Chicago Business Litigation Lawyer Blog

Workers' compensation insurance is a necessary part of doing business for many companies, so the attorneys at DiTommaso-Lubin are always on the lookout for emerging legal issues in that area. Our Naperville business attorneys recently discovered a decision rendered by the Appellate Court of Illinois that is significant for current and potential clients who have workers' compensation insurance agreements that contain an arbitration clause.

All-American Roofing, Inc. v. Zurich American Insurance Company pits Plaintiff All-American Roofing against its Defendant insurer, Zurich American in a lawsuit that arose from alleged unpaid deductibles and retrospective insurance premiums. The five-year insurance agreement was based upon retrospectively rated premiums that required Plaintiff to reimburse Defendant after the end of a policy year for claims that arose during that year. After the fourth year, the policy exchanged the retrospectively rated premiums for a larger deductible. The dispute began when Defendant summoned Plaintiff to arbitration regarding the aforementioned unpaid sums pursuant to a mandatory arbitration clause contained within the parties' agreement. In response to the arbitration summons, All-American Roofing filed for declaratory judgment along with claims for breach of contract, fraud, and related causes of action. Plaintiff requested that the trial court declare that the mandatory arbitration clause was unenforceable and sought damages for their other claims. The trial court stayed the arbitration, dismissed most of Plaintiffs claims through summary judgment and ordered the parties to arbitrate the remaining issues. Plaintiff then appealed the trial court's rulings regarding the arbitration clause, contract, and fraud claims.

On appeal, Plaintiff argued that the arbitration clause was added to their policy after the first year of coverage and that the clause constituted a material alteration to the policy's coverage. Furthermore, Plaintiff argued that the Illinois Insurance Code required Defendant to give notice that it was not renewing the original coverage. Because Defendant failed to give such notice, the arbitration clause did not legally take effect. The Appellate Court disagreed, stating that the addition of an arbitration clause did not constitute a change in coverage, and cited the plain language of the statute for their reasoning. The Court went on to hold that the agreements and subsequent addenda to it for the first two years were valid because the parties lawfully entered into the agreements and there was sufficient consideration on both sides. The Court also upheld the trial courts granting of Defendant's motion for summary judgment on Plaintiff's fraud claim because there was not sufficient evidence in the record of fraud nor had Plaintiffs identified any material issue regarding Defendant's alleged violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. The Court held that the arbitration clause was not operative for the final two year of the agreement because Plaintiffs never signed the amended policy documents for those years. The Appellate Court reversed the trial court on this issue because they disagreed with the trial court's ruling that Plaintiff's payment and acceptance of coverage signified acceptance of the new terms.

All-American Roofing, Inc. v. Zurich American Insurance Company provides a valuable lesson to business owners who utilize arbitration clauses in their contracts. Namely, this case tells us to read the fine print in any contract before signing it, as you may be getting more (or less, depending on your point of view) than you originally bargained for.

Continue reading "Appellate Court Rules that Adding an Arbitration Clause to an Insurance Agreement Does Not Constitute a Change in Coverage under Illinois Law" »

More and more businesses are utilizing employment agreements with new hires, and often those agreements contain arbitration dispute resolution clauses. As experienced wage and hour class action attorneys, DiTommaso-Lubin is familiar with such agreements and our attorneys are always mindful of court rulings that affect this area of the law. The Northern District of Illinois, Eastern Division federal court rendered a decision affecting employment arbitration agreements recently, and we wanted to make our readers and clients aware of the court's ruling.

Brown v. Luxottica Retail North America Inc. pits a class of salaried retail, lab, and general managers against their employer Lenscrafters. Plaintiffs argued that they were non-exempt employees, and therefore were entitled to overtime compensation. The employees filed suit alleging violations of the Fair Labor Standards Act (FLSA), Illinois Minimum Wage Law (IMWL), and Illinois Wage Payment and Collection Act (IWPCA) for unpaid overtime wages. In response, Defendant moved to compel one of the named plaintiffs to arbitrate her claims and stay the proceedings with respect to that plaintiff. Defendant so moved pursuant to a dispute resolution agreement contained within the employee handbook Plaintiff was given while still employed by Defendant. Defendant required Plaintiff to accept the terms of the handbook in order to continue her employment. The agreement contained a form to allow the employee to opt-out of the arbitration clause and instructions how to fill it out, but Plaintiff had failed to sign the form. Plaintiff objected to Defendant's motion on the grounds that it was unconscionable and unenforceable.

In considering Plaintiff's arguments, the Court evaluated the procedural and substantial unconscionability of the agreement. The Court found no procedural unconscionability because the arbitration language was “clearly set off” from the rest of the employee handbook and was easy to find by those who actually read the entire handbook. Next, the Northern District held that there was no substantive unconscionability due to the existence of the opt-out clause and the fact that the Plaintiff chose not to exercise her right to opt-out even though she signed a document stating she had read and accepted the terms of the handbook. Finally, the Court ruled that nothing in the FLSA precludes an agreement to arbitrate an FLSA claim, and granted Defendant's motion to compel arbitration.

Continue reading "Northern District of Illinois Rules that Arbitration Clause in Employee Handbook is Enforceable" »

As Illinois arbitration lawyers, we were interested to see a ruling on the statute of limitations for enforcing an award won in private arbitration. Peregrine Financial Group Inc. v. Futronix Trading, Ltd. No. 1-09-2293 (Ill. 1st May 21, 210) pits Peregrine, a commodities brokerage firm, against Futronix, a client that became delinquent in its accounts with Peregrine. The plaintiff took the defendant to arbitration and won an award of the delinquent amount plus interest. However, that was in August of 2003, and the plaintiff waited until November of 2008 to file in court to enforce the award. The defendant successfully moved to dismiss on the grounds that the statute of limitations had passed, under Illinois Code of Civil Procedure sec. 13-205. The plaintiff moved to reconsider but was denied, and appealed both decisions to the First District Court of Appeal.

