Benson v. Stafford

• Decision Date: 23 December 2010
• Docket Number: 1–09–3173.,Nos. 1–09–1361,s. 1–09–1361
• Parties: Michael BENSON, Edward Dolinar, Joel Stone and William F. Johnson, Individually and d/b/a William F. Johnson, Inc., an Illinois Corporation, Plaintiffs–Appellants and Cross–Appellees,v.John S. STAFFORD, Jr., Defendant–Appellee and Cross–Appellant (Randall Gold, Michael Fox, and Edwin Durham, Cross–Appellees.)
• Court: United States Appellate Court of Illinois

407 Ill.App.3d 902

941 N.E.2d 386

346 Ill.Dec. 828

Michael BENSON, Edward Dolinar, Joel Stone and William F. Johnson, Individually and d/b/a William F. Johnson, Inc., an Illinois Corporation, Plaintiffs–Appellants and Cross–Appellees,

v.John S. STAFFORD, Jr., Defendant–Appellee and Cross–Appellant (Randall Gold, Michael Fox, and Edwin Durham, Cross–Appellees.)

Nos. 1–09–1361

1–09–3173.

Appellate Court of Illinois, First District, Sixth Division.

Dec. 23, 2010.

Michael R. Fox, Randall B. Gold, Fox & Fox, S.C., Monona, Myron M. Cherry, Myron M. Cherry & Associates, LLC, Chicago, for Appellants–Cross–Appellees/Cross–Appellees Fox and Gold.Gary M. Miller, Laura K. McNally, Daniel M. Hinkle, Grippo & Elden LLC, Chicago, for Appellee–Cross–Appellant.Edwin L. Durham, Michael Rachlis, Rachlis Durham Duff & Adler, LLC, Chicago, for Cross–Appellee Durham.

OPINION

Justice ROBERT E. GORDON delivered the judgment of the court, with opinion.

These consolidated appeals arise from a dispute concerning the sales of interests in two joint ventures. Plaintiffs Michael Benson, Edward Dolinar, Joel Stone, and William F. Johnson brought suit against defendant John Stafford, Jr., in the circuit court of Cook County, alleging that defendant had breached his duty as a fiduciary in fact and had committed common law fraud, including claims for affirmative fraud and fraudulent concealment. The trial court dismissed plaintiffs' claim of affirmative fraud, and granted summary judgment in defendant's favor on the claim of breach of fiduciary duty and on the claim of fraudulent concealment. The trial court denied defendant's motion for sanctions against plaintiffs and their attorneys, Randall Gold, Michael Fox, and Edwin Durham. Plaintiffs appeal, arguing that the trial court erred in dismissing their affirmative fraud claim and in granting summary judgment on the breach of fiduciary duty and fraudulent concealment claims. Defendant also appeals, arguing that the trial court should have imposed sanctions on plaintiffs and their attorneys. We affirm.

BACKGROUND ¹

Defendant became an options trader on the Chicago Board Options Exchange (CBOE) in 1975, and at the time of the dispute in this case, had founded and headed

[346 Ill.Dec. 833 , 941 N.E.2d 391]

the Stafford Group, an options trading business which includes six firms with common ownership. Plaintiffs are traders on the CBOE who have owned and operated trading companies for over 10 years; each has a college education and several have master's degrees.

Plaintiffs' trading companies and defendant's trading companies formed two joint ventures to own and operate “Designated Primary Market–Makers” (DPMs) on the CBOE.² Each of these joint ventures consisted of one company affiliated with plaintiffs and one company affiliated with defendant. Under the joint venture agreements, plaintiffs' company would control the daily operations of the joint venture, while defendant's company would provide the capital and infrastructure.

Plaintiffs Benson, Stone, and Dolinar (Big Blue plaintiffs), along with nonparty John Hayden, formed Big Blue Trading, LLC (Big Blue), which entered into a joint venture agreement with GPZ Trading, LLC (GPZ), which was owned by defendant's two sons. The joint venture was formed to own and run the Big Blue DPM. Under the joint venture agreement, at the time of any sale, the four members of Big Blue would receive 80% of the proceeds, and GPZ would receive 20% of the proceeds. In exchange for its smaller share of the proceeds, GPZ had the right to veto any proposed sale.

Plaintiff Johnson was the sole shareholder of William F. Johnson, Inc. (Johnson, Inc.), which entered into a joint venture agreement with defendant in his individual capacity to own and run the Johnson DPM. Under their joint venture agreement, at the time of a sale, Johnson, Inc., would receive 70% of the proceeds and defendant would receive 30% of the proceeds. On December 1, 2001, three weeks before the sale of the joint venture, JSS Investments, Inc. (JSS), a company affiliated with defendant, was substituted for defendant as a party to the joint venture.

