Buhle v. Chicago Bd. Options Exchange, Inc.

• Decision Date: 11 May 1988
• Docket Number: No. 87-0821,87-0821
• Citation: 170 Ill.App.3d 65,120 Ill.Dec. 365,523 N.E.2d 1276
• Parties: , 120 Ill.Dec. 365 James BUHLE, individually and on behalf of those similarly situated, Plaintiff-Appellant, v. CHICAGO BOARD OPTIONS EXCHANGE, INC., Defendant-Appellee. A.P. ARCIERO, LTD., Plaintiff-Appellant, v. CHICAGO BOARD OPTIONS EXCHANGE, INC., Defendant-Appellee.
• Court: United States Appellate Court of Illinois

Page 1276

523 N.E.2d 1276

170 Ill.App.3d 65, 120 Ill.Dec. 365

James BUHLE, individually and on behalf of those similarly

situated, Plaintiff-Appellant, v. CHICAGO BOARD OPTIONS EXCHANGE, INC., Defendant-Appellee.

A.P. ARCIERO, LTD., Plaintiff-Appellant, v. CHICAGO BOARD OPTIONS EXCHANGE, INC., Defendant-Appellee.

No. 87-0821.

Appellate Court of Illinois First District, Third Division.

May 11, 1988.

Fishman & Merrick, P.C. (Stephen M. Merrick, Barton J. Springer and Kenneth F. Berg, of counsel), and Washlow, Certow & Miller (Marvin A. Miller and Patrick Cafferty, of counsel), Chicago, for plaintiff-appellant.

Jenner & Block (David C. Bohan, of counsel), Chicago, for defendant-appellee.

Justice FREEMAN delivered the opinion of the court:

Plaintiffs, James Buhle ^* and A.P. Arciero, Ltd., appeal the trial court's granting of the motion of defendant, Chicago Board Options Exchange, Inc. (Exchange), to dismiss their amended complaints in two consolidated cases. The trial court dismissed the amended complaints for failure to state a cause of action.

On appeal plaintiffs contend that the amended complaints sufficiently allege that defendant owed a fiduciary duty to plaintiffs, that defendant breached the fiduciary duty, and also that defendant breached its contractual duty to plaintiffs.

For the reasons stated below, we affirm the judgment of the circuit court.

Plaintiffs' amended complaints are identical except for the named plaintiff in each. The amended complaints seek recovery under the theories of unjust enrichment (Count I), breach of fiduciary duty (Count II), and breach of contract (Count III). The trial court granted defendant's motion to dismiss the amended complaints for failure to state a cause of action with regard to each of the three counts. Plaintiffs appeal the trail court's ruling only regarding Counts II and III, the breach of fiduciary duty and breach of contract counts.

Specifically, the amended complaints allege the following. The Exchange is a national securities exchange, the members of which trade options on common stock and other securities. Plaintiffs are former members of the Exchange who sold their memberships through the Secretary of the Exchange. Plaintiffs' actions allege that the Exchange wrongfully invested proceeds from the sales of their memberships and wrongfully retained all profits made as a result of the investment.

The Exchange operates a facility in Chicago for the trading on an exchange of "put" and "call" options on various publicly held stocks and certain stock indices. The trading of "put" and "call" options and stock indices on the Exchange is conducted by members of the Exchange. The Constitution and Rules of the Exchange set forth terms relating to the approval of persons for membership, conduct of members, fees and dues of members, and the sale and transfer of membership interests. The Constitution and Rules of the Exchange provide that an owner of a membership interest may sell his interest by submitting, pursuant to Exchange rule 3.14, a written offer of sale to the Exchange. A binding sale occurs when a bid, filed in accord with Exchange rule 3.13, is matched with the offer. The purchaser of a membership interest must be approved by the Exchange.

Exchange rule 3.15 provides that upon the sale of a membership interest, the Exchange shall "hold" the proceeds of the sale for a period of 20 days from the date of posting the "Notice of Effectiveness" regarding the sale, during which period claims against the proceeds may be made by Exchange members. Thereafter, as soon as practicable following the 20-day period, the proceeds of the sale are to be applied and paid for the purpose and in the order of priority set forth in rule 3.15. After amounts owed to the Exchange, the Clearing Corporation, and other members are paid out, "[t]he surplus, if any," is paid to the selling member.

Plaintiffs' amended complaints allege that the Exchange "retained all amounts earned or received from the investment of the proceeds of the sale of membership interests during the [20-day] claim period and has not paid any such amounts to, or for the benefit of, [plaintiffs]." Further, plaintiffs' complaints allege that "[t]here is no term or provision of the CBOE * * * Rules or any other document * * * authorizing the CBOE to invest the proceeds of the sales of membership interests or to retain the amounts, or any part thereof, earned or received from such investments."

