Behrens v. US Bank, NABehrens v. US Bank, NA
MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
This matter is before me on motions (Docs. 56, 57, 60) to dismiss filed by defendants U.S. Bank, N.A. (U.S. Bank), JPMorgan Chase Bank, N.A. (JPMorgan), the CME Group, Inc. (CMEG), and the
II. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Plaintiffs’ amended complaint (Doc. 54) alleges that they were victims of Peregrine Financial Group (PFG). They contend that they invested with PFG from 2007 to 2008 and suffered losses in September and October 2008. Doc. 54 at 39. Plaintiffs engaged an attorney to assist with claims in a customer arbitration before the National Futures Association (NFA) in 2009. Doc. 54 at 220. These arbitrations lasted until approximately 2011 and did not result in any recovery for plaintiffs. Id.
In July 2012, PFG CEO and Chairman Russell Wasendorf, Sr., attempted suicide and confessed in a note that he had committed fraud. Id. at 601. It was around this time that law enforcement and regulators began investigating PFG. Id. at 617. On July 12, 2012, multiple plaintiffs filed class actions in the Northern District of Illinois against U.S. Bank and JPMorgan, among others. On October 5, 2012, the class actions were consolidated as In re Peregrine Financial Group Litigation, 12-cv-5546 (N.D. Ill. 2012). Plaintiffs allege they were initially recognized as class members but were effectively decertified, as the settlement class included only customers who actually owned money, property or securities at the time Peregrine went bankrupt on or about July 10, 2012. Id. at ¶¶ 227-228, 619, 632.
On July 11, 2016, plaintiffs filed a putative class action against defendants and others in the United States District Court for the Southern District of New York. See Behrens v. JPMorgan Chase Bank N.A. et al., No. 16-cv-5508 (S.D.N.Y.) (Behrens I). The court concluded that “the applicable statutes of limitations began to run, at the earliest, as of October 2008 and, at the latest, as of July 10, 2012.” Behrens I, 2019 WL 1437019, at *5 (S.D.N.Y. Mar. 31, 2019). The court rejected plaintiffs’ argument of equitable tolling on the basis of fraudulent concealment because they failed to explain how any alleged acts of concealment prevented plaintiffs from learning about the nature of their claims. Id. at *7. The court also rejected tolling based on the rule set forth in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974),1 because plaintiffs were not class members of the Illinois class action because they did not have funds deposited with PFG as of July 2012. The court reasoned that even if it assumed plaintiffs could have been members of the Illinois class action, American Pipe tolling “does not apply to permit putative class members to file a subsequent class action,” only individual suits. Id. at *8 (citing Korwek v. Hunt, 827 F.2d 874, 878 (2d Cir. 1987)). Because all of plaintiffs’ claims based on federal question jurisdiction under
Plaintiffs filed their initial complaint (Doc. 1) in this court on September 10, 2024. Defendants filed motions (Docs. 48, 49, 50) to dismiss and a motion (Doc. 40) to stay discovery until the court had ruled on the motions to dismiss. The court granted the motion to stay. Doc. 52. On February 14, 2025, plaintiffs filed an amended complaint (Doc. 54). Defendants responded with the motions (Docs. 56, 57, 60) to dismiss now before the court. The stay of discovery remains in effect. Doc. 68.
Plaintiffs allege the following claims:
Count I - Principal agency liability
Count II – Fraud by omission against U.S. Bank, JPMorgan and CMEG
Count III – Violation of the Illinois Fiduciary Obligations Act,
Count IV – Breach of fiduciary duty against all defendants
Count V – Breach of contract including its obligation of good faith and fair dealing against CME defendants and bank defendants
Count VI – Negligence and gross negligence against CMEG
Count VII – Breach of fiduciary duty and unwritten contract against CMEG
Count VIII – Aiding and abetting against all defendants
Count IX – Violation of
Count X Negligent and intentional infliction of emotional distress against all defendants
Count XI – Punitive damages against all defendants
Count XII Unjust enrichment and restitution under state law against all defendants
Count XIII Intentional interference with contract and prospective business advantage against all defendants
III. DISCUSSION
All defendants argue that res judicata bars plaintiffs’ claims and, in the alternative, that they are barred by the applicable statutes of limitations. I will address these arguments before deciding whether to consider alternative arguments of dismissal (such as factual plausibility, immunity, preemption and lack of personal jurisdiction) raised by some of the defendants.
