## I LLINOIS 

## O FFICIAL 

## R EPORTS Appellate Court

Fahlstrom v. Jones , 2011 IL App (1st) 103318

Appellate Court Caption GLENN FAHL STROM, Plain

tiff-Ap pella nt , v. LAURENCE JONES and FAHL STRO M RE STAURANT GROUP, L .L.C. , DefendantsAppellee s.

District & No. First District, Second Division Docket No. 1–10–3318

Filed June 14, 2011

Held ( Note: Thi s syllab u s constitutes no part

of the opinion of the court but has been prepared by th e Reporter of Decisions

for the co nv enience of the reader. ) Inan action arising from a dis

pute over the alleg ed sale

of p laintiff’s interest in a restaurant to def

enda nts, the trial court erred in deny ing plaintiff’s motion to compel arbitrationfollowing the trial court’s entry of a prelimi

nary injunction

again s t defendants, notwithstanding defenda nts’ contentions that the sale of p laintiff ’s intere st by way of an assignment

to defen dants wa s a separ ate contract that was not subject to the arbitration clause in the operating agree ment the parties entered into when the restaurant business started and that a court, not an arbitrator, should decide if the assignment was enforce able, since plaintiff was cha

llengin g the va lidity of the as s ignment , not the existence of the arbitration claus e in the operating agre ement, and the validity of the assignment was within the scope of the operating agreement’s arbitration clause and was a question for the arbitrator, not the court; theref

ore, the cause w as rema

nded with directions to compel arbitration.

Decision Under Review Appeal fromthe Circuit Court of Cook County, No. 09–CH–15822; the Hon. S tuart E. Pal mer, J udge, p resid ing.-2-

Judgment Reverse d and remanded wi th direc tions.

Counsel on Appeal Cox, Oakes & Associates, Ltd., of Schaumburg (Christopher

D. Oake s, of counse l), for a

ppellant

.

Morrison& Morrison, P.C., of Waukegan (Joseph T. Morrison, of counsel) , for app ellees.

Panel JUSTICE HARRI S deliver

ed the jud gment of the cour t, with opinion. Presiding Justice Cunningham and Justice Karnezis concurred in the judgment and opinion.

OPINION

¶ 1 Plaintiff Glenn Fahlstsrom brought a complaint for declara tory judgment and

injunctive relief against defendants L aurence Jones and the Fahlstrom Restaurant Group, L. L.C., alleging defendants refused to arbitrate a dispute ove r the alleged

sale of p laintiff

’s intere st in the Restaurant Group to Jones. Following a hearing, the c ircuit court of Cook Coun t y entered a preliminary injunction

agains t defend

ants. Plai ntiff the n filed a motion to compel arbitration, which the

circuit c ourt d enied. Pl aintiff filed this appeal. For the following
reasons, we reverse.

¶ 2 JURISDICTI ON ¶ 3 The circuit court’s interlocutory order deny

ing plaintiff’s motion to compel arbitration

was entered on October 13, 2010. Plaintiff timely filed his notice of appeal from this order

on Novembe

r 12, 2010 . This cou

rt has jur isdiction p

ursu ant to Sup reme Court Rule 307(a)(1) (eff. Jul y 6, 2000) , whic h allo ws int erlocu tory revi ew of an order “ granti ng, mo difying, refusi ng, dissolving, or refusing to dissolve or modify an injunction.” See, e.g. , Bass v. SMG, Inc.
, 328 Ill. App. 3d

492, 496 ( 2002) (mo tion to comp el arbitr ation is an

alogou s to motion for injunctive relief).

¶ 4 BACKGROUND ¶ 5 In 2005, plaintiff and Jones formed Fahlstrom Restaurant Group, L.L .C. (LL C), a limited liability company, for

the purpo se of operating a restaura nt, Glenn’s Diner and Seafood House, in Chicago. Plaintiff and Jo nes each had a 48.75% interest in the L LC, and the restaurant’s chef, D avid Najman, had a 2.5% nonv

oting int erest. Under the LL C’s operating agree ment, pl ai nt if

f w as to ha ve da y-t o- da y con trol and authority over the operation and-3-

manage ment of the

restaur ant. ¶ 6 The ope ratin g agr eement contained a dispute resolution provision (section 7.9) under which“[a]ny dispute among the member s, and any dispute betwe en the company and any one or more of its members” was to be submitted to mediation, and subsequently , if mediation

