Rotan v. Unlimited Dev.

• Decision Date: 22 February 2023
• Docket Number: 5-22-0182
• Parties: EDITH ELAINE ROTAN, Plaintiff-Appellee, v. UNLIMITED DEVELOPMENT, INC., and UDI #1 d/b/a Parkway Manor, Defendants-Appellants.
• Court: United States Appellate Court of Illinois

2023 IL App (5th) 220182-U

EDITH ELAINE ROTAN, Plaintiff-Appellee, v. UNLIMITED DEVELOPMENT, INC., and UDI #1 d/b/a Parkway Manor, Defendants-Appellants.

No. 5-22-0182

Court of Appeals of Illinois, Fifth District

February 22, 2023

This order was filed under Supreme Court Rule 23 and is not precedent except in the limited circumstances allowed under Rule 23(e)(1).

Appeal from the Circuit Court of Williamson County. No. 21-L-65 Honorable Jeffrey A. Goffinet, Judge, presiding.

JUSTICE VAUGHAN delivered the judgment of the court. Justice McHaney ^[*] concurred in the judgment. Justice Cates dissented.

ORDER

VAUGHAN, JUSTICE

¶ 1 Held: The trial court's order denying defendants' motion to compel arbitration and stay the proceedings is reversed where the claim is governed by federal law, the arbitration agreement delegated arbitrability to the arbitrator, and no argument related to the delegation clause was presented.

¶ 2 Defendants, Unlimited Development, Inc., and UDI #1 d/b/a Parkway Manor, appeal the trial court's order denying their motion to compel arbitration and stay the proceedings. We reverse.

¶ 3 I. BACKGROUND

¶ 4 On June 1, 2021, plaintiff, Edith Rotan, filed a personal injury complaint asserting claims, inter alia, pursuant to the Illinois Nursing Home Care Act (210 ILCS 45/1-101 (West 2020)), alleging negligence against defendants related to her residency at Parkway Manor on or after June 11, 2019. On August 9, 2021, defendants moved to compel arbitration and stay the proceedings pursuant to the residency agreement and alleged addendums thereto, one of which contained an executed, two-page, stand-alone arbitration agreement. The motion was supported by an affidavit, copies of the executed documents, and a memorandum of law that argued the incorporation of the American Arbitration Association (AAA) rules within the arbitration agreement mandated the issues of arbitrability and scope be determined by an arbitrator, not a court. The contention was supported by numerous cases from almost every federal circuit (Belnap v. Iasis Healthcare, 844 F.3d 1272, 1290 (10th Cir. 2017), Apollo Computer, Inc. v. Berg, 886 F.2d 469, 473 (1st Cir. 1989); Contec Corp. v. Remote Solution Co., 398 F.3d 205, 208 (2d Cir. 2005) Cooper v. WestEnd Capital Management L.L.C, 832 F.3d 534, 546 (5th Cir. 2016), Fallo v. High-Tech Institute, 559 F.3d 874, 878 (8th Cir. 2009) Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015)) as well as two unpublished federal district court decisions issued by the Northern District of Illinois. On October 21, 2021, defendant also filed a notice of filing persuasive authority citing Taylor v. UDI #4, LLC, 2021 IL App (4th) 210057-U.

¶ 5 On November 29, 2021, plaintiff filed her response arguing that neither the residency agreement, nor the arbitration agreement, were relevant to her claim of action against defendants, and, even if they were, the documents did not relate to each other. Relying on Peterson v. Residential Alternatives of Illinois, Inc., 402 Ill.App.3d 240 (2010), plaintiff argued that defendant's failure to incorporate by reference the arbitration agreement into the residency agreement doomed the motion to compel arbitration.

¶ 6 On December 1, 2021, defendants filed a reply that addressed the arguments raised, as well as those not raised, by plaintiff. Defendants noted that no argument claiming unconscionability, fraud, or duress was raised, nor was any argument presented regarding the delegation clause. Additional replies, filed by the parties on January 10, 2022, and January 12, 2022, provided no new arguments. On February 18, 2022, the parties presented oral arguments during which plaintiff conceded that, if the arbitration clause was valid, the Federal Arbitration Act (9 U.S.C. § 1 et seq. (2018)) applied.

¶ 7 On February 22, 2022, the trial court issued an order finding it had the authority to determine arbitrability pursuant to Hartz v. Brehm Preparatory School, Inc., 2021 IL App (5th) 190327, the residency agreement and the arbitration agreement failed to reference or incorporate each other, and therefore could not be construed as one document pursuant to Peterson, 402 Ill.App.3d at 246. Thereafter, the court denied defendants' motion to compel. Defendants appealed.

