Zayed et al v. Peregrine Financial Group, Inc.
Filing
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MEMORANDUM OPINION AND ORDER. IT IS HEREBY ORDERED that Defendant's Motion to Transfer 8 is DENIED.(Written Opinion). Signed by Chief Judge Michael J. Davis on 6/22/12. (GRR)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
R.J. Zayed, in his capacity as
court appointed receiver for the
Estates of Trevor G. Cook et al.,
Plaintiff,
MEMORANDUM OPINION
AND ORDER
Civil No. 12‐269 (MJD/FLN)
v.
Peregrine Financial Group, Inc.,
Defendant.
________________________________________________________________
William T. Reid, IV, Rachel S. Fleishman, Gregory S. Schwegmann, and
Craig A. Boneau, Reid Collins & Tsai LLP and R.J. Zayed, Tara C. Norgard and
Samuel T. Lockner, Carlson Caspers Vandenburgh & Lindquist, Counsel for
Plaintiff.
Jessica L. Roe, Kutak Rock LLP, and Nicholas P. Iavarone, The Iavarone
Law Firm PC and Rebecca J. Wing, Peregrine Financial Group, Inc., Counsel for
Defendant.
________________________________________________________________
This is an action brought by the Receiver seeking the return of funds under
the Minnesota Uniform Fraudulent Transfer Act (“MUFTA”), Minn. Stat. §
513.44. The Receiver alleges that millions of dollars from Receivership Entities
were transferred to accounts at Defendant Peregrine Financial Group, Inc.
(“PFG”) with the intent to hinder, delay or defraud creditors of the Receivership
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Entities.
Currently before the Court is PFG’s motion to transfer venue to the
Northern District of Illinois.
Factual Background
Plaintiff R.J. Zayed is the court‐appointed receiver for the estates of Trevor
Cook, Patrick Kiley, Jason Beckman, and the various entities owned or controlled
by them, referred to as the Receivership Entities. PFG is a futures commission
merchant (“FCM”) that solicits and/or handles orders for the purchase or sale of
futures contracts. (Id. ¶ 5.) In 2005, Trevor Cook is alleged to have traded
Receivership funds in foreign currency trading at PFG through various accounts
owned or controlled by Cook totaling approximately $48 million. (Id. ¶ 8.)
The Receiver filed this action against PFG, asserting a number of claims
pursuant to MUFTA. (Complaint ¶ 1.) It is the Receiver’s position that transfers
made through accounts owned or controlled by Cook at PFG were made with the
intent to hinder, delay or defraud creditors of the Receivership Entities and that
PFG did not receive such transfers in good faith.
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Motion to Transfer Venue
PFG seeks to transfer this action to the Northern District of Illinois. PFG
asserts that a Receivership Entity, UBS Diversified Growth, LLC d/b/a UBS
Diversified LLC (“UBS”), entered into an independent Forex broker agreement
with PFG that contains a choice of law provision providing the parties’
agreement would be governed by Illinois law, as well as a forum selection clause,
that provides that “all actions, disputes, claims or proceedings, . . . arising
directly or indirectly in connection with, out of, or related to or from this
Agreement . . . shall be adjudicated . . . within the City of Chicago, State of
Illinois.” (O’Meara Decl. Ex. A, ¶ 25.0 p. 14.) Additional Receivership Entities,
Market Shot, LLC, Oxford FX Growth, LP, Oxford Global FX LLC, as well as
Trevor G. Cook and Christopher Pettengill, each executed a customer agreement
with PFG that included similar choice of law and forum selection provisions. (Id.
Exs. B‐J.) PFG argues that the forum selection clauses contained in the above
agreements are broad and require that this action be transferred to Illinois, as the
claims asserted herein arise “directly or indirectly in connection with, out of, or
related to or from this Agreement . . . “ (Id. Ex. A ¶ 25; Exs. B‐J ¶¶ 40 or 42.)
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A motion to transfer venue is governed by statute. “For the convenience of
parties and witnesses, in the interest of justice, a district court may transfer any
civil action to any other district or division where it might have been brought.”
28 U.S.C. § 1404 (a). In determining whether transfer is appropriate, the Court is
not limited to the factors listed in section 1404(a). Instead, the Court can consider
a number of factors, including a valid and applicable forum selection clause.
Terra Int’l, Inc. v. Miss. Chem. Corp., 119 F.3d 688, 691 (8th Cir. 1997). The
determination of whether to transfer venue “require[s] a case‐by‐case evaluation
of the particular circumstances at hand and a consideration of all relevant
factors.” Id.
A valid forum selection clause is a significant factor that should figure
centrally in the district court’s determination of whether transfer of venue is
appropriate. Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988). “[F]orum
selection clauses [are] enforceable unless it is invalid or enforcement would be
unreasonable and unjust.” Dominium Austin Partners, LLC v. Emerson, 248 F.3d
720, 726 (8th Cir. 2001).
