Lockwood v. Standard & Poor's Corp.

                                                                SIXTH DIVISION
                                                                 June 13, 1997











No. 1-95-3063


RICK LOCKWOOD, on Behalf of Himself and  )         Appeal from
All Other Persons Similarly Situated,    )      the Circuit Court
                                         )       of Cook County.
          Plaintiff-Appellant,           )
                                         )
     v.                                  )        No. 94-CH-4274
                                         )
STANDARD & POOR'S CORPORATION,           )          Honorable
                                         )        Albert Green,
          Defendant-Appellee.            )       Judge Presiding.



     JUSTICE THEIS delivered the opinion of the court:

     Plaintiff, Rick Lockwood (Lockwood), appeals from the order of
the circuit court dismissing with prejudice his second-amended
complaint.  On behalf of himself and other similarly situated options
investors, Lockwood sued defendant, Standard & Poor's Corporation
(Standard & Poor's), for breach of contract and negligent
misrepresentation.  Lockwood alleged that he and other options
investors suffered lost profits on certain options contracts because
Standard & Poor's failed to correct a closing stock index value.  The
trial court granted Standard & Poor's section 2-615 motion to dismiss. 
On appeal, Lockwood contends the trial court erred in granting
dismissal.  Specifically, Lockwood argues that his second-amended
complaint states a cause of action:  (1) for breach of contract
because options investors are third-party beneficiaries of the license
agreement between Standard & Poor's and the Chicago Board Options
Exchange; and (2) for negligent misrepresentation due to Standard &
Poor's failure to correct the erroneous closing index value.  For the
following reasons, we affirm.
     Dismissal of a cause of action pursuant to section 2-615 is
appropriate only when it clearly appears that no set of facts could
ever be proved under the pleadings that would entitle the plaintiff to
recover.  Mt. Zion State Bank & Trust v. Consolidated Communications,
Inc., 169 Ill. 2d 110, 115, 660 N.E.2d 863, 867 (1995).  Whether a
complaint states a valid cause of action is a question of law, and our
review of a dismissal pursuant to a section 2-615 motion is de novo. 
Majumdar v. Lurie, 274 Ill. App. 3d 267, 268, 653 N.E.2d 915, 917
(1995).  In reviewing whether Lockwood states a cause of action upon
which relief can be granted, we must accept and consider as true all
well-pleaded facts in the second-amended complaint.  Majumdar, 274
Ill. App. 3d at 268, 653 N.E.2d  at 917.
     Standard & Poor's compiles and publishes two composite stock
indexes, the "S&P 100" and the "S&P 500" (collectively the S&P
indexes).  The S&P indexes are weighted indexes of common stocks
primarily listed for trading on the New York Stock Exchange (NYSE). 
Standard & Poor's licenses its S&P indexes to the Chicago Board
Options Exchange (CBOE) to allow the trading of securities options
contracts (S&P index options) based on the S&P indexes (the license
agreement).  According to the rules promulgated by the CBOE regulating
the trading of index options, Standard & Poor's is designated the
"reporting authority" and, thus, "the official source for calculating
and disseminating the current value" of the S&P 100 and S&P 500
indexes.  CBOE Rule 24.1(h).  As stated by the reporting authority,
the closing index value "shall be the last index value reported on a
business day."  CBOE Rule 24.1(g).  
     S&P index options are settled by the Options Clearing Corporation
(OCC).  The exercise settlement values for S&P index options are the
closing index values for the S&P 100 and S&P 500 stock market indexes
as reported by Standard & Poor's to OCC following the close of trading
on the day of exercise.  S&P index options expire at 11:59 p.m.
Eastern Time on the Saturday immediately following the third Friday of
the expiration month.  All times specified in Lockwood's complaint are
to Eastern Standard Time.
     In his complaint, Lockwood alleges that at approximately 4:12
p.m. on Friday, December 15, 1989, the last trading day prior to
expiration of the December 1989 S&P index options contracts, the NYSE
erroneously reported a closing price for Ford Motor Company common
stock.  Ford Motor Company was one of the composite stocks in both the
S&P 100 and S&P 500.  At approximately 4:13 p.m., Standard & Poor's
calculated and disseminated closing index values for the S&P 100 and
S&P 500 stock market indexes based on the erroneous price for Ford
stock.  The NYSE reported a corrected closing price for Ford Motor at
approximately 4:18 p.m..  Standard & Poor's corrected the values of
the S&P 100 and S&P 500 stock market indexes the following Monday,
December 18, 1989.   
     In the meantime, however, OCC automatically settled all expiring
S&P index options according to the expiration date of Saturday,
December 16, 1989.  OCC used the uncorrected closing index values to
settle all expiring S&P index options.  Due to the error, Lockwood
alleges that the S&P 100 index was overstated by 0.15 and he lost
$105.  Lockwood claims investors in S&P 500 index options suffered
similar losses.  Lockwood states that, according to OCC Rules, an
option settlement is irrevocable once completed.
     Lockwood thus filed a class action on behalf of "all holders of
