Aventine Renewable Energy, Inc. v. JP Morgan Securities, Inc. ( 2010 )


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  •                           No.3--09--1019
    ________________________________________________________________
    Filed December 9, 2010
    IN THE
    APPELLATE COURT OF ILLINOIS
    THIRD DISTRICT
    A.D., 2010
    AVENTINE RENEWABLE ENERGY,    )    Appeal from the Circuit Court
    INC.,                         )    of the 10th Judicial Circuit
    )    Tazewell County, Illinois,
    Plaintiff-Appellant,  )
    )
    v.                       )    No. 08--L--142
    )
    JP MORGAN SECURITIES, INC.    )
    and JP MORGAN CHASE BANK,     )
    N.A.,                         )    Honorable
    )    Scott A. Shore
    Defendants-Appellees.    )    Judge, Presiding.
    _________________________________________________________________
    JUSTICE LYTTON delivered the judgment of the court, with
    opinion.
    Presiding Justice Holdridge specially concurred, with
    opinion.
    Justice Schmidt dissented, with opinion.
    OPINION
    _________________________________________________________________
    Plaintiff   Aventine    Renewable     Energy,   Inc.,   invested   in
    auction rate securities (ARS) from defendants JP Morgan Chase
    Bank, N.A. and JP Morgan Securities, Inc. (JP Morgan).             After
    Aventine lost a considerable amount of money from its investment,
    it filed suit against JP Morgan.         JP Morgan filed a motion to
    1
    compel Aventine to submit to arbitration or, alternatively, to
    stay the litigation pending resolution of a class action filed
    against JP Morgan        in New York.            The trial court stayed the
    action.      Aventine then moved to lift the stay.              The trial court
    denied Aventine’s motion.          We affirm.
    Aventine produces and sells ethanol and related products and
    has production facilities in Illinois.                Aventine alleged that in
    2006,   it    invested     in    student       loan   auction   rate    securities
    (SLARS), a type of ARS, upon the investment advice of JP Morgan.
    At the time of the initial investment, SLARS were considered to
    be safe and liquid cash-management tools.                 Aventine alleged that
    JP Morgan coaxed it into investing in SLARS by promising to
    repurchase Aventine’s SLARS at full face value if other buyers
    would not.      In 2006, Aventine completed and signed an account
    application with JP Morgan that contained an arbitration clause,
    which stated, "I agree that all controversies that may arise
    between me or us and [J.P. Morgan] *** shall be determined by
    arbitration     pursuant    to    the   Federal       Arbitration      Act."   The
    application contained an exception if a class action suit was
    pending at the time:
    "No     person   shall      seek   to      enforce   any   pre-dispute
    arbitration agreement against any person *** who is a
    member of a putative class who has not opted out of the
    2
    class with respect to any claims encompassed by the
    putative       class      action        until:       (i)     the      class
    certification        is   denied;       or    (ii)     the     class     is
    decertified; or (iii) the customer is excluded from the
    class by the court."
    In 2008, representatives of JP Morgan called Aventine to
    inform them of rumors of future liquidity problems concerning
    SLARS.     Aventine alleged that it asked JP Morgan to repurchase
    some of its SLARS, but JP Morgan refused and suggested that
    Aventine sell its SLARS at auction.                   By February 2008, SLARS
    auctions    began    to     fail.       Since     then,     there    has    been   no
    functioning market for SLARS.                Aventine alleged that it lost
    $31.6 million by selling its SLARS below the price at which JP
    Morgan promised to repurchase them.               On April 27, 2009, Aventine
    filed for a chapter 11 bankruptcy.
    On November 6, 2008, Aventine filed a complaint against JP
    Morgan.    On December 18, 2008, JP Morgan moved to compel Aventine
    to submit to arbitration or, alternatively, stay the litigation.
    Aventine opposed the motion, stating that a pending class action
    suit against JP Morgan, Ciplet v. JP Morgan Chase & Co., No. 08--
    CV--4580 (S.D.N.Y. May 16, 2008) (Ciplet), in New York triggered
    the account application’s exception to arbitration.                     In Ciplet,
    3
    the plaintiffs alleged that JP Morgan manipulated the market for
    ARS prior to the market’s collapse in early 2008.
    On May 28, 2009, the trial court denied JP Morgan’s motion
    to compel arbitration in light of the Ciplet litigation in New
    York.     However, the trial court stayed the litigation in its
    entirety in favor of the New York action.
