Opinion
5-22-0812
07-27-2023
JOHN ESKA and SANDRA ESKA, Plaintiffs-Appellants, v. JACK SCHMITT FORD, INC., Defendant-Appellee.
This order was filed under Supreme Court Rule 23 and is not precedent except in the limited circumstances allowed under Rule 23(e)(1).
Appeal from the Circuit Court of Madison County. No. 22-LA-1113 Honorable Christopher P. Threlkeld, Judge, presiding.
JUSTICE CATES delivered the judgment of the court. Justices Moore and Vaughan concurred in the judgment.
ORDER
CATES, JUSTICE.
¶ 1 Held: The trial court did not err in granting the defendant's motion to compel arbitration where the arbitration clause in a vehicle retail installment contract signed by the parties included a delegation clause that delegated questions of arbitrability and scope to the arbitrator.
¶ 2 The plaintiffs, John Eska and Sandra Eska, appeal from an order of the circuit court of Madison County granting the motion of the defendant, Jack Schmitt Ford, Inc., to compel arbitration and to stay the proceedings in the plaintiffs' action alleging violations of the Illinois Consumer Fraud Act and breach of contract. We affirm.
¶ 3 On September 16, 2014, the plaintiffs purchased a 2014 Ford Escape from the defendant, under a Vehicle Retail Installment Contract (installment contract). The plaintiffs made all payments due under the installment contract and received a lien release in 2019.
¶ 4 On July 9, 2021, the plaintiffs took their vehicle to the defendant's service department for ordinary maintenance. According to the work order, a service technician changed the oil, installed a new oil filter, and rotated the tires. On January 12, 2022, the plaintiffs returned to the defendant's service department. They reported that their vehicle had been constantly low on oil since the oil change in July 2021. A service technician found a puncture in the oil filter that had been installed in July 2021, and determined that it was the source of the oil leak. The technician changed the oil and replaced the filter.
¶ 5 On September 7, 2022, the plaintiffs filed a two-count complaint against the defendant in the circuit court of Madison County. In count I, the plaintiffs alleged that the defendant engaged in unfair and/or deceptive acts or practices in violation of the Illinois Consumer Fraud Act. Specifically, the plaintiffs alleged that the defendant made false representations that the oil filter that was installed during the July 2021 service was in good working order, while concealing the fact that the oil filter was punctured. The plaintiffs further alleged that during the period between July 2021 and January 2022, the oil level in the vehicle was constantly low, that it was caused by the punctured oil filter, and that it resulted in damage to the vehicle's engine. The plaintiffs claimed that they had to replace the engine at a cost of more than $6000. They sought compensatory damages in excess of $6000, punitive damages in excess of $100,000, and an award of attorney fees in excess of $20,000. In count II, the plaintiffs alleged that they had an oral contract with the defendant to change the oil and install a new oil filter in their vehicle, and that the defendant breached the contract by providing and installing a punctured oil filter, without disclosing that fact to the plaintiff. The plaintiffs further alleged that as a result of the breach, the oil level in the vehicle was constantly low, resulting in engine damage. The plaintiffs claimed that the cost to repair or replace the engine was more than $6000, and alternatively, that the diminution in the vehicle's fair market value was more than $6000. They sought damages in excess of $6000, plus court costs.
¶ 6 On October 5, 2022, the defendant filed a motion to compel arbitration under the Federal Arbitration Act. The defendant argued that arbitration was required under an arbitration provision in the installment contract executed by the parties. The installment contract was attached as a supporting exhibit. It showed that the plaintiffs were the "Buyers," and that the defendant was the "Creditor" and the "Seller." It also contained the following arbitration provision:
"Arbitration is a method of resolving any claim, dispute, or controversy (collectively, a 'Claim') without filing a lawsuit in court. Either You or Creditor ('us' or 'we') (each, a 'Party') may choose at any time, including after a lawsuit is filed, to have any Claim related to this contract decided by arbitration. Neither party waives the right to arbitrate by first filing suit in a court. Claims include but are not limited to the following: 1) Claims in contract, tort, regulatory or otherwise; 2) Claims regarding the interpretation, scope, or validity of this provision, or arbitrability of any issue; 3) Claims between You and us, your/our employees, agents, successors, assigns, subsidiaries, or affiliates; 4) Claims arising out of or relating to your application for credit, this contract, or any resulting transaction or relationship, including that with the dealer, or any such relationship with third parties who do not sign this contract.
