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