Straits Financial LLC v. Ten Sleep Cattle Co.

Federal 7th Circuit Court
Civil Court
Securities
Citation
Case Number: 
No. 16-3860 et al Cons.
Decision Date: 
August 13, 2018
Federal District: 
N.D. Ill., E. Div.
Holding: 
Affirmed and reversed in part and remanded

Dist. Ct. did not err in granting defendants’ counterclaim alleging that plaintiff-broker improperly converted funds contained in defendants’ commodities futures and options trading account to cover losses in defendants' second trading account held by plaintiff, where said losses in second account were incurred after broker ignored defendants’ directives to close second account, and where plaintiff claimed that guarantee made by defendants in first account applied to losses made in second account. Dist. Ct. could properly find that guarantee made in first account did not apply under Illinois law to losses made in second account, in which no explicit guarantee was made, where second account was not in same kind of business relationship as first account, and where second account did not present same types of risks to defendants once unauthorized trades were made. However,

Dist. Ct.
erred in reducing defendants’ damages based on finding that defendants had failed to mitigate their damages by not timely discovering that broker had made unauthorized trades. Under Illinois law, fraud victims must have actual knowledge of fraud before they must act to mitigate their damages, and record showed that defendants acted immediately once they had discovered that broker had made unauthorized trades.