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Feldheim v. Sims

November 15, 2001


The opinion of the court was delivered by: Justice Hartman


Appeal from the Circuit Court of Cook County. Honorable Thomas P. Durkin, Judge Presiding.

This interlocutory appeal emanates from the proposed restructuring of the Chicago Board of Trade (CBOT), the largest futures and options exchange in the United States. The named plaintiffs each own "minority" membership interests in the CBOT. Their amended complaint sought declaratory and injunctive relief for themselves and as representatives of a class of all persons or entities who own CBOT minority memberships.

Plaintiffs claimed that under Delaware law, the CBOT full member "majority" owed fiduciary duties to the minority in connection with any vote which affected the minority's ownership interests. Defendants, named individually and as representatives of a class of CBOT full members, unsuccessfully moved to dismiss the amended complaint pursuant to Code of Civil Procedure (Code) sections 2-615 (735 ILCS 5/2-615 (West 2000) (section 2-615)) and 2-619 (735 ILCS 2-619 (West 2000) (section 2-619)). The circuit court subsequently stayed the proceedings and ruled that the dispute should be decided by arbitration. Plaintiffs filed this interlocutory appeal (166 Ill. 2d R. 307(a)(1)), raising as issues whether the circuit court abused its discretion (1) by ruling defendants had not waived their right to arbitration; and (2) by granting defendants' motion to compel arbitration and stay the proceedings.

Before this litigation commenced, on May 16, 2000, a proposed CBOT restructuring report was presented to the CBOT board of directors, which would convert CBOT from its present status as a Delaware not-for-profit corporation to a for-profit stock corporation. This change would require a majority vote of the CBOT membership following the board of directors' approval. *fn1 CBOT would form a wholly-owned, for-profit corporate subsidiary for the purpose of reorganizing the CBOT's electronic trading business. The May 16, 2000 report proposed further that the subsidiary would increase value in current membership interests in the CBOT through a potential, initial public offering. The for-profit corporation would replicate the business of the current CBOT and would remain closely held by the current CBOT membership after allocation of shares in the new company.

An independent allocation committee developed a stock allocation methodology for the proposed, for-profit CBOT that was recommended, reviewed and approved by the CBOT board of directors and will be voted upon by CBOT members as part of the next step of the restructuring plan. *fn2 Pursuant to this methodology, the full members would receive 88.07% of the shares in for-profit CBOT, and associate members would receive 9.72% of the shares. GIMs would divide 1.16%, COMs would receive 0.57% and IDEMs would share 0.48% of the allocated stock. *fn3

On August 11, 2000, plaintiffs filed a one-count complaint for declaratory judgment and injunctive relief, alleging that under Delaware law, the CBOT full member majority owed fiduciary duties to the minority, and thereby were precluded from exploiting their control position to their own benefit and to the detriment of the minority and were obligated, as well, to provide the minority with fair value in connection with the restructuring. The complaint further alleged that "the proposed allocation would unfairly benefit the Majority Full Members to the detriment of the Minority Owners," and, "[a]s such, it would be a breach of fiduciary duty for the Majority Members, or any of them, to vote in favor of the proposed allocation in connection with the next phase of the CBOT restructuring." Plaintiffs sought a declaration that the allocation methodology was unfair and inequitable, an injunction to prohibit the majority members from voting in favor of any allocation based on that methodology and a declaration as to a fair and equitable methodology and allocation of shares.

Defendants thereafter successfully moved for substitution of judge. 735 ILCS 5/2-1001 (West 2000). Defendants subsequently moved to dismiss plaintiffs' complaint pursuant to section 2-615 of the Code for failure to state a claim because plaintiffs' allegations were insufficient, as a matter of law, to establish that the full members had fiduciary obligations to the CBOT's minority members. Defendants filed a second motion to dismiss under Code section 2-619, supported by an affidavit of CBOT's chairman of the board of directors, containing a number of factual assertions related to the merits of the controversy.

Plaintiffs then successfully moved for substitution of judge. 735 ILCS 5/2-1001 (West 2000).

Thereafter, on November 15, 2000, plaintiffs filed an amended complaint, with leave of court, which included more detailed, factual allegations regarding the full members' domination and control over the CBOT. Among the allegations was plaintiffs' claim that the full member majority consistently had used its "overwhelming voting power" to dominate and control the corporation. *fn4 Plaintiffs further asserted that the full members utilized their voting power to enact rules which institutionalized the full members' control over the CBOT.

Plaintiffs again successfully moved for substitution of judge. 735 ILCS 5/2-1001 (West 2000).

On January 9, 2001, defendants filed new and separate motions to dismiss pursuant to sections 2-615 and 2-619 of the Code. In their section 2-615 motion, defendants argued that plaintiffs failed to allege any facts to support the conclusional allegation that CBOT's full members owe fiduciary duties to associate members and membership interest holders in connection with the allocation vote. Specifically, defendants noted that no Delaware law supported plaintiffs' argument that a stockholder can be held to have the fiduciary duties of a "controlling stockholder" based solely on his or her status as the owner of a particular class of stock that comprises a majority of the corporation's outstanding shares.

In their section 2-619 motion, treated by the circuit court as a section 2-619(a)(9) motion (other affirmative matter), defendants provided an affidavit of CBOT's corporate secretary, purporting to disprove an essential and central element of plaintiffs' case, relating to the alleged full members' dominance and control of CBOT's affairs through their potential voting power. Defendants insisted that Delaware law does not recognize the existence of a fiduciary duty in a situation hypothesized by plaintiffs, namely, where individual full members, as a majority, would cast their votes in favor of the restructuring and that individual associate members, as a minority, would vote against the restructuring.

Additionally, defendants contended that plaintiffs' complaint is an attack on the CBOT's board of directors; that plaintiffs do not allege the restructuring is not in the best interests of the CBOT; and that plaintiffs claim only one part of the restructuring approved by the board is unfair, namely, the allocation of shares among its members. Recognizing that plaintiffs could not succeed in an action directly against the board because of the protection afforded by the business judgment rule, defendants argued that plaintiffs instead sued five members who have not yet indicated that they intend to ...

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