In February 2001, defendant decided to sell the Stafford Group and began marketing it to potential buyers. In spring 2001, defendant began negotiating with Toronto Dominion Bank (TD) to purchase some of defendant's business interests, including the Big Blue DPM and the Johnson DPM. Defendant and TD planned for GPZ and JSS to purchase the interests of their joint venture partners, and TD would acquire those interests when GPZ and JSS merged into a newly formed subsidiary of TD called TD Options, LLC (TD Options). As a result of their negotiations, TD offered defendant a cash payment of between $150 and $200 million, as well as a similar “back-end” payment in the future that would be contingent on the performance of TD Options. Plaintiffs did not become aware of defendant's negotiations with TD or of his plans to sell their interests in the joint ventures until the summer of 2001.

As part of the agreement, TD offered defendant a single, aggregate sum for all of the business and technology assets that he was selling, including the DPM interests of defendant's joint venture partners. TD left it to defendant to reach an agreement with his joint venture partners about the price that they would accept for their interests, which would be deducted from defendant's aggregate payment.

In summer 2001, defendant met with plaintiffs and his other DPM partners. Defendant told them that TD was a potential buyer with whom he intended to negotiate. Defendant did not tell them that he

[346 Ill.Dec. 834 , 941 N.E.2d 392]

already had a general offer for all of his business interests, including the interests of plaintiffs. Defendant sought plaintiffs' consent to his negotiating with TD for the sale of both his DPM interests and theirs. Defendant indicated that he was best suited to negotiate with TD because of his experience in the trading business, his knowledge of the market, and his familiarity with TD. Defendant also told plaintiffs that if they allowed him to negotiate with TD, they must allow him to negotiate alone and refrain from negotiating with TD themselves. Plaintiff Stone testified that when he asked whether plaintiffs could contact TD, defendant responded, “[T]his is my deal. I will negotiate for you guys. I'll get you the most I can. * * * I'm in a better position to do so. I have experience, * * * I don't want all you guys at the table.” Stone testified that he responded “fine. Go ahead.” Similarly, plaintiff Benson recounted that during the same meeting, plaintiffs were told that if they were interested in negotiating with TD, “th[e] situation was going to be handled by [defendant]. * * * [Defendant] would be representing our interests in the negotiations with the bank.” The members of Big Blue agreed to allow defendant to negotiate with TD. Benson testified that the Big Blue plaintiffs trusted defendant to negotiate for the best possible purchase price, that they informed defendant that they trusted him, and that on the basis of that trust, they refrained from negotiating with TD directly. Dolinar also testified that he trusted defendant with respect to the TD sale, and that he had trusted defendant on various other business matters for a number of years. Johnson also agreed to allow defendant to negotiate with TD, testifying that he did so because he trusted defendant; Johnson opined that defendant “was someone I respected. * * * In my eyes I had hitched myself to a star, and if he said this was going to be a good thing then I trusted that this was going to be a good thing.”

Big Blue DPM/Joint Venture

While defendant was negotiating with TD, the members of Big Blue had continued to approach other parties, as defendant had suggested, including Susquehanna and Tag Van Der Molen. They had received a tentative offer from Spear, Leeds & Kellogg (SLK), a subsidiary of Goldman Sachs, to purchase the entire Big Blue DPM, including GPZ's interest, for $17 or $18 million. The members of Big Blue did not accept the offer at that point, because they needed to speak to defendant about it first.

The Big Blue members met with defendant, and defendant told them that “TD was willing to offer” $6 million in cash, with up to $6 million in contingent “back-end” payments. Stone testified that he informed defendant that they had an offer from another party for $17 or $18 million in upfront cash, and Hayden reluctantly told defendant that the offer was from SLK. Defendant responded, “I don't care if SLK offers you 20 million. I'm not going to let you sell it,” and said that he would use his veto power to block the sale to SLK; there was evidence that TD highly desired the Big Blue DPM. Martin Fiascone, an associate of defendant's, characterized the dispute over the SLK bid as “a little cat fight” that “got pretty intense at times.” Fiascone also testified that “[t]here was no love in the room between those guys [the DPM owners and defendant]. Behind closed doors, there was no love in the room.” Hayden, the nonparty Big Blue member, testified that he viewed the process as adversarial.

Defendant testified that he spoke to an individual at Goldman Sachs and expressed his opinion that it was a conflict of interest for SLK to make a bid for the Big

[346 Ill.Dec. 835 , 941 N.E.2d 393]

Blue DPM, because Goldman Sachs was involved with the TD transaction and had a large amount of confidential information about defendant and his business strategies. Fiascone also testified that defendant spoke to Goldman Sachs and told them, “I don't want SLK competitively bidding on my own DPMs.” Shortly thereafter, SLK informed plaintiff Benson that while it had been willing to pay in the range of $17 to $18 million for the Big Blue DPM, it could not continue with the negotiations.

In August 2001, after SLK had withdrawn its offer, the Big Blue members retained attorney David...