Court Opinion

ID: 4275412
Source: CourtListenerOpinion
Date Created: 2018-05-15 21:06:04.527736+00
Date Added: 2024-06-11T13:08:18.636616
License: Public Domain

2018 IL App (1st) 172281
                                            No. 1-17-2281
                                             May 15, 2018

                                                                               SECOND DIVISION

                                                IN THE

                                 APPELLATE COURT OF ILLINOIS

                                           FIRST DISTRICT

     ZURICH AMERICAN INSURANCE COMPANY and           )     Appeal from the
     AMERICAN ZURICH INSURANCE COMPANY,              )     Court Circuit of
                                                     )     Cook County.
                 Plaintiffs-Appellees,               )
                                                     )     17 L 003729
     v.                                              )
                                                     )

     PERSONNEL STAFFING GROUP, LLC; DANIEL           )     Honorable

     S. BARNETT; and DASH MANAGEMENT,                )     Thomas R. Mulroy, Jr.,
                                                     )     Judge Presiding.
                 Defendants-Appellants.              )
     ______________________________________________________________________________

           PRESIDING JUSTICE NEVILLE delivered the judgment of the court, with opinion.
           Justices Hyman and Mason concurred in the judgment and opinion.

                                               OPINON

¶1         After Zurich American Insurance Company (Zurich) filed a demand for arbitration of its

        dispute with its insured, Personnel Staffing Group, LLC (PSG), Zurich filed a complaint

        against PSG and two other defendants, alleging that PSG fraudulently transferred funds to the

        other defendants to avoid paying an anticipated arbitration award. PSG filed in court a

        counterclaim that matched claims it raised in the arbitration. The Cook County circuit court

        denied the defendants’ motion to compel arbitration of the fraudulent transfer claim, and it
     No. 1-17-2281

        denied the defendants’ motion to stay proceedings on the fraudulent transfer claims pending

        resolution of the arbitration. The court also dismissed the counterclaims to compel arbitration

        of those claims. The defendants now appeal.

¶2          We find that Zurich’s complaint concerns collection of the arbitration award and the

        circuit court correctly held that the parties did not agree to arbitrate issues regarding

        collection of arbitration awards. Staying proceedings on the fraudulent transfer claims

        pending arbitration would conflict with the purposes of the Uniform Fraudulent Transfer Act

        (Act). 740 ILCS 160/1 et seq. (West 2016). The defendants concede that the parties agreed to

        arbitrate the issues raised in their counterclaims. Accordingly, we affirm the circuit court’s

        order.

¶3                                          BACKGROUND

¶4          In 2011, PSG bought workers’ compensation insurance from Zurich subject to a “Loss

        Retrospective Agreement” (Agreement), which provided that PSG would pay Zurich an

        amount that depended on the workers’ compensation claims eventually filed against PSG for

        the covered period. The Agreement established that Zurich would handle the claims and then

        bill PSG for the paid losses. Because Zurich would initially pay the claims, it effectively

        loaned the payments to PSG. The Agreement referred to this aspect of the Agreement as a

        “risk financing arrangement,” for which Zurich required collateral in the form of a letter of

        credit in “an amount sufficient to secure [PSG’s] financial obligations under this

        Agreement.” The Agreement also provided that “[a]ny dispute arising out of the

        interpretation, performance or alleged breach of this Agreement, shall be settled by binding

        arbitration.”

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     No. 1-17-2281

¶5         For several years, PSG regularly paid Zurich the amounts Zurich billed, but

        disagreements arose, and PSG stopped reimbursing the full amounts demanded. In June

        2016, the final policy term ended, and PSG bought insurance from another source. On

        December 1, 2016, Zurich filed a demand for arbitration to resolve its disputes with PSG.

        Zurich sought to recover more than $4.6 million for the retrospective premiums already due,

        and it sought a letter of credit in the amount of $39 million as security for future claims. PSG

        replied that Zurich had breached the Agreement by “engag[ing] in a pattern and practice of

        settling claims without regard for whether the settlements were reasonable,” by “fail[ing] to

        properly investigate and manage claims,” and by “failing to consult with PSG about

        settlements and reserve charges that exceed $10,000.”

¶6         Before the arbitration hearing began, Zurich filed the complaint that initiated the lawsuit

        now before this court. Zurich named as defendants PSG, Dash Management, Inc. (Dash), and

        Daniel S. Barnett. Barnett, the “majority member” of PSG, owned Dash, and PSG paid Dash

        management fees. Zurich alleged that the defendants violated the Act in 2015, when PSG

        distributed $4.5 million to Barnett and paid Dash $5.8 million in management fees.

¶7         The defendants filed a “Motion To Dismiss or Stay or in the Alternative for Judgment on

        the Pleadings.” They argued that either the circuit court should dismiss the lawsuit and

        compel arbitration of the fraudulent transfer claims or the court should stay proceedings on

        the fraudulent transfer claims until the arbitrators issue a final award. In the alternative, the

        defendants sought judgment on the pleadings, arguing that PSG’s debt to Zurich did not arise

        until 2017 and, therefore, Zurich could not challenge the transfers PSG made in 2015. The

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          defendants also filed a counterclaim that raised the same issues PSG raised in arbitration.

