Glazer's Distributors of Illinois, Inc. v. NWS-Illinois, LLC ( 2007 )

SIXTH DIVISION
September 7, 2007
No. 1-06-3274
GLAZER'S DISTRIBUTORS OF ILLINOIS, ) Appeal from the Circuit
INC., an Illinois Corporation, ) Court of Cook County.
)
Plaintiff-Appellant, )
)
v. ) No. 06 CH 10744
)
NWS-ILLINOIS, LLC, an Illinois )
Limited Liability Company, and )
NATIONAL WINE AND SPIRITS, INC., )
an Indiana Corporation, ) Honorable
) Mary Anne Mason,
Defendants-Appellees. ) Judge Presiding.
JUSTICE O'MALLEY delivered the opinion of the court:
The issues presented in this interlocutory appeal involve
plaintiff Glazer's Distributors of Illinois, Inc.'s (Glazer's)
unsuccessful attempt to compel arbitration of its claims against
defendant NWS-Illinois, LLC (NWS LLC), a subsidiary of defendant
National Wine & Spirits, Inc., pertaining to NWS LLC's alleged
breaches of two contracts.1 In denying Glazer's request to
compel arbitration, among other things, the circuit court
determined that Glazer's claims were based on a contract that did
1
For purposes of clarity, we will collectively refer to the
defendants NWS-Illinois, LLC, and National Wine & Spirits, Inc.,
as "NWS LLC." However, as necessary and relevant, we will
identify the parties individually.
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not contain an arbitration provision, the parties did not agree
to arbitrate the claims at issue, and Glazer's waived its right
to arbitrate.
On appeal, Glazer's challenges the circuit court's order
that (1) denied Glazer's motion to compel arbitration; (2)
granted NWS LLC's motion to stay arbitration; (3) granted NWS
LLC's motion to dismiss Glazer's amended motion that sought, in
pertinent part, a claim for arbitration. Glazer's also seeks our
review of the circuit court's refusal to allow Glazer's to obtain
arbitration-related discovery and presentation of witnesses.2
For the reasons that follow, we affirm the judgment of the
circuit court.
BACKGROUND
In 2002, Glazer's, an Illinois corporation, sought to become
a participant in the Illinois wholesale distribution market for
alcoholic and nonalcoholic beverages. At that time, NWS LLC, an
Illinois limited liability company, operated a wholesale
2
As represented by Glazer's, these decisions occurred on the
record on August 1, 2006, and September 5, 2006, respectively.
NWS LLC filed in this court a motion to dismiss Glazer's
challenges to those decisions based on lack of appellate
jurisdiction. On February 5, 2007, this court denied NWS LLC's
motion.
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distribution business for wine, spirits, and other beverages in
Illinois.
In February 2003, as a result of negotiations among those
parties, Glazer's and NWS LLC entered into a management services
agreement that created an agreement whereby Glazer's would
provide assistance, management, and consultation services for NWS
LLC's wholesale distribution business in Illinois. Under that
agreement, in pertinent part, Glazer's received 50% of the
profits and shared 50% of the costs associated with that business
arrangement.
A. Contracts at Issue on Appeal
Subsequently, on December 1, 2003, Glazer's and NWS LLC
contemporaneously entered into two contracts, namely, a 20-page
management services agreement (MSA) and a 43-page conditional
sales agreement (CSA). Both of these contracts are at issue on
appeal.
1. The MSA
The MSA was entered into by NWS LLC and Glazer's. The MSA
identified NWS LLC as an indirect subsidiary of National Wine &
Spirits, Inc. (an Indiana corporation), and identified Glazer's
as a wholly owned subsidiary of Glazer's Wholesale Drug Company,
Inc. (a Texas corporation). The parent corporations guaranteed
performance of their respective subsidiaries. James LaCrosse
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signed the MSA on behalf of NWS LLC and National Wine & Spirits,
Inc., and Bennett Glazer signed the MSA on behalf of Glazer's and
Glazer Wholesale Drug Company, Inc.
Under the MSA, Glazer's received 80% of the profits and
shared 80% of the costs of the contracted business arrangement
with NWS LLC. Glazer's agreed to provide NWS LLC with general
management and consulting services with respect to marketing
alcoholic beverages, provide assistance and guidance in obtaining
additional lines and brands of products, and maintain existing
and establish new relationships with NWS LLC's suppliers.
The MSA established a six-member steering committee that
would coordinate the business arrangement between NWS LLC and
Glazer's in order to maximize the growth opportunities and
profitability of that arrangement, and identified a number of
duties and responsibilities of the steering committee.
NWS LLC retained all powers and authorities with respect to
the operation, management and administration of the business that
were not expressly granted to the steering committee. In
addition, among other things, NWS LLC expressly retained "the
sole and exclusive right, power and authority *** to enter into,
modify, terminate, or otherwise extend any distribution
contracts" under paragraph 12(a) of the MSA.
