Aventine Renewable Energy Inc. v. Jp Morgan Sec. Inc.

• Decision Date: 09 December 2010
• Docket Number: No. 3–09–1019.,3–09–1019.
• Citation: 406 Ill.App.3d 757,346 Ill.Dec. 257,940 N.E.2d 257
• Parties: AVENTINE RENEWABLE ENERGY, INC., Plaintiff–Appellant,v.JP MORGAN SECURITIES, INC. and JP Morgan Chase Bank, N.A., Defendants–Appellees.
• Court: United States Appellate Court of Illinois

406 Ill.App.3d 757

940 N.E.2d 257

346 Ill.Dec. 257

AVENTINE RENEWABLE ENERGY, INC., Plaintiff–Appellant,

v.JP MORGAN SECURITIES, INC. and JP Morgan Chase Bank, N.A., Defendants–Appellees.

No. 3–09–1019.

Appellate Court of Illinois, Third District.

Dec. 9, 2010.

Thomas W. O'Neal, Westervelt, Johnson, Nicoll & Keller, LLC, Peoria, Craig C. Martin, Timothy J. Chorvat (argued), Jenner & Block LLP, Chicago, for Aventine Renewable Energy, Inc.H. Nicholas Berberian (argued), Terry D. Weissman, Christopher M. Burky, Neal, Gerber & Eisenberg LLP, Chicago, Thomas H. Wilson, Sorling, Northrup, Hanna, Cullen & Cochran, Ltd., Springfield, for JP Morgan Securities, Inc.

OPINION

Justice LYTTON delivered the judgment of the court, with 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 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 class with respect to any claims encompassed by the putative

[346 Ill.Dec. 259 , 940 N.E.2d 259]

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. 108–CV–4580, 2008 WL 2755708 (S.D.N.Y. May 16, 2008) ( Ciplet ), in New York triggered the account application's exception to arbitration. In Ciplet, 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 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.” Ill. S. Ct. R. 307(a)(1) (eff. Feb. 26, 2010). “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, 324 Ill.Dec. 97, 895 N.E.2d 97, 98 (2008); see also Marsh v. Illinois Racing Board, 179 Ill.2d 488, 228 Ill.Dec. 692, 689 N.E.2d 1113 (1997).¹

[346 Ill.Dec. 260 , 940 N.E.2d 260]

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, 323 Ill.Dec. 410, 893 N.E.2d 682 (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, 237 Ill.Dec. 830, 710 N.E.2d 460 (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.” ’ [Citations.]” May, 304 Ill.App.3d at 246, 237 Ill.Dec. 830, 710 N.E.2d 460 (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 Construction Corp., 460 U.S. 1, 27, 103 S.Ct. 927, 74 L.Ed.2d 765 (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, 103 S.Ct. 927. “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, 165 Ill.Dec. 339, 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 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, 323 Ill.Dec. 410, 893 N.E.2d 682. 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, 103 S.Ct. at 940, n. 27; see also

[346 Ill.Dec. 261 , 940 N.E.2d 261]

Heiden, 223 Ill.App.3d at 168, 165 Ill.Dec. 339, 584 N.E.2d 518. 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 the outcome of the class...