Court Opinion

ID: 4126926
Source: CourtListenerOpinion
Date Created: 2017-02-16 21:09:32.262057+00
Date Added: 2024-06-11T14:31:02.699412
License: Public Domain

Digitally signed by
                                                                                Reporter of Decisions
                               Illinois Official Reports                        Reason: I attest to the
                                                                                accuracy and
                                                                                integrity of this
                                                                                document
                                      Appellate Court                           Date: 2017.01.31
                                                                                15:04:16 -06'00'

                  G3 Analytics, LLC v. Hughes Socol Piers Resnick & Dym Ltd.,
                                   2016 IL App (1st) 160369

Appellate Court           G3 ANALYTICS, LLC and KEN ELDER, Plaintiffs-Appellants, v.
Caption                   HUGHES SOCOL PIERS RESNICK & DYM LTD., a Limited
                          Liability Partnership, and COHEN LAW GROUP P.C.,
                          Defendants-Appellees.

District & No.            First District, Second Division
                          Docket No. 1-16-0369

Filed                     November 8, 2016

Decision Under            Appeal from the Circuit Court of Cook County, No. 15-CH-5709; the
Review                    Hon. Anna Helen Demacopoulos, Judge, presiding.

Judgment                  Affirmed.

Counsel on                Daniel F. Konicek, Amir R. Tahmassebi, and Andrew M. Cook, of
Appeal                    Konicek & Dillon, P.C., of Geneva, for appellants.

                          Matthew J. Piers, Joshua Karsh, and Kate E. Schwartz, of Hughes
                          Socol Piers Resnick & Dym Ltd., of Chicago, for appellees.

Panel                     PRESIDING JUSTICE HYMAN delivered the judgment of the court,
                          with opinion.
                          Justices Neville and Mason concurred in the judgment and opinion.
                                              OPINION

¶1       Plaintiffs, G3 Analytics and Ken Elder, hired two Chicago law firms to investigate and
     prosecute potential claims under the Illinois False Claims Act (740 ILCS 175/1 et seq. (West
     2014)) and the federal False Claims Act (31 U.S.C. § 3729 et seq. (2012)). After the
     defendants spent several months investigating the claims, plaintiffs terminated the
     relationship. When plaintiffs did not pay the legal fees which defendants billed them,
     defendants demanded mediation under the alternative dispute resolution (ADR) provision of
     the fee agreement. Plaintiffs refused to participate in mediation and instead sought a
     declaratory judgment that the fee agreement was unenforceable. Defendants moved to
     dismiss. In response, plaintiffs contended that Illinois law governed the fee agreement and
     under Illinois law, a trial court, rather than an arbitrator, decides the issue of the agreement’s
     enforceability. The trial court disagreed and dismissed the action, finding that federal law,
     rather than Illinois law, governed the ADR provision due to the fee agreement’s ties to
     interstate commerce. We agree with the trial court’s reasoning, and affirm.

¶2                                          BACKGROUND
¶3       Plaintiffs are in the business of identifying, developing, and filing qui tam
     lawsuits—claims to combat fraud using state and federal false claims statutes. Plaintiffs who
     bring qui tam claims, if successful, may receive a share of the recovery. In January 2014,
     plaintiffs, a Michigan limited liability company and a Michigan resident, retained defendants,
     Chicago law firms Hughes Socol Piers Resnick & Dym Ltd. and Cohen Law Group P.C., to
     jointly investigate claims under the False Claims Act in multiple states for improper practices
     by certain financial institutions. The parties signed a written fee agreement in March 2014.
¶4       The fee agreement contains three provisions relevant to our determination: (i) the client
     withdrawal provision, which states, in part, “In the event our Law Firms are willing to
     proceed with the *** Litigation and you determine to withdraw, you agree to pay our Law
     Firms for all costs and expenses we have incurred, plus fees incurred to the date of your
     withdrawal”; (ii) the choice of law provision, which states, “Subject to the terms of the
     Alternative Dispute Resolution provision, this Agreement will be governed by the laws of the
     State of Illinois”; and (iii) the ADR provision, which states:
              “Alternative Dispute Resolution: Any disputes relating to this Agreement, and any
              disputes relating to the action contemplated by this Agreement, including the services
              provided in the action, will be resolved by alternative dispute resolution. Alternative
              dispute resolution means that you and our Law Firms agree to submit all disputes to
              an independent mediator mutually agreed upon. If you and our Law Firms are unable
              to mutually agree to the selection of a mediator, a mediator will be chosen by
              JAMS/ENDISPUTE. In the event the parties are unable to resolve their disputes
              through mediation, the parties agree that the mediator shall require the parties to
              submit their disputes to an independent arbitrator selected by the mediator. The
              mediator will have the right to appoint himself as arbitrator in that proceeding. The
              parties shall be bound by the decision of the arbitrator and such decision shall be final
              and not subject to review except as the issue of malfeasance or bias on the part of the
              arbitrator. The decision of the arbitrator may be enforced in any court of competent

