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

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

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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 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

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 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