Board of Trade of Chicago v. Johnson

Background

Wilson F. Henderson, a member of the Chicago Board of Trade, filed bankruptcy after a corporation he led defaulted on contracts that left many Exchange members with claims. The trustee asked the bankruptcy court to require the Board to recognize the trustee’s right to Henderson’s membership so it could be transferred and sold for the benefit of general creditors. Several member creditors objected to the transfer under Exchange rules, and the District Court ordered the membership held for transfer free of those objections. The Circuit Court of Appeals affirmed, and the case came to this Court.

Reasoning

The Court addressed two questions: whether the bankruptcy court could resolve the dispute by a summary proceeding, and whether the membership was property that passed to the trustee. The Court held that an Exchange membership is an incorporeal property right that passes to the trustee under the bankruptcy law, subject to the Exchange’s rules. The Court also held that the bankruptcy court had jurisdiction to decide the competing claims in a summary proceeding because the trustee had control of the membership. On the merits, however, the Court found that valid objections filed by member creditors before the Directors acted could prevent transfer until those claims were satisfied, so the lower courts erred in ordering an unconditional transfer.

Real world impact

The decision means exchange seats or memberships count as assets of a bankrupt’s estate and can be administered by a trustee, but member creditors may use Exchange rules to delay or block transfers until their claims are paid. The case was reversed and remanded for further proceedings consistent with this opinion.