Opinion
5-22-0487
05-09-2023
AOJ OPERATIONS, INC.; AOJ DEVELOPMENT, LLC; JFG OPERATIONS, INC.; JFG DEVELOPMENT, LLC; AFO OPERATIONS, INC and AFO DEVELOPMENT, LLC, Plaintiffs-Appellants, v. PAUL E. OFFUTT, 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 Champaign County. No. 21-L-186 Honorable Jason M. Bohm, Judge, presiding.
JUSTICE WELCH delivered the judgment of the court. Presiding Justice Boie and Justice Moore concurred in the judgment.
ORDER
WELCH, JUSTICE
¶ 1 Held: The order of the circuit court of Champaign County granting the defendant's motion to compel arbitration and staying all further proceedings pending arbitration is affirmed where the parties entered into a binding arbitration agreement, where the subject of the plaintiffs' claims is within the scope of that agreement, and where the defendant did not waive his right to enforce the arbitration agreement by filing a motion for change of venue with the court.
¶ 2 This is an interlocutory appeal from the circuit court of Champaign County. Six plaintiffs brought suit against the defendant, Paul Offutt, for breach of fiduciary duty where he usurped a corporate opportunity and tortious interference with prospective economic advantage. The three LLC plaintiffs operate assisted living facilities on real estate owned and leased to them by the three corporation plaintiffs. The defendant was, at all times relevant to the complaint, acting in his capacity as owner, shareholder, member, director, officer, or manager for each of the entities and owed a fiduciary duty to all six plaintiffs. The plaintiffs filed suit against the defendant in Champaign County circuit court. The defendant moved that the court enforce the arbitration agreements contained in the LLCs' operating agreements and the corporations' shareholder agreements. The court granted the defendant's motion and entered an order compelling arbitration and staying all further proceedings. For the following reasons, we affirm.
¶ 3 I. BACKGROUND
¶ 4 On November 23, 2021, the plaintiffs filed a complaint in Champaign County alleging that the defendant breached the fiduciary duty he owed to six business entities where he usurped a corporate opportunity and where he tortiously interfered with a prospective economic advantage. The defendant held the following positions with each of the plaintiff entities: (1) for AOJ Operations, Inc., he was on the board of directors and served as the company's vice president; (2) for AOJ Development, LLC, he served on the board of managers; (3) for JFG Operations, Inc., he served on the board of directors; (4) for JFG Development, LLC, he served on the board of managers; (5) for AFO Operations, Inc., he served as vice president of the company; and (6) for AFO Development, LLC, he served on the board of managers.
¶ 5 The plaintiffs alleged that in either February 2020, or prior, the defendant engaged in a course of conduct that included planning, designing, constructing, and opening a competing assisted living facility in Covington, Indiana. The plaintiffs alleged that the defendant's conduct breached the fiduciary duty owed to the plaintiffs.
¶ 6 On February 18, 2022, the defendant filed a motion for a change of venue because he resided in Vermilion County and all of the complained of conduct relating to the Covington facility occurred in Vermilion County. On February 22, 2022, he filed an amended motion to transfer venue.
¶ 7 On February 23, 2022, the defendant filed a motion to compel arbitration. The motion alleged that each of the six plaintiffs had agreements, either shareholder agreements or operating agreements, that contained provisions providing that any controversy or claim arising out of, or relating to, the activities provided for in the corporate entities, or any breach thereof, shall be settled by arbitration. He argued that these agreements constituted valid enforceable contracts and that the arbitration clauses should be enforced.
¶ 8 On March 14, 2022, the plaintiffs filed a response to the defendant's motion to transfer venue, arguing that under section 2-101 of the Code of Civil Procedure (735 ILCS 5/2-101 (West 2020)) venue was proper in the county where the transaction or some part thereof occurred out of which the cause of action arose. Specifically, the plaintiffs argued that venue was proper in Champaign County where two of the plaintiffs (AFO Operations and AFO Development) were doing business and that, even though some of the complained of conduct occurred in Vermilion County, Illinois, and Covington, Indiana, the defendant's conduct affected the business operations of these two plaintiffs doing business in Champaign County.