Defendants hired plaintiffs to act as their agent in commodities futures purchasing. However, the defendants did not maintain enough money in its account to cover its losses, causing it to go delinquent in the amount of $115,512.64. The plaintiff filed an arbitration action with the National Futures Association and won that amount plus costs. The defendants then moved and did not pay the award. Five years and three months later, the plaintiffs filed in Cook County court to confirm the award. Defendants moved to dismiss on several grounds, including the statute of limitations. The plaintiff argued that there is no statute of limitation on an arbitration award, but the trial court was unmoved. Plaintiff appealed.

On appeal, the First noted that sec. 13-205 of the Code of Civil Procedure explicitly includes “awards of arbitration” among the types of actions to which it applies. Nonetheless, the plaintiff cited a federal case, United Steelworkers of America v. Danly Machine Corp., 658 F. Supp. 736 (N.D. Ill. 1987), in support of its argument. In that case, the district court for northern Illinois specifically said Illinois law does not impose a statute of limitations on arbitration awards. However, the First said, the district court gave no support or reasoning for its statement, and federal law is not binding on state courts.

The First also rejected an argument that if a statute of limitations applies, it should be sec. 13-206 of the Code, which gives a 10-year statute of limitations for actions arising from “written evidence of indebtedness” such as written contracts and promissory notes. In support, the plaintiff cited Blacke v. Industrial Comm'n, 268 Ill. App. 3d 26, 644 N.E.2d 23 (1994), a case about whether sec. 13-205 applied to collection actions under the Workers’ Compensation Act. That court decided that 13-205 applies to all statutory rights of action unless the legislature specifically intended otherwise, and rejected the argument that sec. 13-206 applied to the Workers’ Compensation Act or any other statute. The plaintiff argued the inverse: that the 10-year statute of limitations applies because its cause of action was based on a contract. However, the First said, that’s not quite true -- the arbitration was based on a contract, but the suit seeking to enforce the arbitration award was not.

Finally, the court rejected three more arguments. One was based on public policy -- that applying the five-year statute of limitations would run counter to Illinois public policy of enforcing arbitration awards. While it’s true that Illinois has such a public policy, the court said, it also has a public policy to enforce statutes of limitations. The plaintiff then argued that the statute of limitations should have been tolled when the defendants moved without paying. But this did not prevent the plaintiff from filing, the court noted, although it would have required the plaintiff to serve notice of the claim by publication. The last argument plaintiff made was that fundamental fairness should require the court to allow the case to go forward. The First rejected this, saying the plaintiff hadn’t shown any good reason for its five-year delay in filing. Thus, it upheld both the original judgment of the trial court and its denial of plaintiff’s motion to reconsider.

Continue reading "Five-Year Statute of Limitations Applies to Enforcement of Arbitration Award, First District Finds" »

As Chicago business attorneys and Chicago consumer lawyers we were very interested to read the new law review article on the projected impact that mandatory consumer arbritration agreements could have in harming business arbitrations. Agreed upon arbitration of business disputes is a great way to resolve suhc disputes in a cost effective manner. On the other hand take or leave it clauses requiring consumers to arbitrate small disputes and banning class actions usually has the effect of barring acess to justice and redress for mass consumer frauds or unfair practices.

Click here to read the entire article: Revelation and Reaction: The Struggle to Shape American Arbitration in CONTEMPORARY ISSUES INTERNATIONAL ARBITRATION AND MEDIATION: THE FORDHAM PAPERS 2010, Martin Nijhoff, 2011.

Below is an abstract of the article:

In this article, Professor Stipanowich explores recent decisions by the U.S. Supreme Court and the implications for the respective domains of courts of law and arbitration tribunals regarding so-called “gateway” determinations surrounding the enforcement of arbitration agreements and the contracts of which they are a part. The decisions address the complex interplay between federal substantive law focusing on questions of arbitrability, a body of law defined and expanded by the Court under the Federal Arbitration Act (FAA), and the law of the states and bring into play competing judicial philosophies of contractual assent and contrasting views about the balance between policies promoting the autonomy of contracting parties and judicial policing of overreaching in the context of contracts of adhesion.

According to Prof. Stipanowich, the Court’s current jurisprudence, which may be seen as establishing and expanding a “second tier” of the “revealed” substantive law of arbitrability under the FAA first given shape and substance in the 1980s, is a flashpoint for special concerns associated with standardized contracts directing consumers and employees to arbitrate. Prof. Stipanowich believes that this will inevitably add momentum to current efforts to enact national legislation outlawing pre-dispute arbitration agreements in consumer, employment and other classes of contracts, with possible negative consequences for business-to-business arbitration.

In part I of his article, Prof. Stipanowich offers a short history of the evolution of Supreme Court decisions concerning the “revelation” and expansion of federal substantive law under the Federal Arbitration Act (FAA). Parts II and III then discuss recent Supreme Court cases reflecting the Court’s continuing reliance on the wellspring of divined federal law as a basis for promoting party autonomy in arbitration while limiting lower courts’ ability to police such agreements. Part IV briefly explores the dynamic political response to the extreme, non-nuanced pro-arbitration position developed in modern Court jurisprudence. Finally, Prof. Stipanowich concludes the article by calling for carefully crafted legislation or administrative regulations limiting the use of arbitration agreements in adhesion contracts or establishing due process standards for such agreements.

Our Chicago attorneys handle business arbritration and consumer disputes involving mandatory arbitration clauses. You can contact one of our Chicago business law trial attorneys or Chicago consumer lawyers for a free consultation by clicking here or you can call our toll free number at (877) 990-4990.

