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1-01-1399 

FOURTH DIVISION
NOVEMBER 15, 2001

JUSTICE HARTMAN delivered the opinion of the court:

This interlocutory appeal emanates from the proposedrestructuring of the Chicago Board of Trade (CBOT), the largestfutures and options exchange in the United States. The namedplaintiffs each own "minority" membership interests in the CBOT. Their amended complaint sought declaratory and injunctive relieffor themselves and as representatives of a class of all persons orentities who own CBOT minority memberships.

Plaintiffs claimed that under Delaware law, the CBOT fullmember "majority" owed fiduciary duties to the minority inconnection with any vote which affected the minority's ownershipinterests. Defendants, named individually and as representativesof a class of CBOT full members, unsuccessfully moved to dismissthe amended complaint pursuant to Code of Civil Procedure (Code)sections 2-615 (735 ILCS 5/2-615 (West 2000) (section 2-615)) and2-619 (735 ILCS 2-619 (West 2000) (section 2-619)). The circuitcourt subsequently stayed the proceedings and ruled that thedispute should be decided by arbitration. Plaintiffs filed thisinterlocutory appeal (166 Ill. 2d R. 307(a)(1)), raising as issueswhether the circuit court abused its discretion (1) by rulingdefendants had not waived their right to arbitration; and (2) bygranting defendants' motion to compel arbitration and stay theproceedings.

Before this litigation commenced, on May 16, 2000, a proposedCBOT restructuring report was presented to the CBOT board ofdirectors, which would convert CBOT from its present status as aDelaware not-for-profit corporation to a for-profit stockcorporation. This change would require a majority vote of the CBOTmembership following the board of directors' approval.⁽¹⁾ CBOT wouldform a wholly-owned, for-profit corporate subsidiary for thepurpose of reorganizing the CBOT's electronic trading business. The May 16, 2000 report proposed further that the subsidiary wouldincrease value in current membership interests in the CBOT througha potential, initial public offering. The for-profit corporationwould replicate the business of the current CBOT and would remainclosely held by the current CBOT membership after allocation ofshares in the new company.

An independent allocation committee developed a stockallocation methodology for the proposed, for-profit CBOT that wasrecommended, reviewed and approved by the CBOT board of directorsand will be voted upon by CBOT members as part of the next step ofthe restructuring plan.⁽²⁾ Pursuant to this methodology, the fullmembers would receive 88.07% of the shares in for-profit CBOT, andassociate members would receive 9.72% of the shares. GIMs woulddivide 1.16%, COMs would receive 0.57% and IDEMs would share 0.48%of the allocated stock.⁽³⁾

On August 11, 2000, plaintiffs filed a one-count complaint for declaratory judgment and injunctive relief, alleging that underDelaware law, the CBOT full member majority owed fiduciary dutiesto the minority, and thereby were precluded from exploiting theircontrol position to their own benefit and to the detriment of theminority and were obligated, as well, to provide the minority withfair value in connection with the restructuring. The complaintfurther alleged that "the proposed allocation would unfairlybenefit the Majority Full Members to the detriment of the MinorityOwners," and, "[a]s such, it would be a breach of fiduciary dutyfor the Majority Members, or any of them, to vote in favor of theproposed allocation in connection with the next phase of the CBOTrestructuring." Plaintiffs sought a declaration that theallocation methodology was unfair and inequitable, an injunction toprohibit the majority members from voting in favor of anyallocation based on that methodology and a declaration as to a fairand equitable methodology and allocation of shares.

