TSP-Hope v. Home Innovators of Illinois ( 2008 )

Filed 6/26/08 NO. 4-07-1028
IN THE APPELLATE COURT
OF ILLINOIS
FOURTH DISTRICT
TSP-HOPE, INC., an Illinois Not-for- ) Appeal from
Profit Corporation, ) Circuit Court of
Plaintiff and Counter- ) Sangamon County
defendant-Appellant, ) No. 06CF497
v. )
HOME INNOVATORS OF ILLINOIS, LLC, an )
Illinois Limited Liability Company, ) Honorable
Defendant and Counter- ) John W. Belz,
plaintiff-Appellee. ) Judge Presiding.
_________________________________________________________________
JUSTICE COOK delivered the opinion of the court:
Plaintiff, TSP-Hope, Inc., filed a complaint against
defendant, Home Innovators of Illinois, LLC, alleging various
issues involving a contract with defendant wherein defendant
agreed to build houses for plaintiff. Defendant responded to the
complaint and filed a counterclaim. Defendant eventually filed a
motion to dismiss pursuant to section 2-619 of the Code of Civil
Procedure (Code) (735 ILCS 5/2-619 (West 2006)), invoking the
contract's mandatory mediation and arbitration clause. The trial
court granted defendant's motion to dismiss. Plaintiff filed a
motion to reconsider, which the court denied. Plaintiff appeals.
We affirm.
I. BACKGROUND
Plaintiff is a not-for-profit corporation engaged in
the business of providing financial and educational services in
addition to financing the construction of homes to meet the
housing needs of Springfield, Illinois', low-income residents.
Defendant is an Illinois limited-liability company engaged in the
business of residential construction. On July 25, 2005, plain-
tiff and defendant entered into a contract for the construction
of homes in Springfield. Sometime in the summer of 2006, work on
the houses stopped.
On August 16, 2006, plaintiff filed a complaint claim-
ing, among other things, breach of contract. On September 15,
2006, defendant filed a motion for extension of time to answer
complaint or otherwise plead. In that motion, defendant claimed
that on September 12, 2006, "[p]laintiff served [d]efendant with
a demand that [d]efendant file suit within 30 days to enforce
liens on the property, which property is a subject of the com-
plaint in the above-entitled cause." On October 12, 2006,
defendant filed its answer and counterclaim. The answer included
an affirmative defense alleging duress in written contract
formation and counterclaims involving foreclosure, enforcement of
mechanic's liens, and breach of contract.
On November 13, 2006, plaintiff filed a motion to
dismiss defendant's affirmative defense and portions of its
counterclaim. On February 7, 2007, plaintiff filed leave to
amend its complaint. On March 2, 2007, the trial court granted
plaintiff's motion for leave to amend its complaint and granted
plaintiff's motion to dismiss defendant's affirmative defense and
certain counterclaims. On March 19, 2007, defendant filed an
amended counterclaim, which included the breach of contract
claim, and on March 23, 2007, it filed an answer to plaintiff's
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amended complaint.
On July 2, 2007, defendant filed a motion to dismiss
plaintiff's complaint pursuant to section 2-619 of the Code
requesting dismissal of plaintiff's complaint and defendant's
counterclaims and an order for arbitration. The motion contained
a statement that prior to suit, defendant had verbally requested
mediation. Defendant attached the contract to its motion.
Section 15 of the contract provided as follows:
"15. Disputes - Should any dispute arise
relative to the performance of this contract
that the parties cannot satisfactorily resolve,
if the parties also agree, the dispute shall
be resolved in accordance with Illinois
Quality Assurance Builder Standards. If the
parties do not so agree, then the parties agree
that the dispute shall be resolved first by
utilizing mediation and[,] if not resolved, by
binding arbitration conducted by the American
Arbitration Association."
On July 24, 2007, defendant filed an amended counter-
claim, which included the breach-of-contract claim.
On September 18, 2007, the trial court granted defen-
dant's motion to dismiss as to the breach-of-contract claim,
finding that defendant's participation in the litigation had not
waived its right to arbitration as contained in the contract, the
litigation in court had not been substantial, and plaintiff had
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not shown prejudice.