In a case that presented questions very interesting to our Chicago arbitration and mediation attorneys, the Fourth District Court of Appeal has ruled that standing to arbitrate is not an issue that should itself be submitted to arbitration. In Equistar Chemicals, LP v. Hartford Steam Boiler Inspection and Insurance Company of Connecticut, No. 4-07-0478 (Ill. 4th 2008), Hartford, an insurance company, sought to hold Equistar responsible for damage to a turbine generator owned by Hartford’s insured, Trigen-Cinergy Solutions of Tuscola. Trigen had signed a contract with Equistar that included an arbitration clause, and Hartford filed a demand for arbitration of its claim as a subrogee of Trigen. In court, Equistar moved to stay arbitration until Hartford’s standing to invoke arbitration could be determined. That court denied the stay, saying standing should be determined by arbitrators.

Equistar has an ethanol plant in Tuscola, Ill. It hired Trigen to provide energy, water and wastewater treatment at the plant, and their contract included an arbitration agreement. Later, an Equistar employee allegedly acted negligently with a circuit breaker, causing an electrical arc that damaged a turbine generator belonging to Trigen. Hartford, as the insurer to Trigen, paid $853,442 to repair the damage, then filed a demand for arbitration with the American Arbitration Association. It requested the $853,442 in damages from Equistar, by virtue of its subrogee relationship with Trigen. Equistar responded by objecting in Illinois trial court to Hartford’s standing, the jurisdiction of arbitrators and the arbitrability of the claim. It later filed a motion to stay arbitration until, among other things, standing could be determined. The trial court denied that motion, concluding that Hartford had standing as a subrogee, but that standing can be determined in arbitration.

Equistar filed this interlocutory appeal, arguing that the Illinois Uniform Arbitration Act requires the court, not private arbitrators, to decide questions of standing. It quoted at length from the Act: “...if the opposing party denies the existence of the agreement to arbitrate, the court shall proceed summarily to the determination of the issue so raised[.] ... On application, the court may stay an arbitration proceeding commenced or threatened on a showing that there is no agreement to arbitrate. That issue, when in substantial and bona fide dispute, shall be forthwith and summarily tried and the stay ordered if found for the moving party.” Under this language, the Fourth said it’s clear that the Act requires courts to make the initial determination of whether parties have agreed to arbitrate. In this case, it added, there was no reason to delay things by sending the question to arbitration, since arbitrators would have no special skill in determining whether Hartford had standing to invoke arbitration.

In determining otherwise, the trial court had relied on language in the parties’ arbitration agreement saying “the decision of the arbitrators (including the decision that the dispute is arbitrable) shall be final and binding upon the parties[.]” The trial court had written that this language leads logically to the conclusion that arbitrators make determinations of arbitrability and the courts shall have no role. The Fourth disagreed, writing instead that this language only clarifies how much authority arbitrators should have; it does not expand their authority. Parties are free to give arbitrators that authority, the court wrote, but they can and should explicitly say so.

The Fourth next looked at the issue of Hartford’s standing as a subrogee -- an issue of first impression in Illinois. Equistar argued that Hartford, as Trigen’s subrogee, cannot compel arbitration because it was not a party to the arbitration agreement. Their agreement did not explicitly include subrogees, assignees or other third parties, and in fact explicitly said the parties did not have the right to incur obligations to third parties on behalf of the other, or commit the other party to a contract. Hartford countered that its right to arbitration comes through subrogation law, not the contract, making this language irrelevant. Illinois caselaw in Ervin v. Nokia, Inc., 349 Ill. App. 3d 508, 512, 812 N.E.2d 534, 539 (2004) defines contract-based theories that can bind a nonsignatory to an arbitration agreement, but subrogation is not among them. Two cases from other states have come to different conclusions on the issue, the court noted. And Illinois subrogation law puts the subrogee (in this case, Hartford) directly into the shoes of the subroger (Trigen).

Ultimately, the Fourth decided that Hartford should have the same rights and obligations as Trigen. That means Hartford does not merely have a right to arbitrate, the court wrote -- it is required to do so under Trigen’s contract. Thus, it upheld the trial court’s decision to deny the motion to stay arbitration. This meant affirming the decision as a whole, even though it noted that it disagreed with the trial court that arbitrators should determine standing.

Continue reading "Fourth District Rules Standing to Sue Is Not an Arbitrable Issue, but Denies Stay of Arbitration" »

Our Illinois alternative dispute resolution lawyers noted an opinion from the Fifth District Court of Appeal reversing a trial court that declined to compel arbitration. In Hollingshead v. A. G. Edwards & Sons, Inc., No. 1-09-0067 (Ill. 5th Jan. 22, 2009), the court ruled there simply was not enough evidence to support the trial court’s decision to deny to compel arbitration. The case pits Carol Hollingshead, independent administrator of the estate of Selma Elliott, against Elliott’s investment company and Leonard Suess, an investment advisor there and Elliott’s son-in-law. Hollingshead sued the defendants for various causes of action related to financial mismanagement, but defendants moved to compel arbitration under several contracts related to the investment accounts. The trial court denied this motion without an explanation or an evidentiary hearing.

Elliott passed away in 2003 at the age of 101. During her lifetime, she had an account at A.G. Edwards, managed by Suess. Her power of attorney was granted to her daughter, Judy Suess, at the time of her death, so that Judy Suess could manage Elliott’s affairs. Those affairs included 11,000 shares of stock in the pharmaceutical company Merck, which had a value of $985,000 in 2001. Around 1994, defendants used that value to open up a margin account and buy other stock. Unfortunately, the value of her portfolio dropped significantly and the defendants began selling off the Merck stock to cover margin calls. Plaintiff claims this triggered tax liabilities that could easily have been avoided if the sale had happened after Elliott’s death. She sued them for breach of fiduciary duty, breach of contract and negligence.

However, Elliott had signed three contracts with Edwards before her death and Judy Suess as power of attorney had signed another, and all of them had an arbitration agreement. Defendants moved to dismiss the case and compel arbitration on this basis. The trial court heard arguments that did not get into the record on appeal, then denied the motion without comment. Defendants filed an interlocutory appeal. They argued that the contracts are the only evidence in the record and clearly apply to the lawsuit. The plaintiff argued in response that the arbitration agreements are substantively and procedurally unconscionable and the product of undue influence, all of which make them unenforceable. Defendants responded that this is a question for an arbitrator to decide.

