Court Opinion

ID: 3148494
Source: CourtListenerOpinion
Date Created: 2015-10-22 18:50:07.356757+00
Date Added: 2024-06-11T12:15:00.327858
License: Public Domain

ILLINOIS OFFICIAL REPORTS
                                         Appellate Court

              Klehr v. Illinois Farmers Insurance Co., 2013 IL App (1st) 121843

Appellate Court            MEGAN KLEHR, Plaintiff-Appellant, v. ILLINOIS FARMERS
Caption                    INSURANCE COMPANY, Defendant-Appellant.

District & No.             First District, Second Division
                           Docket No. 1-12-1843

Filed                      January 22, 2013

Held                       Although the trial court had subject-matter jurisdiction to entertain
(Note: This syllabus       plaintiff’s complaint seeking a declaratory judgment challenging a
constitutes no part of     discovery order entered in the arbitration of an uninsured motorist claim
the opinion of the court   plaintiff filed, plaintiff’s action seeking interlocutory review of the
but has been prepared      arbitrators’ discovery order was still unripe for action by the trial court
by the Reporter of         until a final award was issued by the arbitrators, since the Uniform
Decisions for the          Arbitration Act clearly intends to preclude intervention by the courts until
convenience of the         the arbitration process is concluded.
reader.)

Decision Under             Appeal from the Circuit Court of Cook County, No. 11-CH-34842; the
Review                     Hon. Rita M. Novak, Judge, presiding.

Judgment                   Affirmed.
Counsel on                  Brian J. Wiehe and Matthew J. Belcher, both of Belcher Law Office, of
Appeal                      Chicago, for appellant.

                            Danny L. Worker, Leena Soni, and Lisa M. Taylor, all of Lewis Brisbois
                            Bisgaard & Smith LLP, of Chicago, for appellee.

Panel                       JUSTICE CONNORS delivered the judgment of the court, with opinion.
                            Presiding Justice Harris and Justice Quinn concurred in the judgment and
                            opinion.

                                              OPINION

¶1           If a valid arbitration agreement exists and the parties have begun but not completed the
        arbitration process, can one of the parties obtain judicial review of the arbitrators’
        interlocutory ruling on a discovery issue by filing a declaratory judgment action in the circuit
        court? This question is at the heart of this case and appears to be one of first impression in
        Illinois and, so far as we can tell, nationally. The circuit court decided that it lacked subject-
        matter jurisdiction in such a situation and dismissed the complaint. We affirm, though on a
        different ground.
¶2           This appeal is the sequel to Klehr v. Illinois Farmers Insurance Co., No. 1-10-2459
        (2011) (Klehr I) (unpublished order under Supreme Court Rule 23), and this case picks up
        where that one left off. As we related in Klehr I, in 2007, plaintiff Megan Klehr was a
        passenger in a car that was involved in a hit-and-run accident, and she filed an uninsured
        motorist claim with the driver’s insurance carrier. The insurer settled plaintiff’s claim after
        plaintiff filed a declaratory judgment action against it, but the settlement was insufficient to
        completely cover her injuries and so she filed an additional claim with her own insurance
        carrier, defendant Illinois Farmers Insurance Company. Not long after filing that claim,
        plaintiff demanded arbitration under the arbitration provision in her insurance policy and the
        matter was referred to the American Arbitration Association (AAA) for resolution.
¶3           This is where the problem underlying this case started. After the arbitration process
        began, defendant served several discovery requests on plaintiff, which included
        interrogatories, document requests, and a request to appear for a sworn statement. Plaintiff
        refused to comply, contending that discovery of the type sought by defendant is not
        permissible under the terms of the arbitration clause and applicable Illinois law or,
        alternatively, that any discovery must be conducted within 180 days of the initiation of the
        claim. Plaintiff did not bring the dispute to the arbitrators for a ruling, but instead filed a
        declaratory judgment action in the circuit court, in which she sought a declaration that the
        discovery period was closed and that plaintiff was therefore not required to answer
        defendant’s discovery requests. The circuit court dismissed the complaint for failure to state