The MSA further provided that NWS LLC and Glazer's intended
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to contemporaneously enter into a conditional sales agreement
(CSA, detailed infra), which would allow for the organization of
a new Illinois limited liability company, referred to as Newco,
that would be jointly owned by NWS LLC and Glazer's.
In relevant part, the MSA also contained a "Buy/Sell"
provision in paragraph 16, which allowed either NWS LLC or
Glazer's to make an offer to buy the entire interest of the other
party. Specifically, if Glazer's sought to purchase the interest
of NWS LLC, then the parties would form Newco in compliance with
the CSA, and Glazer's would pay NWS LLC a specified amount to be
calculated from various factors.
The MSA chose Illinois law as its governing law and fixed
the venue in Cook County, Illinois. The MSA permitted attorney
fees for a prevailing party if "any legal action or any
arbitration or other proceeding is brought for enforcement" of
the MSA. However, the MSA neither provided for nor discussed an
express arbitration provision.
2. The CSA
Contemporaneously with the signing of the MSA on December 1,
2003, Glazer's and NWS LLC entered into the aforementioned CSA.
LaCrosse signed the CSA on behalf of NWS LLC, and Glazer signed
the CSA on behalf of Glazer's.
The CSA outlined Glazer's option to acquire an interest in
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certain assets of NWS LLC through the formation of a new entity
to be called Newco. Under the CSA, upon Glazer's exercise of its
option, NWS LLC would transfer certain of its assets to Newco on
a specified "closing date." These assets included, in pertinent
part, "all supplier, distributor, and wholesaler appointment
agreements *** with which NWS LLC is doing business on the
Closing Date, if assignable and transferable to [Newco] (the
'Supplier Contracts')." Ultimately, Glazer's would own an 80%
interest in Newco, and NWS LLC would own a 20% interest in Newco.
The CSA required NWS LLC to use its commercially reasonable best
efforts to obtain the consent of its suppliers to the transfer of
their contracts to Newco.
The CSA chose Illinois law as its governing law and provided
that the parties agreed to settle any legal proceedings in
Illinois courts, except as otherwise provided in the arbitration
provision contained in section 9.5.
Section 9.5 of the CSA, titled "Dispute Resolution,"
contained the following arbitration provision:
"Except as otherwise provided in this
Agreement or the MSA, any controversy or
claim arising out of or relating to this
Agreement, or the breach thereof, including
the scope and applicability of this Agreement
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to arbitrate, shall be settled by
arbitration.
***
Notwithstanding anything to the contrary
contained in this Section 9.5, but without
limiting the power of arbitrators to grant
similar remedies that may be requested by a
party in dispute, any party shall have the
right to proceed in any court of proper
jurisdiction to obtain injunctive or other
relief, enforce a judgment rendered by an
arbitrator, or obtain any other similar or
ancillary remedies."
The CSA's arbitration provision provided that arbitration
proceedings would be administered by the American Arbitration
Assocation (AAA) in accordance with its rules. The CSA's
arbitration provision further provided that the arbitration
hearings would be conducted either in Indianapolis, Indiana, if
Glazer initiated them, or Dallas, Texas, if NWS LLC initiated
them.
B. Glazer's Original Complaint
On May 30, 2006, Glazer's filed in the circuit court a
complaint seeking injunctive relief, declaratory judgment, and,
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in the alternative, a claim for breach of contract. Also on May
30, 2006, Glazer's filed a verified motion for temporary
restraining order.
In their complaint, Glazer's alleged that on May 18, 2006,
NWS LLC informed Glazer's that NWS LLC had entered or intended to
enter into agreements to sell a number of NWS LLC's distribution
contracts in Illinois. The next day, on May 19, 2006, Glazer's
responded and informed NWS LLC that its sale of any distribution
contracts would be a breach of both the MSA and the CSA.
Glazer's demanded NWS LLC to rescind or terminate any such
agreements to sell its distribution contracts. Glazer's further
notified NWS LLC that Glazer's was exercising its right to
purchase the assets of NWS LLC pursuant to the CSA.
Glazer's requested the court to enter a temporary
restraining order enjoining NWS LLC's "threatened sale" of its
Illinois distribution contracts. Glazer's further requested the
court to enter an order that preliminarily and permanently
enjoined NWS LLC from selling its distribution contracts, and
declared that the MSA and CSA prohibited NWS LLC from selling
such contracts. In the alternative, Glazer's requested the court
to award Glazer's all damages resulting from NWS LLC's breach of
the MSA and the CSA.
On June 2, 2006, in a written order, the circuit court
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denied Glazer's motion for a temporary restraining order. In
relevant part, the circuit court found that the agreements
between Glazer's and NWS LLC did not prohibit NWS LLC from
selling its distribution contracts.
On June 8, 2006, this court denied Glazer's petition for
temporary restraining order and a motion for stay of sale pending
our ruling on that petition.