The Fifth started with this last issue. It did not agree. Under caselaw, arbitrability is an issue for the courts unless the parties have specifically agreed otherwise, it wrote. The plaintiff is not challenging the validity of the contracts as a whole -- indeed, she is relying on them in the breach of contract count.

Next, the court examined the plaintiffs’ arguments to invalidate the arbitration agreements. Under the Federal Arbitration Act, arbitration agreements are enforceable except “on such grounds that exist at law or in equity for the revocation of any contract.” This includes the plaintiff’s claims of unconscionability and undue influence. However, the court found that generally, there was no support in the record for the plaintiff’s arguments. To support the claims of unconscionability, the plaintiff made allegations in her complaint about Elliott’s age and the relationship between her and the Suesses, but did not provide any evidence, the court said. Nor do the allegations in the complaint, even if taken as true, support those defenses, it added. Under caselaw, advanced age is not enough in itself to show that a person is incapable of signing contracts, the court noted, and there is nothing per se procedurally unconscionable about having a relative for a broker.

Similarly, the Fifth found no evidence in the record to support the undue influence claim, aside from unsubstantiated claims about the familial relationship between Elliott and the Suesses. The plaintiff also made claims for substantive unconscionability, saying the $1,575 cost of arbitration is too high and the forum is biased. Again, the Fifth found, these claims are not supported by sufficient evidence in the record. It also dismissed a claim that waiving judicial review is inherently unconscionable, noting that this is directly contradicted by the FAA. For those reasons, the Fifth found that the trial court should not have declined to compel arbitration without an evidentiary hearing. It reversed that decision and remanded it to the trial court for further proceedings -- including an evidentiary hearing, the Fifth said, if the plaintiff requests one.

Continue reading "Fifth District Reverses Decision to Deny Arbitration Clause in Fiduciary Duty Case" »

As Illinois mediation and arbitration lawyers, we were interested to see a decision confirming that parties may invoke their contractual rights to arbitrate even after some participation in the other side’s lawsuit. TSP-Hope Inc. v. Home Innovators of Illinois, Inc., No. 1-07-1028 (Ill. 4th June 26, 2008) pits a Springfield housing nonprofit, TSP-Hope Inc., against residential construction company Home Innovators of Illinois. The two made a contract in July of 2005 for the construction of houses. In the summer of 2006, construction stopped. Shortly after, TSP-Hope sued for breach of contract and other causes.

About a month later, the defendant filed for an extension of time to plead, saying the plaintiff had served a demand three days before for the defendant to file suit to enforce its liens. Another month later, the defendant filed an answer and counterclaims, including duress in contract formation, breach of contract and enforcement of the liens. After a series of motions and counter-motions, the defendant in July of 2007 filed to dismiss all claims and compel arbitration. In this motion, the defendant claimed that the plaintiff had verbally agreed to mediation before the lawsuit. The parties’ contract specified that they should use mediation at first, and then binding arbitration with a specified arbitration company, to resolve disputes. The trial court eventually granted the defendants’ motion to dismiss a breach of contract claim, saying it had not been waived by participation in the litigation. After a motion to reconsider failed, the plaintiff appealed.

Unusually, the Fourth said, the defendants did not file a brief in the appeals case. However, the court said it had sufficient evidence from the plaintiffs’ brief. That brief argued that defendants had waived their right to arbitration by waiting almost 11 months to assert it, and by submitting arbitrable issues to the trial court in the meantime. To determine whether this is true, the Fourth wrote, it needed to determine whether the defendant had acted inconsistently with its right to arbitrate. Under Cencula v. Keller, 152 Ill. App. 3d 754, 757, 504 N.E.2d 997, 999 (1987), this can include submitting arbitrable issues to the court.

The Fourth then ran down a list of past cases in which a party was found to have waived its right to arbitration. In all of those cases, the court noted, parties had conducted discovery and made pleadings that were more than just responses to the other side. Neither of these was true in this case, it said. It is true that the defendant’s counterclaims could have waived its right to arbitration, the court said, but this is not automatic. In this case, the counterclaim “appeared to be responsive to plaintiff’s complaint” as well as the plaintiff’s demand to enforce its liens. Under those circumstances, the Fourth concluded that the defendant had not acted inconsistently with its right to arbitrate. Thus, the appeals court affirmed that trial court was correct to find that there was no waiver.

Continue reading "Filing Counterclaims Does Not Waive Contractual Right to Arbitration, Fourth District Rules" »

Our Illinois arbitration attorneys noted an appellate decision reminding parties to arbitration contracts to ensure that their language is clear as to what exactly should be arbitrated. In Peterson v. Residential Alternatives of Illinois, No. 3-09-0743 (Ill. 3rd June 7, 2010), Rachel Peterson, as the administrator of the estate of Jacob H. Terhorst, sued Terhorst’s former nursing home. Terhorst died at a home run by Residential Alternatives of Illinois, and the estate had sued the nursing home company for wrongful death and violations of the Illinois Nursing Home Care Act. The home succeeded in compelling arbitration at the trial court level, but the Third District Court of Appeal reversed, saying the language of the arbitration agreement was unclear.

Terhorst was 92 when he entered Hawthorne Manor in Peoria. He was a resident from Nov. 29, 2006 to June 2, 2007, the day of his death. On Jan. 7, 2009, his estate’s executor, Ann Bonono, filed a lawsuit against Hawthorne Manor’s parent company, Residential Alternatives. That claim alleged that Residential Alternatives failed to provide adequate care to Terhorst and neglected and abused him, resulting in injuries, pain, mental anguish, financial costs and eventually, his death. It sought more than $100,000 for wrongful death and violations of the Nursing Home Care Act. The defendant filed an answer to plaintiff’s complaint.