                                                 -2-
             jurisdiction. You and our Law Firms agree to equally share the cost of mediation and,
             if necessary, arbitration.”
¶5        Between January and August 2014, defendants investigated and evaluated the viability of
     filing the False Claims Act claims. In August 2014, plaintiffs ended defendants’
     representation. Defendants sent plaintiffs a bill for their time and expenses. When plaintiffs
     would not pay, defendants demanded mediation under the fee agreement’s ADR provision.
     Mediation was scheduled and continued on a number of occasions before plaintiffs filed a
     complaint for declaratory judgment. Specifically, plaintiffs contended that (i) the fee
     agreement was not binding in the absence of an arm’s-length bargaining process, (ii) the fee
     agreement became unenforceable when plaintiffs terminated defendants’ representation, (iii)
     the ADR provision violated public policy by not allowing plaintiffs to engage in discovery
     and depriving them of access to critical information necessary to file a cause of action, and
     (iv) the ADR provision became unenforceable by allowing the mediator to appoint himself or
     herself as arbitrator.
¶6        Defendants filed a combined motion to dismiss and to compel arbitration under section
     2-619.1 of the Code of Civil Procedure (Code) (735 ILCS 5/2-619.1 (West 2014)), arguing
     that the complaint should be dismissed under section 2-615 of the Code (735 ILCS 5/2-615
     (West 2014)) for failing to allege any cognizable basis for challenging or avoiding the
     agreement’s ADR provision and for failing to sufficiently plead facts rather than conclusions.
     Defendants also sought dismissal under section 2-619(a)(9) of the Code (735 ILCS
     5/2-619(a)(9) (West 2014)), because the agreement provides that ADR is the exclusive
     remedy and thus, constitutes an “affirmative matter avoiding the legal effect of or defeating
     the claim.”
¶7        Defendants asserted that the Federal Arbitration Act (9 U.S.C. § 2 (2012)) applies, which
     requires an arbitrator to determine whether the agreement is enforceable. In a surreply,
     plaintiffs argued that under the fee agreement’s choice of law provision, Illinois law applies,
     and under section 2 of the Uniform Arbitration Act (710 ILCS 5/2 (West 2014)), a court, and
     not an arbitrator, determines whether a contract to arbitrate exists.
¶8        After a hearing, the trial court dismissed plaintiffs’ complaint. First, the trial court found
     that the plain language of the fee agreement does not apply Illinois law to the ADR
     provision. Specifically, the court noted that the choice of law provision states that it is
     “subject to the terms of the Alternative Dispute Resolution provision.” The court said, “the
     crux of this motion is an issue regarding the language in this agreement ***. [T]he language
     says except for the alternative dispute resolution provision, Illinois law will apply. So [the
     agreement] *** contemplates that the dispute resolution trumps it ***. So in the end, I think
     it comes down to the language.”
¶9        The trial court also found that the fee agreement involves interstate commerce because
     plaintiffs reside in Michigan, defendants are located in Chicago, and the agreement
     contemplated possible False Claims Act claims in several states. The trial court concluded
     that given the interstate commerce nature of the fee agreement and the absence of language
     stating the appropriateness of Illinois arbitration rules, the Federal Arbitration Act applies.
     The Federal Arbitration Act provides that the enforceability of a contract containing an
     arbitration clause is an issue reserved for arbitrators, not courts. Thus, the trial court granted
     defendants’ motion to dismiss the complaint and compel arbitration.