A. Res Judicata
Defendants argue that because original federal subject matter jurisdiction was available to plaintiffs in Behrens I under CAFA, and they failed to assert it resulting in the discretionary dismissal of
Defendants argue the result is the same when CAFA is the basis for original subject matter jurisdiction. See Boyd v. J.E. Robert Co., Inc., 15 Civ. 2302, 2016 WL 1359521, at *3 (E.D.N.Y. Mar. 29, 2016) (holding that res judicata bars a subsequent lawsuit based on CAFA because it was previously available and would have allowed all of plaintiffs’ claims to be heard in plaintiffs’ first action). They contend that plaintiffs could have (and should have) asserted jurisdiction under CAFA to allow the New York court to hear their state law claims. However, plaintiffs did not assert CAFA as a basis of subject matter jurisdiction in Behrens I and actually opposed it when defendants asked the court (in an untimely motion for reconsideration) to exercise subject matter jurisdiction and deny plaintiffs’ state law claims on the merits.
Plaintiffs argue the Eighth Circuit has rejected Kale and would allow plaintiffs’ claims. They rely on Pilgrim v. State Farm Mut. Auto. Ins. Co., 4:05CV00522, 2005 WL 8164520 (E.D. Ark. Sept. 1, 2005), in which the court stated:
The Eighth Circuit Court of Appeals has held that where the original action is dismissed on a jurisdictional basis, the dismissal does not preclude a subsequent suit on a different theory and jurisdictional basis. In analyzing this issue, the Eighth Circuit relies upon the fact that the original dismissal was not a decision on the merits of the substantive claim. See, McCarney v. Ford Motor Co., 657 F.2d 230 (8th Cir. 1981) and Kulinski v. Medtronic Bio-Medicus, Inc., 112 F.3d 368 (8th Cir. 1997). Because the original dismissal of Plaintiff‘s state law claims was not a dismissal on the merits, the Court finds that Plaintiff‘s subsequent suit on different theories, and based on a different jurisdictional basis is not barred. Defendants’ motion to dismiss based on the doctrine of res judicata is denied.
Pilgrim, 2005 WL 8164520, at *2.2
“Dismissal on the basis of res judicata at the pleading stage is appropriate
complaint.” C.H. Robinson, 695 F.3d at 764.3 Res judicata refers to both claim preclusion and issue preclusion. Taylor v. Sturgell, 553 U.S. 880, 892 (2008). Claim preclusion “forecloses ‘successive litigation of the very same claim, whether or not relitigation of the claim raises the same issues as the earlier suit” while “[i]ssue preclusion . . . bars ‘successive litigation of an issue of fact or law actually litigated and resolved in a valid court determination essential to the prior judgment,’ even if the issue recurs in the context of a different claim.” Id. (quoting New Hampshire v. Maine, 532 U.S. 742, 748-49 (2001)). “[C]laim preclusion prevents parties from raising issues that could have been raised and decided in a prior action even if they were not actually litigated.” Lucky Brand Dungarees, Inc. v. Marcel Fashions Grp., Inc., 590 U.S. 405, 412 (2020). “The law of the forum that rendered the first judgment controls the res judicata analysis.” Laase v. County of Isanti, 638 F.3d 853, 856 (8th Cir. 2011). As such, federal law applies. See Poe v. John Deere Co., 695 F.2d 1103, 1105 (8th Cir. 1982) (concluding federal law governed the issue of res judicata because the court was tasked with determining the effect of a judgment rendered by a federal court on a claim arising under federal law).4 In the Eighth Circuit, res judicata applies if the following elements are satisfied:
(1) the first suit resulted in a final judgment on the merits; (2) the first suit was based on proper jurisdiction; (3) both suits involve the same parties (or those in privity with them); and (4) both suits are based upon the same claims or causes of action. Furthermore, the party
against whom res judicata is asserted must (5) have had a full and fair opportunity to litigate the matter in the proceeding that is to be given preclusive effect.