But less than a month later, the defendant also moved to dismiss the claim and compel arbitration. In support, it included a contract and a separate arbitration agreement, both dated Nov. 29, 2006 and signed by legal representatives for the company and for Terhorst. Neither document mentioned the other, and the contract indicated that it contained seven pages, all seven of which were the contract itself. The arbitration agreement stated that “any and all disputes arising hereunder shall be submitted to binding arbitration and not to a court for determination.” The next paragraph stated that in the event that a dispute was determined not covered by the agreement, the parties agreed that the dispute should be heard by a judge rather than a jury, and that the prevailing party had the right to recover its costs.

In response to the defendant’s motion to compel arbitration, the plaintiff argued that no enforceable agreement existed; that the defendant had waived its right to arbitration by answering the complaint; and that Illinois public policy is against waiving any rights under the Nursing Home Care Act. Ultimately, the trial court agreed with the defendant that the arbitration agreement controlled the dispute and sent the case to arbitration. This appeal followed. During its pendency, plaintiff Rachel Peterson was granted leave to replace plaintiff Ann Bonomo.

On appeal, the plaintiff argued that the arbitration agreement was unenforceable; that it was void pursuant to the Act, caselaw and public policy; that the defendant had waived its rights; and that the wrongful death claim should not be arbitrated because its plaintiffs were not parties to the agreement. The Third noted that there was no dispute over the contract. However, the defendant argued that it and the arbitration agreement should be considered one unified document, whereas the plaintiff argued that they should be considered separate documents.

Caselaw shows that some courts have chosen to interpret separate documents executed on the same day by the same people as the same document, the court noted. However, it said, these were documents that referred to or expressly incorporated other documents. Furthermore, the court said, it is well established in Illinois law that parties may not incorporate one agreement into another without expressly indicating an intention to do so, and there is a presumption against interpreting contracts in a way that adds conditions that could easily have been explicitly added in writing. In this case, the Third said, the parties could easily have added an arbitration agreement to the contract itself, but they did not -- in fact, the seven-page contract states that it is complete within those seven pages. The court found that this choice was deliberate and consistent with case law, so it rejected the argument that both documents should be considered one document.

Next, the Third looked at whether the arbitration agreement itself creates an independent contractual obligation to arbitrate all controversies arising out of the nursing home care. The court concluded that it could not interpret the agreement that way. The agreement called for arbitration with this language: “Without limiting any rights set forth in other provisions of this AGREEMENT, any and all disputes arising hereunder shall be submitted to binding arbitration and not to a court for determination.” This is circular language, the court said, and it does not reference the nursing home care contract at all. A later reference to “any other document signed or initialed in connection with this AGREEMENT” also does not adequately indicate any intention to connect with the contract. For that reason, the court wrote, it cannot agree that the two documents should be treated as one. Thus, the court found that the case should not go to arbitration because the nursing home contract was not subject to the arbitration agreement. The trial court’s decision was reversed.

Continue reading "Nursing Home Cannot Compel Arbitration Under Unclear Contract, Third District Rules" »

Our Illinois mediation and arbitration attorneys were interested in a court ruling on the controlling legal authority in a dispute over whether an issue is arbitrable. R.A. Bright Construction Inc. v. Weis Builders Inc., No. 3-09-0910 (Ill. 3rd June 9, 2010) pits construction company Weis Builders against its subcontractor, R.A. Bright Construction. A dispute later arose in which Bright claimed Weis owed it $765,701 under two contracts the parties had signed. Bright sued and Weis moved to dismiss, or alternatives, to compel arbitration. The trial court denied the motion, but two judges from the Third District Court of Appeal reversed that decision under the Federal Arbitration Act. A third dissented, saying the FAA cannot apply because no interstate commerce was involved in the dispute.

Weis, a Minnesota company with offices in four states, was originally hired to build a Wal-Mart in Lockport, Ill. Weis in turn hired Bright to do concrete work for $2.93 million, and later, underground utilities work for $679,567. Neither party alleged fraud or misrepresentation in those contracts. For reasons the opinion does not discuss, Bright alleged that Weis owed it $765,701 on those two contracts, which Weis denied. Bright sued and Weis filed a motion to dismiss and compel arbitration, or alternatively, to stay and compel arbitration, under the Federal Arbitration Act. Before that motion could be heard, Bright filed an amended complaint seeking to enforce a mechanic’s lien against Wal-Mart for the money. The trial court later denied the motion from Weis and this appeal followed.

In its appeal, Weis argued that section 2 of the FAA compels arbitration because the Illinois Supreme Court has found that the FAA mandates judicial enforcement of arbitration agreements “in any ... contract evidencing a transaction involving commerce.” Bright disagreed for two reasons. It argued that the FAA does not apply because no interstate commerce was involved in this transaction. And even if it does, Bright said, the clause in question violates the Illinois Building and Construction Contract Act.

The Third started with the issue of whether the contract between Weis and Bright was interstate commerce. The U.S. Supreme Court has found that the FAA preempts state laws hostile to arbitration and is intended to exercise power over interstate commerce to the fullest, the court noted. To interpret this situation, it relied in part on Allied-Bruce Terminix Cos. v. Dobson, 513 U.S.265, 278, 130 L. Ed. 2d 753, 767, 115 S. Ct. 834, 841 (1995), in which the Supreme Court overturned the Alabama Supreme Court on a motion to compel arbitration. In that case, a homeowner was suing a pest control company for inadequate work, and the pest control company argued that the FAA applied because it had a “slight nexus” with interstate commerce. While the work was contracted and performed locally, the companies were multistate and some materials came from out of state.

