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Aventine Renewable Energy, Inc v. Jp Morgan Securities

December 9, 2010

AVENTINE RENEWABLE ENERGY, INC.,
PLAINTIFF-APPELLANT,
v.
JP MORGAN SECURITIES, INC. AND JP MORGAN CHASE BANK, N.A.,
DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of the 10th Judicial Circuit Tazewell County, Illinois, Honorable Scott A. Shore Judge, Presiding. No. 08--L--142

The opinion of the court was delivered by: Justice Lytton

JUSTICE LYTTON delivered the judgment of the court, with opinion.

Presiding Justice Holdridge specially concurred, with opinion.

Justice Schmidt dissented, with opinion.

OPINION

Plaintiff Aventine Renewable Energy, Inc., invested in auction rate securities (ARS) from defendants JP Morgan Chase Bank, N.A. and JP Morgan Securities, Inc. (JP Morgan). After Aventine lost a considerable amount of money from its investment, it filed suit against JP Morgan. JP Morgan filed a motion to compel Aventine to submit to arbitration or, alternatively, to stay the litigation pending resolution of a class action filed against JP Morgan in New York. The trial court stayed the action. Aventine then moved to lift the stay. The trial court denied Aventine's motion. We affirm.

Aventine produces and sells ethanol and related products and has production facilities in Illinois. Aventine alleged that in 2006, it invested in student loan auction rate securities (SLARS), a type of ARS, upon the investment advice of JP Morgan. At the time of the initial investment, SLARS were considered to be safe and liquid cash-management tools. Aventine alleged that JP Morgan coaxed it into investing in SLARS by promising to repurchase Aventine's SLARS at full face value if other buyers would not. In 2006, Aventine completed and signed an account application with JP Morgan that contained an arbitration clause, which stated, "I agree that all controversies that may arise between me or us and [J.P. Morgan] *** shall be determined by arbitration pursuant to the Federal Arbitration Act." The application contained an exception if a class action suit was pending at the time:

"No person shall seek to enforce any pre-dispute arbitration agreement against any person *** who is a member of a putative class who has not opted out of the class with respect to any claims encompassed by the putative class action until: (i) the class certification is denied; or (ii) the class is decertified; or (iii) the customer is excluded from the class by the court."

In 2008, representatives of JP Morgan called Aventine to inform them of rumors of future liquidity problems concerning SLARS. Aventine alleged that it asked JP Morgan to repurchase some of its SLARS, but JP Morgan refused and suggested that Aventine sell its SLARS at auction. By February 2008, SLARS auctions began to fail. Since then, there has been no functioning market for SLARS. Aventine alleged that it lost $31.6 million by selling its SLARS below the price at which JP Morgan promised to repurchase them. On April 27, 2009, Aventine filed for a chapter 11 bankruptcy.

On November 6, 2008, Aventine filed a complaint against JP Morgan. On December 18, 2008, JP Morgan moved to compel Aventine to submit to arbitration or, alternatively, stay the litigation. Aventine opposed the motion, stating that a pending class action suit against JP Morgan, Ciplet v. JP Morgan Chase & Co., No. 08--CV--4580 (S.D.N.Y. May 16, 2008) (Ciplet), in New York triggered the account application's exception to arbitration. In Ciplet, the plaintiffs alleged that JP Morgan manipulated the market for ARS prior to the market's collapse in early 2008.

On May 28, 2009, the trial court denied JP Morgan's motion to compel arbitration in light of the Ciplet litigation in New York. However, the trial court stayed the litigation in its entirety in favor of the New York action.

In June 2009, the plaintiffs in Ciplet voluntarily dismissed their action without prejudice. In July 2009, a new class action was filed in New York against JP Morgan, O'Gara v. JP Morgan Chase & Co., No. 09--CV--6199 (S.D.N.Y. July 10, 2009). The plaintiffs in that case also alleged that JP Morgan manipulated the market for ARS. The class seeking certification were all persons who purchased ARS from JP Morgan from July 2004 to February 2008, which included Aventine.

In August 2009, Aventine filed a motion to lift the stay or, alternatively, allow Aventine to conduct discovery. Aventine argued that the new cause of action in New York and likelihood that the litigation will take years to resolve required that the court lift the stay. The trial court denied Aventine's motion.

ANALYSIS I. JURISDICTION

JP Morgan argues that we lack jurisdiction over this appeal. We disagree. Illinois Supreme Court Rule 307(a)(1) provides: "An appeal may be taken to the Appellate Court from an interlocutory order of the court: (1) granting, modifying, refusing, dissolving, or refusing to dissolve or modify an injunction." "A stay is considered injunctive in nature, and thus an order granting or denying a stay fits squarely within Rule 307(a)." Rogers v. Tyson Foods, Inc., 385 Ill. App. 3d ...


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