Defendants thereafter successfully moved for substitution ofjudge. 735 ILCS 5/2-1001 (West 2000). Defendants subsequentlymoved to dismiss plaintiffs' complaint pursuant to section 2-615 ofthe Code for failure to state a claim because plaintiffs'allegations were insufficient, as a matter of law, to establishthat the full members had fiduciary obligations to the CBOT'sminority members. Defendants filed a second motion to dismissunder Code section 2-619, supported by an affidavit of CBOT'schairman of the board of directors, containing a number of factualassertions 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 amendedcomplaint, with leave of court, which included more detailed,factual allegations regarding the full members' domination andcontrol over the CBOT. Among the allegations was plaintiffs' claimthat the full member majority consistently had used its"overwhelming voting power" to dominate and control thecorporation.⁽⁴⁾ Plaintiffs further asserted that the full membersutilized their voting power to enact rules which institutionalizedthe 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 motionsto dismiss pursuant to sections 2-615 and 2-619 of the Code. Intheir section 2-615 motion, defendants argued that plaintiffsfailed to allege any facts to support the conclusional allegationthat CBOT's full members owe fiduciary duties to associate membersand membership interest holders in connection with the allocationvote. Specifically, defendants noted that no Delaware lawsupported plaintiffs' argument that a stockholder can be held tohave the fiduciary duties of a "controlling stockholder" basedsolely on his or her status as the owner of a particular class ofstock that comprises a majority of the corporation's outstandingshares.

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

Additionally, defendants contended that plaintiffs' complaintis an attack on the CBOT's board of directors; that plaintiffs donot allege the restructuring is not in the best interests of theCBOT; and that plaintiffs claim only one part of the restructuringapproved by the board is unfair, namely, the allocation of sharesamong its members. Recognizing that plaintiffs could not succeedin an action directly against the board because of the protectionafforded by the business judgment rule, defendants argued thatplaintiffs instead sued five members who have not yet indicatedthat they intend to vote for the restructuring. Plaintiffs filed responses to both motions, as well as corrected responses. Defendants filed a reply to plaintiffs' responses.

During the period that the parties were filing and briefingtheir motions to dismiss and responses and thereafter, plaintiffsserved discovery document requests on defendant and third-partysubpoenas on CBOT, on certain CBOT directors who served on CBOT's"allocation committee," and on the legal counsel and financialadvisors to the allocation committee. CBOT counsel, on behalf ofall the subpoenaed parties, filed with the circuit court objectionsto discovery as being premature on the basis of the pendency of themotions to dismiss. The objections to discovery were overruled bythe court on January 9, 2001. Instead, the court ordered theparties to commence "mutual expedited" discovery. Certain defensedocuments were produced for plaintiffs. Production of otherdocuments was objected to on various additional bases. Plaintiffssubpoenaed certain third-parties for oral deposition, however, nodepositions were taken prior to the court's granting of the motionto compel arbitration and stay the proceedings.

On January 25, 2001, the circuit court heard argument ondefendants' motions to dismiss the amended complaint. The courtfirst denied defendants' section 2-615 motion to dismiss, findingthat "the amended complaint, taken as a whole, sufficiently allegesthat the defendants have consistently used their voting power toenact rules, regulations and policies that are detrimental to theinterests of the minority members," and that "an actual controversyexists as to whether the proposed [restructuring] formula is fairand equitable to the minority members."

The circuit court then addressed defendants' section 2-619motion, characterizing the motion as having been filed undersection 2-619(a)(9) (735 ILCS 5/2-619(a)(9) (West 2000) (section 2-619(a)(9))), which allows dismissal of an action on the ground thatit is barred by other affirmative matter that avoids the legaleffect of the claim. Defense counsel argued, among other things,that:

"What we would submit, your Honor, is thatunder 2-619 we have submitted affirmativematter that refutes what we believe is alegally essential element of [the MinorityMembers'] claim. They do not dispute thefactual basis of our affidavit and that havingrefuted an essential element, i.e., that thefull members vote together as a cohesivegroup, it would be incumbent on them to comeforward with something that contradicts[that]."

The court held, however, that defendants' evidence did not"constitute affirmative matter avoiding the legal effect of ***plaintiff's [sic] claim but seeks to contradict the allegations ofthe amended complaint and is thus not properly considered as amotion under section 2-619(a)(9)." In denying defendants' section2-619 motion, the court stated that the motion neither negated theallegations of the complaint, nor put the issue to rest.