          Zurich filed a motion to compel arbitration of the counterclaim.

¶8           The circuit court set a date for hearing the “Motion To Dismiss or Stay or in the

          Alternative for Judgment on the Pleadings.” Following the hearing, the court entered an order

          in which it (1) denied the motion to dismiss the lawsuit to compel arbitration of the

          fraudulent transfer claims, (2) denied the motion to stay proceedings on Zurich’s complaint,

          (3) denied the motion for judgment on the pleadings, and (4) granted Zurich’s motion to

          compel arbitration of the counterclaims. The defendants filed a notice of appeal.

¶9                                               ANALYSIS

¶ 10         Illinois Supreme Court Rule 307(a)(1) (eff. Nov. 1, 2017) gives this court jurisdiction to

          decide this appeal. MHR Estate Plan, LLC v. K&G Partnership, 2016 IL App (3d) 150744,

          ¶ 15; Robert A. Besner & Co. v. Lit America, Inc., 214 Ill. App. 3d 619, 623 (1991) (an order

          compelling arbitration is considered to be an appealable interlocutory order because it is

          injunctive). The circuit court considered only the pleadings and attached documents, deciding

          the issues as a matter of law. Therefore, we review the court’s decision de novo. Board of

          Managers of Chestnut Hills Condominium Ass’n v. Pasquinelli, Inc., 354 Ill. App. 3d 749,

          753-54 (2004).

¶ 11                                    Motion to Compel Arbitration

¶ 12         PSG argues first that the circuit court should have granted its motion to compel Zurich to

          arbitrate its fraudulent transfer claims against PSG because the claims “aris[e] out of the

          interpretation, performance or alleged breach of th[e] Agreement.” We disagree. In its

          complaint, Zurich alleged that PSG transferred funds to Barnett and Dash to avoid paying a

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           possible arbitration award. Zurich’s complaint parallels the complaints filed in Northern

           Tankers (Cyprus) Ltd. v. Backstrom, 967 F. Supp. 1391 (D. Conn. 1997); Ryan Racing, LLC

           v. Gentilozzi, 231 F. Supp. 3d 269 (W.D. Mich. 2017); and Apparel Art International, Inc. v.

           Jacobson, Civ. No. 90-1756 (JAF), 1991 WL 641949 (D.P.R. Aug. 21, 1991), aff’d, 967 F.2d

           720 (1st Cir. 1992). In Apparel Art, the plaintiff claimed that after it initiated arbitration of its

           claims against Amertex, “the principals of Amertex themselves, through family members and

           shell corporations, transferred virtually all assets from Amertex while the arbitration was

           proceeding as a way to frustrate plaintiff’s attempt to collect on any award it might receive.”

           Apparel Art, 1991 WL 641949, at *3. The Apparel Art court observed, “the fraudulent

           transfer claim is merely one aspect of plaintiff’s attempt at collection of the judgment”

           entered on the arbitration award. Apparel Art, 1991 WL 641949, at *3. Ryan Racing and

           Northern Tankers also involved fraudulent transfer claims addressed in court as part of the

           plaintiffs’ efforts to collect arbitration awards. Ryan Racing, 231 F. Supp. 3d at 275-76;

           Northern Tankers, 967 F. Supp. at 1394-95.

¶ 13	          In Geneva Corporate Finance v. G.B.E. Liquidation Corp., 598 N.W.2d 331 (Iowa Ct.

           App. 1999), the plaintiff won an arbitration award against the defendant and obtained a

           judgment on the award. The plaintiff then filed a fraudulent transfer complaint against the

           defendant in court. The defendant asked the court to dismiss the complaint as res judicata,

           arguing that the plaintiff could have pursued the fraudulent transfer claim in arbitration. The

           Geneva court held that the judgment on the arbitration award did not bar the fraudulent

           transfer claim because “the arbitration award established defendant corporation’s liability

           under the listing contract and this action deals with collecting the judgment.” Geneva, 598

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       No. 1-17-2281

          N.W.2d at 334. We find that Zurich, like the plaintiffs in Geneva, Apparel Art, Ryan Racing,

          and Northern Tankers, brought the fraudulent transfer claim as part of an effort to collect an

          arbitration award.

¶ 14         Under the Uniform Arbitration Act (710 ILCS 5/1 et seq. (West 2016)), after a party

          obtains an arbitration award, the party must file a complaint in court for confirmation of the

          award. 710 ILCS 5/14 (West 2016); see Windham v. Doctor’s Associates, Inc., 127 A.3d

          1082, 1086-87 (Conn. App. Ct. 2015). The court then decides issues related to enforcement

          and collection of the judgment entered on the award. 710 ILCS 5/14 (West 2016); see Adam

          Martin Construction Co. v. Brandon Partnership, 135 Ill. App. 3d 324, 326 (1985).

¶ 15         The defendants cite Miller v. Flume, 139 F.3d 1130 (7th Cir. 1998), as authority holding

          that the arbitrator should decide fraudulent transfer issues. In Miller, the defendant won an

          arbitration award against the plaintiffs, and a court entered a judgment confirming the award.