On June 29, 2006, NWS LLC filed a motion to dismiss Glazer's
May 2006 complaint, arguing, in pertinent part, that neither the
MSA nor the CSA prohibited NWS LLC from selling its distribution
contracts.
C. Glazer's Seeks Arbitration
The next day, June 30, 2006, Glazer's filed an arbitration
demand with the American Arbitration Association (AAA), raising
10 separate counts, including claims for breach of contract under
the MSA and CSA. Glazer's named as respondents NWS LLC,
LaCrosse, National Wine & Spirits Inc., and National Wine &
Spirits Corp.
Specifically, Glazer's alleged that in May 2006, NWS LLC had
negotiated with the Anheuser-Busch distribution network to sell
NWS LLC's distribution rights for the Grolsch and Goose Island
beer brands for $9.1 million. Glazer's contended that this sale
occurred "despite Glazer's objections and despite the fact that
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the agreement between NWS [LLC] and Glazer's required that those
assets be maintained for the benefit of the joint venture."
On July 6, 2006, NWS LLC and National Wine & Spirits, Inc.,
joined by LaCrosse and National Wine & Spirits Corp., filed in
the circuit court a motion to stay arbitration.3 In that motion
to stay, the parties argued, among other things, that Glazer's
had waived any right it had to arbitration the issue and that its
filing of an arbitration demand was an impermissible attempt at
forum shopping.
On July 18, 2006, the circuit court entered an order that
stayed the arbitration and granted Glazer's leave to amend its
complaint. The court further ordered Glazer's to "notify [the]
AAA that the pending arbitration will not proceed until the court
has ruled on the sufficiency of the amended complaint, and will
not waive the parties AAA deadlines pending this resolution."
On August 3, 2006, Glazer's filed two pleadings in the
circuit court: (1) a first amended complaint (amended
complaint); and (2) a motion to compel arbitration and stay
proceedings and response to NWS LLC's motion to stay arbitration.
In its amended complaint, Glazer's brought a claim for
3
The circuit court denied Glazer's motion to strike the
motion to stay as is pertained to LaCrosse and National Wine &
Spirits Corp, finding that both parties were properly before it.
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arbitration, and, alternatively, claims for preliminary
injunction, and constructive trust. Glazer's alleged that NWS
LLC sold its Illinois distribution rights for the Goose Island
and Grolsch brands to Anheuser-Busch for $9,1 million on June 5,
2006. Glazer's further alleged that NWS LLC intended to sell
additional beer distributor contracts. According to Glazer's, in
July 2006 the buy/sell provision of the MSA had been "triggered"
by actions of Glazer's and NWS LLC, which prevented NWS LLC from
subsequently selling its distribution contracts.
In regard to its claim for arbitration, Glazer's asserted
that "[t]his dispute arises out of and relates to the CSA and
MSA, which were executed at the same time and are intertwined,
and is subject to the arbitration provisions contained therein."
Consequently, according to Glazer's, NWS LLC was obligated to
submit to arbitration to resolve the dispute regarding NWS LLC's
sale of its distribution contracts "because a binding agreement
exists between Glazer's and [NWS LLC] providing for the mandatory
settlement of disputes through arbitration."
On August 18, 2006 NWS LLC filed a motion to dismiss
Glazer's amended complaint.
On October 4, 2006, Glazer's filed in the circuit court an
emergency motion for a temporary restraining order to enjoin NWS
LLC from selling additional distribution contracts. Glazer's
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explained that between July 2006 and August 2006, it had
exercised its right to purchase NWS LLC's entire interest
pursuant to the buy/sell provision of the MSA, which resulted in
NWS LLC being barred from subsequently selling its distribution
contracts.
On October 6, 2006, the circuit court granted Glazer's
emergency motion for a temporary restraining order and enjoined
NWS LLC from selling any of the identified distribution contracts
until the hearing on Glazer's amended motion to compel
arbitration.
Following a hearing on October 23, 2006, where both parties
presented extensive arguments, the circuit court entered a
written order. In relevant part, the court (1) found that the
issues were governed by the Illinois Uniform Arbitration Act (710
ILCS 5/1 et seq. (West 2006)); (2) denied Glazer's motion to
compel arbitration and stay proceedings; (2) granted NWS LLC's
motion to stay arbitration; and (3) granted NWS LLC's motion to
dismiss Glazer's amended complaint, including Glazer's claim for
arbitration.
Specifically, in denying Glazer's motion to compel
arbitration, the court found that Glazer's claims were all based
on the MSA, which did not contain an arbitration provision, and
Glazer's had waived its right to arbitrate by filing its first
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complaint, which did not seek arbitration. In granting NWS LLC's
motion to dismiss the amended complaint, the court found that
dismissal of count I of the amended complaint seeking arbitration
was warranted based on the court's ruling to deny Glazer's motion
to compel arbitration. In addition, the court further concluded
that LaCrosse and National Wine & Spirits Corp. were not
signatories or parties to the agreements and that National Wine &
Spirits, Inc., was not a signatory to the CSA.