Nine days later, and for the first time in the proceedings,defendants moved to compel arbitration and stay the courtlitigation, citing CBOT rules requiring arbitration of thisdispute, relying on CBOT Rule 600.00, which provides that "[a]nycontroversy between parties who were members at the time suchcontroversy arose and which arises out of the Exchange business ofsuch parties shall, at the request of any such party, be submittedto arbitration in accordance with regulations prescribed by theExchange." Rule 620.01 gives the CBOT's arbitration committee"jurisdiction to arbitrate all controversies between membersarising out of Exchange business," and further states that "[a]member party may compel another member party to arbitrate suchcontroversies by delivering to the administrator a Statement ofClaim."

In response to defendants' arbitration motion, plaintiffsargued, among other things, that defendants had waived any right toarbitrate the dispute by submitting to the circuit courtaffirmative evidentiary matter, under section 2-619, in orderdispose of the case on its merits and put to rest plaintiffs'claims.

On March 23, 2001, the circuit court heard argument ondefendants' motion to compel arbitration and stay the proceedings. The court first ruled that defendants had not waived theirarbitrability by moving to dismiss plaintiffs' complaint. Next,the court found that the dispute involves an issue arising out ofthe business of the Exchange, particularly between members, becausethe arbitration clause was general and non-specific, and the mannerin which the Exchange conducts its business and the allocation ofprofits falls within scope of the arbitration rules. The court found the case to be arbitrable and sustained defendants' motion tocompel arbitration and stay the proceedings.

The standard of review in an interlocutory appeal generally iswhether the circuit court abused its discretion in granting ordenying the requested relief. Schroeder Murchie Laya Associates,Ltd. v. 1000 West Lofts, LLC, 319 Ill. App. 3d 1089, 1092, 746N.E.2d 294 (2001) (1000 West Lofts); Bishop v. We Care HairDevelopment Corp., 316 Ill. App. 3d 1182, 1189, 738 N.E.2d 610(2000). A motion to compel arbitration is a prayer for injunctiverelief that is treated similarly to a preliminary injunction or arestraining order, and the grant or denial of such motion isreviewable as an interlocutory appeal, subject to an abuse ofdiscretion standard of review. 166 Ill. 2d R. 307(a)(1); see also1000 West Lofts, 319 Ill. App. 3d at 1093.

Plaintiffs assert that defendants waived any right toarbitrate this dispute by submitting affirmative evidence to thecircuit court and by asking the court to dismiss plaintiffs' claimon the merits of the case based on that evidence. Plaintiffs claimthat the court abused its discretion by finding defendants did notwaive their right to arbitrate.

In Illinois, arbitration is a favored method of settlingdisputes. Board of Managers of the Courtyards at the WoodlandsCondominium Association v. IKO Chicago, Inc., 183 Ill. 2d 66, 71,697 N.E.2d 727 (1998) (IKO Chicago); Kostakos v. KSN Joint VentureNo. 1, 142 Ill. App. 3d 533, 536, 491 N.E.2d 1322 (1986)(Kostakos); Brennan v. Kenwick, 97 Ill. App. 3d 1040, 1042, 425N.E.2d 439 (1981) (Brennan). Illinois courts disfavor finding a waiver of arbitration rights. Kostakos, 142 Ill. App. 3d at 536;Brennan, 97 Ill. App. 3d at 1043. Arbitration allows for the finaldisposition of disputes in an easier, more expeditious and lessexpensive manner than by litigation. IKO Chicago, 183 Ill. 2d at71. Nevertheless, a contractual right to arbitration can be waivedsimilarly to any other contract right. Brennan, 97 Ill. App. 3d at1042. Waiver may occur when a party conducts itself in a manner inconsistent with the arbitration clause, thereby demonstrating anabandonment of that right. Applicolor, Inc. v. SurfaceConstruction Corp., 77 Ill. App. 2d 260, 222 N.E.2d 168 (1966)(Applicolor); Kostakos, 142 Ill. App. 3d at 536; Gateway Drywall &Decorating, Inc. v. Village Construction Co., 76 Ill. App. 3d 812,816, 395 N.E.2d 613 (1979) (Gateway). A party's course of actionamounts to waiver when it submits arbitrable issues to a court fordecision on the substantive merits of the cause. Atkins v. RusticWoods Partners, 171 Ill. App. 3d 373, 378, 525 N.E.2d 551 (1988)(Atkins); Kostakos, 142 Ill. App. 3d at 536; Applicolor, 77 Ill.App. 2d at 267.