Rutherford v. Kessel, 560 F.3d 874, 877 (8th Cir. 2009) (quoting Costner v. URS Consultants, Inc., 153 F.3d 667, 673 (8th Cir. 1998)). Elements 1 and 5 are disputed here.
Defendants argue there was a final judgment on the merits in Behrens I and plaintiffs could have litigated their state law claims under CAFA jurisdiction, which they chose not to raise. Plaintiffs argue there was no final judgment as to the state law claims (as they were dismissed without prejudice) and thus, they did not have a full and fair opportunity to litigate those claims in the first lawsuit. They argue the state law claims could not have been brought under CAFA because it is a discretionary removal statute and there is no mandatory requirement that it be used to confer original jurisdiction in federal court in the first instance.
Typically, res judicata would not apply to state law claims dismissed without prejudice if the court chose not to exercise supplemental jurisdiction and had no other basis of subject matter jurisdiction. See Saadoon v. Barr, 973 F.3d 794, 801 (8th Cir. 2020) (“Ordinarily, a judgment dismissed without prejudice [for lack of subject matter jurisdiction] does not create a res judicata bar.“); 18A Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 4436 (3d ed. 1998) (“Discretionary refusal to exercise supplemental jurisdiction likewise does not preclude a subsequent action on state-law claims in state court or in a federal court that has an independent basis of subject-matter jurisdiction.“). If an alternative basis of subject matter jurisdiction was available in the first lawsuit that plaintiffs chose not to exercise,
they are precluded from presenting their dismissed state law claims to a different federal court. See Markley v. U.S. Bank National Ass‘n, No. 24-1163, 2025 WL 1739390, at *6-7 (10th Cir. June 24, 2025) (“If a party could have litigated a claim in a prior lawsuit by asserting diversity jurisdiction but fails to do so, that claim is precluded if the prior lawsuit arose from the same operative facts and reached a final judgment on the merits.“).
While Markley and other courts applying this principle have relied on the availability of diversity jurisdiction in the first lawsuit, I agree with defendants that the outcome should not be different if the jurisdiction is based on CAFA under
In addition, CAFA jurisdiction is not reserved solely for the removal of cases to federal court. The plain language of the statute establishes “original jurisdiction” in
federal courts as a form of diversity jurisdiction. See
Plaintiffs do not dispute that these requirements were met in the New York class action. Plaintiffs’ second amended complaint (Doc. 56-2) in that action indicated that plaintiffs were suing on behalf of themselves and other similarly situated individuals or business who held accounts at PFG prior to July 2012 and found their accounts worthless or nearly worthless. Doc. 56-2 at 12. They alleged that PFG had “at least 24,000 customers” and that the Illinois class action covered 14,000 purported class members. Id. at 39, 56. They also alleged the Plaintiffs are citizens of Iowa and at least one defendant was a citizen of a different state. Id. at 31, 34, 39-56. They alleged damages in the amount of $3,300,000.00 and asked that they be trebled, which was available relief under their RICO claim. Id. at 124, 221. See also id. at 159-62 (alleging the requirements of
In addition to the mandatory exceptions under
Because plaintiffs have not established that the court could have exercised discretion, or was required to decline jurisdiction based on the statutory exceptions, there was no jurisdictional obstacle to the court exercising jurisdiction under CAFA and resolving the state law claims raised in the New York action. As such, res judicata precludes plaintiffs from pursuing their state law claims (or any other claims that could have been raised in the first instance) in a subsequent federal lawsuit. Defendants’ motions to dismiss based on res judicata are granted.
B. Are Plaintiffs’ Claims Time-Barred?
Even if res judicata does not bar plaintiffs’ claims, they would be barred by the applicable statutes of limitations. In Behrens I, the court concluded plaintiffs’ federal claims were time-barred and declined to exercise supplemental jurisdiction over plaintiffs’ state law claims. Defendants argue that plaintiffs’ claims alleged in this lawsuit are also time-barred and that certain rulings made in Behrens I prevent plaintiffs from relitigating those issues in this litigation under the doctrine of issue preclusion.