The Receiver asserts that the forum selection clauses contained in the PFG
customer and broker agreements are not implicated in this case, because the
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claims asserted herein do not arise out of those agreements. Instead, the claims
asserted in this action arise under MUFTA. While the complaint implicitly
assumes that the terms of the agreements were followed, the asserted claims do
not arise out of the agreements’ terms. Instead, the broker and customer
agreements are cited in the complaint only to demonstrate the various ways in
which PFG’s business model created incentives for PFG to ignore the obvious
fraud and to demonstrate generally how PFG does business. (See Complaint ¶¶
119‐126.) The Receiver also argues that the forum selection and choice of law
provisions do not apply to the creditors of a Ponzi scheme.
The Court agrees that the forum selection and choice of law provisions do
not govern the appropriate venue for this action. First, it is clear that the claims
asserted herein do not arise from the PFG broker and customer agreements; each
claim is brought pursuant to MUFTA which provides relief to creditors that
suffer damages due to certain fraudulent transfers. Minn. Stat. § 513.47(a). See
also Bartholomew v. Avalon Capital Group, Inc., 828 F. Supp.2d 1019, 1025 (D.
Minn. 2009) (recognizing that MUFTA protects creditors, not transferors of debt,
and that only creditors can recover thereunder). Because this case involves a
Ponzi scheme, the Receivership Entities are considered victims of the fraud and
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thus creditors of the Ponzi scheme. U.S. Commodity Futures Trading Comm’n v.
Cook, No. 11‐1042 (SRN/FLN) Order Adopting Report and Recommendation
dated June 1, 2011 at 8‐9 (Doc. No. 108) (citing Scholes v. Lehmann, 56 F.3d 750
(7th Cir. 1995)). See also Bartholomew, 828 F. Supp.2d at 1026 (finding that
Minnesota law supports proposition that a receiver can bring MUFTA claims on
behalf of third party creditors).
In addition, this Court has authorized the Receiver to bring summary
proceedings, such as this, for “purposes of recovering investor assets transferred
to third parties by Cook pursuant to the Ponzi Scheme.” (Civil No. 09‐3332 (Doc.
No. 350 at 4); Civil No. 09‐3333 (Doc. No. 380 at 4).)
Because the Receiver has the authority to assert MUFTA claims on behalf
of the creditors of the Ponzi scheme, and because these claims do not arise from
the PFG broker and customer agreements, the forum selection clause and choice
of provisions contained therein do not require transfer of this case to Illinois. See
State ex. rel. Hatch v. Cross Country Bank, Inc., 703 N.W.2d 562, 569 (Minn. Ct.
App. 2005) (finding that a nonparty to contract was not bound by contract’s
arbitration provision). See also In re AstroPower Liquidating Trust, 335 B.R. 309,
328 (Bankr. D. Del. 2005) (finding fraudulent transfer claims brought by
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liquidating trust did not arise out of contract containing forum selection clause,
and were brought on behalf of creditors, therefore forum selection clause did not
bar fraudulent transfer claims from proceeding in bankruptcy proceeding); In re
Charys Holding Co, Inc., 443 B.R. 628, 635 (Bankr. D. Del. 2010) (same).
As to the § 1404 factors ‐ convenience of the parties and witnesses and the
interest of justice ‐ PFG asserts that all funds for these accounts were sent to PFG
in Chicago, Illinois and deposited in financial institutions in Chicago. (Id. ¶¶
13A and 13B.) PFG asserts its personnel are located in Chicago, and all
transactions were approved by PFG personnel in Chicago. (Id. ¶¶ 13C‐G.) PFG
further asserts that the persons on whose behalf the Receiver is seeking recovery
are located throughout the United States ‐ they are not concentrated in
Minnesota. Counsel for the Receiver have offices in Texas and New York. The
Receiver asserts that PFG is actually incorporated in Iowa, and that many of its
employees work or reside in Iowa. Further, many of the parties to the Ponzi
scheme at issue are located in Minnesota, and many of the relevant documents
are located in Minnesota.
The Court finds that the convenience of the parties and witnesses, and the
interests of justice, are served by denying PFG’s motion to transfer. This Court
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has presided over the SEC and CFTC actions concerning this Ponzi scheme, as
well as a number of related actions, since mid 2009. This Court also presided
over the criminal trial of three defendants that were convicted of multiple counts
of fraud concerning this Ponzi scheme. The Receiver is also involved of a
number of similar summary proceedings in this District. Accordingly,
maintaining this action in this District serves the interest of justice and judicial
economy.
IT IS HEREBY ORDERED that Defendant’s Motion to Transfer [Doc. No. 8]
is DENIED.
Date: June 22, 2012
s/ Michael J. Davis
Michael J. Davis
Chief Judge
United States District Court
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