Plaintiffs cite the following language from Exchange rule 3.15:

"Upon any sale of a membership * * *, the Secretary shall hold the proceeds of the sale for a period of 20 days * * *, during which period claims against the proceeds may be filed by members for payment in accordance with this Rule. * * *

* * *

* * *

(f) The surplus * * * of the transfer of membership, after provision for the above payments * * * [for claims], shall be paid to the member whose membership is transferred * * *." (Emphasis added by plaintiffs.)

Plaintiffs contend that the allegations of Count II of their amended complaints, which incorporate the above-quoted language, sufficiently plead the creation of an express trust and hence the existence of a fiduciary relationship.

Plaintiffs cite Sears v. First Federal Savings & Loan Association of Chicago (1971), 1 Ill.App.3d 621, 275 N.E.2d 300, which defines an express trust as " '* * * one which as created in express terms in the deed, writing or will, or which arises from the direct and positive action of the parties evidenced by a written instrument * * *.' " ( Sears, 1 Ill.App.3d at 626-27, 275 N.E.2d 300, quoting 35 I.L.P. Trusts § 4 at 176.) Plaintiffs contend that Exchange rule 3.15 is a "direct and positive action" of the Exchange and its members which clearly evidences their intent to create a trust.

Plaintiffs also assert that the use of the word "hold" in Exchange rule 3.15 indicates the parties' intent to create a trust. Plaintiffs rely on Oglesby v. Springfield Marine Bank (1946), 395 Ill. 37, 69 N.E.2d 269, for the proposition that the use of the term "hold" has been seen traditionally as evidencing the intent of parties to create a trust. The supreme court in Oglesby stated that a document which reflects an express trust agreement contains words such as "in trust" or "for the use of" or "to have and to hold for the benefit of." Such language carries the inference that the settlor was reposing trust and confidence in the donee or other party for a particular purpose. ( Oglesby, 395 Ill. at 49, 69 N.E.2d 269.) Plaintiffs point out that Oglesby also provides that "[t]he use or nonuse of such words is not the controlling criteria as to whether an express trust has or has not been created * * *." Oglesby, 395 Ill. at 49, 69 N.E.2d 269.

Plaintiffs assert that although the Exchange rules do not use the term "trust," the rules clearly manifest an intent to create a fiduciary relationship. Such an intent is manifested since membership, and accordingly the proceeds from the sale of membership, is a valuable property interest of the member and not of the Exchange. A member would not reasonably allow the transfer of ownership of valuable property without making an express agreement. Plaintiffs contend that rule 3.15 does not expressly provide that a selling member transfer ownership of the proceeds to the Exchange. Rather, rule 3.15 requires only that the proceeds be temporarily deposited with the Exchange. Plaintiffs assert that generally, funds which are deposited only temporarily with another, as opposed to being transferred outrightly to another, are held in trust by the holder.

Plaintiffs also assert that the relationship between the Exchange and its members may be labeled an escrow arrangement. Plaintiffs contend that whether the relationship is called a trust relationship or an escrow agreement, in either case the Exchange is an agent with a fiduciary duty to its members. Plaintiffs assert that whether an agency relationship exists is an issue of fact to be determined after an evidentiary hearing, and not on the pleadings alone, as was done in the trial court.

A fiduciary relationship exists when a confidence is reposed in one who in equity and good conscience is bound to act in good faith and with due regard to the interests of the one reposing the confidence. (Herbolsheimer v. Herbolsheimer (1975), 60 Ill.2d 574, 577, 328 N.E.2d 529.) A fiduciary relation may arise when, as to each other, the parties are attorney and client, principal and agent, guardian and ward or like legal relationships. In re Estate of Nelson (1971), 132 Ill.App.2d 544, 270 N.E.2d 65. In reviewing the lower court's dismissal of plaintiffs' amended complaints, we must accept as true all well-pleaded allegations in the amended complaints and construe all reasonable inferences therefrom in plaintiffs' favor. (Edgar County Bank & Trust Co. v. Paris Hospital, Inc. (1974), 57 Ill.2d 298, 312 N.E.2d 259.) We hold that in the instant case, the trial court properly found that plaintiffs failed to state a cause of action for breach of a fiduciary duty. Plaintiffs have failed to allege that the rules of the Exchange contain language which would clearly indicate an intent to create an express trust. La Throp v. Bell Federal Savings & Loan Association (1977), 68 Ill.2d 375, 12 Ill.Dec. 565, 370 N.E.2d 188, cert. denied (1978), 436 U.S. 925, 98 S.Ct. 2818, 56 L.Ed.2d 768; Oglesby v. Springfield Marine Bank (1946), 395 Ill. 37, 69 N.E.2d 269.

In support of their assertion that an escrow agreement was created between themselves and defendant, plaintiffs cite Rinehart v. Rinehart (1957), 14 Ill.App.2d 116, 143 N.E.2d 398. Rinehart defines an escrow as the following:

" * * * a written instrument which by its terms imports a legal obligation, and which is deposited by the grantor, promissor or obligor, or his agent with a stranger or third party, to be kept by the depository until the performance of a...