The longest statute of limitations for any of plaintiffs’ cognizable claims is five years. See
Plaintiffs argue that the statute of limitations did not begin to run until 2012 and that Iowa‘s savings statute –
“Generally, a claim accrues when ‘the wrongful act produces injury to the claimant.‘” Hallett Const. Co. v. Meister, 713 N.W.2d 225, 230 (Iowa 2006) (quoting K&W Elec., Inc. v. State, 712 N.W.2d 107, 115 (Iowa 2006) (citation omitted)). “Under the discovery rule . . . a limitations period does not begin to run until the plaintiff discovers, or with reasonable diligence should have discovered, the injury
Here, plaintiffs allege the injury occurred in October 2008. See Doc. 54 at 39 (alleging plaintiffs’ losses at Peregrine and over the CME occurred in September and October 2008): 114 (alleging the Shefferts’ entire investment was purposefully lost in the “RICO Ponzi Scheme” from October 2, 2008 to October 9, 2008); ¶ 131(3) (“During the week of October 2, 2008 through October 9, 2008, Plaintiffs’ entire investments were wiped as a result of defendants’ failure to safeguard these customer segregated accounts“); 272 (“Imprudent trading continued even in these IRA accounts until the week of October 2, 2008 through October 8, 2008 where all accounts were wiped out, sending these investors home penniless and having to still pay their bills“); ¶ 277 (“These accounts remained open until October 8, 2008 when all the customer account values were wiped out“); 660 (alleging plaintiffs’ trading accounts were terminated in October 2008 “and they were told by Garlon Maxwell that they had been financially wiped out around that time“). Plaintiffs pursued an arbitration in 2009. This arbitration against PFG was before the NFA.
Plaintiffs argue this arbitration was based on broker misconduct and lack of risk disclosure and that the issue of misappropriation of customer funds was still unknown. Doc. 75 at 15. They allege that by the end of 2012, they filed their notices of claims in PFG‘s bankruptcy case. Id. at ¶¶ 614-15; Doc. 75-6 (allowing the Shefferts’ claim as a general, unsecured claim in the Chapter 7 bankruptcy action); Doc. 75-8 (showing plaintiffs filed their proof of claim in the bankruptcy action on December 14, 2012). According to plaintiffs, the bankruptcy claims became part of the class action, In Re Peregrine Financial Group Customer Litigation, 12-CV-5546 (N.D. Ill. 2012), and were effectively merged. Doc. 75 at 15-16. In June 2016, plaintiffs were effectively decertified from the class as they were not included as members of the settlement classes because they did not still have account balances with PFG as of 2012. Doc. 54 at ¶¶ 619, 625 632; Doc. 75 at 31, 34-35. Plaintiffs filed their case in the Southern District of New York on July 11, 2016. Doc. 54 at 224.
Plaintiffs were on inquiry notice prior to July 2012. Their accounts were wiped out in October 2008. Doc. 54 at ¶¶ 39, 114, 131, 272, 277, 660. They admit they retained an attorney in 2009 to pursue claims for compensation against PFG before the NFA. Doc. 54 at 221. While these claims were purportedly based on a claim of lack of risk disclosure unrelated to the alleged
Plaintiffs argue I should apply equitable estoppel based on fraudulent concealment to prevent the application of the statute of limitations. “Equitable estoppel prevents a defendant ‘from asserting the bar of the statute of limitations’ based on ‘his agreement, representations, or conduct.‘” Christy v. Miulli, 692 N.W.2d 694, 700 (Iowa 2005) (quoting DeWall v. Prentice, 224 N.W.2d 428, 430 (Iowa 1974)). “There must be conduct amounting to false representation or concealment, and a party relying thereon must be thereby misled into doing or failing to do something he would not otherwise have done or omitted.” Id. To establish equitable estoppel, plaintiffs must demonstrate by clear and convincing evidence: (1) the defendant has made a false representation or has concealed material facts, (2) the plaintiffs lack knowledge of the true facts, (3) the defendant intended the plaintiff to act upon such representations and (4) the plaintiffs did in fact rely on such representations to their prejudice. Hook v. Lippolt, 755 N.W.2d 514, 524-25 (Iowa 2008).
Plaintiffs’ equitable estoppel argument is based on defendants’ denial of liability or responsibility for the alleged “Ponzi Scheme.” Doc. 75 at 31. As to any fraudulent statements, they rely on a letter from their former counsel in the NFA arbitration dated July 31, 2012, telling plaintiffs they could fully recover for their losses by joining in the class action. Id. Additionally, plaintiffs argue as long as they “continued to investigate their claims with reasonable diligence, Iowa should allow continued tolling until such time that a person of ordinary intelligence could have discovered the claim.” Id. at 32.