Despite the intention of the parties to stay local, the Supreme Court wrote, a strict reading of the facts showed that the commerce was in fact interstate. Similarly, the Third wrote, the transaction between Bright and Weis was an interstate transaction in fact. Weis is a multistate corporation and Bright bought some materials from a Wisconsin company. Thus, their contract was interstate commerce within the meaning of the FAA and that law applied.

The Third next disposed of Bright’s argument that the clause violates the Illinois Building and Construction Contract Act, because the FAA allows consideration of contract defenses “upon such grounds as exist at law or in equity for the revocation of any contract.” While this is valid, the court said, a defense based on the Act is not grounds to contest “any contract”; it is grounds only to contest construction and building contracts. It noted that the state Supreme Court had recently made a similar ruling in Carter v. SSC Odin Operating Co., No. 106511 (Il April 15, 2010). Finally, the Third rejected a forum non conveniens defense, saying this is not a general contract defense but a procedural mechanism. Thus, a two-judge majority reversed the trial court and remanded the case with orders to stay and compel arbitration. The dissenter, Justice McDade, disagreed that the contract between Bright and Weis was a transaction involving interstate commerce, and thus argued that the FAA does not apply to this case. “Nothing beyond ‘the multistate nature of one of the parties’ (slip order at 8) demonstrates that the transaction ‘in fact’ involved interstate commerce.”

Continue reading "Federal Arbitration Act Controls Dispute Between Construction Companies, Third District Finds" »

Our Chicago alternative dispute resolution lawyers noted a recent Fifth District Court of Appeal ruling upholding an arbitration agreement but severing its class-action waiver. In Keefe v. Allied Home Mortgage Corporation, No. 5-07-0463 (Ill. 5th 2009) (PDF), Rosemary Keefe was the lead plaintiff in a proposed class action against her mortgage broker. She refinanced through Allied Home Mortgage Capital Corp. in 1999, and as part of that deal, she signed a rider requiring binding arbitration of most disputes. Five years later, she filed a proposed class action against Allied, accusing it of consumer fraud and other torts for charging third-party fees (such as credit check fees) in excess of their actual cost and failing to disclose this. Allied moved to compel arbitration. Without an evidentiary hearing, the trial court ruled that the arbitration agreement was illusory and procedurally and substantively unconscionable, and Allied filed an interlocutory appeal.

The Fifth District started by examining de novo whether the agreement was indeed illusory. An illusory promise is something that appears to be a promise but holds out no performance, or only an optional performance. The Fifth found that it was not illusory, because the arbitration rider specified that the borrower may request arbitration in any judicial proceeding started by Allied. Furthermore, it noted, the rest of the contract may be considered part of the consideration granted to the plaintiff.

It next looked at the finding that the agreement was both procedurally and substantively unconscionable. A contract is procedurally unconscionable when some impropriety during the signing of the contract -- such as language that is difficult to find or understand -- robs the signer of a reasonable choice. That was not the case here, the court said. The arbitration rider was not hidden by fine print, it wrote, nor was it difficult to read or understand. Rather, the arbitration rider “conspicuously” used bold capital letters to notify the plaintiff that she was signing a contract that gave away her right to a jury trial. Nor did she need to sign it to obtain the refinancing.

The court also rejected the plaintiff’s argument that the rider was unconscionable because it failed to notify her of the cost of arbitration. The Fifth noted that the arbitration rider did contain a provision notifying the plaintiff that she can get copies of rules and forms related to arbitration at any National Arbitration Forum office or by mail order. Under Kinkel v. Cingular Wireless LLC, 223 Ill. 2d 1, 22, 857 N.E.2d 250, 264 (2006), this is not enough by itself to render the contract unconscionable, the court wrote, but it may be considered along with findings on substantive unconscionability.

Finally, the Fifth looked at whether the arbitration rider was substantively unconscionable. A contract is substantively unconscionable when the contract terms are unfair, one-sided or create a large imbalance between price and cost. The plaintiff first argued that the rider is cost-prohibitive because it specifies that no claim may be brought by class action. The Fifth found some merit in this. In Kinkel, the Illinois Supreme Court found that class-action waivers are not per se unconscionable, but courts should look at their fairness as well as the cost of bringing an individual claim relative to the damages. Once again following that decision, the Fifth found the cost of pursuing an individual claim was high relative to the potential damages, especially including arbitration and attorney fees. Taking into account Allied’s failure to reveal the cost of arbitration, the court ruled that the class-action waiver was unconscionable. But rather than declare the entire contract unconscionable, the court simply severed the class-action clause, reversed the rest of the trial court’s decision and remanded the case with directions to enforce the remainder.

Continue reading "Fifth District Enforces Mortgage Company Arbitration Agreement Except as to Class Actions" »

Our Illinois alternative dispute resolution lawyers were interested to see an appeals case clarifying that parties can only be compelled to binding arbitration if they have an explicit written contract. In Heider v. Knautz, No. 2-09-0808 (Ill. 2nd Dec.4, 2009), Arlie Heider sued Carl Knautz for injuries arising out of a car accident, including a knee injury. During a September hearing on admission of Heider’s Wisconsin-based attorney to Illinois courts, that attorney asked to suspend his request for admission because both parties had agreed to binding arbitration. The court stayed the case for six months pending the arbitration.

However, some months later, Knautz filed for a protective order preventing Heider from attending the arbitration, saying that during discovery, he had learned that Heider had reinjured his knee in a subsequent car accident, despite statements to the contrary. He wanted to delay the arbitration to conduct further discovery, and because he had changed attorneys, but the plaintiff’s attorney refused to reschedule. The court denied Knautz’s motion, so he filed a motion for judicial determination of whether he could revoke his agreement to arbitrate. In that motion, he said the Illinois Uniform Arbitration Act did not apply because he had signed no written agreement to binding arbitration. The trial court disagreed, finding at Heider’s urging that the Act applies because Knautz agreed on the record during the September hearing that such an agreement existed, and because that hearing was written down and entered into the record. Knautz filed an interlocutory appeal.

