CBOT Holdings, Inc. v. Chicago Board Options Exchange, Inc., 2007 WL 2296355 (Del. Ch., Aug. 3, 2007), read opinion here. Please note that a separate decision between the same parties was issued by the Chancery Court on the same date, denying injunctive relief, and that cite is 2007 WL 2296356 (Del. Ch., Aug. 3, 2007), read opinion here. I will refer to them here as “CBOT I” and “CBOT II.”
In CBOT I, the Court addressed issues that arose out of the proposed demutualization of interests held by members of the Chicago Board Options Exchange, Inc. (the “CBOE”) an entity formed in 1972 and initially funded by The Board of Trade of the City of Chicago, Inc. (“CBOT”) and its membership.
In connection with a proposed acquisition of CBOT by the Chicago Mercantile Exchange Holdings, Inc. (“CME”), full members of the CBOT argue that they have lost the opportunity to share in the bounty to be harvested from the demutualization of CBOE. There are many more procedural and factual aspects of this case that for purposes of this short blog blurb I will not delve into. For purposes of this blog post I want to focus on what I view as the key issue that distinguishes this case. In connection with the proposed combination, an application was filed with the SEC concerning an interpretation of the charter. The SEC has plenary and pervasive power to determine issues related to exchange membership pursuant to the Securities Exchange Act.
Nonetheless, the Chancery Court determined that the jurisdiction of the SEC does not extend to resolution of state law contractual issues and fiduciary duty claims that exist here. Notwithstanding the Court’s conclusion that it had the authority and the ability to interpret the contract issues and fiduciary duty claims, based on considerations of efficiency and judicial economy, it determined that the resolution of the “economic rights” claims was best stayed pending the completion of the review by the SEC of the proposed combination. The Court reasoned further that: “Significantly, a stay would enable the Court to assess more accurately how, and if, the SEC’s decision on the proposed rule change affects the Court’s calculus on the economic rights claims.” Thus, the Court stayed the action pending the decision by the SEC as to whether the CBOT-CME transaction impacts the rights of the members as addressed in the agreement that is alleged to have been breached. The Court further explained: “The decision [to stay this case] is rooted less in deference to the SEC’s exclusive jurisdiction to review and improve proposed rule changes under the Exchange Act and more in recognition of the practical concerns of conserving judicial resources and avoiding unnecessary speculation about the outcome of the administrative process until such time as the SEC provides its resolution of the question of how, for purposes of its statutory responsibility, CBOT-CME merger affects the eligibility of CBOT members to qualify for purposes of the Exercise Right.”
In the separate CBOT II case, the Court declined a request for a temporary restraining order to enjoin the enforcement of a new rule filed with the SEC in connection with the merger with CME and the request that “temporary membership status” be provided. This second opinion issued on the same day provides a practical and useful comparison of the standards and prerequisites for a TRO as opposed to a request for a preliminary injunction on a fuller record. See, e.g., footnotes 5 through 11. The Court reviewed all of the factors that must be satisfied for a TRO and after addressing each one, found that one of the primary determining factors that weighed against granting the TRO was the “reasonable expectation that any material and adverse consequences that may be suffered by the plaintiffs or the class members can be duly compensated through a monetary award that ultimately persuades the court that a temporary restraining order is not warranted.”