Jacob v. C & M Video, Inc.

• Decision Date: 10 August 1993
• Docket Number: No. 5-92-0681,5-92-0681
• Citation: 618 N.E.2d 1267,248 Ill.App.3d 654,188 Ill.Dec. 697
• Parties: , 188 Ill.Dec. 697 Stanley JACOB, Lillian Jacob, and SLJ Investment, Inc., an Illinois Corporation; William Chesterman and Darlene Chesterman; Nelda J. Webb; Peter A. Frese, Jr., Jennifer Frese, and Tayco Entertainment, Inc., an Illinois Corporation, Plaintiffs-Appellees, v. C & M VIDEO, INC., an Illinois Corporation, and Terry Monroe, Defendants-Appellants.
• Court: United States Appellate Court of Illinois

Page 1267

618 N.E.2d 1267

248 Ill.App.3d 654, 188 Ill.Dec. 697

Stanley JACOB, Lillian Jacob, and SLJ Investment, Inc., an

Illinois Corporation; William Chesterman and Darlene

Chesterman; Nelda J. Webb; Peter A. Frese, Jr., Jennifer

Frese, and Tayco Entertainment, Inc., an Illinois

Corporation, Plaintiffs-Appellees, v. C & M VIDEO, INC., an Illinois Corporation, and Terry

Monroe, Defendants-Appellants.

No. 5-92-0681.

Appellate Court of Illinois,

Fifth District.

Aug. 10, 1993.

Phillip H. Hamilton, Farrell Law Firm, P.C., Godfrey, for defendants-appellants.

David M. Duree, O'Fallon (Robert L. Carter, Reinert, Duree & Crane, P.C., St. Louis, MO, of counsel), for plaintiffs-appellees.

Presiding Justice CHAPMAN delivered the opinion of the court:

On August 25, 1992, the plaintiffs, franchisees of C & M Video, Inc. (C & M), filed suit alleging that C & M and Terry Monroe committed common law fraud, violated the disclosure provisions of the Franchise Disclosure Act of 1987 (815 ILCS 705/1 et seq. (West 1992)), and breached their franchise agreements. ^* Defendants filed a motion to dismiss on the basis that the arbitration provision in the franchise agreements requires the parties to submit to arbitration. C & M also filed a petition for temporary restraining order to enjoin the plaintiffs from violating the franchise agreements, from diverting any business of the C & M franchise, and from operating any similar business within a radius of 10 miles of any C & M store. The trial court denied both the motion to dismiss and the petition for injunctive relief. Defendants appeal.

The first issue on appeal is whether the trial court abused its discretion in denying defendants' request to compel arbitration. The plaintiffs submit that defendants have waived their right to compel arbitration because the defendants' motion to dismiss set forth plaintiffs' alleged failure to serve a notice of default upon C & M in accordance with the franchise agreements. Plaintiffs assert that the defendants, who lost that issue, cannot now complain that the trial court should have compelled arbitration of that and other issues. Plaintiffs cite Cencula v. Keller (1987), 152 Ill.App.3d 754, 105 Ill.Dec. 712, 504 N.E.2d 997, in support of their argument. In Cencula a contractor brought an action against a homeowner for the amount allegedly due on a contract. The court denied the homeowner's motion to compel arbitration because the homeowner, by his answer, which alleged additional credits, and by his bill of particulars, which listed expense items, put into issue many facts which appeared to fall within the ambit of the contract's arbitration clause. Cencula held such conduct was so inconsistent with the right to arbitrate that it constituted a waiver of that right.

In this case, contrary to Cencula, defendants' motion to dismiss stated, at the outset, defendants' demand for arbitration. In an alternative prayer for relief, defendants requested the court to compel arbitration and to stay the litigation pending the completion of arbitration. In Cencula defendant submitted arbitrable issues to the trial court for determination and did not assert his demand for arbitration until 9 1/2 months after the complaint was filed. In this case defendant asserted his claim for arbitration when it filed its initial pleading. It is well settled that arbitration is a favored method of settling disputes in Illinois and that waiver can occur only when a party's conduct is inconsistent with the arbitration clause. (Burnett v. Safeco Insurance Co. (1992), 227 Ill.App.3d 167, 179, 169 Ill.Dec. 113, 122, 590 N.E.2d 1032, 1041.) We cannot find that defendants, by filing their motion to dismiss, acted in a manner inconsistent with the arbitration clause.

Plaintiffs also argue that defendants have waived their right to seek arbitration because the defendants' petition for temporary restraining order exceeded the scope of subparagraph C of the arbitration clause and would arguably have subjected the plaintiffs to litigation for trademark infringement. Subparagraph C of the arbitration provision provides:

"Nothing herein contained shall bar the right of either party to seek and obtain temporary injunctive relief from a court of competent jurisdiction in accordance with applicable law against threatened conduct that will cause loss or damage, pending completion of the arbitration."