was unsucce ssful, to arbitr ation. Another pr

ovision in the agreement (section 3.5) spelled out procedures for the p

urchase and sale of LL C membership intere sts in the e vent of a dispute

so serious it required a member to withdraw from the company. A third se ction (section 5.5) prohibited

th e tra nsfer or assignment of a member’s intere st “to any person other than the company without the unanimous consent of the members.” ¶ 7 OnApril 2, 2009, plaintiff and Jones pa

rticipat ed in wha t was app arently

a contentious meeting at th e r es ta ur an t. Ac co un ts di ff er ed as to pr ec is el y w hat took place and what was said. However, it is undisputed that pl aintiff a nd Jones sig

ned an a greement (memb ership assignm ent) stati ng plai ntiff was se llin g his i nteres t in t he LLC to J ones a nd wai ving al l claims for $1,000. Plaintiff acknowledges Jones gave him a c h eck for $1,000. Later

in the evening of April 2, plaintiff tore up the membership assig nment in Jones’s presence. ¶ 8 On April 14, 2009, plaintiff filed his complaint for declaratory judgment and

injunctive relief claiming the membe

rship ass ignment wa s invalid on grounds, inter alia , it faile d to comply with sections 3.5 and 5.5 of the LL C operating agreement, and the considera tion was grossly inadequate. Plaintiff sought preliminary injunctive r elief to allowhim to conti nue to operate the restaurant during the pendency of the dispute ov er his ownership in terest. H e also sought an order directing the parties to re solve the dispute pur sua nt to the mediation and arbitra tion provi sions of th e LLC operati ng ag reemen t. ¶ 9 Fo llowing a hearing, the circuit cour t entered a preliminary

injunction agains

t defenda nts , en join ing them from interfering with plaintiff’s manag ement of the restaurant. The court found, among other things, that a fair question had bee n raised regard

ing th e adequacy

of consideration. The court noted, for example, that plaintiff was owed “a significant amount of deferred salary

” (at least $90,000 to $100,000), and even Jones’s expert valued plaintiff’s interest in the LL C at $33,00 0, “o r 33 times t he amount

proposed by Jones to purc

hase Plaintiff’s interest.” ¶ 10 Plaintiff subsequently filed a motion to compel arbitra tion pursuant to section 2(a) of the Illinois Uniform Arbitration Ac t (A rbitration Act) (710 ILCS 5/2(a) (West 2008)). Jones objected, argu i ng the April 2, 2009 membership assignment was a sepa rate contract not subject to the arbitration clau s e in the LL C operating agreement. Jones also claimed the court, not an arbitrator, should decide if the membership assig nment was enforceable. The circuit court denied plaintiff’s motion to compel arbitration.

¶ 11 ANA LYSIS ¶ 12 Initially , the parties dispute the applicable standard of review. Plaintiff argues the circuit court’s order should be reviewed de novo . Plaintiff notes there was no evidentiary hearing

on the motion to com pel ar bitration and asserts the only que stion before the court was whether plaintiff had a right to arbitration as a matter of law. Defendants, on the other hand, argue the order should be reviewed for an a buse of discreti on. Defe

ndants not

e that plaintiff’s-4-

interlocutory

appeal is brought pursuant to Supreme Court Rule 307(a)(1), a nd the y a ssert suchappeals

are ty pically reviewe d for an a

buse of di scretion . Defen

dants add that the c ircuit court held an evidentiary

hearing on plaintiff’s request for a pr eliminary injunction. ¶ 13 Where the circuit court does not makeany fac tual findings or the underlying facts are not indispute, the court’s decision is based o n a purel y le gal analy sis, and the appellate court reviews the circ

uit court’ s denial o f a motion t o compel arbi tration de novo

. Cohen v. Blockbuster

Entertain ment, Inc. , 351 Ill. App. 3d 772, 776 (2004). Here, while there was an evidentiary

hearing on plaintiff’s request for a pr eliminary injunction, that is not thematter under appeal. There was no evidentiary hearing on plaintiff’s motion to compel arbitration, and there is no indication the circuit court made factual finding s or relied upon its prior preliminary

injunction

opinion in i

ts decision to deny

pla intiff’s motion to compel arbitration. Accordingly , we review the circuit court’s denial of this motion de novo