                                                  -3-
¶ 10                                            ANALYSIS
¶ 11        Section 2-619.1 of the Code of Civil Procedure is a combined motion that incorporates
       sections 2-615 and 2-619 of the Code. 735 ILCS 5/2-619.1, 2-615, 2-619 (West 2010). “[W]e
       accept all well-pleaded facts in the complaint as true and draw all reasonable inferences from
       those facts in favor of the nonmoving party.” Balmoral Racing Club, Inc. v. Gonzales, 338
       Ill. App. 3d 478, 484 (2003). We review de novo a trial court’s dismissal of a complaint
       under section 2-619.1 of the Code.
¶ 12        The lone issue we address is whether Illinois law, specifically, the Uniform Arbitration
       Act (Arbitration Act) or the Federal Arbitration Act (FAA) governs the ADR provision in the
       fee agreement. Under section 2(a) of the Arbitration Act, when an “opposing party denies the
       existence of the agreement to arbitrate,” a “court shall proceed summarily to the
       determination of the issue.” 710 ILCS 5/2(a) (West 2014). Under the FAA, however, there is
       a presumption in favor of arbitration and disputes over the enforceability of a contract are
       decided by the arbitrator. 9 U.S.C. § 2 (2012).
¶ 13        Plaintiffs are correct in asserting that courts have held that when parties to a contract
       select Illinois law as the governing law, Illinois law applies to all provisions of the contract,
       including the arbitration provision. See Glazer’s Distributors of Illinois v. NWS-Illinois, LLC,
       376 Ill. App. 3d 411 (2007). Courts also have held that where parties to a contract agree to
       arbitrate in accordance with state law, the FAA does not apply, even when involving
       interstate commerce. See Tortoriello v. Gerald Nissan of North Aurora, Inc., 379 Ill. App. 3d
       214 (2008); see also Glazer’s, 376 Ill. App. 3d at 421 (citing Yates v. Doctor’s Associates,
       Inc., 193 Ill. App. 3d 431, 438 (1990)).
¶ 14        Plaintiffs contend that the fee agreement’s choice of law provision applies to the entire
       agreement, including the ADR provision, even though the case involves interstate commerce.
       For support, plaintiffs cite Glazer’s, 376 Ill. App. 3d 411, and Yates, 193 Ill. App. 3d 431. In
       both cases, the contracts included a blanket choice of law provision that plainly applied to the
       entire agreement. Conversely, here, the choice of law provision states that it is “subject to the
       terms of the Alternative Dispute Resolution provision.” Thus, we must determine if the
       “subject to” language precludes application of Illinois law to the ADR provision.
¶ 15        The terms of a contract must be given their plain, ordinary, popular, and natural meaning.
       Village of Glenview v. Northfield Woods Water & Utility Co., 216 Ill. App. 3d 40, 48 (1991).
       Whether an ambiguity exists presents a question of law for the trial court to decide. Id. There
       is no ambiguity if a court can ascertain a contract’s meaning from its general language.
       Disagreement among the parties as to the meaning of terms does not render a contract
       ambiguous. Id. Absent an ambiguity, “ ‘the intention of the parties *** must be ascertained
       by the language utilized in the contract itself, not by the construction placed upon it by the
       parties.’ ” (Emphasis omitted.) Id. at 48-49 (quoting Lenzi v. Morkin, 103 Ill. 2d 290, 293
       (1984)). “The words ‘subject to,’ used in their ordinary sense, mean ‘subordinate to,’
       ‘subservient to’ or ‘limited by.’ ” Engelstein v. Mintz, 345 Ill. 48, 61 (1931). Thus, as the
       choice of law provision has been made “subordinate to” the ADR provision, Illinois law does
       not automatically apply.
¶ 16        Next, because the ADR provision is silent as to what law does apply, we must consider
       whether the trial court was correct in applying federal law. Plaintiffs assert that without
       language in the ADR provision stating whether Illinois or federal law applies, the trial court

                                                   -4-
       should have applied Illinois law, particularly in light of the choice of law provision. We
       disagree.
¶ 17       The FAA governs the enforceability of arbitration agreements in contracts involving
       interstate commerce. Bovay v. Sears, Roebuck & Co., 2013 IL App (1st) 120789, ¶ 28. The
       fee agreement was between parties from different states and contemplated potential False
       Claims Act litigation, under both state and federal law, in multiple jurisdictions. Because the
       fee agreement involves interstate commerce, the FAA, not Illinois law, governs.
¶ 18       Moreover, when a party challenges the enforceability of a contract as a whole, as opposed
       to the arbitration provision alone, the issue of the contract’s validity proceeds to arbitration
       rather than in another forum, whether judicial or administrative. LRN Holding, Inc. v.
       Windlake Capital Advisors, LLC, 409 Ill. App. 3d 1025, 1031-32 (2011) (citing Preston v.
       Ferrer, 552 U.S. 346 (2008)). In LRN, the plaintiffs argued that their agreement with the
       defendant broker was void ab initio, because defendant was not a properly registered broker
       with the state as required by Illinois law. Id. at 1027. Plaintiffs argued that the trial court
       must determine whether any contract existed before the matter could be submitted to
       arbitration under the agreement’s arbitration provision, which mandated any controversy
       between the parties relating to the agreement be resolved by binding arbitration. Id. at 1028.
       This court ruled against plaintiffs, relying on Preston, in which the United States Supreme
       Court stated that a “recurring question under [section] 2 [of the FAA] is who should decide
       whether ‘grounds *** exist at law or in equity’ to invalidate an arbitration agreement.”
       Preston, 552 U.S. at 353 (quoting 9 U.S.C. § 2 (2000)). The Court noted that a party may
       bring one of two types of challenges—either to the contract as a whole or the arbitration
       clause specifically. Id. at 353-54. Affirming holdings in earlier cases, the Court stated “When
       parties agree to arbitrate all questions arising under a contract, the FAA supersedes state laws
       lodging primary jurisdiction in another forum, whether judicial or administrative.” Id. at 359.
       Based on Preston, the LRN court found that because the plaintiffs did not attack the
       arbitration provision specifically but sought to invalidate the entire contract, the dispute
       between the parties would proceed to arbitration. LRN, 409 Ill. App. 3d at 1031-32.
       Similarly, plaintiffs filed a declaratory judgment action arguing that the entire fee agreement
       was invalid, and, accordingly, the question of its enforceability must be decided by an
       arbitrator and not a court.

¶ 19      Affirmed.

                                                  -5-