Defendants' petition for temporary restraining order sought to prohibit the plaintiffs from: (a) violating the terms of the franchise agreement; (b) diverting or attempting to divert business or customers of the plaintiffs' C & M franchised facilities to other competitive establishments; and (c) engaging in any similar business or operation within a 10-mile radius of their current locations. Defendants' petition also prayed for other and further relief as the court deemed equitable and just.

Evidence was presented at the hearing on the petition that the franchisees had removed the C & M signs from their stores but were continuing to operate video stores under different names at those locations. Defendants requested a temporary restraining order to enjoin the plaintiffs from continuing to violate the restrictive covenant of the franchise agreement.

Plaintiffs argue that C & M clearly exceeded subparagraph C because the injunctive relief sought was not temporary in nature and was not against threatened conduct but was against conduct that had already occurred. Plaintiffs further contend that the injunctive relief was not against conduct "pending completion of arbitration," in that the relief sought would have, according to defendants' own argument, subjected plaintiffs to litigation in Federal court for trademark infringement. Counsel for the defendants argued at the hearing for injunctive relief that he intended to seek redress in the Federal court for trademark infringement. Contrary to plaintiffs' assertion, however, defendants' counsel has at all times acted consistently with his belief that all issues should be submitted to arbitration. For instance, in his opening statement at the hearing, defendants' counsel stated that he expected the court to allow the defendants' request for temporary injunctive relief and that plaintiffs' complaint would later be dismissed due to the mandatory arbitration agreement.

Arbitration is a favored method of resolving disputes in Illinois, and a waiver of the right to arbitrate is disfavored. (D.E. Wright Electric, Inc. v. Henry Ross Construction Co. v. Keller (1989), 183 Ill.App.3d 46, 53, 131 Ill.Dec. 626, 631, 538 N.E.2d 1182, 1187; Cencula, 152 Ill.App.3d 754, 105 Ill.Dec. 712, 504 N.E.2d 997.) Waiver may occur, however, when a party acts in a manner inconsistent with the arbitration clause, thus indicating an abandonment of the right. (Atkins v. Rustic Woods Partners (1988), 171 Ill.App.3d 373, 378, 121 Ill.Dec. 493, 497, 525 N.E.2d 551, 555.) A party's conduct amounts to waiver when the party submits arbitrable issues to a court for decision. (Kostakos v. KSN Joint Venture No. 1 (1986), 142 Ill.App.3d 533, 536, 96 Ill.Dec. 862, 864, 491 N.E.2d 1322, 1324.) In reviewing the record, we believe defendants' request for a temporary restraining order was merely responsive. (See D.E. Wright Electric, Inc. v. Henry Ross Construction Co. (1989), 183 Ill.App.3d 46, 131 Ill.Dec. 626, 538 N.E.2d 1182; Edward Electric Co. v. Automation, Inc. (1987), 164 Ill.App.3d 547, 115 Ill.Dec. 647, 518 N.E.2d 172.) The motion to dismiss had not been decided by the trial court, but the plaintiffs allegedly continued to engage in conduct which defendants felt compelled to enjoin. Under the circumstances, defendants' avenue for temporary injunctive relief was via the lawsuit initiated by the plaintiffs' because the trial court already had jurisdiction over the case. We conclude that defendants did not waive their right to seek arbitration.

Plaintiffs also argue that the court properly denied defendants' request for arbitration because defendant Terry Monroe is not a party to the arbitration agreement, and to compel arbitration would resolve only those issues between the plaintiffs and one of the two defendants. An examination of the record shows that Terry Monroe, as president of C & M, signed five of the seven franchise agreements on behalf of C & M (one with Jacob, two with the Freses, two with the Chestermans). The remaining franchise agreements were signed on behalf of C & M by plaintiff Peter Frese as director of franchising (one with Jacob, one with Webb).

Plaintiffs contend that Monroe signed on behalf of C & M and as president of C & M, not in an individual capacity. Thus, plaintiffs argue, arbitration cannot be compelled by Terry Monroe. Defendants argue that because all parties are signatories to the franchise agreements, the trial court erred in failing to compel arbitration as to all the parties. We disagree with the defendants.

A nonparty to an arbitration agreement can neither compel arbitration nor be compelled to arbitrate. (Vukusich v. Comprehensive Accounting Corp. (1986), 150 Ill.App.3d 634, 640, 103 Ill.Dec. 794, 798, 501 N.E.2d 1332, 1336.) As pointed out in Vukusich, the status of a person or entity entitled to compel arbitration is determined from the language of the agreement giving rise to the arbitration. (Vukusich, 150 Ill.App.3d at 642, 103 Ill.Dec. at 799, 501 N.E.2d at 1337.) An examination of the franchise agreements reveals that Terry Monroe signed the instruments on behalf of C & M, in his representative capacity as president of the corporation. Contrary to plaintiffs' position, however, this does not mean that arbitration as to C & M is forestalled. Arbitration could, for instance, be compelled for all claims involving C & M, with claims involving Terry Monroe stayed until the completion of arbitration. See 710 ILCS 5/2 (West 1992); see also Vukusich v. Comprehensive Accounting Corp. (1986), 150 Ill.App.3d 634, 103...