On November 20, 2006, Glazer's filed an interlocutory appeal
seeking review of the circuit court's October 23, 2006, order.
ANALYSIS
On appeal, Glazer's argues that the circuit court erred when
it denied Glazer's motion to compel arbitration, granted NWS
LLC's motion to stay arbitration, and granted NWS LLC's motion to
dismiss Glazer's claim seeking arbitration in Glazer's amended
complaint (count I).4 Glazer's also seeks our review of the
circuit court's refusal to allow Glazer's to obtain arbitration-
related discovery on August 1, 2006, or to present witnesses in
support of its arbitration rights on September 5, 2006.
Glazer's requests that this court (1) reverse and vacate the
4
Regarding the dismissal of its amended complaint, in its
notice of appeal, Glazer's appeals only the court's dismissal of
count I, which is the claim for arbitration.
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circuit court's order; (2) direct NWS LLC, National Wine &
Spirits, Inc., National Wine & Spirits Corp., and LaCrosse to
proceed to arbitrate all claims; (3) alternatively, if this court
determines that further evidence is needed with respect to
whether LaCrosse and National Wine & Spirits Corp. are bound by
the arbitration provision, order those parties to be subject to
expedited arbitration-related discovery and stay the case pending
such discovery; and (4) stay the litigation pending a decision by
the AAA.
A. Jurisdiction
As a preliminary matter, we note that the parties raised
jurisdictional issues in their pleadings filed in this court
while this appeal was pending, which arise from NWS LLC's attempt
to dismiss certain of Glazer's claims on appeal based on lack of
appellate jurisdiction.5 The parties correctly agree that this
court, pursuant to Supreme Court Rule 307(a)(1) (188 Ill. 2d R.
307(a)(1)), has jurisdiction to review the circuit court's order
denying Glazer's motion to compel arbitration and granting NWS
LLC's motion to stay arbitration. See, e.g., Weiss v. Waterhouse
5
Although, during the pendency of this appeal, this court
denied NWS LLC's motion challenging appellate jurisdiction over
certain of Glazer's claims, we nonetheless choose to revisit
these jurisdictional issues in our opinion.
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Securities, Inc., 208 Ill. 2d 439, 448 (2004) (denial of motion
to compel arbitration appealable under Supreme Court Rule
307(a)(1)).
However, NWS LLC argues that Supreme Court Rule 307(a)(1)
does not confer jurisdiction upon this court to review both (1)
the circuit court's dismissal of Glazer's claim seeking
arbitration (count I of Glazer's amended complaint) and (2) the
circuit court's refusal to allow Glazer's to obtain arbitration-
related discovery or to present witnesses in support of its
arbitration rights.
1. Court's Dismissal of Glazer's Claim Seeking
Arbitration in the Amended Complaint
First, we find that we have jurisdiction to review the
circuit court's dismissal of Glazer's claim seeking arbitration
in Glazer's amended complaint (count I).
As our supreme court has recognized, when determining
whether a circuit court's order or ruling is an appealable
injunctive order under Supreme Court Rule 307(a)(1), "'we look to
the substance of the action, not its form. *** Actions of the
circuit court having the force and effect of injunctions are
still appealable even if called something else.'" People v.
Phillip Morris Inc., 198 Ill. 2d 87, 101 (2001), quoting In re A
Minor, 127 Ill. 2d 247, 260 (1989). Here, the circuit court's
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dismissal of Glazer's claim seeking arbitration is essentially
the same action as the court's denial of Glazer's motion to
compel arbitration, which NWS LLC concedes is properly appealable
under Rule 307(a)(1). Accordingly, we find that we have
jurisdiction under Supreme Court 307(a)(1) to review the circuit
court's dismissal of Glazer's claim seeking arbitration where it
also denied Glazer's motion to compel arbitration.
2. Court's Refusal to Allow Glazer's to Obtain Arbitration-
Related Discovery or Present Witnesses
Second, we find that we have jurisdiction to review the
circuit court's refusal to allow Glazer's to obtain arbitration-
related discovery or to present witnesses in support of its
arbitration rights.
We agree with Glazer's position that Rule 307(a)(1) provides
this court with jurisdiction to consider those actions by the
circuit court because Rule 307 allows this court to review any
prior error that bears directly upon the question of whether an
order on appeal was proper. See In re Marriage of Ignatius, 338
Ill. App. 3d 652 (2003); Sarah Bush Lincoln Health Center v.
Berlin, 268 Ill. App. 3d 184 (1994). Here, it is logical to
conclude that the circuit court's refusal to allow Glazer's to
obtain arbitration-related discovery or to present witnesses in
support of its arbitration rights impacts the propriety of the
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court's determination that Glazer's was not entitled to
arbitration and denial of Glazer's motion to compel arbitration.