    In June 2009, the plaintiffs in Ciplet voluntarily dismissed
    their action without prejudice.           In July 2009, a new class action
    was filed in New York against JP Morgan, O’Gara v. JP Morgan
    Chase & Co., No. 09--CV--6199 (S.D.N.Y. July 10, 2009).                       The
    plaintiffs in that case also alleged that JP Morgan manipulated
    the market for ARS.         The class seeking certification were all
    persons   who   purchased    ARS   from    JP   Morgan   from   July   2004    to
    February 2008, which included Aventine.
    In August 2009, Aventine filed a motion to lift the stay or,
    alternatively, allow Aventine to conduct discovery.                    Aventine
    argued that the new cause of action in New York and likelihood
    that the litigation will take years to resolve required that the
    court lift the stay.    The trial court denied Aventine’s motion.
    ANALYSIS
    I.    JURISDICTION
    JP Morgan argues that we lack jurisdiction over this appeal.
    We disagree.    Illinois Supreme Court Rule 307(a)(1) provides: "An
    4
    appeal may be taken to the Appellate Court from an interlocutory
    order        of    the      court:    (1)      granting,          modifying,      refusing,
    dissolving, or refusing to dissolve or modify an injunction."                             "A
    stay        is   considered     injunctive         in    nature,    and    thus   an   order
    granting or denying a stay fits squarely within Rule 307(a)."
    Rogers v. Tyson Foods, Inc., 
    385 Ill. App. 3d 287
    , 288, 
    895 N.E.2d 97
    , 98 (2008); see also Marsh v. Illinois Racing Board,
    
    179 Ill. 2d 488
    , 
    689 N.E.2d 1113
     (1997).1
    II.     STAY ORDER
    Courts may stay proceedings in a case when several actions
    are pending that involve essentially the same subject matter.
    See J.S.A. v. M.H., 
    384 Ill. App. 3d 998
    , 1005, 
    893 N.E.2d 682
    ,
    688 (2008).             A trial court’s decision to grant or deny a motion
    to   stay        will    not   be   overturned          unless    the   court   abused   its
    discretion in making the decision.                      See May v. SmithKline Beecham
    Clinical Laboratories,               Inc.,    
    304 Ill. App. 3d 242
    ,   246, 
    710 N.E.2d 460
    , 463 (1999).                An abuse of discretion does not occur
    when a reviewing court merely disagrees with the trial court's
    decision but, instead, when a reviewing court finds that the
    1
    The cases relied on by the dissent are not controlling
    here because they do not involve stay orders. See People v.
    Phillip Morris, Inc., 
    198 Ill. 2d 87
    , 
    759 N.E.2d 906
     (2001)
    (order to fund an escrow account); Short Brothers Construction,
    Inc. v. Korte & Luitjohan Contractors, Inc., 
    356 Ill. App. 3d 958
    , 
    828 N.E.2d 754
     (2005) (order to submit to mediation).
    5
    trial   court   "’"acted     arbitrarily        without   the    employment    of
    conscientious judgment or, in view of all the circumstances,
    exceeded the bounds of reason and ignored recognized principles
    of law so that substantial prejudice resulted."’[Citations.]"
    May, 
    304 Ill. App. 3d at 246
    , 
    710 N.E.2d at 463
    , quoting Zurich
    Insurance Co. v. Raymark Industries, Inc., 213 Ill. Ap. 3d 591,
    594-95 (1991).
    The Federal Arbitration Act (Act) provides courts with the
    power to stay cases referable to arbitration:
    "If any suit or proceeding be brought in any of
    the   courts    of     the   United      States    upon    any    issue
    referable to arbitration under an agreement in writing
    for such arbitration, the court in which such suit is
    pending, upon being satisfied that the issue involved
    in such suit or proceeding is referable to arbitration
    under such an agreement, shall on application of one of
    the parties stay the trial of the action until such
    arbitration has been had in accordance with the terms
    of the agreement, providing the applicant for the stay
    is not in default in proceeding with such arbitration."
    
    9 U.S.C. §3
     (2006).
    The language of this section applies both to state and federal
    courts.     See     Moses    H.   Cone       Memorial   Hospital      v.   Mercury
    6
    Construction Corp., 
    460 U.S. 1
    , 27, 
    74 L. Ed.2d 765
    , 786, n.34,
    
    103 S. Ct. 927
    ,   942,   n.34   (1983).     A    liberal     reading    of
    arbitration agreements is necessary to fulfill the Act’s purpose.