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     a claim (see 735 ILCS 5/2-615 (West 2010)).
¶4       We affirmed on appeal in Klehr I, finding that plaintiff had not alleged an actual
     controversy. We reasoned that plaintiff’s complaint was premature because plaintiff did not
     allege that she had referred the issue to the arbitrators, who had authority over discovery
     issues pursuant to the applicable rules of the AAA. See Klehr I, slip op. at 4-9.
¶5       Shortly after we issued our order in Klehr I, plaintiff filed a motion with the arbitrators
     asking for the same relief that she had sought from the circuit court. The arbitrators denied
     the motion and ordered plaintiff to respond to defendant’s discovery requests. Rather than
     complying with the arbitrators’ order, however, plaintiff filed the instant lawsuit, which again
     seeks a declaratory judgment that discovery is not allowed in this situation or, alternatively,
     that the discovery period is limited to the 180 days after the claim was filed. Defendant
     moved to dismiss the complaint on a number of bases, including for failure to state a claim
     under section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 2010)). The
     circuit court, however, sua sponte raised the issue of subject-matter jurisdiction and found
     that it had no jurisdiction to review the arbitrators’ interlocutory discovery order because the
     arbitration process had not been completed. The circuit court accordingly dismissed the
     complaint for lack of subject-matter jurisdiction (see 735 ILCS 5/2-619(a)(1) (West 2010)),
     and plaintiff appealed.
¶6       The initial question in this case is whether the circuit court has subject-matter jurisdiction
     over plaintiff’s claim, which is an issue that we review de novo. See In re Luis R., 239 Ill.
2d 295, 300 (2010). The subject-matter jurisdiction of the circuit court is broad and
     encompasses “all justiciable matters except when the Supreme Court has original and
     exclusive jurisdiction relating to redistricting of the General Assembly and to the ability of
     the Governor to serve or resume office. Circuit Courts shall have such power to review
     administrative action as provided by law.” Ill. Const. 1970, art. VI, § 9. Whether an action
     constitutes a “justiciable” matter is the critical inquiry in this context, and the supreme court
     provided the proper analysis in Luis R.:
              “Generally speaking, a ‘justiciable matter’ is ‘a controversy appropriate for review
         by the court, in that it is definite and concrete, as opposed to hypothetical or moot,
         touching upon the legal relations of parties having adverse legal interests.’ [Citation.] To
         invoke a circuit court’s subject matter jurisdiction, a petition or complaint need only
         ‘alleg[e] the existence of a justiciable matter.’ [Citation.] Indeed, even a defectively
         stated claim is sufficient to invoke the court’s subject matter jurisdiction, as ‘[s]ubject
         matter jurisdiction does not depend upon the legal sufficiency of the pleadings.’
         [Citation.] In other words, the only consideration is whether the alleged claim falls
         within the general class of cases that the court has the inherent power to hear and
         determine. If it does, then subject matter jurisdiction is present.” (Emphasis in original
         and added.) Luis R., 239 Ill. 2d at 301.
¶7       In this case, plaintiff’s complaint seeks a declaratory judgment, which is a type of case
     that is within the power of the circuit court to hear. See 735 ILCS 5/2-701 (West 2010). It
     is understandable that the circuit court was concerned about whether this is the kind of case
     that is appropriate for judicial review at this time, but the circuit court does have jurisdiction