It must be noted, first, that defendants' section 2-619 motionto dismiss asserts as fact, supported by affidavit, that itdemonstrated "the untruth of plaintiffs' allegation" of defendants'"actual domination and control over CBOT's affairs" and thatdefendants control the elections as a cohesive group; anddefendants challenge plaintiffs' conclusion that a fiduciaryrelationship thereby exists between defendants as the majority andplaintiffs as the minority. Defendants' motion purports to present"concrete evidence that [defendants] do not vote as a cohesivegroup." As previously observed, defendants' motion was treated bythe circuit court as having been brought under section 2-619(a)(9),which provides for dismissal where "the claim asserted againstdefendant is barred by other affirmative matter avoiding the legaleffect of or defeating the claim." 735 ILCS 5/2-619(a)(9) (West2000).

A motion brought under section 2-619 must satisfy a rigorousstandard, and can be granted only where "no set of facts can beproven that would support the plaintiff's cause of action." Nosbaum ex rel. Harding v. Martini, 312 Ill. App. 3d 108, 113, 726N.E.2d 84 (2000). Moreover, on such motion, the movant mustpresent "affirmative matter" that negates an alleged cause ofaction completely or refutes crucial conclusions of law orconclusions of material fact contained in or inferred from thecomplaint. Fancher v. Central Illinois Public Service Co., 279Ill. App. 3d 530, 534, 664 N.E.2d 692 (1996) (Fancher). The movantcannot merely rely upon evidence offered to refute well-pleadedfacts, since well-pleaded facts must be taken as true for thepurposes of a motion to dismiss under section 2-619(a)(9). Fancher, 279 Ill. App. 3d at 534; see also Prompt Air, Inc. v.Firewall Forward, Inc., 303 Ill. App. 3d 126, 128, 707 N.E.2d 235,237 (1999). A section 2-619 motion may not be utilized merely tochallenge the essential factual allegation of plaintiffs' cause ofaction (Provenzale v. Forister, 318 Ill. App. 3d 869, 879, 743N.E.2d 676 (2001) (Provenzale)); where defendants dispute factualallegations in a complaint, they should do so in a motion forsummary judgment. Provenzale, 318 Ill. App. 3d at 879. Motionsfor summary judgment generally seek a final disposition oflitigation based upon affirmative facts shown, as in the section 2-619(a)(9) motion presented in the instant case.

In Applicolor, defendants first unsuccessfully sought removalof the lawsuit to federal court. Prior to remand, however, to thestate court, defendants moved for summary judgment, claiming theirentitlement "to judgment as a matter of law," on which the federalcourt did not rule. Defendants made no reference to their right toarbitration. The Applicolor defendants renewed their summaryjudgment motion in the state court, supported by affidavits,without mentioning their right to arbitration. 77 Ill. App. 2d at264. The Applicolor court observed that the important purpose ofsummary judgment is the disposition of litigation when the disputedissue is exclusively one of law, as where there is no genuine issueof material fact (77 Ill. App. 2d at 266), and found that haddefendants' motion been granted as a matter of law, that rulingwould have disposed of the litigation completely; thereforedefendants were held to have effectively waived their right toarbitration of the claim or controversy presented. 77 Ill. App. 2dat 267.⁽⁵⁾

Here, defendants' motion to dismiss, although brought as amotion to dismiss under section 2-619 instead of summary judgment under section 2-1005 (735 ILCS 5/2-1005 (West 2000)), sought fromthe circuit court the same relief as a matter of law. Defendantssought a dismissal of plaintiffs' lawsuit not only becausedefendants allegedly owed no fiduciary duty to plaintiffs ascontrolling stockholders, but that plaintiffs identified noevidence of defendants having exercised control over therestructuring transaction at issue in the case; nor did plaintiffsshow evidentiary support for their claim that defendants breachedany duty to them, even if a duty existed. Finally, defendantssought dismissal because their own supporting affidavitdemonstrated that the recent member vote to elect a new chairman ofthe CBOT establishes that Full Members do not vote as a cohesivegroup as plaintiffs claimed. Clearly, defendants were seeking afinal disposition of the litigation based upon affirmative factsshown, which demonstrated conduct inconsistent with having theirprincipal issue decided by arbitration.