¶ 9 Also on March 14, 2022, the plaintiffs filed a response to the defendant's motion to compel arbitration. The plaintiffs argued that the defendant lacked a contractual basis for compelling arbitration because the six business entities were not a party to the shareholder agreements and operating agreements as those were entered into by the individual owners. Furthermore, the plaintiffs' claims would fall outside the scope of any such clause because the plaintiffs' claims did not arise from a breach of the shareholder or operating agreements. Lastly, they argued that the defendant waived any right to compel arbitration where he filed his motion to transfer venue before filing the motion to compel arbitration and abandoned the right.
¶ 10 On April 6, 2022, the defendant filed a reply memorandum in support of his motion to transfer venue. The trial court held a hearing via telephone conference call during which it heard argument from counsel. Following the hearing, the court denied the motion to transfer venue.
¶ 11 On June 20, 2022, the defendant filed a supplement to his motion to compel arbitration seeking to add two additional attachments of relevant corporate documents as well as a reply memorandum in support of the motion. The plaintiffs filed their supplemental response.
¶ 12 On July 5, 2022, the trial court held a hearing on the motion. The court made the following findings. First, as to which parties were bound by the signed agreements, the court found that the plaintiffs and the defendant were all bound by the terms of the agreements, specifically the arbitration clauses. In so finding, the court cited the Limited Liability Company Act (LLC Act) (805 ILCS 180/1 et seq. (West 2020)). The court also reasoned that because there was no question that the defendant was a signatory to these agreements, he was able to enforce the arbitration agreements. As to the scope of the arbitration clauses, the court found that because the LLCs' agreements contained the arbitration clauses, those agreements governed the resolution of how the members treated each other and the LLC. Additionally, the plaintiffs' allegations of breach of fiduciary duty stemmed from duties owed under operation of these agreements. Lastly, the court found that the defendant's contestation of venue did not waive the enforcement of the arbitration clauses. Therefore, the court found that the defendant, as a signatory, was entitled to enforce the arbitration clauses in both the operating and shareholder agreements.
¶ 13 On July 14, 2022, the trial court entered a written order granting the defendant's motion to compel arbitration and staying the case pending arbitration. The plaintiffs appeal.
¶ 15 On appeal, the plaintiffs raise three issues: (1) the plaintiffs did not enter into a binding arbitration contract with the defendant; (2) alternatively, if it is found that the plaintiffs are a party to a valid arbitration contract, the plaintiffs' claims fall outside the scope of the arbitration clause; and (3) that the defendant waived any right to arbitrate by filing and pursuing a meritless motion to transfer venue before requesting a hearing on his motion to compel.
¶ 16 A. Existence of a Binding Arbitration Contract Between the Parties
¶ 17 We review a trial court's order granting a motion to compel arbitration that was made without an evidentiary hearing and raises only a legal issue de novo. Guarantee Trust Life Insurance Co. v. Platinum Supplemental Insurance, Inc., 2016 IL App (1st) 161612, ¶ 25. "[Arbitration is favored by the state, federal, and common law, and an arbitration agreement will be given as broad an interpretation as its language will allow." Zimmerman v. Illinois Farmers Insurance Co., 317 Ill.App.3d 360, 366 (2000). A motion to compel arbitration raises the sole and narrow issue of whether there is an agreement between the parties to arbitrate the dispute. Guarantee Trust Life Insurance Co., 2016 IL App (1st) 161612, ¶ 26.
¶ 18 Here, the three LLC plaintiffs entered into operating agreements and the corporation plaintiffs entered into shareholder agreements. Though the agreements were not identical, all six contain the following language:
"To the fullest extent permitted by the Illinois Act and other applicable law, any controversy or claim arising out of or relating to this Agreement, or any breach thereof, shall be settled by arbitration in accordance and to the extent permitted by the Commercial Arbitration Rules of the American Arbitration Association ('AAA'), as amended and in effect on the date the demand for arbitration is filed with the AAA."
¶ 19 The LLC Act (805 ILCS 180/15-5(f) (West 2020)) provides that "[a] limited liability company is bound by and may enforce the operating agreement, whether or not the company has itself manifested assent to the operating agreement." Similarly, "[a]n agreement to arbitrate presents a matter of contract." Liu v. Four Seasons Hotel, Ltd., 2019 IL App (1st) 182645, ¶ 25. "In Illinois, an offer, an acceptance and consideration are the basic ingredients of a contract." Melena v. Anheuser-Busch, Inc., 219 Ill.2d 135, 151 (2006).
