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Tom D. Seip and Alexa C. Seip, Co-Trustees of the v. Rogers Raw Materials Fund

March 10, 2011

TOM D. SEIP AND ALEXA C. SEIP, CO-TRUSTEES OF THE TOM AND ALEXA SEIP LIVING TRUST, CLARENCE RIDLEY AND ELEANOR RIDLEY, ON THEIR OWN BEHALF AND ON BEHALF OF ALL OTHERS SO SITUATED, PLAINTIFFS-APPELLANTS,
v.
ROGERS RAW MATERIALS FUND, L.P., AN ILLINOIS LIMITED PARTNERSHIP; BEELAND MANAGEMENT COMPANY, L.L.C., AN ILLINOIS LIMITED LIABILITY COMPANY AND GENERAL PARTNER OF THE ROGERS RAW MATERIALS FUND, AND JAMES BEELAND ROGERS, JR., AN INDIVIDUAL,
DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County. Honorable Mary K. Rochford, Judge Presiding. No. 07 CH 11719

The opinion of the court was delivered by: Justice Lavin

FOURTH DIVISION

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

Presiding Justice Gallagher and Justice Pucinski concurred in the judgment and opinion.

OPINION

I. BACKGROUND

Here, we consider an appeal filed by disgruntled investors after their complaint against two investment funds and one individual was dismissed by the trial court. For the reasons discussed below, we affirm the judgment of the circuit court in all respects.

A. Parties Involved

The underlying facts in this dispute revolve around two index funds (Funds), the Rogers Raw Materials Fund (Private Fund) and the Rogers International Raw Materials Fund (Public Fund). Tom and Alexa Seip, co-trustees of the Tom and Alexa Seip Living Trust, and Clarence and Eleanor Ridley (collectively, plaintiffs) brought this class action suit against Beeland Management Company, L.L.C. (Beeland), James B. Rogers, and the Private Fund. Plaintiffs are former investors and limited partners in the Private Fund, and their rights as limited partners were controlled by a document titled "Second Amended and Restated Agreement of Limited Partnership" (Partnership Agreement). The Funds invested in commodities of futures and forward contracts that track the composition of the Rogers International Commodity Index, which was created by Rogers, and any unused assets were either held as cash or invested in government securities. A "Confidential Private Placement Memorandum" between the parties provided that investments would be held in segregated, regulated customer accounts and not be commingled with other assets. Beeland is a general partner of the Private Fund and also manages its operations. Beeland itself is managed by Tom Price, the chief executive officer, and Allen Goodman, the chief financial officer. Rogers is a 69% owner of Beeland, while Price and Goodman do not own any equity in Beeland.

B. Rogers and Relationship With Refco

Refco, now defunct, was a financial services company based in New York consisting of a number of entities. According to an affidavit given by Robert Mercorella, in spring 2005, Rogers asked Refco executives for assistance in finding candidates to serve as Beeland's chief operating officer. At that time, Mercorella was employed by Refco Alternative Investments in New York City. Mercorella was asked to assist in the candidate search, and during the process, he informed Rogers that he wished to be considered as a candidate and was ultimately hired by Rogers. According to Mercorella, Rogers was contemplating relocating Beeland to New York and wanted Mercorella's assistance in making Refco the selling partner for the Funds. Eventually, Beeland agreed that Refco, LLC, a regulated subsidiary of Refco, Inc., would serve as the Funds' selling agent. Rogers and Refco also agreed that Refco would acquire Rogers' interest in Beeland.

C. Diversion of Private Fund's Assets

Refco, LLC's assumption as the Funds' administrator involved, among other things, the transfer of assets from the Funds' brokers at that time, Man Financial, Inc., and Harris, N.A., to Refco, LLC. Accounts were opened with Refco, LLC, and Refco Capital Markets (Refco CM), an offshore unregulated securities and foreign exchange broker, also a subsidiary of Refco, Inc. The account with Refco CM was part of a long-term plan to eventually transfer assets to Refco CM for strategic financial reasons. In September 2005, Price and Goodman initiated the transfer of the Funds' assets to Refco, LLC. Price executed two account transfer forms, one each for the Private and Public Funds, on September 22, 2005. The forms identified Man Financial, Inc., as the transferring firm and Refco, LLC, as the receiving firm, and stated: "Please be advised that I hereby direct you to transfer my account balances, margin and open commodity position to Refco, LLC." Goodman gave similar instructions to Harris in regards to the Funds' assets held there.

An affidavit by Price indicated that he had "made clear to Refco that no collateral was to be transferred to Refco CM until *** after the Funds' existing investors were provided with advance notice that Refco CM would hold collateral" and "were given an opportunity to redeem their interests in the funds if they did not want to accept the credit risk of having fund property held at Refco CM." Pursuant to Price's and Goodman's instructions, approximately $297.5 million of the Funds' assets were transferred in early October 2005, but Price later learned that the assets were transferred directly to Refco CM, without any express direction from either Price or Goodman. Upon learning this, Beeland immediately sought to have the assets transferred either to Refco, LLC, or back to the original brokerage accounts.

