Bass v. SMG, INC.

• Decision Date: 26 February 2002
• Docket Number: No. 1-01-0907.,1-01-0907.
• Citation: Bass v. SMG, INC., 765 N.E.2d 1079, 328 Ill.App.3d 492, 262 Ill.Dec. 471 (Ill. App. 2002)
• Parties: Richard BASS, individually and derivatively on behalf of Innovative Consultants, Inc., an Illinois corporation, Plaintiff-Appellees, v. SMG, INC., a Delaware corporation, Defendant-Appellant.
• Court: Appellate Court of Illinois

765 N.E.2d 1079

328 Ill. App.3d 492

262 Ill.Dec. 471

Richard BASS, individually and derivatively on behalf of Innovative Consultants, Inc., an Illinois corporation, Plaintiff-Appellees, v.SMG, INC., a Delaware corporation, Defendant-Appellant.

No. 1-01-0907.

Appellate Court of Illinois, First District, Second Division.

February 26, 2002.

Michael L. Scheier, Jamie M. Ramsey, Keating, Muething & Klekamp, Trial Attorneys, Cincinnati, OH, and John P. Morrison, Bell, Boyd & Lloyd, Local Attorneys, Chicago, for SMG, Inc.

Ralph M. Bernstein, Philip J. Bernstein, Ralph M. Bernstein and Associates, Chicago, for Appellees.

Justice GORDONdelivered the opinion of the court:

NATURE OF THE CASE

DefendantSMG, Inc.(defendant or SMG) appeals a decision of the circuit court of Cook County denying its motion to compel arbitration of tort claims brought by plaintiffRichard Bass(plaintiff or Bass) individually and derivatively as a shareholder of Innovative Consultants, Inc.(IC).The circuit court rejected defendant's argument that the brokerage agreement between SMG and IC (agreement or SMG-IC agreement), which contained an arbitration clause, made arbitration the appropriate mechanism for resolving Bass' claims for inducement to breach fiduciary duty, tortious interference with a contract, tortious interference with business expectancy and conspiracy.Pursuant to Supreme Court Rule 307(a)(1)(188 Ill.2d R. 307)(Rule 307), defendant brought this interlocutory appeal, arguing that the arbitration clause in the agreement is generic and sufficiently broad to cover plaintiff's tort claims as they relate to the terms of the agreement.For the reasons stated below, we reverse the circuit court's dismissal of SMG's motion to compel arbitration of plaintiff's derivative claims and remand with directions to order the parties to proceed to arbitration under the terms of the agreement.We affirm the circuit court's denial of defendant's motion to compel arbitration of plaintiff's individual claims.

BACKGROUND

Bass filed an eight count complaint against SMG and David Shapiro(Shapiro) in the circuit court of Cook County in July 2000.In that complaint Bass alleged the following background facts: IC was incorporated in 1989 as a broker of food products, assisting sellers in developing and buyers in obtaining specialized food lines.From the time of incorporation through the outset of the instant lawsuit, Shapiro has been president and controlling shareholder of IC, owning 51% of the outstanding voting stock.Bass is a director and the secretary-treasurer of IC, owning the remaining 49% of the voting stock.From its inception, IC developed a relationship with Den Fujita & Co., Ltc.(Fujita), a company holding 50% ownership of the McDonald's restaurant franchise in Japan, with an interest in purchasing food products in the United States.SMG is a food products supplier and in December 1994, it entered into a "Sales Representative Agreement" with IC under which IC was appointed the exclusive sales representative for a line of SMG products to be sold to Fujita, its subsidiaries and affiliates.¹

Under the agreement, SMG was to pay IC a commission of 3% on all sales of this line to Fujita.The agreement also required that SMG not sell any other product lines to Fujita.The agreement was to remain in effect until December 15, 1999, and thereafter, was automatically renewed for periods of one year unless either party elected to terminate by written notice not later than 90 days prior to the next scheduled termination date.The final clause in the agreement referred to arbitration and read: "In the event of any dispute, claim or controversy between the parties regarding this Agreement, such dispute, claim or controversy shall be settled by arbitration in Chicago, Illinois, by a single arbitrator under the then commercial arbitration rules of the American Arbitration Association."

During the life of the agreement, IC worked with SMG to develop and sell products to Fujita.IC's commissions on these sales averaged $40,000 per year until 1999 when Fujita placed sample orders of SMG products for a trial promotion, boosting IC's commission to $97,000.Bass alleged that if the trial promotion were successful, Fujita planned to continue this expanded purchasing from SMG.

