Cargill, Inc v. JWH Special Circumstance LLC: Just the Facts

Many of us think of a business trust as a quaint business form used in the early 20th century that survives mainly in the form of REITs.  As it turns out, may investment companies and commodities are business trusts.  So we have another thriving form of unincorporated business entity, with its own spin(s) on all the usual issues.  In fact, Cargill, Inc. v. JWH Special Circumstance LLC, C.A. No. 3234-VCP (Del. Chan. Ct. November 7, 2008), is a breach of fiduciary duty case involving a publicly registered commodities pool, JWH Global Trust, a Delaware statutory trust.

There is a complex network of ownerships and contractual relationships between the Trust and affiliates of Cargill (see the organizational chart at page 5 of the slip opinion).  The Trust is managed by a Managing Owner, CIS Investments (CISI).  CISI is a wholly-owned subsidiary of Cargill Investor Services (CIS), which also acts as the Trust's futures broker.  CIS is a wholly-owned subsidiary of Cargill.  CIS Financial Services (CISFS) acted as the Trust's foreign currency and precious metals broker under a Foreign Exchange  Account Agreement (Forex Agreement) and a cash bullion account agreement.  CISFS is also a second-tier subsidiary of Cargill, but on another branch of the ownership tree. The Trust also has an independent Trustee, as well as an independent trading advisor.

The lawsuit grows out of a sale by Cargill of some of its financial services business to a wholly owned subsidiary of Refco, Inc.  Slip Op., at 8.  The transaction included

• a sale of the assets of CIS, including ownership of CISI to a subsidiary of Refco, Refco, LLC, id. at 9-10,  and
• the assignment of the Forex Agreement, and the cash bullion account agreement, to another subsidiary of Refco, Refco Capital Markets (RCM), id. at 10.

Within 10 weeks after the transaction, Refco and RCM filed a Chapter 11 bankruptcy proceeding.  Id. at 13,

The Trust claims that Cargill and CIS, the grandparent and parent, respectively, of CISI, breached their own fiduciary duties to the Trust, or aided and abetted CISI's breach of fiduciary duty.  Cargill and CIS moved to dismiss those claims, and for judgment on the pleadings, id. at 17-18, claiming that

1. the Trust Agreement
2. the Delaware Statutory Trust Act,

precluded claims against Cargill and CIS. 

In addition, Cargill raises 3) the usual sale-of-control issues,

Hat Tip to the  Delaware Corporate and Commercial Litigation blog (Francis G.X. Pileggi) and to the Delaware Business Litigation Report.

     posted by Gary Rosin