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       over plaintiff’s complaint because plaintiff seeks declaratory relief, which the circuit court
       is empowered to provide. The circuit court was therefore incorrect to dismiss the complaint
       for lack of subject-matter jurisdiction.
¶8         Yet merely because the circuit court has jurisdiction over plaintiff’s claim does not
       necessarily mean that the claim is valid. The circuit court raised the issue of jurisdiction
       because it could see no legal basis for judicial review of interlocutory decisions by an
       arbitration panel prior to a final arbitration award. The authority of the courts to review
       arbitration awards is controlled by sections 10 through 13 of the Uniform Arbitration Act
       (710 ILCS 5/10 to 13 (West 2010)), but the Act does not provide a mechanism for review
       of interlocutory orders by the arbitrators. Indeed, aside from confirming, modifying, or
       vacating a final arbitration award, the role of the courts in the arbitration process is generally
       limited to determining the existence of a valid arbitration agreement. See Donaldson, Lufkin
       & Jenrette Futures, Inc. v. Barr, 124 Ill. 2d 435, 449-50 (1988) (“[T]he sole question for the
       court to determine is whether there was an agreement to arbitrate. [Citation.] If it is obvious
       that there was an agreement to arbitrate the dispute in question, that is, if the dispute clearly
       falls within the scope of the arbitration agreement, the court should order arbitration. If it is
       clear that it does not, arbitration should be refused. [Citation.] *** [I]n unclear cases and in
       the face of an omnibus arbitration clause *** the court should initially defer the arbitrability
       question to the arbitrator ***.”).
¶9         What makes this case difficult is that plaintiff did not bring this action under the Uniform
       Arbitration Act, instead framing her claim as an action for a declaratory judgment. To state
       a claim for a declaratory judgment, plaintiff need only allege that she has a tangible legal
       interest, that defendant has an opposing interest, and that there is an actual controversy
       between the parties concerning those interests. See Beahringer v. Page, 204 Ill. 2d 363, 372
       (2003). An actual controversy
           “does not mean that a wrong must have been committed and injury inflicted. Rather, it
           requires a showing that the underlying facts and issues of the case are not moot or
           premature, so as to require the court to pass judgment on mere abstract propositions of
           law, render an advisory opinion, or give legal advice as to future events” (Emphasis
           omitted.) (Internal quotation marks omitted.) Id. at 374-75.
¶ 10       In Klehr I, we found that plaintiff’s claim was premature because the arbitrator had not
       made a ruling on the discovery issue, which would make any opinion by a court on the
       subject merely advisory. See Klehr I, slip op. at 4-9. Plaintiff’s new lawsuit has corrected that
       problem by including an allegation that the arbitrators ruled against her on the discovery
       issue. As with her previous lawsuit, what plaintiff seeks in this case is in essence
       interlocutory judicial review of the arbitrators’ discovery order in the guise of a declaratory
       judgment. Unlike Klehr I, however, plaintiff now appears to state a cause of action, at least
       based on the allegations of the complaint. Plaintiff alleges that defendant has demanded
       discovery and that the arbitrators have ordered her to comply. She also alleges that she does
       not want to comply with the order, and she has provided us with legal reasons supporting her
       position. Taken together, this is enough to allege the existence of an actual controversy
       between opposing legal interests, which is ordinarily sufficient to state a claim for a
       declaratory judgment. See Beahringer, 204 Ill. 2d at 372.