¶ 8 II. ANALYSIS

¶ 9 An order to compel or stay arbitration is injunctive in nature and subject to interlocutory appeal under Illinois Supreme Court Rule 307(a)(1) (eff. Nov. 1, 2017). Salsitz v. Kreiss, 198 Ill.2d 1, 11 (2001). "Generally, the standard of review for a decision on a motion to compel arbitration is whether there was a showing sufficient to sustain the circuit court's order." Keefe v Allied Home Mortgage Corp., 393 Ill.App.3d 226, 229 (2009). However, if the trial court's order is based on "construction of the arbitration agreement," such appeal raises a question of law "subject to a de novo standard." Peach v. CIM Insurance Corp., 352 Ill.App.3d 691, 694 (2004). We agree with the parties' assertions that the circuit court's decision was based solely on legal analysis. Therefore, our review is de novo.

¶ 10 The Federal Arbitration Act (FAA) empowers both state and federal courts to compel arbitration and stay any action in that court. 9 U.S.C. § 3 (2018); Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 449 (2006). The Illinois Supreme Court addressed the purpose of the FAA and provided guidance on its applicability in nursing home cases when holding that an anti-waiver provision of the Nursing Home Care Act was preempted by the FAA, stating:

"The basic purpose of the FAA is to overcome the historical reluctance of courts to enforce agreements to arbitrate. Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 270 (1995). When Congress passed the FAA in 1925, it intended courts to enforce agreements by parties to arbitrate and to place such agreements on the same footing as other contracts. Allied-Bruce, 513 U.S. at 270-71. A state statute stands as an obstacle to the purposes of the FAA if it targets arbitration provisions for disfavored treatment not applied to other contractual terms generally. Allied-Bruce, 513 U.S. at 281. Similarly, state provisions form an obstacle if they 'take their meaning from the fact that a contract to arbitrate is at issue, or frustrate arbitration, or provide a defense to it.' Securities Industry Ass'n v. Connolly, 883 F.2d 1114, 1123 (1st Cir. 1989)." Carter v. SSC Odin Operating Co., 237 Ill.2d 30, 41 (2010).

¶ 11 Section 2 of the FAA states:

"A written provision in *** a contract *** to settle by arbitration a controversy thereafter arising out of such contract or transaction *** shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract ***." 9 U.S.C. § 2 (2018).

See also AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339-40 (2011).

¶ 12 Such grounds include" 'generally applicable contract defenses, such as fraud, duress, or unconscionability,' but not *** defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue." Id. at 339 (quoting Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687 (1996)). "A recurring question under § 2 is who should decide whether 'grounds … exist at law or in equity' to invalidate an arbitration agreement." Preston v. Ferrer, 552 U.S. 346, 353 (2008).

¶ 13 Typically, in deciding whether a party must be compelled to arbitrate under the FAA, the court first considers (1) whether the parties are bound by a given arbitration clause (arbitrability) and, if so, (2) whether the particular dispute falls within the scope of that valid agreement (scope). Howsam v. Dean Witter Reynolds, Inc, 537 U.S. 79, 84 (2002). However, an arbitration agreement may contract gateway issues, including arbitrability, scope, and in some instances, enforceability due to alleged unconscionability,^[1] to the arbitrator. Henry Schein, Inc. v. Archer & White Sales, Inc, 586 U.S__,__, 139 S.Ct. 524, 529 (2019) (citing Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 68-70 (2010); see also First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943-44 (1995)). When the issues are delegated to the arbitrator, the court must respect that choice even "if the argument that the arbitration agreement applies to the particular dispute is 'wholly groundless.'" Id. at__, 139 S.Ct. at 528.

¶ 14 The type of gateway provision at issue is also relevant. For example, if the issue is scope, i. e., whether a particular issue is covered by the arbitration agreement, and the arbitration clause language regarding whether scope was delegated to the arbitrator is ambiguous, the issue must be determined by the arbitrator. Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62 (1995). Conversely, "the 'question of arbitrability,' " i.e., whether the parties agreed to submit a dispute to arbitration, is" 'an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise.'" (Emphasis in original.) Howsam, 537 U.S. at 83-84 (quoting AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 649 (1986)). "Just as the arbitrability of the merits of a dispute depends upon whether the parties agreed to arbitrate that dispute [citations], *** the question [of] 'who has the primary power to decide arbitrability' turns upon what the parties agreed about that matter." (Emphasis in original.) First Options, 514 U.S. at 943. When a contract delegates arbitrability to an arbitrator, courts must give full meaning to that delegation and refrain from passing on any issues of arbitrability. Henry Schein, Inc., 586 U.S. at__, 139 S.Ct. at 529-30.

¶ 15 Here the relevant arbitration...