long put options and all sellers of short call options on the S&P 100
or S&P 500 *** which were settled based on the closing index values
for December 15, 1989 as reported by Standard & Poor's."  Count I of
the second-amended complaint claimed that the options holders could
recover in contract as third-party beneficiaries of the license
agreement between Standard & Poor's and the CBOE.  Counts II and III
alleged that, by failing to correct the S&P closing index values until
the following Monday, Standard & Poor's negligently misrepresented the
value of the S&P indexes, which caused 92,000 index options to settle
erroneously and thereby caused Lockwood and others to lose money on
their index options.  
     Standard & Poor's reasserted the section 2-615 motion to dismiss
it had earlier filed regarding Lockwood's amended complaint.  735 ILCS
5/2-615 (West 1992).  The trial court granted Standard & Poor's
section 2-615 motion to dismiss on all counts.  In reviewing the
motion, the trial court acknowledged that the second-amended complaint
was at issue but discussed the five counts of the amended complaint. 
To the extent that the second-amended complaint merely restyled the
counts alleged in the amended complaint, the trial court considered
and dismissed all relevant counts of the second-amended complaint.
     On appeal, Lockwood argues that the trial court improperly
granted Standard & Poor's section 2-615 motion to dismiss.  First,
Lockwood contends that he and other similarly situated options holders
were third-party beneficiaries, via their "agent" OCC, of the license
agreement between Standard & Poor's and the CBOE.  Accordingly,
Lockwood alleges that, under the license agreement, Standard & Poor's
has a warranty to correct promptly and may not disclaim liability for
consequential damages.  Alternatively, under tort theory, Lockwood
argues that Standard & Poor's is liable for either negligent or
fraudulent misrepresentation and, thus, any contractual disclaimers
are nullified.  Even taking all facts as alleged by Lockwood as true,
we agree with the trial court that Lockwood's second-amended complaint
does not state a cause of action for breach of contract, negligent
misrepresentation, or fraudulent misrepresentation.
     Lockwood's first allegation is that options investors, via their
settlement agent the OCC, are third-party beneficiaries of the license
agreement between Standard & Poor's and the CBOE because the license
agreement makes OCC "a special recipient" of prompt notice of daily
"closing index values."  While Illinois law governs this suit
generally, the parties acknowledge that interpretation of the license
agreement is governed by the law of New York.  Relying on the
Restatement (Second) of Contracts, the New York Court of Appeals has
explained that an intended third-party beneficiary may enforce a
contract if he is the only party who can recover if the promisor
breaches the contract or if the contract language indicates an
intention to permit enforcement by the third party.  Fourth Ocean
Putnam Corp. v. Interstate Wrecking Co., Inc., 66 N.Y.2d 38, 45, 485 N.E.2d 208, 212 (N.Y. 1985).
     Here, nothing in the express language of the license agreement
indicates an intention to create a third-party beneficiary.  Indeed,
paragraph 15(a) explains that the "Agreement is solely and exclusively
between the parties as presently constituted and shall not be assigned
or transferred."  Paragraph 15(b) provides that the "Agreement
constitutes the entire agreement of the parties hereto with respect to
its subject matter and may be amended or modified only by a writing
signed by duly authorized officers of both parties.  ***  There are no
oral or written collateral representations, agreements, or
understandings except as provided herein."  These exclusivity and
integration clauses do not evidence an intent to confer a third-party
benefit.  Because the license agreement intends to be wholly
integrated, we do not look to extrinsic evidence of Lockwood's status. 
Hylte Bruks Aktiebolag v. Babcock & Wilcox Co., 399 F.2d 289, 293 (2d
Cir. 1968).    
     Moreover, mere mention in the license agreement of the OCC as a
"special recipient of closing index values" does not vault Lockwood
into third-party beneficiary status.  Even assuming that OCC acts as a
settlement agent for options investors, retention of a third party to
assist in the performance by the promisee does not mean that such
third parties are intended beneficiaries of the main contract. 
Artwear, Inc. v. Hughes, 202 A.D.2d 76, 83, 615 N.Y.S.2d 689, 692
(1994).    
     Lockwood's claim that he is the only party who can recover if the
promisor breaches the agreement is likewise erroneous.  Standard &
Poor's and the CBOE are the only contracting parties and the CBOE can
easily enforce its rights under the license agreement.  In addition,
paragraph 12(d) of the agreement precludes recovery of consequential
damages, including lost profits, arising out of the license agreement. 
Thus, the express terms of the agreement indicate that the type of
recovery Lockwood seeks was specifically excluded under the license
agreement.
     In sum, Lockwood is not an intended third-party beneficiary of
the license agreement.  By its express language, the license agreement
intends to confine the agreement to Standard & Poor's and the CBOE. 
Lockwood and the other options investors clearly were not intended
beneficiaries via their "agent" the OCC.  We agree with the trial
