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Donoghue v. Kohlmeyer & Co.





APPEAL from the Circuit Court of Cook County; the Hon. JOSEPH M. WOSIK, Judge, presiding.


The plaintiff, William W. Donoghue, appeals from a judgment in favor of defendants dismissing his complaint, confirming an arbitration award in favor of defendants, and entering judgment on the award.

This controversy arose out of a contract entered into between plaintiff and the defendant Kohlmeyer & Company (hereafter the "partnership"), a partnership engaged in the securities and commodities brokerage business. The partnership's principal offices are located in Louisiana. Since 1973, it has been in voluntary liquidation and its affairs have been handled by several liquidators, one of whom is defendant Herman Kohlmeyer, Sr.

By the terms of the contract entered into by plaintiff and the partnership, plaintiff was admitted as a limited partner effective June 29, 1972. The agreement further recited that plaintiff had contributed his membership in the Board of Trade of the City of Chicago (hereafter referred to as "CBOT") to the capital of the partnership. The contract provided that the partnership was to have the full use of plaintiff's CBOT membership, but that absolute ownership of the membership was to be retained by plaintiff. The value of plaintiff's CBOT membership was at all times after the execution of the agreement shown on the partnership's books as an asset of the partnership.

After the partnership went into liquidation, its liquidators requested that plaintiff sell his CBOT membership and remit the proceeds to them. Plaintiff refused. On May 28, 1975, the partnership filed a claim with the Arbitration Committee of the CBOT. The claim recited that the aggregated amount of claims of subordinated tenders of the partnership exceeded the assets available to satisfy such claims. The essential provisions of the agreement were set out and it was stated that the partnership articles specifically provided that the capital of the partnership would include the value of the partners' memberships. The partnership sought to enforce the terms of the agreement and to compel plaintiff to transfer his CBOT membership or its cash value to the liquidators. The parties thereafter executed an arbitration agreement which provided that the award made by the arbitrators "shall be final and conclusively binding upon us and each of us * * *." The agreement also recited that the parties would "perform and fulfull the final award in the premises, without recourse to any other court or tribunal." The final award was expressly made appealable to the CBOT Committee of Appeals.

On October 29, 1975, plaintiff's attorney informed the arbitration committee that plaintiff's consent to arbitration was predicated upon two conditions: first, that any award in the partnership's favor would be offset by plaintiff's claims against the partnership; and second, that any award against him would not exceed $55,000, the value of a CBOT membership at the time demand was made upon plaintiff for the membership. The partnership agreed to these conditions.

On May 20, 1976, plaintiff submitted his reponse to the partnership's arbitration cliam. In it he stated that in 1972 he was approached by Howard Fisher, the general partner in charge of the partnership's Chicago operations, regarding the possibility of the partnership employing him as its floor manager on the Chicago Mercantile Exchange (hereafter the "CME"). Since ownership of a CME membership was required for the position, the partnership transferred one of its memberships into plaintiff's name. To avoid the appearance of a sham transaction, plaintiff ostensibly was to have unrestricted use of the CME membership. Plaintiff later was informed that the CME objected to his use of the membership on the ground that he was a nonprincipal. To satisfy the CME requirements, the partnership agreed to list plaintiff as a nominal principal. In return, plaintiff pledged his CBOT membership as security for the return of the CME membership. Plaintiff claimed that it was agreed upon termination of his employment he would return the CME and the partnership would release its security interest in the CBOT membership. Plaintiff maintained that when he entered the contract he never intended to become a partner. In 1973, plaintiff sold the CME membership upon the partnership's demand and directed the CME to remit the proceeds to the partnership. Plaintiff requested a finding in arbitration that the partnership could claim the CBOT membership only if it agreed to return a CME membership to plaintiff.

On June 2, 1976, the arbitration committee ruled in favor of the partnership and ordered plaintiff to pay $52,525. Plaintiff did not appeal the award to the CBOT Committee of Appeals, nor did he petition the circuit court to contest the award as authorized by the Illinois Uniform Arbitration Act. Ill. Rev. Stat. 1977, ch. 10, par. 112.

On September 3, 1976, plaintiff filed the present complaint against defendants. In the first count plaintiff sought to enjoin enforcement of the award on the ground that the agreement by which plaintiff became a partner was induced by representations of Kohlmeyer, Sr., which later proved to be false. In particular, plaintiff charged that Kohlmeyer, Sr., through Fisher, verbally agreed that the following conditions would be placed upon the agreement:

(a) Kohlmeyer & Company's security interest in plaintiff's CBOT membership would be released upon plaintiff's return of the CME membership to the firm;

(b) Kohlmeyer & Company would not list plaintiff's CBOT membership as an asset of the firm and would not make the membership available for the satisfaction of creditors' claims;

(c) The nominal listing of plaintiff as a principal for purposes of satisfying CME requirements did not render plaintiff a partner in the firm;

(d) The agreement was solely a security device and created no other interest by which either party could claim ...

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