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Buckley v. Chicago Bd. Options Exch.





Appeal from the Circuit Court of Cook County; the Hon. Richard L. Curry, Judge, presiding.


The Board of Trade of the City of Chicago and Alan G. Buckley, one of its members, brought an action against the Chicago Board Options Exchange seeking mandamus, specific performance, injunctive and other relief. Upon defendant's section 48 motion, the trial court dismissed the four-count amended complaint. The Board of Trade appeals from the dismissal of count IV of its complaint. The issues raised on appeal are: (1) whether the court has subject matter jurisdiction in this case; (2) whether the application of Illinois common law is preempted by the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq. (1976) (the Act); and (3) whether the Board of Trade has standing to sue the Chicago Board Options Exchange.

Plaintiff Board of Trade is a commodity exchange and member corporation chartered by an act of the Illinois legislature in 1859. Defendant Chicago Board Options Exchange (CBOE) is also a membership corporation organized in 1972 under the law of Delaware, for the purpose of maintaining a regulated market for transactions in securities options. Defendant CBOE is registered as a national securities exchange with the Securities and Exchange Commission (Commission).

The Board of Trade and its members were instrumental in organizing and developing the CBOE. In recognition of those efforts the CBOE included in article 5(b) of its certificate of incorporation a special provision conferring membership in the CBOE on Board of Trade members. Article 5(b) reads in pertinent part:

"In recognition of the special contribution made to the organization and development of the Corporation by the members of the Board of Trade of the City of Chicago, a corporation organized and existing by Special Legislative Charter of the General Assembly of the State of Illinois; * * * every present and future member of said Board of Trade who applies for membership in the Corporation and who otherwise qualifies shall, so long as he remains a member of said Board of Trade, be entitled to be a member of the Corporation notwithstanding any such limitation on the number of members and without the necessity of acquiring such membership for consideration or value from the Corporation, its members or elsewhere * * *." (Emphasis added.)

The practical effect of article 5(b) is to allow a Board of Trade member to acquire membership in the CBOE without payment of the usual acquisition price to the CBOE.

Alan G. Buckley has been a member of the Board of Trade since 1972 and a CBOE member since January 1973. In the fall of 1979 the Board of Trade adopted a rule (Rule 221) which allowed each member to delegate the rights and privileges of his Board of Trade membership to another for a fee. A Board of Trade member who delegates these membership rights remains a member of the Board of Trade.

On February 22, 1980, Buckley delegated his Board of Trade membership to David L. Hard for one year. On June 5, 1980, the CBOE advised Buckley by letter that his membership on the CBOE was terminated so long as the delegation of his Board of Trade membership rights remained in effect. The CBOE recognized Buckley's delegate Hard as the Board of Trade member entitled to CBOE membership under article 5(b). On June 17, 1980, another Board of Trade member received a similar letter.

On July 7, 1980, Buckley and the Board of Trade filed a four-count amended complaint challenging the CBOE action. The pertinent allegations of the complaint follow.

Count I alleged that even though Buckley exercised his right to delegate his Board of Trade floor trading privileges, he was still a member of the Board of Trade and, thus, under CBOE's article 5(b) was entitled to retain his membership in the CBOE. Count I sought a writ of mandamus directing the CBOE to restore Buckley to membership in the CBOE or, alternatively, injunctive relief restoring him to membership.

Count II and by reallegation count III alleged that the CBOE did not comply with its own rules regarding expulsion when it terminated Buckley's membership. Count II also sought mandamus or alternatively injunctive relief. Count III sought damages.

Count IV realleged the allegations of count I and further alleged that the CBOE and the Board of Trade entered into a contract when CBOE was incorporated in 1972, reduced to writing as article 5(b) of the CBOE's Certificate of Incorporation, granting membership in the CBOE to Board of Trade members in consideration of the Board of Trade's assistance to the CBOE, that CBOE breached the contract by expelling Buckley, and that the Board of Trade has at all times fully performed all of its obligations under the contract. Count IV sought specific performance of the contract by the reinstatement of Buckley to CBOE membership. After filing an answer to the amended complaint, the CBOE filed a "MOTION TO DISMISS OR FOR SUMMARY JUDGMENT." CBOE's counsel advised the trial court that he was submitting the motion pursuant to section 48 (Ill. Rev. Stat. 1979, ch. 110, par. 48). The motion sought dismissal of the complaint on the grounds that the court lacked jurisdiction over the subject matter of the complaint; that there was a failure to exhaust administrative remedies provided by Federal law; that the State common law action was preempted by Federal law; and that plaintiffs had an adequate remedy at law.

The court determined that it had jurisdiction. It found that article 5(b) was a rule of a national securities exchange subject to Federal law, that Buckley did not pursue his remedies under CBOE rules, and that the State law action was preempted by Federal law and dismissed counts I, II and III. The court dismissed count IV because (a) the Board of Trade was "not an essential party to this case," (b) the complaint failed to demonstrate how the ...

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