On September 28, 2007, plaintiff filed a motion to
reconsider, claiming the trial court incorrectly applied the
federal standard to determine a waiver of the right to arbitrate
as opposed to the applicable Illinois law. On November 20, 2007,
the trial court denied plaintiff's motion to reconsider, finding
defendant's participation in the judicial process was not so
inconsistent with the right to arbitrate as to indicate an
abandonment of the right. Specifically, the court noted that (1)
on August 16, 2006, plaintiff commenced proceedings; (2) on
October 12, 2006, defendant filed an answer and counterclaim; (3)
later defendant filed an amended counterclaim; (4) defendant's
actions were responsive to plaintiff's pursuit of litigation; (5)
filing of a counterclaim and answer does not automatically result
in the waiver of arbitration rights; and (6) defendant did not
conduct any meaningful discovery by the time it filed the motion
to dismiss on July 5, 2007. This appeal followed.
II. ANALYSIS
We first note that defendant did not file a brief.
Defendant's failure to file a brief does not require automatic
reversal, and plaintiff continues to bear the burden of estab-
lishing error. First Capitol Mortgage Corp. v. Talandis Con-
struction Corp., 63 Ill. 2d 128, 131-32, 345 N.E.2d 493, 494-95
(1976). This court need not become defendant's advocate or
search the record for the purpose of sustaining the trial court's
judgment but may do so if justice so requires. Talandis, 63 Ill.
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2d at 133, 345 N.E.2d at 495. "When the record is simple, and
the claimed errors are such that this court can easily decide
them on the merits without the aid of an appellee's brief, this
court should decide the appeal on its merits." Plooy v. Paryani,
275 Ill. App. 3d 1074, 1088, 657 N.E.2d 12, 23 (1995). In this
case, plaintiff's brief sufficiently presents the issue and the
record is relatively simple, so we address the merits of the
case.
Plaintiff argues that defendant waived its contractual
right to arbitrate by repeatedly submitting arbitrable issues to
the trial court for decision and by delaying its assertion to the
right to arbitrate for more than 10 months. Because the appeal
involves the court's legal conclusion and does not involve a
factual dispute, we review this issue de novo. La Hood v.
Central Illinois Construction, Inc., 335 Ill. App. 3d 363, 364,
781 N.E.2d 585, 586 (2002); but see Glazer's Distributors of
Illinois, Inc. v. NWS-Illinois, LLC, 376 Ill. App. 3d 411, 424,
876 N.E.2d 203, 214 (2007) (First District, reviewing the trial
court's decision that a party to a contract waived its right to
arbitration under an abuse-of-discretion standard).
While arbitration is a favored method of settling
disputes in Illinois, a party may waive its contractual right to
arbitration. Kostakos v. KSN Joint Venture No. 1, 142 Ill. App.
3d 533, 536, 491 N.E.2d 1322, 1325 (1986) (First District).
Illinois courts are reluctant to find a party waived its contrac-
tual right to arbitration. Kostakos, 142 Ill. App. 3d at 536,
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491 N.E.2d at 1325. In determining whether a party has waived
its right to arbitrate a claim, the "'crucial inquiry is whether
the party has acted inconsistently with its right to arbitrate.'"
Glazer's, 376 Ill. App. 3d at 425, 876 N.E.2d at 215, quoting
Schroeder Murchie Laya Associates, Ltd. v. 1000 West Lofts, LLC,
319 Ill. App. 3d 1089, 1098, 746 N.E.2d 294, 301 (2001) (First
District). A party acts inconsistently with its right to arbi-
trate when it submits arbitrable issues to a court for decision.
Cencula v. Keller, 152 Ill. App. 3d 754, 757, 504 N.E.2d 997, 999
(1987) (Second District).
In this case, the undisputed facts show that defendant
filed an answer and counterclaim in response to plaintiff's
complaint and plaintiff's demand that defendant file suit within
30 days to enforce liens on the property. Defendant then filed
an amended complaint after the trial court granted plaintiff's
motion to dismiss defendant's affirmative defense and certain
counterclaims. Defendant also failed to assert its contractual
right to arbitrate for 10 1/2 months after plaintiff filed its
original complaint. The issue is whether these facts show that
defendant acted inconsistently with its right to arbitrate and
submitted arbitrable issues to the court for decision.