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¶ 11        But merely alleging the existence of an actual controversy is not enough: the claim must
       also be ripe for judicial decision. The supreme court has stated that determining ripeness in
       the context of a declaratory judgment action requires considering whether the issue presented
       is “fit for judicial decision” and whether “any hardship to the parties *** would result from
       withholding judicial consideration.” Morr-Fitz, Inc. v. Blagojevich, 231 Ill. 2d 474, 490
       (2008). The concept behind the ripeness doctrine is “to prevent the courts, through avoidance
       of premature adjudication, from entangling themselves in abstract disagreements over
       administrative policies, and also to protect the agencies from judicial interference until an
       administrative decision has been formalized and its effects felt in a concrete way by the
       challenging parties.” (Internal quotation marks omitted.) Id. We found that plaintiff’s claims
       in Klehr I were unripe largely because “based on the allegations in the complaint, we cannot
       know what discovery procedures, if any, the arbitrator *** may impose in this particular
       case.” Klehr I, slip op. at 9. That has now changed because the arbitrators have ordered
       plaintiff to comply with defendant’s discovery requests.
¶ 12        Given that plaintiff’s new complaint seeks only a legal interpretation of the interplay
       between the discovery rules of the AAA and the Illinois Insurance Code (215 ILCS 5/143a
       (West 2008)), we have no doubt that this issue is fit for judicial decision. See Morr-Fitz, 231
Ill. 2d at 492 (“ ‘Fitness for judicial decision means, most often, that the issue is legal rather
       than factual.’ ” (quoting Minnesota Citizens Concerned for Life v. Federal Election Comm’n,
       113 F.3d 129, 132 (8th Cir. 1997))). Moreover, we now know that the arbitrators have
       allegedly ordered discovery, which was an allegation that was not present in Klehr I.
¶ 13        The harder question is whether the issue is fit for judicial decision now, that is, whether
       there will be a significant hardship imposed by declining to review the arbitrators’
       interlocutory order. Plaintiff claims two hardships. First, she contends that, absent a
       declaratory judgment action, the arbitrators’ discovery order is unreviewable because of the
       limited role of the courts in reviewing final arbitration awards. This is simply not correct,
       given that the Uniform Arbitration Act requires courts to vacate awards when the arbitrators
       exceed their powers. See 710 ILCS 5/12(a)(3) (West 2010). Plaintiff’s contention in this
       declaratory judgment action is that the discovery that defendant seeks is not legally
       authorized. If true, then the arbitrators have exceeded their powers by ordering plaintiff to
       comply with the discovery request, and that order can be reviewed by the circuit court as part
       of an application to vacate the award at the conclusion of the arbitration process.
¶ 14        Second, plaintiff contends that she will be forced to incur expenses and suffer delays in
       her case by complying with the discovery order. This is not an insignificant consideration,
       but we must view this potential hardship in light of the intent behind the Uniform Arbitration
       Act. The dispositive question is whether allowing judicial review of the arbitrators’
       interlocutory discovery ruling in order to mitigate the potential hardship of complying with
       such ruling runs counter to the intent of the Act’s drafters. The Act itself is silent as to the
       extent to which courts should intervene in the arbitration process prior to a final award, so
       we look to its legislative history. Cf. Daley v. Lakeview Billiard Café, Inc., 373 Ill. App. 3d
377, 382 (2007) (“[T]he statute is silent *** and we thus examine the legislative history to
       determine legislative intent ***.”); see also Donaldson, 124 Ill. 2d at 449 (“Because there
       is no legislative history on the Illinois Arbitration Act, it is proper to consider the records of

