CSC Partners Mgmt., LLC v. Adm Investor Servs., Inc.

2021 IL App (1st) 210136

197 N.E.3d 168

458 Ill.Dec. 755

CSC PARTNERS MANAGEMENT, LLC ; and Clark Street Capital Advisors, LLC, Plaintiffs-Appellants,

v.ADM INVESTOR SERVICES, INC. ; Joseph Fennessey; Finalyze Capital, LLC; and Angelos Michalopoulos, Defendants,

(ADM Investor Services, Inc. ; Joseph Fennessey; and Finalyze Capital, LLC, Defendants-Appellees).

No. 1-21-0136

Appellate Court of Illinois, First District, SIXTH DIVISION.

Filed June 11, 2021

Garrett L. Boehm Jr., Mark D. Belongia, and LeighAnn M. Thomas, of Johnson & Bell, Ltd., of Chicago, for appellants.

James L. Kopecky and Ashley Fawver, of Kopecky Schumacher Rosenburg LLC, of Chicago, for appellee ADM Investor Services, Inc.

Nemura G. Pencyla, of Ekl, Williams & Provenzale LLC, of Lisle, for other appellees.

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

¶ 1 Plaintiffs, CSC Partners Management, LLC (CSC), and Clark Street Capital Advisors, LLC (Clark Street), filed an interlocutory appeal alleging that the circuit court erred in granting defendants’ motion to compel arbitration and dismissing plaintiffs’ claims without prejudice. On appeal, plaintiffs allege that (1) not all parties to the complaint agreed to arbitrate pursuant to the rules of the National Futures Association (NFA) and (2) they did not consent to arbitrate their claims against defendant ADM Investor Services, Inc. (ADMIS). Plaintiffs also contend that the trial court should have ordered a stay of the court proceedings instead of dismissing all claims without prejudice. For the following reasons, we reverse and remand for further proceedings.

¶ 2 I. JURISDICTION

¶ 3 On December 4, 2020, the trial court entered an order to compel arbitration of plaintiffs’ claims. On December 18, 2020, plaintiffs filed a motion to reconsider that sought to vacate the court's December 4, 2020, order to compel arbitration, as well as reinstate the action. The trial court denied the motion on January 7, 2021. Plaintiffs filed their notice of appeal on February 8, 2021. For the reasons stated below, this court has jurisdiction pursuant to Illinois Supreme Court Rule 307(a)(1) (eff. Nov. 1, 2017).

¶ 4 II. BACKGROUND

¶ 5 On May 22, 2018, Jonathan Winick, president of Clark Street, and Joseph Fennessey, a futures trader who traded through Finalyze Capital, LLC (Finalyze), organized CSC, a Delaware limited liability company. CSC was formed with an initial capital investment from Clark Street, which became one of two partners of CSC. Fennessey was the other partner. An Operating Agreement was executed in connection with CSC's formation, with Winick signing as president of Clark Street and Fennessey signing for himself.

¶ 6 Winick and Fennessey were at all relevant times associate members with the NFA. CSC was a member from January 2019 to May 15, 2020. Pursuant to the NFA Rulebook, section 2(b) of the "Member Arbitration Rules" provides, in pertinent part, that "disputes between Members and Associates and between Associates shall be arbitrated under these Rules, at the election of the person filing the claim ***. Once a claim is filed, arbitration is mandatory for the Member or Associate the claim is against." Nat'l Futures Ass'n Member Arbitration R. 2(b) (eff. Oct. 6, 2020), available at https://www.nfa.futures.org/rulebook/rules.aspx?Section=6&RuleID=SECTION% 202 [https://perma.cc/8JC7-9AM2].

¶ 7 On July 22, 2019, CSC and Clark Street (hereinafter "plaintiffs") filed a complaint against Fennessey, Finalyze, ADMIS, and Carlos Cabrera, alleging tortious interference with a prospective business relationship that belonged to CSC, breach of fiduciary duty, and breach of the operating agreement. On October 15, 2019, Fennessey filed a claim for arbitration with the NFA against CSC and Winick. On February 15, 2020, plaintiffs filed an amended complaint that added a tortious interference count against Angelos Michalopoulos.

¶ 8 On March 13, 2020, ADMIS and Cabrera filed motions to dismiss plaintiffs’ amended complaint. That same day, Fennessey and Finalyze filed their answer, affirmative defenses, and counterclaim for tortious interference. On April 3, 2020, plaintiffs filed a motion to dismiss the counterclaim. Plaintiffs also filed a motion before the NFA to dismiss the arbitration claim or, in the alternative, to stay the NFA action pending resolution of the court proceedings.