* * *
You or we may choose the American Arbitration Association, *** (www.adr.org), or any other organization subject to our approval, to conduct the arbitration. The applicable rules (the 'Rules') may be obtained from the selected organization. If there is a conflict between the Rules and this contract, this contract shall govern. This contract is subject to the Federal Arbitration Act (9 U.S.C. § 1 et seq.). ***"
The installment contract also contained an assignment clause, which provided that the "Seller" may transfer the contract and all of the Seller's rights, privileges, and remedies to another person. The clause further provided,
"By signing below, the Seller assigns this contract to Ford Motor Credit Company ('Assignee'). ***
Seller: JACK SCHMITT FORD, INC. By X Title "
¶ 7 The plaintiffs filed a response to the defendant's motion to compel arbitration. In that response, the plaintiffs claimed that the trial court should decide whether the dispute about the oil change fell within the scope of the arbitration clause. They argued that the oil change and resulting damage occurred after they completed all payments under the installment contract, and therefore the claims were too remote in time to fall within the scope of the arbritration clause in the installment contract. They also claimed that the arbitration provision was illusory and unenforceable because it permitted the defendant to litigate all of its potential claims in a court action while requiring the buyers to arbitrate their claims. Finally plaintiffs claimed that the defendant could not enforce the arbitration clause because it had assigned all of its rights and interests in the installment contract to Ford Motor Credit.
¶ 8 In a supporting affidavit, John Eska averred that the plaintiffs signed the installment contract to finance the purchase of the vehicle, that the defendant assigned all of its rights and interests in the installment contract to Ford Motor Credit immediately after the purchase, and that the plaintiffs made all monthly payments to Ford Motor Credit and received a full release from Ford Motor Credit more than three years prior to the dispute. Eska further averred that the plaintiffs' decision to obtain an oil change from the defendant was unrelated to the installment contract, and that the plaintiffs did not interpret the language in the arbitration provision to cover a dispute over an oil change that occurred eight years after the vehicle was purchased and more than three years after the loan was paid in full.
¶ 9 In reply, the defendant argued that the only determination for the trial court was whether there was a valid agreement to arbitrate. The defendant further argued that there was nothing unconscionable about the arbitration agreement, and that any issues regarding the assignment of the contract and whether the plaintiffs' claims came within the terms of the installment contract were for the arbitrator to decide. The defendant also claimed that there was an ongoing relationship between the parties in that the defendant periodically serviced the plaintiffs' vehicle, and therefore, the plaintiffs' claims arose from a "resulting transaction or relationship" with the defendant.
¶ 10 On November 28, 2022, the trial court entered an order granting the defendant's motion to compel arbitration. The court found that the arbitration clause was valid and enforceable, and that any questions about whether the plaintiffs' claims were within the scope of the arbitration agreement were to be determined by the arbitrator. The plaintiffs appealed the order pursuant to Illinois Supreme Court Rule 307(a)(1) (eff. Nov. 1, 2017).
The record shows that the order was signed on November 22, 2022, but it was not filed until November 28, 2022.
¶ 11 An order granting or denying a motion to compel arbitration is injunctive in nature and subject to interlocutory appeal under Illinois Supreme Court Rule 307(a)(1) (Nov. 1, 2017). Salsitz v. Kreiss, 198 Ill.2d 1, 11 (2001). In an appeal under Rule 307(a)(1), the only issue is whether there was a sufficient showing to sustain the trial court's order. Keefe v. Allied Home Mortgage Corp., 393 Ill.App.3d 226, 229 (2009). Where, as here, the trial court did not hold an evidentiary hearing, and decided the issue as a matter of law, the standard of review is de novo. Keefe, 393 Ill.App.3d at 229.
¶ 12 An arbitration agreement is a matter of contract. The primary objective in interpreting a contract is to give effect to the intent of the parties. Gallagher v. Lenart, 226 Ill.2d 208, 232 (2007). The language of the contract, given its plain and ordinary meaning, is the best indication of the parties' intent. Gallagher, 226 Ill.2d at 233. The parties' intent may not be gathered from detached portions of a contract or from any clause or provision standing by itself, and so, the court will consider the document as a whole, viewing each part in light of the others. Gallagher, 226 Ill.2d at 233. The interpretation of a contract presents a question of law that is reviewed de novo. Gallagher, 226 Ill.2d at 219.
¶ 13 Arbitration is considered to be a favored method of settling disputes under the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq. (2018)) and the Illinois Uniform Arbitration Act (710 ILCS 5/1 et seq. (West 2020)). See Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24 (1983); Salsitz, 198 Ill.2d at 13. While arbitration is considered a favored method of dispute resolution, courts have consistently cautioned that an agreement to arbitrate is a matter of contract. Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University, 489 U.S. 468, 479 (1989); Salsitz, 198 Ill.2d at 13. Parties are "bound to arbitrate only those issues they have agreed to arbitrate, as shown by the clear language of the agreement and their intentions expressed in that language," and their "agreement will not be extended by construction or implication." Salsitz, 198 Ill.2d at 13; First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995). An arbitration agreement may be invalidated by generally applicable state law contract defenses, such as fraud, duress, and unconscionability. 9 U.S.C. § 2 (2018); Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 68 (2010); Carter v. SSC Odin Operating Co., 2012 IL 113204, ¶ 18.