Similarly, the circuit court's decision regarding arbitration-
related discovery and witness testimony pertaining to
arbitrability of claims is also "intertwined" with the court's
denial of Glazer's motion to compel arbitration. See Weiss, 208
Ill. 2d at 448 (discussing the "intertwined" nature of pleadings
in the context of jurisdiction under Supreme Court Rule
307(a)(1)).
In regard to NWS LLC's positions arguing against appellate
jurisdiction on these particular issues, we observe that the
majority of NWS LLC's arguments involve an analysis of the
underlying merits of Glazer's claims, including potential waiver
based on a purportedly inadequate record and insufficient legal
basis to support those claims. However, when we address the
threshold issue of our jurisdiction to consider certain claims
brought on appeal, we are not concerned with the underlying
merits of those claims.
B. Federal Law or State Law
Having found that we have jurisdiction to consider Glazer's
claims, we now turn to the parties' disagreement over whether the
Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq. (2000) or the
Illinois Uniform Arbitration Act (Act) (710 ILCS 5/1 et seq.
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(West 2006)) applies to the issues presented in this case.
Glazer's argues that the FAA and corresponding federal law
apply because the arbitration provision in the CSA involves
interstate commerce where the CSA requires NWS LLC to sell,
transfer, and assign certain assets to Glazer's out-of-state
corporate parent, Glazer Wholesale Drug Company, Inc. Glazer's
further argues that interstate commerce is implicated because two
out-of-state corporate parent companies are guarantors to the MSA
and receive payments under that agreement, and the buy/sell
provision of the MSA "contemplates the transfer of assets to a
subsidiary [Glazer's] of an out-of-state company based in Dallas,
Texas - Glazer Wholesale Drug Company, Inc."
NWS LLC replies that the Act applies, as the circuit court
similarly determined, because both the MSA and CSA contain choice
of law provisions selecting Illinois law to govern the contracts.
In circumstances where parties to a contract have agreed to
arbitrate in accordance with state law, the FAA does not apply,
even where interstate commerce is involved. Yates v. Doctor's
Associates, Inc., 193 Ill. App. 3d 431, 438 (1990), citing Volt
Information Sciences, Inc. v. Board of Trustees of Leland
Stanford Junior University, 489 U.S. 468, 103 L. Ed. 2d 488, 109
S. Ct. 1248 (1989). Notably, the United States Supreme Court in
Volt concluded that application of a state arbitration law was
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not preempted by the FAA where the contracting parties had agreed
that the contract at issue, including the arbitration provision,
would be governed by state law. Volt, 489 U.S. at 470-71, 103 L.
Ed. 2d at 494-95, 109 S. Ct. at 1251.
Most significantly, in Yates, as in this case, the parties
included a choice-of-law provision selecting state law as the
governing law of the contracts, and there was nothing in the
record to suggest that the parties did not intend for the choice-
of-law provision to apply to the arbitration provision. Yates,
193 Ill. App. 3d at 438. Consequently, in accordance with Volt
and Yates, we find that the Act, rather than the FAA, applies to
this case because the parties explicitly included a choice-of-law
provision selecting Illinois law as the governing law for both
the MSA and CSA, and there is nothing in those contracts to
support a conclusion that Illinois law was inapplicable to the
arbitration provision. See also Bishop v. We Care Hair
Development Corp., 316 Ill. App. 3d 1182, 1190 (2000) (discussing
Yates and Volt and concluding that the choice of law clause at
issue reflected an agreement to arbitrate in accordance with
Illinois law).
Glazer's citation to Mastrobuono v. Shearson Lehman Hutton,
Inc., 514 U.S. 52, 55, 131 L. Ed. 2d 76, 82-83, 115 S. Ct. 1212,
1215 (1995), does not alter our decision. As explained by this
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court in Bishop, the Mastrobuono court analyzed a contract that
ambiguously provided in its arbitration clause that claims for
punitive damages would be arbitrated, but contradicted itself in
its choice-of-law provision by selecting New York law, under
which punitive damages were prohibited in arbitration. Bishop,
316 Ill. App. 3d at 1190 (discussing Mastrobuono). Ultimately,
the Mastrobuono court construed the ambiguity against the
drafting party, relied on the FAA presumption that all doubts
regarding the scope of arbitration be resolved in favor of
arbitration, and concluded that the choice-of-law provision
covered the rights and duties of parties, while the arbitration
clause covered arbitration. Bishop, 316 Ill. App. 3d at 1191,
citing Mastrobuono, 514 U.S. at 64, 131 L. Ed. 2d at 88, 115 S.
Ct. At 1219.