Another example of waiver of the right to arbitrationfollowing the filing of a motion to dismiss is found in Atkins.There, defendants did not raise the question of arbitration untiltheir motion to dismiss count III of plaintiffs' second amendedcomplaint had been granted and then reversed on appeal. Atkins,171 Ill. App. 3d at 379. As noted by the appellate court there,and equally applicable here, defendants' participation in thelitigation was not merely responsive and its motions were not filedsolely to protect its rights from litigation. Atkins, 171 Ill.App. 3d at 379.

Federal decisions further exemplify the principle. InCabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d388, 389 (7th Cir. 1995) (Cabinetree), plaintiff, a franchiseddistributor of kitchen and bath cabinets, brought an action againstdefendant, a franchisor, charging that the franchisor hadterminated the franchise in violation of Wisconsin law. Defendantremoved the case to a federal district court in Wisconsin and,thereafter, discovery began and a trial date was set. Defendantmoved to stay further proceedings pending arbitration of theparties' dispute, which the district court denied. On appeal, thecourt held that an election to proceed before a nonarbitraltribunal for the resolution of a contractual dispute was apresumptive waiver of the right to arbitrate. Cabinetree, 50 F. 3dat 390.

In St. Mary's Medical Center of Evansville, Inc. v. DiscoAluminum Products Co., 969 F.2d 585, 588 (7th Cir. 1992) (St.Mary's Medical Center), plaintiff sued defendant for breach ofwarranty in a construction contract. Defendant filed a motion todismiss and, alternatively, a motion for summary judgment, nevermentioning its right to arbitration during the pendency of themotions, as in the present case. Thereafter, defendant moved tocompel arbitration and stay the case. Plaintiff resisted on theground that defendant had waived its right to arbitration. Thedistrict court agreed that defendant waived arbitration anddefendant appealed. The St. Mary's Medical Center court affirmedthe district court's decision, finding that during the ten monthsafter it was sued, defendant did more than just "weigh itsoptions," but participated in the litigation by filing its motionto dismiss or alternatively, a motion for summary judgment, nevermentioning arbitration until after it lost its motions. The St.Mary's Medical Center court noted that "[e]specially telling was[defendant's] motion to dismiss. Submitting a case to the districtcourt for decision is not consistent with a desire to arbitrate. A party may not normally submit a claim for resolution in one forumand then, when it is disappointed with the result in that forum,seek another forum." 969 F.2d at 589.⁽⁶⁾

Summarizing, in the instant case, the circuit court denieddefendants' section 2-615 motion, which sought to litigate themerits of the dispute as to whether they owed plaintiffs afiduciary duty when voting for the restructuring of the CBOT, anddenied their section 2-619(a)(9) motion, which tried to demonstratethat their evidence, in the form of a supporting affidavit, provedthe untruth of plaintiffs' underlying assertion that full membersvote as a cohesive group. Although the court found thatdefendants' section 2-619 motion neither negated the allegations ofplaintiffs' complaint nor put the issue to rest, defendants werebanking on a decision in their favor involving this factual issue,which would have ended the case as effectively as judgment enteredafter submission of the controversy to a trial. Defendants here,in the same way as defendants in Applicolor, Atkins, Cabinetree andSt. Mary's Medical Center, did more than weigh their options; theyvoluntarily participated in the litigation, never raising theirright to arbitrate until after their motions were denied. Defendants' actions in submitting substantive issues to the circuitcourt for determination manifested their intent to abandon theirright to arbitrate. The law does not permit them to forum shopuntil they receive the desirable decision.

Accordingly, the circuit court abused its discretion by rulingdefendants did not waive their right to arbitrate this dispute. The cause must be reversed and remanded for further litigationproceedings.

Reversed and remanded.

HOFFMAN, P.J., and THEIS, J., concur.

