Aventine Renewable Energy, Inc. v. JP Morgan Securities, Inc.

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State: Illinois

Court: 3rd District Appellate

Docket No: 3-09-1019 Rel

Case Date: 12/09/2010

Preview:No.3--09--1019 ________________________________________________________________ Filed December 9, 2010 IN THE APPELLATE COURT OF ILLINOIS THIRD DISTRICT A.D., 2010

AVENTINE RENEWABLE ENERGY, INC.,

) Appeal from the Circuit Court ) 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

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compel Aventine to submit to arbitration or, alternatively, to stay the litigation pending resolution of a class action filed against JP Morgan action. in New York. The trial court stayed the The trial court

Aventine then moved to lift the stay. We affirm.

denied Aventine's motion.

Aventine produces and sells ethanol and related products and has production facilities in Illinois. 2006, it invested in student loan Aventine alleged that in 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 is action denied; until: or (ii) (i) the the class is

certification

class

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. auctions began to fail. Since By February 2008, SLARS 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. 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 On April 27, 2009, 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,

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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. persons who purchased The class seeking certification were all 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, "A

dissolving, or refusing to dissolve or modify an injunction." 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). to stay will A trial court's decision to grant or deny a motion not be overturned unless the court abused its

discretion in making the decision. Clinical Laboratories, N.E.2d 460, 463 (1999). Inc., 304

See May v. SmithKline Beecham Ill. App. 3d 242, 246, 710

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

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

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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.

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