegations in Plaintiff’s complaint and draw all 6 As the party moving for dismissal, Mr. Makah Indian Tribe v. In the context of a dismiss an action under Rule 12(b)(7), a court accepts reasonable inferences in Plaintiff’s favor.” Paiute-Shoshone 7 Indians of the Bishop Cmty. v. City of Los Angeles, 637 F.3d 993, 8 9 996 n.1 (9th Cir. 2011). United States District Court For the Northern District of California 10 “A Rule 19 motion poses three successive inquiries.” EEOC v. 11 Peabody Western Coal Co., 610 F.3d 1070, 1078 (9th Cir. 2010) 12 (internal quotation marks and citations omitted). 13 court must determine whether a nonparty should be joined under 14 Rule 19(a).” “First, the Id. (internal quotation marks and citations 15 omitted). Under that rule, a party is required and must be joined 16 as a party if, among other things, that “person’s absence may 17 18 . . . leave an existing party subject to a substantial risk of 19 incurring double, multiple, or otherwise inconsistent obligations 20 because of the interest.” 21 absentee meets the requirements of Rule 19(a), the second stage is 22 for the court to determine whether it is feasible to order that 23 the absentee be joined.” Fed. R. Civ. P. 19(a)(1). “If an EEOC v. Peabody Western Coal Co., 610 24 F.3d at 1078 (internal quotation marks and citations omitted). 25 26 “Finally, if joinder is not feasible, the court must determine at 27 the third stage whether the case can proceed without the absentee 28 or whether the action must be dismissed.” Id. 4 1 In its complaint, Plaintiff alleges that Mr. Crombie directly 2 and individually committed the violations at issue in this 3 lawsuit. 4 will not be able ultimately to prove the allegations against him, 5 this argument is not appropriate for consideration under a Rule 6 To the extent that Mr. Crombie argues that Plaintiff 12(b)(7) motion and will be more appropriately made in the context 7 of a motion for summary judgment. 8 9 Mr. Crombie argues that Plaintiff should have charged Mr. United States District Court For the Northern District of California 10 McConnon and Mr. Lyons with violations of the Commodity Exchange 11 Act in addition to, or instead of, him. 12 decision not to prosecute or enforce, whether through civil or 13 criminal process, is a decision generally committed to an agency’s 14 absolute discretion,” which courts lack jurisdiction to review. A federal “agency’s 15 Heckler v. Chaney, 470 U.S. 821, 831 (1985). See also SEC v. 16 Princeton Econ. Int’l Ltd., 2001 U.S. Dist. LEXIS 948, at *3 17 18 (S.D.N.Y. Feb. 5, 2001) 19 architects of their enforcement proceedings and [the defendant] 20 may not circumvent the exercise of agency discretion through 21 compulsory joinder rules.”). 22 Plaintiff has violated any Congressionally-mandated guidelines in 23 (“The SEC and the CFTC are the sole Mr. Crombie makes no allegation that deciding not to charge Mr. McConnon and Mr. Lyons or that it has 24 abdicated its statutory enforcement responsibilities by doing so. 25 26 Mr. Crombie instead argues that leaving them out would subject him 27 to a substantial risk of incurring double, multiple, or otherwise 28 inconsistent obligations, because past investors or individuals 5 1 like Mr. Steele may decide to file additional false lawsuits 2 against him. 3 19(a) means ‘inconsistent court orders such that compliance with 4 one might breach another.’” 5 U.S. Dist. LEXIS 15704, at *7 (N.D. Cal.) (quoting 4 Moore’s 6 Reply at 6. “By ‘inconsistent obligations’ Rule Creative Labs v. Cyrix Corp., 1997 Federal Practice 3d § 19.03[4][d]). Mr. Crombie does not 7 establish that the mere possibility of future litigation meets 8 9 United States District Court For the Northern District of California 10 this burden or that adding Mr. McConnon and Mr. Lyons to this action would affect Mr. Crombie’s risk of future litigation. Accordingly, the Court DENIES Mr. Crombie’s motion to dismiss 11 12 under Federal Rule of Civil Procedure 12(b)(7). 13 II. 14 Motion to Strike Pursuant to Federal Rule of Civil Procedure 12(f), a “court 15 may strike from a pleading an insufficient defense or any 16 redundant, immaterial, impertinent, or scandalous matter.” Fed. 17 18 R. Civ. P. 12(f). 19 avoid the expenditure of time and money that must arise from 20 litigating spurious issues by dispensing with those issues prior 21 to trial.” 22 Cir. 1993) (internal formatting, quotation marks and citations 23 “The function of a 12(f) motion to strike is to Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th omitted), rev’d on other grounds, 510 U.S. 517 (1994). 24 Mr. Crombie alleges that the statements related to Mr. Steele 25 26 are immaterial, impertinent and scandalous, because they are 27 irrelevant to the claims in the complaint and because they are 28 factually incorrect. Mot. at 6; Reply, at 6-7. 6 A motion to 1 strike is not a proper vehicle through which to challenge the 2 ultimate merits of portions of the complaint. 3 Inc. v. Handi-Craft Co., 618 F.3d 970, 974 (9th Cir. 2010) 4 (stating that a Rule 12(f) motion to strike is not an appropriate 5 vehicle through which to seek dismissal of portions of a complaint 6 or summary judgment thereon). See Whittlestone, Plaintiff charges that Mr. Crombie 7 lied to NFA regarding the nature of an alleged payment from JDC 8 9 Ventures, LLC to Mr. Steele during the course of the NFA’s United States District Court For the Northern District of California 10 investigation of Paron Capital Management, the successor-in- 11 interest to JDC Ventures, LLC, and that this renders him liable 12 under 7 U.S.C. § 13(a)(4). 13 Steele are relevant to the claims against Mr. Crombie. 14 Thus, the allegations related to Mr. Accordingly, the Court DENIES Mr. Crombie’s motion to strike. 15 CONCLUSION 16 For the reasons set forth above, Defendant Crombie’s motion 17 18 to dismiss and to strike is DENIED (Docket No. 17). 19 the Court expresses no opinion regarding the ultimate merits of 20 any claims against any party or non-party. 21 In so ruling, IT IS SO ORDERED. 22 23 Dated: 12/20/2011 24 CLAUDIA WILKEN United States District Judge 25 26 27 28 7

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