Here, unlike Mastrobuono, there is no such ambiguity that
would require us to similarly construe the arbitration and
choice-of-law provisions contained in the MSA and CSA. More
significantly, in Mastrobuono, the United States Supreme Court
relied on the FAA presumption liberally favoring arbitration
after recognizing that it was possible to interpret the
contract's choice-of-law provision in a manner that directly
conflicted with the arbitration provision regarding punitive
damages, which was an interpretation that the Court found
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"untenable." Mastrobuono, 514 U.S. at 63-64, 131 L. Ed. 2d at
88, 115 S. Ct. at 1219. In this case, we have no such reason to
rely upon the FAA presumption, especially where we have found
that the FAA is inapplicable.
C. Waiver of Right to Arbitration
We next address Glazer's challenge to the circuit court's
determination that Glazer's waived its right to compel
arbitration.
1. Standard of Review
First, we must determine the appropriate standard of review
applicable to the circuit's court determination that Glazer's
waived its right to arbitration. It is undisputed that this
interlocutory appeal was brought pursuant to Supreme Court Rule
307(a)(1), which allows such appeals from orders denying
injunctive relief, including a denial of a motion to compel
arbitration. See Feldheim v. Sims, 326 Ill. App. 3d 302, 308-09
(2001).
Glazer's maintains that a de novo standard applies because
the circuit court "made no attempt to look at the actions of the
parties by reviewing any disputed facts," did not make any
factual findings, did not allow Glazer's to obtain discovery or
present witnesses, and made its determination as a matter of law.
NWS LLC maintains that because a motion to compel
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arbitration is reviewable as an interlocutory appeal pursuant to
Supreme Court Rule 307(a)(1) (188 Ill. 2d R. 307(a)(1)), the
circuit court's decision in that regard is subject to an abuse of
discretion standard of review. NWS LLC further maintains that an
abuse of discretion standard is appropriate because the
determination of waiver involves mixed questions of law and fact.
Our research reveals that the relevant authority is split on
the issue of whether an abuse of discretion standard or de novo
standard applies to cases such as this one. The Second, Third,
and Fifth Districts of this court have determined that a de novo
review is appropriate where the circuit court has determined the
issue of waiver of the right to arbitration because the circuit
court in such instances reviews undisputed facts and makes a
waiver determination as a matter of law. See, e.g., Household
Finance Corp. III v. Buber, 351 Ill. App. 3d 550, 553 (2004);
LAS, Inc. v. Mini-Tankers, USA, Inc., 342 Ill. App. 3d 997, 1001
(2003); La Hood v. Central Illinois Construction, Inc., 335 Ill.
App. 3d 363, 364 (2002).
In contrast, a number of decisions from the First District
of this court have determined that an abuse of discretion
standard applies to a review of the circuit court's decision
regarding waiver of arbitration rights. See, e.g., Northeast
Illinois Regional Commuter R.R. Corp. v. Chicago Union State Co.,
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358 Ill. App. 3d 985, 994-95 (2005) (NIRC Railroad); Feldheim,
326 Ill. App. 3d at 308-09; Schroeder Murchie Laya Associates,
Ltd. v. 1000 West Lofts, LLC, 319 Ill. App. 3d 1089, 1092-94
(2001) (Schroeder); Bishop, 316 Ill. App. 3d at 1189.
In Schroeder, the court recognized that the circuit court
did not conduct an evidentiary hearing, but explained that "the
[circuit] court must necessarily engage in a factual inquiry to
determine if a party's actions constitute waiver." Schroeder,
319 Ill. App. 3d at 1093. In addition, the court noted that
established precedent provided that appeals brought pursuant to
Rule 307(a)(1) are typically reviewed only for an abuse of
discretion. Schroeder, 319 Ill. App. 3d at 1093. Ultimately,
the Schroeder court adopted an abuse of discretion standard and
declined a de novo standard. Schroeder, 319 Ill. App. 3d at
1094. See also NIRC Railroad, 358 Ill. App. 3d at 993-95
(discussing and agreeing with Schroeder); Feldheim, 326 Ill. App.
3d at 308-09 (citing Schroeder with approval).
After having carefully reviewed the aforementioned
decisions, we agree with Schroeder and the similarly decided
cases. In accordance with that authority, we will review the
circuit court's decision that Glazer's waived its right to
arbitration under an abuse of discretion standard. Under that
standard, we must determine whether there is a sufficient showing
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in the record to sustain the circuit court's decision. NIRC
Railroad, 358 Ill. App. 3d at 995; Schroeder, 319 Ill. App. 3d
at 1094.
2. Authority to Make Waiver Determination
Second, we consider Glazer's contention that the circuit
court did not have the authority to decide the issue of waiver,
but instead should have reserved that decision for an arbitration
panel.
Most significantly, this court has already explicitly
rejected an identical challenge. NIRC Railroad, 358 Ill. App. 3d
at 999. Furthermore, in Schroeder, this court determined that a
circuit court had the discretion to decide the issue of waiver of
arbitration where the party opposing arbitration claimed that the
other party had waived its rights to arbitration. Schroeder, 319
Ill. App. 3d at 1095. Here, as in Schroeder, NWS LLC
consistently argued in its motion to stay arbitration and in the
related underlying proceedings that Glazer's had waived its right
to arbitrate. Therefore, in accordance with NIRC Railroad and
Schroeder, we find that the circuit court here had the discretion
to decide the issue of Glazer's purported waiver of its right to
arbitration.