¶ 14 In this case, the arbitration clause in the installment contract is governed by the FAA. Under the FAA, state courts and federal courts are authorized to stay an action and compel arbitration upon being satisfied that the issue involved in the action or proceeding is referable to arbitration under a written agreement to arbitrate. See 9 U.S.C. §§ 2, 3 (2018). Ordinarily, when presented with a motion to compel arbitration under the FAA, the court will decide whether the parties have a valid arbitration agreement and whether a binding arbitration clause applies to a particular type of dispute or controversy. See Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 451-52 (2003). That said, the parties may agree to arbitrate not only the merits of any dispute that arises from their contract, but also certain "gateway" questions of arbitrability, such as whether the parties have agreed to arbitrate (arbitrability) and whether the agreement covers a particular controversy (scope). See Henry Schein, Inc. v. Archer &White Sales, Inc., 586 U.S.,, 139 S.Ct. 524, 529-30 (2019); Rent-A-Center, 561 U.S. at 68-69. If the court, as gatekeeper, determines that a valid arbitration agreement exists, and if the agreement delegates gateway issues of arbitrability to the arbitrator, a court may not decide those issues. Schein, 586 U.S. at, 139 S.Ct. at 530. When considering whether the parties have delegated gateway questions of arbitrability to an arbitrator, courts should not assume that the parties agreed to arbitrate arbitrability unless there is "clear and unmistakable" evidence that they did so. First Options, 514 U.S. at 944; AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 649 (1986).
¶ 15 On appeal, the plaintiffs challenge the trial court's order granting the defendant's motion to compel arbitration. In their first point, the plaintiffs claim that the trial court erred in finding that the arbitrator, not the courts, should decide whether the defendant assigned the contract, and all of its rights and interests, to Ford Motor Credit, including its right to compel arbitration. They argue that it is clear, as a matter of law, that the defendant assigned all of its rights to compel arbitration to Ford Motor Credit, and that when it is apparent that a dispute is not within the ambit of the arbitration clause, the court, not an arbitrator, should decide the issue of arbitrability.
¶ 16 It is undisputed that the plaintiffs executed an installment contract when they purchased their vehicle from the defendant and that the installment contract contained an arbitration clause. That arbitration clause is governed by the FAA. Under the FAA, when a contract delegates an arbitrability question to the arbitrator, the courts must respect the parties' decision even if the argument that the arbitration clause applies to the particular dispute is "wholly groundless" or "frivolous." See Schein, 586 U.S. at, 139 S.Ct. at 528-29; AT&T Technologies, 475 U.S. at 649-50. In this case, the trial court, as gatekeeper, found that the arbitration clause was valid. The plaintiffs have not specifically challenged the validity of the arbitration clause or the specific language requiring the arbitrability of any issue to be decided by arbitration. Rather, they have argued that the defendant is not entitled to compel arbitration because it assigned all of its rights and interests in the installment contract, including the arbitration clause, to Ford Motor Credit.
¶ 17 Generally, an assignment is a transfer of some identifiable property, claim, or right from the assignor to the assignee. Litwin v. Timbercrest Estates, Inc., 37 Ill.App.3d 956, 958 (1976). The assignment operates to transfer all of the assignor's rights, title, and interest in the thing assigned to the assignee. Litwin, 37 Ill.App.3d at 958. This court recently considered a similar issue in Snyder v. Jack Schmitt Ford, Inc., 2022 IL App (5th) 210413-U, a case cited by both parties. Although Snyder is an unpublished order under Rule 23(b), it was entered after January 1, 2021, and therefore, it may be cited as persuasive authority. Ill. S.Ct. R. 23(e) (eff. Jan. 1, 2021). There, we observed that without an actual assignment, the defendant would retain all of its rights, including the right to compel arbitration, and, that if the installment contract was assigned to Ford Motor Credit Company, then the defendant's right to compel arbitration was questionable. Snyder, 2022 IL App (5th) 210413-U, ¶ 27. In this case, as in Snyder, the question of whether the defendant assigned all of its rights under the contract to another entity, including the right to compel arbitration, is an issue of arbitrability that was delegated to the arbitrator. Accordingly, the trial court did not err in finding that the arbitrator, not the court, should decide that issue.
¶ 18 The plaintiffs also argued that the trial court erred in finding that the arbitrator, not the courts, should decide whether the dispute related to the oil change and the claims that the defendant violated the Illinois Consumer Fraud Act and breached an oral contract fall within the scope of the arbitration clause. The scope of an arbitration clause is a gateway issue that is determined by the language of the contract. Schein, 586 U.S. at, 139 S.Ct. at 529. Here, the arbitration clause provided that either party may choose to have any claim related to this contract decided by arbitration, "including] but *** not limited to the following: 1) Claims in contract, tort, regulatory or otherwise; 2) Claims regarding the interpretation, scope, or validity of this provision, or arbitrability of any issue; ***; 4) Claims arising out of or relating to your application for credit, this contract, or any resulting transaction or relationship, including that with the dealer, or any such relationship with third parties who [did] not sign this contract." Thus, questions regarding whether a particular dispute was within the scope of this arbitration clause were clearly delegated to the arbitrator. The trial court did not err in finding that the arbitrator, not the court, should decide if the dispute regarding the oil change and the plaintiffs' claims for breach of contract and violations of the Illinois Consumer Fraud Act fall within the scope of the arbitration clause.
¶ 19 For the reasons stated, the trial court's order granting the defendant's motion to compel arbitration is affirmed.
¶ 20 Affirmed.