¶ 9 Fennessey subsequently filed an amended NFA claim, adding Finalyze as a claimant and adding Clark Street and CSC Quant Trading LP as respondents. The NFA, however, rejected the additional parties because they were not members or associates of the NFA. Fennessey then filed a second amended arbitration claim with the NFA naming only CSC and Winick as respondents. In the second amended claim, Fennessey acknowledged the NFA's rejection of Clark Street, but alleged that the NFA had jurisdiction over Winick and that Clark Street "is an entity wholly owned and controlled by" Winick. As such, "[a]ny entity record he controls, directly or through any intermediate entity he controls, would similarly be subject to discovery under NFA Arbitration Rules Section 7." Fennessey also claimed that given Winick's capacity as president of CSC and his duties as outlined in the operating agreement, "any actions taken by CSC Quant Trading LP and any records of same controlled by Respondent Jonathan Winick need to be accounted for in the NFA arbitration, and any records of such entity which he controls *** are subject to disclosure pursuant to NFA Arbitration Rules Section 7."

¶ 10 In the second-amended NFA claim, Fennessey alleged (1) breach of the operating agreements and the memorandum of understanding, resulting in substantial damages, (2) breach of the duty of good faith and fair dealing, (3) unfair and deceptive practices, and (4) tortious interference with his prospective economic advantage. The tortious interference claim referenced the involvement of defendants Cabrera, Michalopoulos, and ADMIS.

¶ 11 On September 4, 2020, Fennessey and Finalyze filed a motion in the trial court to compel arbitration or, in the alternative, to stay court proceedings. On December 1, 2020, the court heard oral argument on (1) ADMIS and Cabrera's motions to dismiss plaintiffs’ amended complaint, (2) plaintiffs’ motion to dismiss the counterclaim, (3) the motion to compel arbitration, and (4) plaintiffs’ motion to supplement the record.

¶ 12 The court denied the motion to supplement the record and proceeded to hear argument on the motion to compel arbitration. Counsel for Fennessey and Finalyze argued that because the dispute involves the actions of Fennessey, Winick, and CSC, all members of the NFA, any dispute between them "needs to be arbitrated if one of them asks for arbitration," and Fennessey requested arbitration. Plaintiffs argued that the "claims against the defendants are intertwined with each other such that bifurcating and taking the Fennessey part and putting it in arbitration would be wholly unfair, prejudicial, and procedurally very difficult for the Court to handle, given the fact that these are so intertwined."

¶ 13 Plaintiffs also disputed that all of the claims were subject to arbitration. They argued that "[t]here was no ruling about our claims and whether our claims had to be brought in arbitration." Rather, the NFA considered "a single issue. The single issue was, can Fennessey proceed in the arbitration with his personal claims. Their answer was yes. That was the one and only thing that was brought before the arbitrator, and the only thing ruled on by the arbitrator."

¶ 14 ADMIS interjected that if the court decided not to dismiss ADMIS pursuant to its motion to dismiss, ADMIS "would go to arbitration, absolutely. You won't be in two forums. We'll go to arbitration."

¶ 15 The court stated, "my inclination is to send this to the arbitrator. Is there anything I can do to facilitate that, other than enter an order saying that it goes?" Plaintiffs’ attorney requested that ADMIS's motion should be denied because "they've said they'll agree to arbitration, so if that's the case, then their motion should be denied and the case should be sent to arbitration for further handling." The court, however, stated that it would not rule on the motions to dismiss and would "[j]ust send the case to arbitration."

¶ 16 The court continued:

"So my order is going to be the case is—I don't know whether I should stay it or dismiss it.

I could dismiss it without prejudice, I suppose.

Theoretically, you could come back here to confirm the award; I don't know.

But I'm going to dismiss it. Let me dismiss it without prejudice, send you to arbitration.

And [plaintiffs’ attorney], if you want to dismiss a defendant, you can do that on your own. Or not. I think that's something the arbitrator has to worry about.

And that's the order for today.

Is there anything else you'd like me to annoy you with?

[PLAINTIFFS’ ATTORNEY]: Nope I think that covers it."

¶ 17 The court entered its written order on December 4, 2020. Therein, the court granted Fennessey's and Finalyze's motion to compel arbitration. The court further found that (1) defendant Cabrera was dismissed by agreement, (2) "Defendant ADMIS having orally consented to NFA jurisdiction, the case is referred to [NFA] Arbitration, Arbitration No. 2019 ARB 214," and (3) because the case was referred to arbitration, the court did not rule on ADMIS and Cabrera's motions to dismiss or on plaintiffs’ motion to dismiss Fennessey's and Finalyze's counterclaim. The court dismissed the case "without prejudice."

On December 16, 2020, plaintiffs filed a motion to reconsider, alleging that resolution through arbitration would "be incomplete." Plaintiffs argued that defendant Michalopoulos was "not subject to NFA jurisdiction" and cannot be compelled to arbitrate. They also claimed that "it is unclear that the NFA would have jurisdiction over Finalyze." Plaintiffs contended that, despite these shortcomings, "the court has referred the entire case...