    See Moses H. Cone Memorial Hospital, 
    460 U.S. at 22
    , 
    74 L. Ed.2d at 784, n.27
    , 
    103 S. Ct. at 940, n.27
    .                "Doubts regarding the
    scope of arbitrable issues ought to be resolved in favor of
    arbitration."     Heiden v. Galva Foundry Co., 
    223 Ill. App. 3d 163
    ,
    168, 
    584 N.E.2d 518
    , 522 (1991).
    In Olson v. Jenkens & Gilchrist, 
    461 F. Supp. 2d 710
     (N.D.
    Ill. 2006), the court analyzed a class action exception identical
    to that in the case at hand.           There, the plaintiffs opposed a
    stay ordered by the court and argued that the pendency of a class
    action     lawsuit   negated   its    arbitration      agreement    with     the
    defendant.       Olson, 
    461 F. Supp. 2d at 729-30
    .           The plaintiff
    argued that it should be free to pursue individual litigation
    during the period that the defendant could not force arbitration.
    Olson, 
    461 F. Supp. 2d at 729
    .             The court disagreed with the
    plaintiff,    holding   that   the    class   action   exclusion    provision
    assumes that disputes remain ultimately referable to arbitration
    if they are not resolved in the class action.                Olson, 
    461 F. Supp. 2d at 730
    .
    We agree with the court in Olson.          The trial court did not
    act arbitrarily or exceed the bounds of reason in making its
    7
    decision to deny Aventine’s motion to lift the stay.                     A stay in
    this situation, where another action regarding the same subject
    matter is pending, is appropriate.             See J.S.A., 384 Ill. App. 3d
    at 1005, 
    893 N.E.2d at 688
    .             The trial court was entitled to
    favor   arbitration      by   staying   the    case.       See   Moses     H.   Cone
    Memorial Hospital, 
    460 U.S. at 23, n.27
    , 
    74 L. Ed.2d at 784, n.27
    ,   
    103 S. Ct. at 940, n.27
    ; see also Heiden, 223 Ill. App. 3d
    at 168, 584 N.E.2d at 522.        By granting the stay, the trial court
    properly followed the provisions of both the Act and the account
    application    agreement.         The       court’s    decision    was     neither
    arbitrary nor unreasonable and was not an abuse of discretion.
    CONCLUSION
    The    order   of    the   circuit      court    of   Tazewell   County     is
    affirmed.
    Affirmed.
    PRESIDING JUSTICE HOLDRIDGE, specially concurring:
    I concur with the judgment to affirm the trial court’s order
    denying the plaintiff’s motion to lift the stay.                 I write
    separately to assert my position that the Federal Arbitration Act
    (
    9 U.S.C. §3
     (2006)) does not control the outcome of this case as
    the only question is whether the trial court abused its
    discretion in granting a stay of the instant litigation pending
    8
    the outcome of the class action lawsuit in New York, an action
    which was not covered by the Federal Arbitration Act.
    A trial court’s decision to grant or deny a motion to stay
    will not be overturned unless the court abused its discretion in
    ruling upon the motion.   See May v. SmithKline Beecham Clinical
    Laboratories, Inc., 
    304 Ill. App. 3d 242
    , 246 (1999).   An abuse
    of discretion does not occur when a reviewing court merely
    disagrees with the trial court’s decision, but, instead, when a
    reviewing court finds that the trial court "acted arbitrarily
    without the employment of conscientious judgment or, in view of
    all the circumstances, exceeded the bounds of reason and ignored
    recognized principles of law so that substantial prejudice
    resulted."   May, 
    304 Ill. App. 3d at 246
    .    While I agree that
    the trial court in the instant matter did not abuse its
    discretion in denying the plaintiff’s motion to lift the stay, I
    would limit this ruling to the particular facts of this case.
    Here, the trial court determined that it was in the best interest
    of judicial economy that the matter should be stayed pending the
    outcome of the New York class action.   The trial court reasoned
    that both matters involved the same parties and the same claims.
    Most importantly to the trial court was the fact that, since JP
    Morgan had engaged in the same alleged fraudulent conduct with
    other investors throughout the county, discovery in the instant
    9
    matter would significantly overlap and duplicate the discovery
    taking place in the class action.     While a reviewing court might
    disagree with this reasoning, it cannot be said that the trial
    court’s decision exceeded the bounds of reason or was otherwise
    contrary to law.   For this reason alone, I would affirm the trial
    court’s ruling.
    I write separately to note my disagreement with the
    proposition that the trial court’s ruling was mandated by the
    Federal Arbitration Act.   Here, the trial court denied JP
    Morgan’s motion to compel arbitration and the propriety of that
    ruling is not before this court.      Thus, no arbitration action was
    pending, and the Federal Arbitration Act had no applicability to
    this cause of action. The Federal Arbitration Act only requires a
    stay of proceedings where the issue before the court is
    "referable to arbitration under an agreement in writing for such
    arbitration."   