After dismissing what it saw as a meritless jurisdictional argument by Heider, the Second District Court of Appeal turned to the merits of Knautz’s appeal. Knautz argued that he should not be compelled to use binding arbitration because he did not sign a formal written agreement to do so. In considering this, the court considered the plain language of the Act, which refers to “a written agreement” or “a provision in a written contract.” This language makes it clear that the Act was intended only to apply to written agreements, the Second wrote. In support, it cited multiple out-of-state cases based on very similar language, as the Illinois Act was adopted from the Uniform Arbitration Act. Furthermore, the court said, there is nothing in the transcript of the September hearing to suggest that the parties intended to make a binding contract to arbitrate.

That order was based on an oral agreement, the court said, and the common law says oral agreements to arbitrate may be revoked anytime before an award is entered. The Act does not abrogate that rule, the court wrote, so Knautz is entitled to revoke his agreement to arbitrate. In fact, it wrote, if it were to decide otherwise, “parties who choose to enter into only an oral agreement could never obtain an order staying trial court proceedings pending arbitration, for fear that such an order would be viewed as a written agreement subjecting them to the Act and thereby destroying the purpose of entering into only an oral agreement for arbitration.” Thus, it reversed the order to arbitrate and remanded the case to trial court.

Continue reading "Second District Declines to Compel Arbitration Based Only on Oral Agreement" »

Publich Justice reports on its website:

The consumer and civil rights communities are closely watching AT&T Mobility v. Concepcion, a case that will be argued in the Supreme Court this November. Depending on how broadly the Court reads the question presented in Concepcion, the case could decide the fate of consumer and employee class actions for years to come.

Public Justice's Senior Attorney Paul Bland, Staff Attorney Claire Prestel and Brayton-Baron Fellow Melanie Hirsch explain what is at stake in ATT Mobility v. Concepcion, a case with profound consumer and civil rights implications. The U.S. Supreme Court is scheduled to hear the case this fall. Click here to see what is at stake.

Our Elgin, Illinois consumer rights private law firm handles individual and class action predatory lending, unfair debt collection, lemon law and other consumer fraud cases that government agencies and public interest law firms such as the Illinois Attorney General may not pursue. Class action lawsuits our law firm has been involved in or spear-headed have led to substantial awards totalling over a million dollars to organizations including the National Association of Consumer Advocates, the National Consumer Law Center, and local law school consumer programs. The Chicago consumer lawyers at DiTommaso-Lubin are proud of our achievements in assisting national and local consumer rights organizations obtain the funds needed to ensure that consumers are protected and informed of their rights. By standing up to consumer fraud and consumer rip-offs, and in the right case filing consumer protection lawsuits and class-actions you too can help ensure that other consumers' rights are protected from consumer rip-offs and unscrupulous or dishonest practices.

Our Waukegan and Northbrook consumer attorneys provide assistance in fair debt collection, consumer fraud and consumer rights cases including in Illinois and throughout the country. You can click here to see a description of the some of the many individual and class-action consumer cases we have handled. A video of our lawsuit which helped ensure more fan friendly security at Wrigley Field can be found here. You can contact one of our Chicago consumer protection attorneys who can assist in consumer fraud, consumer rip-off, lemon law, unfair debt collection, predatory lending, wage claims, unpaid overtime and other consumer, or consumer class action cases by filling out the contact form at the side of this blog or by clicking here.

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As Chicago alternative dispute resolution attorneys, we were pleased to read a decision from the First District Court of Appeal on compelling arbitration in an oral contract related to a written contract. In Marks v. Bober, No. 1-09-1988 (Ill. 1st. March 12, 2010), Carol Marks contracted with Lawrence Bober, managing director of RSM McGladrey Inc., to do accounting for investments she held. That was a written contract including an arbitration clause. Marks alleges that she later entered a separate oral contract with Bober and RSM for investment advice. However, she was unhappy with the advice she received and later sued the defendants. The defendants sought to compel arbitration under the written contract, and the trial court denied this, saying there was no arbitration agreement for the oral contract. The First upheld that decision.

Marks originally retained RSM to monitor her investment accounts. For that work, she signed an “engagement letter” as a contract, which included two clauses of interest. One specifies that RSM will use its professional judgment in applying “rule applicable to this engagement.” The other is a binding arbitration clause requiring dispute resolution to go through the American Arbitration Association. Marks signed, but during the remainder of her first year with RSM, she alleges that RSM failed to provide the portfolio reporting services she expected and instead began to promote various investments to her. She further alleges that RSM charged her separately for those services and emphasized that they were separate, but no written contract was signed. The court also notes that Bober and RSM were not registered with the state of Illinois or the SEC as providers of investment services.

As a result of the solicitations, Marks put $500,000 into Lancelot Investors Fund II, which put the money into a hedge fund called Thousand Lakes. Marks alleges this was a Ponzi scheme that damaged her economically. She sued RSM and Bober, alleging that they breached their fiduciary duties and oral contract with her by failing to investigate Lancelot and that they negligently held themselves out as investment experts. She sought to void the oral contract and the Lancelot investment. In trial court, Bober and RSM moved to compel arbitration under the engagement letter. This was denied. On their motion for consideration, the defendants alleged that they provided no investment advice and did not recommend Lancelot; rather, Bober wrote that he saw from the accounting work that Marks could use such advice, so he introduced her to advisors who did recommend Lancelot. This motion too was denied, and defendants appealed, saying the dispute is covered by the arbitration agreement. They also argued that the Federal Arbitration Act supports this because it has a presumption of arbitrability.

The First was not impressed. Under the FAA, which it said was the governing law in this case, it was proper for the trial court rather than an arbitrator to decide arbitrability. Under that law and the Supreme Court’s decision in AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 649, 89 L. Ed. 2d 648, 656, 106 S. Ct. 1415, 1418 (1986), parties cannot be compelled to arbitration unless they have agreed to do so in their contract.