          The defendant then filed a second arbitration demand, alleging that the plaintiffs had

          fraudulently transferred assets to avoid paying the arbitration award. Miller, 139 F.3d at

          1131. The plaintiffs filed a complaint to enjoin the second arbitration, which concerned only

          enforcement and collection of the original arbitration award. The Miller court found the

          fraudulent transfer claim arbitrable. The court emphasized that “the language of this

          particular agreement to arbitrate is quite broad, sweeping in not only claims that literally

          ‘arise out of’ the business of the firm (i.e., its buying and selling activities), but also claims

          that have a ‘connection’ with the firm’s business.” Miller, 139 F.3d at 1136.

¶ 16         The arbitration clause here, unlike the clause at issue in Miller, limits its scope to issues

          that arise out of the interpretation, performance, or alleged breach of the Agreement. The

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          Agreement manifests an intention to adopt the usual arrangement: the arbitrator decides how

          much each party owes the other under the contract, and the court decides issues related to

          enforcement and collection of the arbitrator’s award. We find that the issues surrounding the

          allegedly fraudulent transfers concern collection of the arbitrator’s award and, therefore, they

          do not arise out of the interpretation or performance of the Agreement. The circuit court

          correctly denied the defendants’ motion to compel Zurich to arbitrate its fraudulent transfer

          claims.

¶ 17                                            Motion to Stay

¶ 18         Next, the defendants argue that the circuit court should have stayed court proceedings

          pending issuance of the arbitral award. “The purpose of the Uniform Fraudulent Transfer Act

          is to prevent fraudulent transfers of property by a debtor who intends to defraud creditors by

          placing assets beyond their reach.” Yokogawa Corp. of America v. Skye International

          Holdings, Inc., 159 S.W.3d 266, 269 (Tex. App. 2005). In accord with the purposes of the

          Act, “[a] ‘claim’ under the Act may be maintained even though ‘contingent’ and not yet

          reduced to judgment.” Cook v. Pompano Shopper, Inc., 582 So. 2d 37, 40 (Fla. Dist. Ct. App.

          1991) (per curiam); see Salisbury v. Majesky, 352 Ill. App. 3d 1188, 1190-91 (2004). “[I]f

          automatically staying discovery and progression of [fraudulent transfer] claims was standard

          and a failure to do so an abuse of discretion, the goal of protecting creditors from wrongful

          asset transfers would likely be nearly entirely frustrated.” Friedman v. Heart Institute of Port

          St. Lucie, Inc., 863 So. 2d 189, 193 (Fla. 2003). We find that, in accord with the purposes of

          the Act, the circuit court correctly denied the motion to stay proceedings under the Act.

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¶ 19                                          Motion to Dismiss

¶ 20         The defendants argue that the circuit court improperly ruled on their motion to dismiss

          under section 2-615 of the Code of Civil Procedure. 735 ILCS 5/2-615 (West 2016). The

          defendants asked the circuit court to dismiss the complaint on grounds that Zurich had no

          claim against PSG in 2015, when PSG made the transfers Zurich seeks to challenge. In this

          appeal, the defendants argue that the circuit court erred when it denied the motion for

          judgment on the pleadings because “[d]efendants did not have any opportunity to file a brief

          or make any argument” in support of their motion. However, defendants do not argue that the

          denial of the motion to dismiss the complaint qualifies as an order granting or denying an

          injunction. See Ill. S. Ct. R. 307(a) (eff. Nov. 1, 2017). In this limited appeal under Rule 307,

          we lack jurisdiction to address the denial of a motion to dismiss the complaint. See Mund v.

          Brown, 393 Ill. App. 3d 994, 996 (2009); Murges v. Bowman, 254 Ill. App. 3d 1071, 1080

          (1993).

¶ 21                                             Counterclaims

¶ 22         Finally, the defendants contend that the circuit court erred when it granted Zurich’s

          motion to compel arbitration of the counterclaims. The defendants admit that all of their

          counterclaims arose out of the Agreement and concern the amount due under the Agreement.

          None of the counterclaims involve collection of a possible arbitral award. Because the

          defendants admit that their counterclaims arose out of the Agreement, the circuit court

          correctly granted Zurich’s motion to compel arbitration of the counterclaims.

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¶ 23                                           CONCLUSION

¶ 24         Zurich and PSG agreed to arbitrate all claims arising out of the interpretation or

          performance of the Agreement, but they did not agree to arbitrate issues concerning

          collection and enforcement of an arbitrator’s award. Because Zurich’s fraudulent transfer

          claims concern collection of a possible award, the claims do not arise out of the interpretation

          or performance of the Agreement. The circuit court correctly denied the motion to compel

          arbitration of Zurich’s fraudulent transfer claims. The court also correctly denied the motion

          to stay proceedings on the complaint pending arbitration. As the defendants conceded that the

          arbitrators have jurisdiction to decide their counterclaims, the circuit court correctly granted

          Zurich’s motion to compel arbitration of the counterclaims. Accordingly, we affirm the

          circuit court’s judgment.

¶ 25         Affirmed.

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