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Clearing Corp. v. Financial and Energy Exchange Limited

February 18, 2010

THE CLEARING CORPORATION, PLAINTIFF,
v.
FINANCIAL AND ENERGY EXCHANGE LIMITED, DEFENDANT.



The opinion of the court was delivered by: James B. Zagel United States District Judge

Judge James B. Zagel

MEMORANDUM OPINION AND ORDER

I. BACKGROUND

In 2006, Defendant Financial and Energy Exchange Limited ("FEX"), an Australian public company with its principal business in Sydney, had begun building the infrastructure for the FEX Exchange, a commodities and energy futures and options exchange also based in Sydney. Australian law requires such an infrastructure to include clearing and settlement services for the listed products. FEX decided to out-source these services and contacted Plaintiff The Clearing Corporation ("CCorp"), a derivatives clearing organization that provides clearing and settlement services for futures markets across the United States. CCorp is a Delaware corporation, with its principal place of business in Chicago, Illinois.

On August 1 and 2, 2006, FEX's Chief Executive Officer and Executive Director Brian Price flew to Chicago to meet with CCorp executives in order to discuss CCorp's capability to provide clearing services for FEX. One month later, the parties entered into a Memorandum of Understanding in Respect of Services ("MOU"), in which CCorp agreed to "design the clearing and settlement services to support FEX products, and to deliver a design study document." The MOU noted that, based on their discussions and the meetings held in Chicago, "the parties have identified a 'good fit' between the organizations[,]" and the outcome from the study would serve as a basis for the parties to negotiate a definitive agreement.

Over the next year, CCorp conducted the design study and had weekly telephone meetings with FEX. FEX paid for the study by wiring money to CCorp's Chicago bank account, and in February and September 2007, FEX sent independent contractors to Chicago several times in connection with the study, to determine whether CCorp was capable of providing clearing and settlement services. On October 13, 2006, the parties entered into a Confidentiality Agreement, which states that it is to "be governed and construed in accordance with the internal laws of the State of Illinois."

On April 13, 2007, FEX's Executive Chairman, Ted Pretty, traveled to Chicago to meet with CCorp executives. CCorp maintains that the purpose of this meeting was to negotiate the terms of the Clearing Services Agreement ("CSA"), and that at the meeting the parties agreed that FEX would pay CCorp a $1 million implementation fee and a $2 million annual fee. CCorp also notes that at the meeting, the parties agreed to promptly enter into a binding Letter of Intent ("LOI"). FEX disputes this account of events and contends that no contract terms were reached at the meeting and that negotiations continued with FEX in Australia until the LOI was signed on May 11, 2007. In the LOI, the parties agreed to the $1 million and $2 million fees, and that they would promptly negotiate a definitive CSA.

The CSA was executed on October 31, 2007. As part of the CSA, FEX agreed to pay CCorp a $1 million implementation fee and a $2 million Annual Processing Fee payable in quarterly installments of $500,000. The Annual Processing Fee was payable by FEX in advance of each quarter, with the first payment due on June 1, 2008.*fn1 The CSA also contains an Illinois choice of law provision, language that indicates that certain services will be conducted in the United States, and a requirement that FEX provide CCorp with recommended settlement prices "no later than 2:40 a.m. and 12:30 p.m. (Chicago time) on each business day."

In November 2007, FEX officers Brian and Tom Price traveled to Chicago and met with CCorp in regard to performance under the agreement, including issues such as CCorp's operations and accounting procedures, and FEX's sales and marketing. From August through December 2008, FEX and CCorp had daily telephone meetings in connection with the agreement. Additionally, FEX sent more than one thousand emails to CCorp personnel relating to the design study.

In July 2008, FEX requested that CCorp extend the date for payment of the first quarterly installment to November 1, 2008. In exchange for this accommodation, FEX offered to pay CCorp a $450,000 Delayed Processing Fee payable in five monthly installments of $90,000. CCorp agreed and the deal was memorialized on August 25, 2008 in Amendment No.1 to the CSA.

On October 1, 2008, CCorp invoiced FEX for the first quarterly installment of $500,000. Despite the fact that by November 5 FEX had still not launched or received a market license from the Australian government, FEX sent CCorp an email stating that it "will NOT be requesting a variance of the $500k quarterly payment." (emphasis in original). On November 12, 2008, FEX made a payment of $166,647 to CCorp. After the application of a $40 previous overpayment, the outstanding balance on the first quarterly payment is $333,313. Over December and January, FEX expressed its commitment to meeting its obligations, however, the $333,313 balance remains outstanding.

On January 2, 2009, CCorp sent FEX another invoice for $500,000. FEX admitted its payment obligation for this invoice, but it too remains unpaid. The total amount CCorp claims it is owed on the past due invoices is $833,313. In addition to seeking damages in this amount, CCorp is also seeking a declaratory judgment that it properly terminated the CSA due to nonpayment, and that the non-compete provision contained therein does not survive termination of the CSA.

On November 6, 2009, Defendant FEX moved to dismiss the claims against it for lack of jurisdiction. According to FEX, this court can exercise neither specific nor general jurisdiction over FEX. For the ...


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