Illinois caselaw seems to confirm this. The court cited Johnson v. Noble, 240 Ill. App. 3d 731, 732-33 (1992), which also concerned a case with one written contract and one oral contract. In that case, as in this one, the defendant sought to compel arbitration based on the written contract, but the plaintiff argued that the claims arose from the oral contract. The trial and appeals courts agreed, saying the dispute was not arbitrable because it arose from a separate oral contract. Similarly, in Board of Managers of Chestnut Hills Condominium Ass'n. v. Pasquinelli, Inc., 354 Ill. App. 3d 749 (2004), an appeals court upheld the plaintiff’s right to sue because the claims at issue were outside the scope of the arbitration agreement.

In this case, the court wrote, Marks and RSM had two separate agreements, one oral and one written. The dispute arose out of the oral contract, it said, so Marks was not required to conform to the terms of the written contract. In fact, the court said the language of the written contract indicates that the parties did not intend to extend the contract past “this engagement.” For those reasons, it upheld the trial court’s decision and remanded it to the trial court for further proceedings.

Continue reading "Arbitration Clause in Written Contract Cannot Compel Arbitration in Oral Agreement, First District Finds" »

As mediation and arbitration attorneys in Chicago, we were interested to see an Illinois Supreme Court decision from this year that clarifies state law’s relationship with the Federal Arbitration Act. Carter v. SCC Operating Company, No. 106511 (Ill. April 15, 2010) (PDF). The plaintiff, Sue Carter, is administering the estate of Joyce Gott, who was a resident of Odin Healthcare Center, a nursing home, for two months in 2005 19 more days in January of 2006. She died in the home that month. Carter, acting as Gott’s legal representative, signed an agreement on Gott’s original admission to the home agreeing to binding arbitration; Gott signed the same agreement herself on her second admission. The agreement also specifically mentioned that it is governed by the Federal Arbitration Act.

After Gott’s death, Carter filed a lawsuit in Marion County alleging Odin violated the state Nursing Home Care Act and the Wrongful Death Act by failing to provide proper care and supervise caregivers, resulting in juries that led to Gott’s death. Odin answered the complaint and then moved to compel arbitration under the arbitration agreement and then FAA. Carter answered that the arbitration agreement is null because it is against Illinois public policy under the Nursing Home Care Act, and the FAA allows arbitration agreements to be voided for “grounds that exist at law or in equity to void any contract.” At an evidentiary hearing, the trial court accepted that argument and others made by Carter and voided the arbitration agreement. Odin appealed, and the Fifth District Court of Appeal upheld the trial court’s decision, but only as to the FAA argument. In essence, the appeals court said the Nursing Home Care Act is an ordinary defense available for all contracts under state law, putting it outside the FAA.

Odin appealed to the Illinois Supreme Court, which initially denied the appeal but changed its mind after the Second District split with the Fifth on this issue and the U.S. Supreme Court denied certiorari to Odin. Attorney General Lisa Madigan was also permitted to intervene.

In its analysis, the state Supreme Court had only to consider the idea that the Nursing Home Care Act’s anti-waiver provision is a defense to any contract dispute in Illinois. It did not accept that argument. While the court noted that there was no express or implied preemption in the FAA, it said preemption can also be found where state law specifically conflicts with federal law. After examining how the FAA and the Nursing Home Care Act have been interpreted, it concluded that this is such a case. It cited Southland Corp. v. Keating, 465 U.S. 1, 79 L. Ed. 2d 1, 104 S. Ct. 852 (1984), in which the Supreme Court found that the FAA applies in state court and preempts conflicting state laws. The majority opinion specifically addressed the issue at hand, saying a state law governing investment contracts was not a “ground... for revocation of any contract,” but only for contracts that fall under that law. Similarly, in Preston v. Ferrer, 552 U.S. 346, 169 L.Ed. 2d 917, 128 S. Ct. 978 (2008), the Supreme Court found that an arbitration contract was enforceable even though state law referred the underlying dispute to an administrative agency.

Thus, the Supreme Court said, the lower courts were wrong to believe that the Nursing Home Care Act (or other state laws) could only be preempted by the FAA if it singled out arbitration. It also rejected an argument from the Attorney General that the right to a jury trial is too fundamental to be waived, noting that “it is axiomatic” that parties may make arbitration agreements. However, the court noted that there are numerous other issues in this case, including whether the nursing home contract constituted interstate commerce under the FAA. Thus, it reversed and remanded the case to the Fifth District for consideration of those issues.

Continue reading "State Supreme Court Finds Federal Law Preempts Illinois Nursing Home Care Act" »

Retired Judge Kenneth A. Abraham has joined DiTommaso-Lubin as Of Counsel to head the firm's arbitration and mediation practice group and to act as a litigation consultant to the firm.

Ken brings to DiTommaso-Lubin nearly forty years of legal experience, including a decade and half on the bench as a trial judge.

To view Ken's profile click here.

To see a summary of Ken's extensive arbritration and mediation experience click here. If you would like to retain Ken as an abritrator or mediator, you can call us at our toll free number (877) 990-4990 or contact us on through the web by clicking here.

DiTommaso-Lubin is a litigation law firm which concentrates on business litigation, consumer rights litigation and class action litigation. Our Chicago business attorneys and Chicago consumer lawyers handle a wide variety of cases and have acheived multi-million dollar verdicts and settlements including the third largest settlement of 2004 according to Crain's Chicago Business. Vincent DiTommaso and Peter S. Lubin have both been named to Super Lawyers as business litigators, consumer lawyers and class action attorneys. Super Lawyers only includes 5% of Illinois attorneys in its listing.

You can view our Oak Brook, Naperville and Chicago attorneys listings on Super Lawyers. Super Lawyers only selects 5% of the attorneys in the State to receive the Super Lawyer designation.

Vincent L. DiTommaso

online at

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Peter S. Lubin

online at

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