¶ 20 Here, the agreements were all signed by the defendant, all of the plaintiffs signed an agreement that contained an arbitration clause, and the language contained in the agreements indicated that the intent of the parties was to be bound by the terms of the agreements. Therefore, our review of the record establishes that the agreements entered into by the LLCs and corporations were valid and enforceable contracts.
¶ 21 B. Scope of the Arbitration Clause
¶ 22 Next, we must determine whether the plaintiffs' claims fall within the scope of the arbitration clauses. Travis v. American Manufacturers Mutual Insurance Co., 335 Ill.App.3d 1171, 1175 (2002). In making this determination, "a three-pronged approach is used: (1) if it is clear that the dispute falls within the scope of the arbitration clause or agreement, the court must compel arbitration; (2) if it is clear that the dispute does not fall within the arbitration clause or agreement, the court must deny the motion to compel; and (3) if it is unclear or ambiguous whether the dispute falls within the scope of the arbitration clause, the matter should be referred to the arbitrator to decide arbitrability." Guarantee Trust Life Insurance Co., 2016 IL App (1st) 161612, ¶ 26 (citing Donaldson, Lufkin & Jenrette Futures, Inc. v. Barr, 124 Ill.2d 435, 443-50 (1988)).
¶ 23 Parties to an agreement 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." (Internal quotation marks omitted.) Liu, 2019 IL App (1st) 182645, ¶ 25. When construing a contract, we must seek to effectuate the intent of the parties by examining the contract as a whole, with attention to the express language of the contract through its plain and ordinary meaning. Id. "The paramount factor in determining the parties' intention [with regard to an arbitration agreement] is the scope of the arbitration clause ***." Barr, 124 Ill.2d at 443.
¶ 24 "In keeping with [the] policy [of] favoring arbitration, courts have generally construed 'generic' arbitration clauses broadly" and have concluded that "parties are obligated to arbitrate any dispute that arguably arises under an agreement containing a 'generic' provision." (Emphasis in original.) Fahlstrom v. Jones, 2011 IL App (1st) 103318, ¶ 17. "Generic" arbitration clauses may "include those demanding the arbitration of all claims or disputes 'arising out of or 'arising out of or related to' or 'regarding' the agreement at issue." Id.
¶ 25 In contrast," 'where an arbitration clause contains the phrase, 'arising out of the agreement' (or a variation thereof), but fails to also include the phrase, 'or relating to [the agreement]' (or a variation thereof), it is narrower than a generic clause, and any arbitration should be limited to the specific terms of the contract or agreement containing the arbitration clause.'" Guarantee Trust Life Insurance, 2016 IL App (1st) 161612, ¶ 27 (quoting Fiala v. Bickford Senior Living Group, LLC, 2015 IL App (2d) 141160, ¶ 19).
¶ 26 The clause at issue here is a generic arbitration clause as it includes the "relating to" language. The plaintiffs' claims for both breach of fiduciary duty and tortious interference relate to the business entities and the duty the defendant owed to those entities. Therefore, the plaintiffs' claims fall within the scope of the generic arbitration clauses included in the shareholder and operating agreements.
¶ 27 C. Waiver of the Enforcement of the Arbitration Clause
¶ 28 Lastly, we address whether the defendant waived his right to enforce the arbitration clause in filing a motion for change of venue first. Because arbitration is an efficient method of dispute resolution, waiver of the right to arbitrate is not lightly inferred. Edward Electric Co. v. Automation, Inc., 164 Ill.App.3d 547, 554 (1987). Waiver may occur, however, when a party acts in a manner that is inconsistent with the arbitration clause, indicating an abandonment of the right. Kostakos v. KSN Joint Venture No. 1, 142 Ill.App.3d 533, 536 (1986). A party's conduct amounts to waiver when the party submits arbitrable issues to a court for decision. Id.
¶ 29 Here, we cannot say that a motion to change venue is substantive where filing of the motion with the trial court would constitute waiver of the right to arbitrate. This conclusion is supported by the fact that any circuit court where a claim was filed would have the authority to enter an order compelling arbitration. The motion for change of venue did not seek to resolve any of the substantive issues related to the plaintiffs' claims. Therefore, the defendant did not waive his right to arbitration by filing the motion to change venue.
¶ 30 III. CONCLUSION
¶ 31 Therefore, based on the foregoing, we affirm the order of the circuit court of Champaign County compelling arbitration and staying proceedings pending arbitration.
¶ 32 Affirmed.