In August 1999, SMG gave written notice to IC that it was terminating the agreement, effective December 15, 1999.The parties do not contest that the termination was conducted as provided in the agreement.Bass alleged, however, that at about the same time the agreement was terminated, SMG offered Shapiro a position as "Vice President of International Sales" under which he would receive a salary and a 1.5% commission on the sale of SMG products to Fujita.Bass alleged that Shapiro's employment with SMG effectively ended IC's business relationship with Fujita, but did not allege that the relationship denied IC any financial benefit outside the commissions from SMG.In seeking relief against SMG and Shapiro, Bass alleged that their "misappropriating, purloining and otherwise wrongful dealing with IC's contractual customer and usurping and misappropriating business opportunities that rightfully belong to IC and Bass have had a devastating effect on IC's business by decreasing IC's sales and commission income."

Specifically, count I of the complaint alleged breach of fiduciary duty and misappropriation of business opportunity against Shapiro and requested actual damages.Count II re-alleged this claim and requested punitive damages.Count III alleged that SMG tortiously induced Shapiro to breach his fiduciary duty to IC and count IV requested punitive damages for this inducement.Count V alleged that SMG tortiously interfered with the contract among Shapiro, Bass and IC.Count VI alleged that SMG tortiously interfered with the business expectancy arising from IC's relationship with SMG and from IC's relationship with Fujita.Count VII requested punitive damages on the same claim.Finally, count VIII alleged conspiracy against both SMG and Shapiro.When the instant appeal reached this court, Bass had settled his claims against Shapiro individually; thus, the only the claims currently before us are against SMG.

Without challenging the factual allegations made in Bass' complaint, SMG filed combined motions to dismiss and to stay the proceedings.SMG moved to dismiss Bass' individual claims because he was not the real party in interest and lacked standing to maintain an individual, as opposed to a derivative, suit.SMG also moved to stay the proceedings and compel arbitration of Bass' claims pursuant to the arbitration clause.The trial court denied both motions and, under Rule 307, SMG appealed the decision to this court.

Upon receiving defendant's appellate brief, Bass filed a motion to dismiss and strike arguments pertaining to the issue of whether he had standing to sue in his individual capacity, which we also shall address in this opinion.

ANALYSIS

We note at the outset that this is not an appeal from a final order.We have jurisdiction over this interlocutory order, however, under Rule 307 because a motion to compel arbitration is analogous to a motion for injunctive relief.Nagle v. Nadelhoffer, Nagle, Kuhn, Mitchell, Moss and Saloga, P.C.,244 Ill.App.3d 920, 924, 184 Ill.Dec. 304, 613 N.E.2d 331, 334(1993).The only question before us on an interlocutory appeal of this type is whether there was a sufficient showing to sustain the order of the trial court granting or denying the relief sought.J & K Cement Construction, Inc. v. Montalbano Builders, Inc.,119 Ill.App.3d 663, 667, 75 Ill. Dec. 68, 456 N.E.2d 889, 893(1983).In the instant case, the record does not reflect that the trial court held an evidentiary hearing prior to entering its order, but because the facts at issue were not in dispute, such a hearing was not required.Federal Signal Corp. v. SLC Technologies, Inc.,318 Ill.App.3d 1101, 1105, 252 Ill.Dec. 910, 743 N.E.2d 1066, 1070(2001).However, because there is no record of factual findings by the trial court, the decision to deny SMG's motion to compel arbitration is reviewable de novo.Federal Signal,318 Ill.App.3d at 1105-06, 252 Ill.Dec. 910, 743 N.E.2d at 1070.

The Uniform Arbitration Act (the Uniform Act)(710 ILCS 5/1 et seq.(West 1998)) empowers courts, upon application of a party showing an agreement to arbitrate, to compel or stay court action pending arbitration.710 ILCS 5/2(West 1998).SMG argues that the dispute in question falls within the arbitration clause in the SMG-IC agreement, and therefore, that the trial court erred in denying its motion to compel arbitration of Bass' claims.SMG contends that, although styled in tort rather than contract, Bass' claims all "regard" the contractual relationship between SMG and IC, as required under the terms of the arbitration clause.SMG's argument centers on the assertion that Bass cannot avoid a bargained-for arbitration clause by labeling his cause of action as a tort, because his claims regard the rights, relationships and expectancies created by the agreement.In essence, SMG contends that Bass' allegations fall under the aegis of a breach of contract claim, or more specifically, a breach of the implied covenant of good faith and fair dealing claim, which Bass artfully chose not to plead in anticipation that he could escape from within the bounds of the arbitration clause.

Bass counters that he in no way contests SMG's right to terminate the agreement.Thus, he has no valid cause of action "on the agreement."Bass contends that claims regarding SMG's tortious interference with IC's contract with Shapiro and relationship with Fujita do not sufficiently relate to or fall within the scope of the SMG-IC agreement and that the plain language of the agreement shows no intent to arbitrate them.Although we recognize the potential validity of Bass' argument, under the specific facts...