Glazer's reliance on the United States Supreme Court's
decision in Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79,
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154 L. Ed. 2d 491, 123 S. Ct. 588 (2002), does not alter our
conclusion. Notably, Howsam did not hold that issues of waiver
must be decided by an arbitrator, but rather concluded that such
issues were presumptively reserved for an arbitrator. Howsam,
537 U.S. at 84, 154 L. Ed. 2d at 498, 123 S. Ct. at 592.
Moreover, as Glazer's recognizes in its reply brief, courts
interpreting Howsam have reached different conclusions regarding
the issue of whether waiver should be decided by the court or an
arbitrator.6 Thus, we reject Glazer's position on this issue and
reaffirm our reliance on NIRC Railroad and Schroeder.
3. Finding that Glazer's Waived its Right to Arbitrate
Having determined that the circuit court had the authority
to address the issue of whether Glazer's waived its right to
arbitrate and that we will review its decision under an abuse of
discretion standard, we now consider Glazer's challenge to the
circuit court's finding that Glazer's waived its right to
arbitrate by filing its first complaint in the circuit court.
Specifically, Glazer's argues that (1) the trial court
impermissibly failed to make any findings of fact with respect to
6
In its reply brief, Glazer's states that "courts
interpreting Howsam 'have split on the issue of whether waiver
should be determined by the court or the arbitrator.'
[Citations.]"
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waiver; (2) its "limited conduct" in filing preliminary
injunction motions and an initial complaint in support of such
relief does not waive its right to arbitrate and did not
prejudice NWS LLC; and (3) Glazer's actions were consistent both
with AAA rules permitting injunctive relief and FAA rules
permitting temporary injunctive relief.
In Illinois, courts favor resolution of disputes through the
use of arbitration, and although a contractual right to arbitrate
can be waived like any other contractual right, Illinois courts
disfavor a finding that a party has waived its right to
arbitrate. Schroeder, 319 Ill. App. 3d at 1095-96. Thus, waiver
of a contractual right to arbitration "is not to be lightly
inferred." Atlas v. 7101 Partnership, 109 Ill. App. 3d 236, 240
(1982).
Nevertheless, it is settled that a contractual right to
arbitrate can be waived where a party's conduct is found to be
inconsistent with the arbitration clause and therefore indicates
that the party has abandoned that right. See, e.g., NIRC
Railroad, 358 Ill. App. 3d at 996; Feldheim, 326 Ill. App. 3d at
309; Schroeder, 319 Ill. App. 3d at 1096. Accordingly, "in
determining whether a party has waived its contractual right to
arbitrate, the crucial inquiry is whether the party has acted
inconsistently with its right to arbitrate." Schroeder, 319 Ill.
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App. 3d at 1098.
Here, after extensively and carefully reviewing the record,
we find ample support to sustain the circuit court's judgment and
similarly conclude that Glazer's waived its right to arbitrate by
filing its original complaint in the circuit court.
The central premise of our conclusion is that Glazer's,
which initiated the underlying litigation as a plaintiff, filed
its original complaint before the circuit court without making
any mention of arbitration and, in fact, sought complete relief
before the circuit court to resolve the underlying dispute
concerning NWS LLC's allegedly impermissible sale of its
distribution contracts.
Specifically, Glazer's requested in its original complaint
the court to enter (1) an order "preliminarily and permanently
enjoining" NWS LLC from selling the disputed distribution
contracts; (2) a declaratory judgment that the MSA "is valid and
existing and prohibits [NWS LLC] from selling the [distribution]
contracts they own"; (3) alternatively to the declaratory
judgment, a judgment in favor of Glazer's and against NWS LLC
"for all damages resulting" NWS LLC's alleged breaches of the MSA
and CSA; and (4) attorney fees associated with the underlying
litigation. Clearly, the relief sought in Glazer's original
complaint positively rebuts Glazer's rather disingenuous position
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on appeal that its original complaint amounted to "limited
conduct in filing preliminary injunction motions and an initial
complaint in support of such relief."
We also note that Glazer's filed its arbitration demand only
after (1) the circuit court denied its request for a temporary
restraining order in connection with its original complaint; (2)
this court denied its claim for a temporary restraining order in
connection with its original complaint; and (3) NWS LLC filed a
motion to dismiss Glazer's original complaint. These
circumstances suggest, as NWS LLC argued, that Glazer's was
engaging in impermissible forum shopping by filing a demand for
arbitration after unsuccessfully seeking relief before the
circuit court. See Feldheim, 326 Ill. App. 3d at 313 (noting, in
the context of arbitration, that "the law does not permit [a
party] to forum shop until [it] receive[s] the desirable
decision").
