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

Filing 57

ORDER by Judge 12/20/2011 DENYING DEFENDANT JAMES D. CROMBIES 17 MOTION TO DISMISS AND TO STRIKE. (ndr, COURT STAFF) (Filed on 12/20/2011)

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