court that Lockwood does not have standing to sue for a breach of the
terms of the license agreement. 
     Regardless, even if Lockwood were an intended third-party
beneficiary to the agreement, his rights would be derivative and
"subject to the same defenses as are available to the contracting
party."  Artwear, 202 A.D.2d  at 82, 615 N.Y.S.2d  at 693.  Thus, while
the license agreement does contain a warranty by Standard & Poor's to
correct promptly errors brought to its attention, the agreement also
expressly disclaims any guarantee of "the accuracy and/or the
completeness of any of the S&P Indexes or any data included therein." 
And again, the license agreement precludes recovery of consequential
damages, including lost profits.  Even if Lockwood did have standing,
by its very terms, the license agreement would preclude Lockwood's
recovery for lost profits. 
     Count II of the second-amended complaint alleges negligent
misrepresentation.  To state a valid claim for negligent
misrepresentation, a plaintiff must plead and prove:  (1) a false
statement of material fact; (2) carelessness or negligence in
ascertaining the truth of the false statement; (3) intention to induce
the other party to act; (4) reliance by the other party on the truth
of the statement; (5) damage to the other party resulting from such
reliance; and (6) a duty owed by the defendant to the plaintiff to
communicate accurate information.  Board of Education of City of
Chicago v. A, C & S, Inc., 131 Ill. 2d 428, 452, 546 N.E.2d 580, 591
(1989).  We find that Lockwood has not alleged facts sufficient to
establish the first element, namely, that Standard & Poor's made a
false statement of material fact.
     Both parties agree that the closing index value first reported by
Standard & Poor's at 4:13 p.m. on Friday, December 15, 1989, contained
an erroneous closing price for Ford Motor Company common stock. 
Lockwood does not claim that the reporting of this value at 4:13 p.m.
by Standard & Poor's was tortious.  Rather, Lockwood urges that
Standard & Poor's should not have continued to disseminate the
uncorrected settlement values after the NYSE sent a correction message
at 4:18 p.m..  Lockwood argues that, taken as true for purposes of a
section 2-615 motion, these facts state a claim for negligent
misrepresentation.   
     We do not subscribe to Lockwood's theory that the closing index
values became false statements after 4:18 p.m. when Standard & Poor's
allegedly learned of the correction but failed to incorporate it into
the index value until the following Monday.  The CBOE Rules indicate
that Standard & Poor's is the reporting authority for the S&P indexes
and that the closing index value is "the last index value reported on
a business day."  According to the CBOE Rules, the CBOE options market
closes daily at 3:15 p.m. Central Standard Time (i.e., 4:15 p.m.
Eastern Standard Time).  CBOE Rule 24.6.  The closing index values
initially disseminated at 4:13 p.m. were the last index values
reported on Friday, December 15, 1989.  By definition, the last index
value reported by Standard & Poor's was the final closing index value. 
The exercise settlement values were the closing index values as
reported by Standard & Poor's to OCC.  Thus, we find that the facts as
asserted in Lockwood's second-amended complaint do not allege an
actionable misrepresentation. 
     We are mindful of this court's opinion in Rosenstein v. Standard
& Poor's Corp., 264 Ill. App. 3d 818, 636 N.E.2d 665 (1993).  While
the same events of December 1989 were pleaded in the Rosenstein
complaint, the pleadings in the instant case contain new facts and
theories of recovery.  Most significantly, Lockwood has attached to
his complaint the license agreement between Standard & Poor's and the
CBOE and the entire chapter of the CBOE Rules concerning index
options.  Based on the record before us, these documents were not
attached to the Rosenstein complaint.  Examining the Lockwood
complaint in the context of these additional documents, we reach a
result different than Rosenstein.  The CBOE Rules plainly establish
Standard & Poor's as the final and definitive authority on current and
closing index values for the S&P indexes.  Accordingly, we need not
address the duty issue discussed in Rosenstein because we find that
Lockwood has not and cannot allege, based on these facts, a tortious
misrepresentation by Standard & Poor's.        
     Lockwood's third and final count also fails to state a cause of
action.  Count III, which, like count II, is entitled negligent
misrepresentation, attempts to allege fraudulent misrepresentation
merely by incorporating the allegation that Standard and Poor's acted
"willfully or recklessly and with gross negligence" to the allegations
contained in count II.  Because the complaint fails to allege a
negligent misrepresentation by Standard & Poor's, the trial court did
not err in dismissing this count as well.
     Accordingly, the trial court did not err in granting Standard &
Poor's section 2-615 motion to dismiss.  Lockwood does not have
standing to sue Standard & Poor's for a breach of the license
agreement.  Similarly, Lockwood has not pleaded facts sufficient to
establish a negligent misrepresentation by Standard & Poor's of the
closing S&P index values for December 15, 1989.  And finally, Lockwood
did not allege the elements of a claim for fraudulent
misrepresentation.  
     Affirmed. 
     CAHILL and O'BRIEN, JJ., concur.