D. Refco Bankruptcy and the Special Redemption Letter Shortly thereafter, Refco announced that nearly $500 million of debt had been concealed by its chief executive officer. As a result, on October 17, 2005, Refco, Inc., and a number of its affiliates and subsidiaries, including Refco CM, declared bankruptcy and subsequently filed for protection under chapter 11 of the Bankruptcy Code (11 U.S.C. §101 et seq. (2006)). Refco, LLC, filed for bankruptcy as well in November 2005. Beeland filed a complaint in the bankruptcy court against Refco CM seeking the return of the cash and securities that were diverted from Refco, LLC, to Refco CM.

On November 15, 2005, a letter was issued to the limited partners concerning a "special redemption process" (special redemption letter). It provided that the limited partners could elect to receive "their pro rata portion of the Fund's available cash as of November 30, 2005, less anticipated expenses." It noted that redeeming limited partners "would not be shielded from the potential effects (losses and expenses) of Refco Capital Markets' bankruptcy." The special redemption letter estimated that the disbursement from available cash would be based on "approximately 30% of the Fund's total assets, including assets held at Refco Capital Markets," and that the balance of redemption proceeds would be distributed once either Refco CM proceedings were settled or there was sufficient asset liquidity. The special redemption letter further stated that "all redemption requests will be treated as requests for redemption in full."

Plaintiffs promptly sent requests for the special redemption. According to an affidavit by Goodman, as of December 1, 2005 (the effective redemption date), the capital accounts, less assets protected by bankruptcy proceedings, of the Seips constituted $172,210.46 and the Ridleys constituted $52,147.46. Those amounts were disbursed to the respective plaintiffs in December 2005.

E. Recovery of Diverted Assets and Subsequent Redemption Distributions Beeland was ultimately able to recover the assets transferred to Refco through various recovery efforts. After the Refco bankruptcy proceeding, a $30 million settlement was entered into on October 11, 2006. The settlement also allowed Beeland to participate in the proceeds from other recovery proceedings against Refco, whereby 97.12% of the value of the Private Fund's transferred assets were recovered by April 15, 2008, and 101.3% recovered as of December 31, 2009. As Beeland recovered the diverted assets, they made further disbursements to plaintiffs pursuant to the special redemption letter. Ultimately, with bankruptcy-protected assets included, plaintiffs received over 100% of the November 2005 value of their capital accounts.

F. Underlying Complaint and Dismissal

At various times in 2006 and 2007, a number of complaints were filed in New York and Illinois regarding these events against defendants and other parties not a part of the instant appeal. Besides plaintiffs' case, two other cases in Illinois were filed: Lane v. Beeland Management Co., No. 06-L-5193 (Cir. Ct. Cook Co.) and Joseph L. & Francis L. Simek Family Investments, Ltd. v. Beeland Management Company, No. 06-CH-2983. Plaintiffs' complaint was filed on May 14, 2007, and later amended on April 1, 2008. In its final form, plaintiffs' complaint contained claims for breach of contract, post-redemption interest, tortious interference with a contract, unjust enrichment, declaratory judgments, and accounting. On May 15, 2008, Rogers, Beeland, Price, and Goodman filed omnibus motions under sections 2-615 and 2-619 of the Code of Civil Procedure (Code) (735 ILCS 5/2-615, 2-619 (West 2008)) to dismiss plaintiffs' complaint, as well as the Lane and Simek complaints, before the circuit court. The Simek complaint was later voluntarily dismissed and the New York actions have also since been dismissed. The motions to dismiss were extensively briefed and argued, and on June 16, 2009, the circuit court issued a written order dismissing all claims against all defendants. Plaintiffs then filed a motion for reconsideration on July 15, 2009. After the parties briefed and argued the motion, the circuit court issued a written order on April 27, 2010, denying plaintiffs' motion for reconsideration. Plaintiffs timely appeal, specifically contending that their claims for breach of contract, post-redemption interest, fees and expenses charged to their accounts, tortious interference with a contract, and declaratory judgments were improperly dismissed.

II. ANALYSIS

A motion to dismiss under section 2-615 admits all well-pleaded facts and attacks the legal sufficiency of the complaint. La Salle National Bank v. City Suites, Inc., 325 Ill. App. 3d 780, 790 (2001). The applicable determination when considering a section 2-615 motion is "whether the allegations of the complaint, when viewed in a light most favorable to the plaintiff, are sufficient to state a cause of action upon which relief can be granted." Canel v. Topinka, 212

Ill. 2d 311, 317 (2004). Dismissal is appropriate where it is clearly apparent that no set of facts can be proved that would entitle the plaintiff to relief. Tedrick v. Community ...


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