Ultimately, it is undeniable that Glazer's submitted
arbitrable issues in its original complaint before the circuit
court for resolution by that court, namely, whether the MSA and
CSA allowed NWS LLC to sell its distribution contracts. As this
court has previously determined, "by submitting arbitrable issues
for judicial determination, [the party's] participation in the
legal forum was inconsistent with [its] contractual right [to
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arbitrate] and constituted an abandonment of that right."
Schroeder, 319 Ill. App. 3d at 1098. Accordingly, we conclude
that Glazer's waived its right to arbitrate and the circuit court
did not abuse its discretion in reaching the same conclusion.
We are not persuaded by Glazer's arguments against such a
conclusion. First, contrary to Glazer's position regarding the
circuit court's alleged failure to make findings of fact or
explain its findings, the circuit court necessarily had to make
certain factual findings before concluding that Glazer's waived
its right to arbitrate. See NIRC Railroad, 358 Ill. App. 3d at
996 (reaching same conclusion). More significantly, the circuit
court made the following observation during the hearing:
"Glazer's came in here at the end of May
filing a complaint asking this Court to
resolve its issues with [NWS LLC]. That
complaint was not limited in any matter. It
did not reference arbitration, even
potentially."
This excerpt demonstrates that the circuit court considered the
factual background of this case and identifies the same factor
that we relied upon to find that Glazer's waived its right to
arbitrate.
Second, contrary to Glazer's characterization of its
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original complaint, that complaint did not simply amount to a
request for preliminary injunction and a complaint in support of
that request. Instead, we reemphasize that Glazer's original
complaint sought final and complete relief from the circuit court
regarding the ability of NWS LLC to sell its distribution
contracts. We disagree with Glazer's assertion that NWS LLC was
not prejudiced by the "limited" litigation and short period of
time involved in this dispute. To the contrary, NWS LLC was
inherently prejudiced by being brought into the litigation,
forced to defend against Glazer's claim that NWS LLC was
prohibited from selling its distribution contracts, and, upon
successfully defending against that litigation, being subjected
to a potential arbitration proceeding over an identical dispute
involving the distribution contracts.
Third, in regard to Glazer's claim that AAA and FAA rules
allow parties to seek temporary injunctive relief in order to
preserve the status quo pending arbitration, we again point out
that Glazer's did not seek only temporary injunctive relief in
its original complaint, nor did Glazer's request injunctive
relief in its complaint for the purpose of preserving the status
quo until arbitration.
Further, although Glazer's asserts that Illinois law
requires a party to allege an underlying substantive action to
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assert a motion for temporary restraining order or preliminary
injunction, Glazer's original complaint was not framed in that
context. Instead, Glazer's sought in its original complaint
temporary and permanent injunctive relief, a declaratory
judgment, and damages for breach of contract. In other words,
Glazer's original complaint did not even mention arbitration,
which directly contradicts its position on appeal that its
original complaint requested injunctive relief as a means to
preserve the controversy for subsequent arbitration.
We disagree with Glazer's contention that Atlas is
dispositive of the waiver issue in this case because of the
particular distinguishing circumstances present in that case. In
stark contrast to this case, after the plaintiff initiated the
litigation by filing complaints for injunctive relief, one of the
defendants sought to compel arbitration and then the plaintiff
sought to compel arbitration. Atlas, 109 Ill. App. 3d at 239.
The circuit court in Atlas granted both the plaintiff's and
defendant's motions to compel arbitration. Atlas, 109 Ill. App.
3d at 239. Thus, based on these facts we do not find Atlas to be
dispositive of this case.
Finally, to the extent that Glazer's relies upon federal
authority regarding arbitration issues, such authority is not
particularly persuasive or relevant to this case where we have
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determined that Illinois law governs the dispute because both NWS
LLC and Glazer's expressly agreed to an Illinois choice-of-law
provision in the MSA and CSA, and we have found applicable
Illinois authority. See Allstate Insurance Co. v. Lane, 345 Ill.
App. 3d 547, 552 (2003) ("Only in the absence of Illinois
authority on the point of law in question are we to look to other
jurisdictions for persuasive authority").
Because we have determined that the record supports the
circuit court's judgment denying Glazer's motion to compel
arbitration because Glazer's has waived its right to arbitrate,
we affirm the circuit court's judgment on that ground. Our
determination that Glazer's has waived its right to arbitration
renders moots the remaining issues that Glazer's raises on appeal
because each of those claims presupposes that Glazer's is
entitled to arbitration. See In re Marriage of Michaelson, 359
Ill. App. 3d 706, 717 (2005) (generally, a court will not review
moot issues, and an issue is moot if no actual controversy
exists).
CONCLUSION
For the foregoing reasons, we affirm the judgment of the
circuit court.
Affirmed.
JOSEPH GORDON and McNULTY, JJ., concur.
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