. ¶ 14 The Arbitra

tion Act e mpowers c ourts, upon appl ication o f a part y showing an

agreement to arbitrate, to compel or stay court action pending arbitration. 710 I LCS 5/2 (West 2008); Bass
, 328 Ill. App. 3d

at 496. Pla

intiff ar gues the dispute ov er the va

lidity of the me mbership assignment

falls within the arbitration clause in the operating ag reement, and the circuit court therefore erred i

n deny ing his motion to comp el arbitr ation of h

is claims. Accord

ing to plaintiff, section 7.9’s arbitration clause is broad and generic, and includes within its scope the dispute at issue here. ¶ 15 Defend ants counter that the dispute between the parties is not under theoperati n g agree ment, but instead

invol ves the validity of the membership assignment, a subsequent agreement which containsno a rbi tra ti on c lau se. In defenda nts’ view , the dispu

te thus fa lls outside the arbi

tration c lause in the opera ting ag reemen t, and the circuit c ourt cor

rectly denied plaintiff’s motion to compel arbitration. ¶ 16 The Arbitration Act “embodies a legislative policy favoring enforcement of

agree ments to arbitrate future disputes.” Donaldson, Lufkin & Jenrett e Futures , Inc. v. Barr , 124 Ill. 2d 435, 443 (1988 ). “ ‘[A]rb itration i s a favor ed alter nati ve to litigation by state, fede ral and

common law bec ause it is a sp ee dy, informal, and re latively inexpensive procedure for resolving controversies arising out of commercial transactions.’ ” (I nternal quotation marks omitted.) Bass , 328 Ill. App. 3d at 497 (q uoti ng Board of Managers of the Courtyards at the Woodlands Condominium Ass’n v. IKO Chicago, Inc. , 183 Ill. 2d 66, 71 (1998)). ¶ 17 In

keepi ng wit h thi s pol icy favori ng arbi trati on, co urts h ave ge nerally construed “gene ric ” arbitration

cl au se s b ro ad ly, concluding that the parties are obligated to arbitrate anydispute that argua bly arises under an agreement conta ining a “generic” pr

ovision. Bass , 328 Ill. App. 3d at 498. Arbitration clauses which have been proper ly chara cterized as “generic”

include those demanding

the arbi tration of all claim s or

disputes “arising out of” or “arising out of

or related to” or “regar

ding” the agreement a

t issue. Bass
, 328 Ill. App. 3d at 498; A.E. Staley Manufacturing

Co. v. Robertson , 200 I ll. App. 3d 725, 729 ( 1990); J&

K Cem e nt Construction, Inc. v. Montalbano Builders, Inc. , 119 I ll. App. 3d 663, 670 (1983). Here, the rele vant language in section 7.9 of the oper ating agreement demands a rbitration of “[a]n

y dispute among the members, and any dispute between the company and any one or more of its members.” While section 7.9 clearly a pplies to disputes under

the oper ating a greement,-5-

there is nothing

expressly

lim itin g it to disputes under that agreement. This languag e is at least as broad as, if not broader than, “arising out of or related

to” a spe cific ag

reemen t, and is broad enough to be labeled “g eneric.” ¶ 18 Where an agr

eement c ontains a

gener ic ar bitration clause, that clau se cover s a dispute arising under a subsequent agreeme nt between the same par

ties if the original agreement a

nd the subsequent agreement concer n the same subject matter. Staley , 200 Ill. App. 3d at 730- 31. ¶ 19 In Staley
, an employee entered into a retirement benefits agreement with his employ er. The agreement contained a g eneric arbitration clause. Id . at 729. The employee later entered into a second agreement with his employ er providing for

supplemental retirement bene fits, butwhich contained no arbitration clause. A dispute t hen aros e under t

he secon d agre ement. The appellate court concluded the s ubj ect matter of both agreements wa s the same. Id . at 730. The court rejected the employ er’s argument that the agreements were unr elated and distinct, and concluded they must be read in conjunction with each other. Id . at 731. Ac co rd in gl y, the cour

t held that under the broad scope of the generic arbitration clause, the dispute under the second agreeme nt was arbitrable. Id

. ¶ 20 Here, the op erating agreement co ntains pr ovisions ( section 3 .5 and 5.5 ) dealin g with sales and transfers of member interests. Section 3.5, for example, spells ou t proce dures for the purchas e and sale

of LL C membership intere sts in the e vent of a dispute so serious it requires

a member to withdraw from the company . In challengingthe valid ity o f the memb ership assignment, plaintif

f cl aims it failed to comply with sections 3.5 and 5.5 of the ope rating agree ment. These pr

ovisions r

elate to t he subjec t matter o f the memb ership a ssignme nt, whichdirectly conc erns a transfer o f a member interest. The operating ag reement and the membersh

ip assignment thus concern the same subject matter, such that the dispute over the validity of the me

mbership assignment is with

in the sco pe of the arbitra tion clau se in the operatingagreement. See Ozdeger v. Altay , 66 I ll