Illinois courts have held a party waives its contrac-
tual right to arbitrate under the following circumstances: (1)
filing a motion for summary judgment (Applicolor, Inc. v. Surface
Combustion Corp., 77 Ill. App. 2d 260, 267, 222 N.E.2d 168, 171
(1966) (First District)); (2) answering a complaint, participat-
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ing in discovery for two years, and asserting arbitration in
response to a motion for summary judgment (Epstein v. Yoder, 72
Ill. App. 3d 966, 972, 391 N.E.2d 432, 437 (1979) (First Dis-
trict)); (3) answering a complaint with claims of setoffs against
the plaintiff, participating in discovery, and waiting 13 months
and 22 months from when plaintiff filed complaints against the
two separate defendants before asserting a right to arbitration
(Gateway Drywall & Decorating, Inc. v. Village Construction Co.,
76 Ill. App. 3d 812, 817, 395 N.E.2d 613, 616-17 (1979) (Fifth
District)); (4) filing an answer claiming additional credits,
filing a bill of particulars listing the additional credits, and
waiting 9 1/2 months before asserting the arbitration right
(Cencula, 152 Ill. App. 3d at 758, 504 N.E.2d at 1000); (5)
engaging in discovery, opposing an earlier attempt to compel
arbitration, and failing to file for arbitration when given the
opportunity (Schroeder, 319 Ill. App. 3d at 1098, 746 N.E.2d at
302); and (6) filing a complaint seeking complete relief without
mentioning arbitration and requesting arbitration only after the
trial court and appellate court denied its request for a tempo-
rary restraining order and the other party had filed a motion to
dismiss the complaint (Glazer's, 376 Ill. App. 3d at 426, 876
N.E.2d at 216).
Unlike the cases cited above, in this case, the parties
did not conduct any discovery, nor did defendant interject
pleadings that were anything more than responsive to plaintiff's
claims. Defendant did, though, file counterclaims that clearly
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fell under the arbitration paragraph as they involved issues that
would be considered "dispute[s] aris[ing] relative to the perfor-
mance of [the] contract." "While [Illinois courts have] held
that submitting arbitrable issues to a court of law, as by filing
a counterclaim, may result in the waiver of the right to arbitra-
tion (Brennan v. Kenwick (1981), 97 Ill. App. 3d 1040, 1042-43,
425 N.E.2d 439, 441), the filing of a counterclaim and answer
does not automatically result in waiver of arbitration rights."
D.E. Wright Electric, Inc. v. Henry Ross Construction Co., 183
Ill. App. 3d 46, 53, 538 N.E.2d 1182, 1187 (1989) (Fifth Dis-
trict), citing Edward Electric Co. v. Automation, Inc., 164 Ill.
App. 3d 547, 555, 518 N.E.2d 172, 177 (1987) (First District).
In this case, the filing of a counterclaim appeared to
be responsive to plaintiff's complaint and responsive to plain-
tiff's demand on September 12, 2006, that defendant file suit
within 30 days to enforce liens on the property. A lienholder
forfeits its mechanic's lien if it fails to commence an action to
foreclose the lien within 30 days after receipt of the owner's
written demand to sue as required by section 34 of the Mechanics
Lien Act (Act) (770 ILCS 60/34 (West 2006)). Vernon Hills III
Ltd. Partnership v. St. Paul Fire & Marine Insurance Co., 287
Ill. App. 3d 303, 308, 678 N.E.2d 374, 377-78 (1997). Assuming
plaintiff's demand satisfied the written-demand requirements of
section 34 of the Act and triggered the tolling of the 30-day
limitations period, defendant was forced to file the foreclosure
action or lose its liens under the Act. Under these circum-
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stances, the filing of responsive pleadings along with the 10
1/2-month delay in asserting a right to arbitration does not
establish that defendant acted inconsistently with its right to
arbitrate. See Edward Electric, 164 Ill. App. 3d at 554-55, 518
N.E.2d at 177 (in finding defendant did not waive its right to
arbitration, the court noted that defendant conducted no discov-
ery and that the defendant's counterclaims were filed in response
to plaintiff's complaint and in order to protect defendant's
rights from litigation stemming from plaintiff's original and
first-amended complaints).
III. CONCLUSION
For the reasons stated, we affirm the trial court's
judgment.
Affirmed.
APPLETON, P.J., and KNECHT, J., concur.
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