These arguments fail to establish equitable estoppel based on fraudulent concealment, primarily because plaintiffs have not identified any false representations or concealment of material facts by these defendants. At most, they have identified only a denial of any liability or responsibility. See Mormann, 913 N.W.2d at 562 (“[I]f a failure to confess discriminatory motive were sufficient to give rise to an equitable estoppel claim, the . . . limitation [period] would be meaningless.“). As such, equitable estoppel does not apply.
Plaintiffs also advocate for tolling the statute of limitations based on American Pipe and cross-jurisdictional tolling,10 as well as Iowa‘s savings statute. Plaintiffs cite Iowa Rule of Civil Procedure 1.277, which tolls the statute of limitations for all class members upon the commencement of a class action. Under American Pipe, “the commencement of the original class suit tolls the running of the statute [of limitations] for all purported members of the class who make timely motions to intervene after the court has found the suit inappropriate for class action status.” American Pipe, 414 U.S. at 553. This rule has also been extended for class members who later file individual suits rather than intervene. Great Plains Trust Co. v. Union Pacific R. Co., 492 F.3d 986, 997 (8th Cir. 2007) (citing Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 350 (1983)). Iowa‘s savings statute provides: “If, after the commencement of an action, the plaintiff for any cause except negligence in its prosecution, fails therein, and a new one is brought within six months thereafter, the second shall, for the purposes herein contemplated, be held a continuation of the first.”
Behrens I considered whether plaintiffs were entitled to class action tolling pursuant to American Pipe and found it was inapplicable. The district court reasoned that because the Illinois class action defined the putative class members as “former
customers of Peregrine . . . who have lost money as a result of the collapse of [Peregrine] in July 2012” plaintiffs never could have been part of the putative class because they did not claim to have lost money as a result of the collapse in 2012. Behrens I, 2019 WL 1437019, at *2. Even if plaintiffs could have been members of that action, the court reasoned that American Pipe tolling applies only to subsequent individual suits, not subsequent class actions. Id. Finally, the court noted in a footnote that the claims asserted in Behrens I were not the same claims asserted in the Illinois class action. The court noted that the Illinois class action contained no allegations related to market losses, “shadow trading,” margin calls or the particulars of any plaintiff‘s trades. As such, the court noted the Illinois class action arguably did not place the defendants on notice that they might face claims of former PFG customers who received falsified statements or who sought to recover trading losses suffered several years earlier. Id. at *2, n.8.
Defendants argue (1) plaintiffs cannot relitigate their tolling arguments due to issue preclusion and (2) Iowa has not adopted the rule of American Pipe and plaintiffs’ claims are so different from the claims in the Illinois class action as to preclude the doctrine‘s application. Additionally, CME and CMEG argue that class action tolling does not apply to plaintiffs’ claims against them because they were not named as defendants in the class action.11 Doc. 79 at 11. Plaintiffs argue they were class action members, but were ultimately decertified and that many of their current claims are identical to those asserted in the Illinois class action.
Regardless of whether issue preclusion applies to plaintiffs’ argument, I would reach the same outcome as the Southern District of New York12 and the Second Circuit Court of Appeals13 to the extent the rule of American Pipe does not allow successive class actions. See China Agritech v. Michael H. Resh, et al., 584 U.S. 732, 735 (2018) (holding that ”American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations“).14 Plaintiffs offer no argument
For these reasons, plaintiffs’ claims are barred by the applicable statutes of limitations and are not saved by any of the tolling provisions raised herein. Thus, even if res judicata does not apply, defendants are entitled to dismissal.
IV. CONCLUSION
For the reasons stated herein:
1. Defendants’ motions (Docs. 56, 57, 60) to dismiss are each granted and this action is hereby dismissed.
2. Plaintiffs’ cross-motion (Doc. 76) to change venue or sever CMEG and CME is denied as moot.
3. The Clerk of Court shall close this case.
IT IS SO ORDERED this 25th day of July, 2025.
Leonard T. Strand
United States District Judge