Appeal from the Circuit Court of Cook County. No. 94-CH-4274. Honorable Albert Green, Judge Presiding.
Rehearing Denied July 24, 1997. Released for Publication August 5, 1997.
The Honorable Justice Theis delivered the opinion of the court. Cahill and O'brien, JJ., concur.
The opinion of the court was delivered by: Theis
JUSTICE THEIS delivered the opinion of the court:
Plaintiff, Rick Lockwood (Lockwood), appeals from the order of the circuit court dismissing with prejudice his second-amended complaint. On behalf of himself and other similarly situated options investors, Lockwood sued defendant, Standard & Poor's Corporation (Standard & Poor's), for breach of contract and negligent misrepresentation. Lockwood alleged that he and other options investors suffered lost profits on certain options contracts because Standard & Poor's failed to correct a closing stock index value. The trial court granted Standard & Poor's section 2-615 motion to dismiss. On appeal, Lockwood contends the trial court erred in granting dismissal. Specifically, Lockwood argues that his second-amended complaint states a cause of action: (1) for breach of contract because options investors are third-party beneficiaries of the license agreement between Standard & Poor's and the Chicago Board Options Exchange; and (2) for negligent misrepresentation due to Standard & Poor's failure to correct the erroneous closing index value. For the following reasons, we affirm.
Dismissal of a cause of action pursuant to section 2-615 is appropriate only when it clearly appears that no set of facts could ever be proved under the pleadings that would entitle the plaintiff to recover. Mt. Zion State Bank & Trust v. Consolidated Communications, Inc., 169 Ill. 2d 110, 115, 660 N.E.2d 863, 867, 214 Ill. Dec. 156 (1995). Whether a complaint states a valid cause of action is a question of law, and our review of a dismissal pursuant to a section 2-615 motion is de novo. Majumdar v. Lurie, 274 Ill. App. 3d 267, 268, 653 N.E.2d 915, 917, 210 Ill. Dec. 720 (1995). In reviewing whether Lockwood states a cause of action upon which relief can be granted, we must accept and consider as true all well-pleaded facts in the second-amended complaint. Majumdar, 274 Ill. App. 3d at 268, 653 N.E.2d at 917.
Standard & Poor's compiles and publishes two composite stock indexes, the "S&P 100" and the "S&P 500" (collectively the S&P indexes). The S&P indexes are weighted indexes of common stocks primarily listed for trading on the New York Stock Exchange (NYSE). Standard & Poor's licenses its S&P indexes to the Chicago Board Options Exchange (CBOE) to allow the trading of securities options contracts (S&P index options) based on the S&P indexes (the license agreement). According to the rules promulgated by the CBOE regulating the trading of index options, Standard & Poor's is designated the "reporting authority" and, thus, "the official source for calculating and disseminating the current value" of the S&P 100 and S&P 500 indexes. CBOE Rule 24.1(h). As stated by the reporting authority, the closing index value "shall be the last index value reported on a business day." CBOE Rule 24.1(g).
S&P index options are settled by the Options Clearing Corporation (OCC). The exercise settlement values for S&P index options are the closing index values for the S&P 100 and S&P 500 stock market indexes as reported by Standard & Poor's to OCC following the close of trading on the day of exercise. S&P index options expire at 11:59 p.m. Eastern Time on the Saturday immediately following the third Friday of the expiration month. All times specified in Lockwood's complaint are to Eastern Standard Time.
In his complaint, Lockwood alleges that at approximately 4:12 p.m. on Friday, December 15, 1989, the last trading day prior to expiration of the December 1989 S&P index options contracts, the NYSE erroneously reported a closing price for Ford Motor Company common stock. Ford Motor Company was one of the composite stocks in both the S&P 100 and S&P 500. At approximately 4:13 p.m., Standard & Poor's calculated and disseminated closing index values for the S&P 100 and S&P 500 stock market indexes based on the erroneous price for Ford stock. The NYSE reported a corrected closing price for Ford Motor at approximately 4:18 p.m.. Standard & Poor's corrected the values of the S&P 100 and S&P 500 stock market indexes the following Monday, December 18, 1989.
In the meantime, however, OCC automatically settled all expiring S&P index options according to the expiration date of Saturday, December 16, 1989. OCC used the uncorrected closing index values to settle all expiring S&P index options. Due to the error, Lockwood alleges that the S&P 100 index was overstated by 0.15 and he lost $105. Lockwood claims investors in S&P 500 index options suffered similar losses. Lockwood states that, according to OCC Rules, an option settlement is irrevocable once completed.
Lockwood thus filed a class action on behalf of "all holders of long put options and all sellers of short call options on the S&P 100 or S&P 500 *** which were settled based on the closing index values for December 15, 1989 as reported by Standard & Poor's." Count I of the second-amended complaint claimed that the options holders could recover in contract as third-party beneficiaries of the license agreement between Standard & Poor's and the CBOE. Counts II and III alleged that, by failing to correct the S&P closing index values until the following Monday, Standard & Poor's negligently misrepresented the value of the S&P indexes, which caused 92,000 index options to settle erroneously and thereby caused Lockwood and others to lose money on their index options.
Standard & Poor's reasserted the section 2-615 motion to dismiss it had earlier filed regarding Lockwood's amended complaint. 735 ILCS 5/2-615 (West 1992). The trial court granted Standard & Poor's section 2-615 motion to dismiss on all counts. In reviewing the motion, the trial court acknowledged that the second-amended complaint was at issue but discussed the five counts of the amended complaint. To the extent that the second-amended complaint merely restyled the counts alleged in the amended complaint, the trial court considered and dismissed all relevant counts of the second-amended complaint.
On appeal, Lockwood argues that the trial court improperly granted Standard & Poor's section 2-615 motion to dismiss. First, Lockwood contends that he and other similarly situated options holders were third-party beneficiaries, via their "agent" OCC, of the license agreement between Standard & Poor's and the CBOE. Accordingly, Lockwood alleges that, under the license agreement, Standard & Poor's has a warranty to correct promptly and may not disclaim liability for consequential damages. Alternatively, under tort theory, Lockwood argues that Standard & Poor's is liable for either negligent or fraudulent misrepresentation and, thus, any contractual disclaimers are nullified. Even taking all facts as alleged by Lockwood as true, we agree with the trial court that Lockwood's second-amended complaint does not state a cause of action for breach of contract, negligent misrepresentation, or fraudulent misrepresentation.
Lockwood's first allegation is that options investors, via their settlement agent the OCC, are third-party beneficiaries of the license agreement between Standard & Poor's and the CBOE because the license agreement makes OCC "a special recipient" of prompt notice of daily "closing index values." While Illinois law governs this suit generally, the parties acknowledge that interpretation of the license agreement is governed by the law of New York. Relying on the Restatement (Second) of Contracts, the New York Court of Appeals has explained that an intended third-party beneficiary may enforce a contract if he is the only party who can recover if the promisor breaches the contract or if the contract language indicates ...