1. CBOT membership presently is comprised of five differentclasses including full members (1402 seats), collectively, themajority, and associate members (774 seats), Government InstrumentsMarket (GIMs) (184 seats), Community Options Market (COMs) (643seats) and Index, Debt and Energy Market (IDEMs) (641 seats),collectively, the minority. According to the CBOT's amended andrestated certificate of incorporation, full members are entitled toone vote on all matters that are subject to a vote of the generalmembership; associate members are entitled to one-sixth of onevote. Holders of GIM, COM and IDEM membership interests have novoting rights. As a result, full members can outvote the minorityby a margin of 1402 to 129 with respect to any matter that is putto a membership vote.

2. According to the CBOT's restructuring report, in reaching itsrecommendation, the allocation committee considered a variety offactors in calculating its methodology and gave greater weight toliquidation rights, voting rights and Ceres Trading Limited Partnerinterest allocation of CBOT members, rather than the market valuesof CBOT seats prior to the announcement of the restructuring. Similar to voting rights, associate members would receive one-sixthof the liquidation value that full members would collect. GIMs,COMs and IDEMs are entitled to less than associate members uponliquidation. Likewise, minority members are entitled to a similarallocation for Ceres interests. Liquidation and voting rightsratios to which the allocation committee gave greater weight inestablishing its methodology already are reflected in the seatvalue market prices.

3. On an individual basis, the proposal would allocate shares infor-profit CBOT according to the following ratio: for each fiveshares allocated to each full member, associate members wouldreceive one share, GIMs would receive 0.5 shares, COMs wouldreceive 0.07 shares and IDEMs would receive 0.06 shares.

4. As examples of the full members' voting domination,plaintiffs stated that only full members have been elected aschairman and vice chairman of the CBOT's board of directors, theCBOT's highest elected offices. According to plaintiffs, even theassociate members who become CBOT board members are selected by thefull members. Pursuant to CBOT rules, the associate members do notelect the associate member representatives on the board ofdirectors; rather, a plurality of votes is necessary to elect associate board members. As a result, plaintiffs assert the fullmembers, who control the voting mechanism, in effect, select thefew associate members who are allowed on the CBOT board ofdirectors.

5. Defendants refer to Applicolor as underscoring thedistinction between a motion to dismiss and a motion for summaryjudgment. 77 Ill. App. 2d at 265. As the court in Gatewayexplained, however, the Applicolor court did not intend to limitthe scope of what conduct constitutes a submission of an arbitrableissue to the courts only to summary judgment motions. 76 Ill. App.3d at 816. Of further interest is the history showing thatIllinois courts repeatedly have characterized section 2-619(a)(9)motions as similar to summary judgment motions. See Wilk v. 1951W. Dickens, Ltd., 297 Ill. App. 3d 258, 261, 696 N.E.2d 756 (1998)(a motion pursuant to section 2-619(a)(9) is similar to a motionfor summary judgment, especially where a determination of fact isinvolved); Ralston v. Casanova, 129 Ill. App. 3d 1050, 1056, 473N.E.2d 444 (1984) (a section 2-619 motion is a fact motion thatamounts essentially to a summary judgment procedure); Bryant v.Fox, 162 Ill. App. 3d 46, 50, 515 N.E.2d 775 (1987) (a section 2-619 motion should be granted where the evidence before the courteither raises no issues of material fact or where crucial issues ofmaterial fact are refuted by an affirmative matter).

6. Defendants seek to distinguish St. Mary's Medical Center byarguing that the court did not hold that filing a motion to dismissconstitutes waiver; rather, defendant in that case also had movedfor summary judgment. Nevertheless, the St. Mary's Medical Centercourt focused on defendant's motion to dismiss in its analysis,noting that the motion asserted a one-year contractual limitationperiod barred plaintiff's claim and that plaintiff had not raiseda prima facie case. A decision in defendant's favor on eitherissue would have ended the case in the same manner as a judgmententered after a trial. The court stated that although both issueswere appropriate for arbitration, plaintiff voluntarily chose tolitigate and, since defendant also chose to litigate, it, inessence, agreed with plaintiff to litigate rather than arbitrate. St. Mary's Medical Center, 969 F.2d at 591.