    9 U.S.C. §3
       (2006).   Here, the court had
    determined that the issue before it was not referable to
    arbitration.    Thus, the stay provision of the Federal Arbitration
    Act was inapplicable.
    I would, therefore, find that the Federal Arbitration Act
    did not mandate that the trial court stay the proceedings pending
    the outcome of the New York class action.     Since the trial
    10
    court’s ruling on the stay was not an abuse of discretion, I
    would affirm the stay order on that basis alone.
    JUSTICE SCHMIDT, dissenting:
    Aventine submits that this court's jurisdiction is premised
    on Supreme Court Rule 307(a)(1).    236 Ill. 2d R. 307(a)(1).   Rule
    307 allows appeals as a matter of right from orders granting,
    modifying, refusing, dissolving, or refusing to dissolve or
    modify an injunction.   236 Ill. 2d R. 307(a)(1).   Courts have
    expanded the rule to apply to orders that are injunctive in
    nature, such as those granting or denying a motion to compel
    arbitration.   Royal Indemnity Co., v. Chicago Hospital Risk
    Pooling Program, 
    372 Ill. App. 3d 104
    , 
    865 N.E.2d 317
     (2007).
    Certain "stay orders" have also been held to be injunctive
    in nature and, therefore, appealable under Rule 307 as a matter
    of right.   See Marsh v. Illinois Racing Board, 
    179 Ill. 2d 488
    ,
    
    689 N.E.2d 1113
     (1997) (trial court's order staying board's order
    revoking a horse-racing license was injunctive in nature and
    appealable under Rule 307).
    Our supreme court, however, in Marsh, cautioned against
    courts summarily finding that all stay orders are the equivalent
    to an injunction and therefore appealable under Rule 307.       Spe-
    cifically, the Marsh court noted as follows:
    " 'To determine what constitutes an
    appealable injunctive order under Rule
    307(a)(1) we look to the substance of the
    action, not its form.    [Citation.] ***
    While we express no opinion as to the
    merits of these appellate court cases,
    they do reflect a policy of broadly
    construing the meaning of the term
    "injunction."   [Citation.]
    In view of these expansive comments, it is not
    surprising, perhaps, that defendants urge us
    to simply deem the circuit court's 'stay' an
    'injunction' and hold that jurisdiction under
    Rule 307(a)(1) is proper.    In fact, this is
    precisely what both of the appellate panels
    did in the opinions cited to us by defendants.
    [Citations.]   In our view, however, such an
    approach oversimplifies the issue ***."
    Marsh, 
    179 Ill. 2d at 491-92
    , quoting In re
    A Minor, 
    127 Ill. 2d 247
    , 260-61, 
    537 N.E.2d 292
     (1989).
    While the Marsh court ultimately found the stay at issue in
    that case was appealable given its injunctive nature, our supreme
    12
    court has noted that other orders which appear injunctive (given
    the fact that they compel a party to take an action) are not
    appealable under Rule 307.   In People v. Philip Morris, Inc., 
    198 Ill. 2d 87
    , 
    759 N.E.2d 906
     (2001), the circuit court established
    an escrow account and compelled the parties to put 10% of all
    settlement payments in the account.   Philip Morris, 
    198 Ill. 2d at 101
    .   The State appealed, claiming the order was injunctive in
    nature as it compelled the parties to take an action and, as
    such, was appealable under Rule 307(a)(1).   Our supreme court
    disagreed and stated:
    " 'Ministerial' or 'administrative' orders of the
    circuit court, i.e., orders that regulate only
    the procedural details of litigation before the
    court, cannot be the subject of an interlocutory
    appeal.   Such orders do not affect the relation-
    ship of the parties in their everyday activity
    apart from the litigation and, therefore, are
    distinguishable from traditional forms of
    injunctive relief."   Philip Morris, 
    198 Ill. 2d at 101-02
    .
    The Philip Morris court acknowledged that the establishment
    of the escrow account compelled action.   However, it found it
    significant that the trial court correctly noted, "Nobody won
    13
    here today, nobody lost here today ***," and, as such, ultimately
    held that the appellate court did not err in dismissing the
    State's interlocutory appeal from the circuit court's escrow
    order.   Philip Morris, 
    198 Ill. 2d at 102
    .