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       the National Conference of Commissioners on Uniform Laws, and particularly the writings
       of the chairman of the subcommittee that undertook the drafting of the Act in construing the
       Illinois act.” (Internal quotation marks omitted.)).
¶ 15        In a situation where an arbitration clause requires “that disputes over the meaning,
       interpretation and application of the contract shall be submitted to arbitration” (Maynard E.
       Pirsig, Some Comments on Arbitration Legislation and the Uniform Act, 10 Vand. L. Rev.
       685, 694 (1957)), the comments state:
            “It is the purpose of the uniform act to defer consideration of [this] question until after
            the award has been rendered. *** The award is now before the court with such
            explanation as the arbitrator may have given. It is the duty of the court under subdivision
            (3) [i.e., 710 ILCS 5/12(a)(3) (West 2010)] to measure the award against the powers of
            the arbitrator conferred by the agreement. The issue then becomes whether the arbitrator
            exceeded his authority in rendering the award.” (Emphasis added.) Id. at 706.
¶ 16        The meaning of this passage could not be clearer: if there is a dispute about an issue that
       is subject to the arbitration agreement, then the courts cannot review the arbitrator’s ruling
       on that issue until after the arbitration process is complete.
¶ 17        Plaintiff alleges in her complaint that the basis for arbitration in this case is section 143a
       of the Illinois Insurance Code (215 ILCS 5/143a (West 2008)), which states that “any dispute
       with respect to the coverage and the amount of damages shall be submitted for arbitration to
       the American Arbitration Association and be subject to its rules for the conduct of the
       arbitration hearings as to all matters except medical opinions.” (Emphasis added.) And, as
       we noted in Klehr I, Rule 6 of the American Arbitration Association’s
       Uninsured/Underinsured Motorist Arbitration and Mediation Rules (eff. Jan. 1, 2002) states:
                 “The arbitrator(s) shall have discretion to order pre-hearing exchange of information
            by the parties including, but not limited to, the production of requested documents,
            reports and records, as well as the attendance of any party for the purpose of conducting
            any independent medical examination(s) and sworn statement(s).
                 *** Unless otherwise limited by order of the court, parties shall complete all
            discovery no later than 180 days from the date the AAA forwards notification to the
            respondent advising that a claim has been initiated.”
¶ 18        So the arbitrators may order discovery if they so choose, which they have done in this
       case. Plaintiff argued to the arbitrators that they could not order discovery pursuant to Rule
       6 because the 180-day discovery period had already lapsed, but the arbitrators disagreed with
       plaintiff’s interpretation of the rule, which they are also allowed to do. American Arbitration
       Association’s Uninsured/Underinsured Motorist Arbitration and Mediation Rule 37 (eff. Jan.
       1, 2002) empowers the arbitrators to “interpret and apply these rules insofar as they relate to
       the arbitrator’s powers and duties. *** All other rules shall be interpreted and applied by the
       AAA.”
¶ 19        In short, what is happening in this case is this: the Illinois Insurance Code mandates that
       the rules of the AAA apply to the arbitration of plaintiff’s claim, Rule 6 grants the arbitrators
       authority over discovery, Rule 37 vests the arbitrators with the authority to interpret and
       apply the rules, and plaintiff disagrees with the arbitrators’ interpretation of Rule 6. But

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       rather than complete the arbitration process and then seek review in the courts, plaintiff
       wants the courts to intervene now and overrule the arbitrators by means of a declaratory
       judgment.
¶ 20       Based on the comments to the Uniform Arbitration Act, this is precisely the type of
       dispute that the drafters intended to be reviewed by the courts only at the conclusion of
       arbitration as part of a motion to vacate the award, and for the courts to step into this dispute
       before the end of the arbitration process is contrary to the clear intent of the Act. Moreover,
       allowing plaintiff to obtain interlocutory review of the arbitrators’ ruling would undermine
       the entire point of arbitration. Illinois public policy favors arbitration as a dispute-resolution
       mechanism because it “promotes the economical and efficient resolution of disputes.”
       Phoenix Insurance Co. v. Rosen, 242 Ill. 2d 48, 59 (2011). If a declaratory judgment could
       be used to circumvent the limited role of the courts in arbitration, then any party aggrieved
       by an interlocutory order of the arbitrators could obtain judicial review prior to completion
       of the arbitration process, which would reduce the efficiency and cost effectiveness of
       arbitration as a dispute-resolution mechanism. The history of this case is a good example of
       how prolonged the arbitration process could become if interlocutory judicial review were
       available. This case has involved three separate declaratory judgment actions and two
       separate appeals over a span of more than five years, and the delays in resolving plaintiff’s
       insurance claim are all but entirely due to plaintiff’s repeated attempts to inject the courts
       into the arbitration process.
¶ 21       So the parties’ dispute over the discovery order remains unripe for adjudication, and it
       will remain unripe until the arbitrators issue their final award. Plaintiff therefore has not
       stated a claim for a declaratory judgment and her complaint must be dismissed. See 735
       ILCS 5/2-615 (West 2010). Of course, we take no position on the substantive merits of
       plaintiff’s contentions regarding the arbitrators’ discovery ruling and she is free to pursue that
       issue as part of a motion to vacate the arbitration award (see 710 ILCS 5/12(a)(3) (West
       2010)), but not before arbitration is complete and not in the guise of a declaratory judgment
       action.

¶ 22       Affirmed.

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