. App. 3d 629, 632 (1978) (holding subsequent

oral agreement

dealing with carpentry

management was within scope of written contract’s arbitration

clause, which applied to “all disputes arising out of the subject matter of the contract, that is, the construction of plaintiffs’ home”). ¶ 21 The dispute over the validity of the membe rship assignment is arbitrable, and thecircuit
court er red in denying plaintiff’s motion to compel arbitration. See Donaldson
, 124 Ill. 2d at 445. ¶ 22 We are not persuaded by def endants’ argument that it is t he circ uit court w

hich is the proper fo ru m t o d ec id e t he va li di ty o f the mem bership assignment. Defendants assert the validity of a cont ract is a question of law a

nd arg ue it shoul d

be decided by

the court, not an arbitrator. ¶ 23 Defend

ants point to Coady v. Harpo, Inc. , 308 Ill. App. 3d 153 (1999), which held that

a ch al le ng e t o t he va li di ty o f a co nf id en ti al it y a greement which contained an ar bitration clause was a matter of law for the court to decide , notan arbitrator. Coadyemphasized that the plaintiff

there challeng ed the und erly ing con fidentia

lity agree ment i tself, not the arbitration

agreement

containe d within it. In the caseat bar, defendants appear to arg ue that because plaintiff does not attac

k the arb itration c lause in

the operating agree

ment, but instead-6-

challenges the valid

ity o f the memb ership a ssi gnment , then just as the validity of the underlying

confidentiality ag

reement in Coadywas a que stio n for the court, so also the validity of the membership assig nment here is for the court, not an arbitrator, to decide

. ¶ 24 Defendants’ reliance on Coady is misplaced. In our view, the rea soning in Diersen v. Joe Keim Builders, Inc. , 153 I ll. App. 3d 373 (1987), is persuasive. There, similar to Coady , the plaintiff s’ claim was directed t oward the un derly ing con tract as a whole a

nd not sole ly agains t the arb itration c lause contained w ithin it. ¶ 25 In Diersen , the plaintiffs filed a complaint against a contrac to r alleging thedefendant misrepresented

that a pr

operty was suit able for construction of a single-fa mily home. Diersen , 153 Ill. App. 3d at 375. The plaintiffs alleged fraud in the induce ment and sought rescissionof the contract b ase d on that cl aim. Id . The defendant filed a motion to compel arbitration

based on the terms of the contract, which re quired a ll claimsor disputes relating
to the contract to be settled by arbitration. Id . at 374-75. The circuit court granted the defendant’s motion, and the plaintiffs appealed , ar guing it was error for the c ourt to order arbitration without first ruling on their rescission claim. Id . at 375. ¶ 26 The appellate court in Die rsen noted that the Arbitration Act “requires the court to determine whether an agreeme ntto arbitr

ate exists, where a party

denies its existence, before ordering arbitration on

the matter.” Id . In Diersen , however, the plaintiffs did not deny the existence of the arbitration clause but, instead, asse rted grounds to void the underly ing constructioncontract. The court was not required to consider the merits of that claim before orderingarbitration

. I

d . The appellate court upheld the circuit court’s dec ision to compel arbitration, noting that the plaintiffs’ fraud claim was directed towa rd the contract

as a whole and not solely aga

inst the arbitration clause. Id . at 376. The plaintiffs’ claim was within the scope of the arbitration clause, and the circuit court was not re quired to resolve it before ordering the parties to submit to arbitration. Id

. ¶ 27 Here, similar to Diersen , plaintif f is chall e nging the validity of the members hip assignment, not the exist

ence of the arbi tration c lausein the ope

rating agree ment. The issue of the validity of the membership assig nment is within the scope of section 7.9 of the operati ng ag reemen t, and is a question f

or the ar bitrator , not the c ourt.

¶ 28 CONCLUSIO N ¶ 29 Ac co rd in gl y, for the foregoing reasons , we reve

rse the ju dgment o f the cir

cuit court of Cook County and remand the c ause with directions to compel arbitration. ¶ 30 Reverse d and remanded wi th direc tions.