    The Fifth District relied heavily on language from Philip
    Morris when holding an order of the circuit court compelling me-
    diation was not an appealable order under Rule 307(a)(1).     Short
    Brothers Construction, Inc., v. Korte & Luitjohan Contractors,
    Inc., 
    356 Ill. App. 3d 958
    , 
    828 N.E.2d 754
     (2005).     In Short
    Brothers, defendant appealed an order referring the lawsuit to
    mediation pursuant to a local circuit court rule that provided
    the circuit court discretion to refer any civil case it saw fit.
    Short Brothers, 
    356 Ill. App. 3d at 960
    .    The appellate court
    held such an order was not appealable under Rule 307(a)(1).
    Short Brothers, 
    356 Ill. App. 3d at 960-61
    .
    Borrowing language from Philip Morris, the Short Brothers
    court noted:
    "Examples of such orders include subpoenas,
    discovery orders, and orders relating to the
    court's own docket.   [Citations.]   Such orders
    can be considered noninjunctive because they did
    not form a part of the power traditionally
    reserved to courts of equity but, instead, were
    14
    a part of the inherent power possessed by any
    court to compel witnesses to appear before it and
    give testimony and to control its own docket.
    [Citations.]   Such orders do not affect the
    relationship of the parties in their everyday
    activity apart from the litigation, and they are
    therefore distinguishable from traditional forms
    of injunctive relief.    [Citation.]
    We believe that the mediation order entered
    in the case at bar falls into this category of
    administrative, noninjunctive orders, which are
    not appealable under Supreme Court Rule 307(a)(1).
    It seems self-evident that the purpose of the
    mediation process, and the mediation order in the
    case at bar, is to streamline the judicial process
    by encouraging compromise and settlement, if not
    of the entire controversy then at least some
    portions of it, thereby reducing the workload of
    the circuit court and lessening the expense and
    burden to the parties. The mediation order is
    clearly related to the circuit court's inherent
    15
    authority to control its own docket. The mediation or-
    der is ministerial or administrative in nature, rather
    than injunctive in nature, because it is
    regulating the procedural details of the litigation,
    rather than affecting the rights of the parties.
    [Citation.]   The mediation order relates only to
    the conduct of the litigation; it does not affect
    the relationship of the parties in their everyday
    activity apart from the litigation. Like the escrow
    order found to be nonappealable in People v. Philip
    Morris, Inc., 
    198 Ill. 2d 87
    , 102 (2001), a
    mediation order is an interim order, which does not
    establish or affect the rights of the parties but
    preserves them until those rights can be established."
    Short Brothers, 
    356 Ill. App. 3d at 960
    .
    The trial judge, in the case at bar, very specifically
    stated:
    "The power to stay proceedings is incidental
    to the power inherent in every Court to control
    the disposition of the [cases] on its docket with
    economy of time and effort for itself, for counsel
    and for litigations.   And I think that applies
    wholeheartedly and perfectly and on point with
    16
    these proceedings such that these proceedings should
    be stayed while the matter pends, at least pends
    putatively in the District Court proceedings in New
    York."
    After denying Aventine's motion to lift the stay, the trial
    court instructed the parties to "exchange correspondence with
    regard to any categories of evidence which each may want the
    other to preserve."   The court also directed the parties to
    return nine days later for a case management conference and set a
    hearing date for a status conference six months from the date of
    its order.   Therefore, this "stay" is not even really a stay
    since discovery necessary to preserve evidence was to proceed.
    Other than seeing the word "stay" and concluding that Rule
    307(a)(1) is triggered in some Pavlovian type of reaction, there
    appears to be little to persuade me that we have authority to
    review this order.    The court declared no winner, and no loser.
    No substantive ruling has been made as to whether or not the
    arbitration provision applies or does not apply.   The court's
    ruling simply stated it was staying this action pending further
    developments in a class action matter that all agree encompasses
    at least some of the issues in this case.   The court limited
    discovery but it did not cut it off completely.    It directed the
    parties to identify categories of evidence that needed to be
    17
    preserved and set two future dates on which the parties were to
    return to discuss the status of the case.
    While the trial court used the term "stay," its order
    appears to be one that merely regulates the procedural details of
    the litigation before it.   The order does not affect the
    relationship of the parties in their everyday activity apart from
    the litigation.   Therefore, it is distinguishable from
    traditional forms of injunctive relief and not appealable under
    Rule 307(a)(1).   Philip Morris, 
    198 Ill. 2d at 101-02
    .
    Since I would dismiss this appeal for want of jurisdiction,
    I respectfully dissent.
    18