State Farm Mut. Auto. Ins. Co. v. Hanover Development Corp.

• Decision Date: 18 June 1979
• Docket Number: No. 78-431,78-431
• Citation: 29 Ill.Dec. 299,73 Ill.App.3d 326,391 N.E.2d 562
• Parties: , 29 Ill.Dec. 299 STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois Corporation, Plaintiff-Appellant, v. HANOVER DEVELOPMENT CORPORATION, an Illinois Corporation, Northland Associates, an Illinois Limited Partnership, and Davit Spatz, Individually, Defendants- Appellees.
• Court: United States Appellate Court of Illinois

Page 562

391 N.E.2d 562

73 Ill.App.3d 326, 29 Ill.Dec. 299

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois Corporation, Plaintiff-Appellant, v. HANOVER DEVELOPMENT CORPORATION, an Illinois Corporation Northland Associates, an Illinois Limited Partnership, and Davit Spatz Individually, Defendants- Appellees.

No. 78-431.

Appellate Court of Illinois, Second District.

June 18, 1979.

John M. Berent, Wheaton, Michael W. Ford, Terry A. McIlroy and Stephen H. Pugh, Jr., Chicago, for plaintiff-appellant.

Rathje, Woodward, Dyer & Burt, R. Terence Kalina, Wheaton, for defendants-appellees.

LINDBERG, Justice.

This is an interlocutory appeal from the order of the Circuit Court of DuPage County granting the defendants' petition for arbitration and denying the plaintiff's motion to vacate that order. The issue presented for review is whether the trial court correctly found that all of the issues raised by the plaintiff's complaint are governed by the arbitration provision of the Limited Partnership Agreement (Article XIV) between the plaintiff, State Farm Mutual Automobile Insurance Company, hereafter State Farm, and the defendant Hanover Development Corporation. In general this article provides that all disputes and questions between the partners shall be resolved by arbitration.

By an agreement signed on July 10, 1970 the parties formed a limited partnership under the name of Northland Associates. State Farm was to be a limited partner and Hanover Development a general partner to develop and maintain certain real property owned by State Farm Life Insurance Company. The land was leased from State Farm Life by the partnership and developed into a shopping center. State Farm's complaint alleged that Hanover had wrongfully paid over to itself in excess of $212,000 from partnership funds, failed to pay in a timely manner the 1976 real estate taxes, and failed to file with State Farm operating statements as required by the agreement. State Farm sought a termination, dissolution and winding up of the partnership, an accounting and judgment for its alleged losses.

In response to this complaint, Hanover Development petitioned the court below for an order to arbitrate the dispute. The trial court entered an order June 28, 1978 granting defendants' petition for arbitration, denying the plaintiff's motion to vacate that order and it is from this order that the issues are before us in this interlocutory appeal. Upon examining the record, relevant statutes and the limited partnership agreement and reviewing the arguments of the parties we are of the opinion that the order of the Circuit Court of DuPage County should be affirmed.

Article XIV of the parties' limited partnership agreement calls for arbitration of:

"All disputes and questions whatsoever which shall arise either during the Partnership or afterwards, between the partners or their respective representatives, or between any of the partners and the representatives of any other partner, touching these presents, or the construction or application thereof, or on any account, valuation, or division of assets, debits, or liabilities to be made hereunder, or any act or omission of any partner, or any other matter in any way relating to the Partnership business or the affairs of the Partnership, or the rights, duties, and liabilities of any person hereunder, * * *."

Section 1 of the Uniform Arbitration Act (Ill.Rev.Stat.1977, ch. 10, par. 101) makes agreements to arbitrate "valid, enforceable, and irrevocable * * *."

In the case of School District # 46 v. Del Bianco (1966), 68 Ill.App.2d 145, 215 N.E.2d 25, this court developed a three category test for determining if a commercial dispute is arbitrable:

1. if the dispute is clearly within the arbitration clause, a court should order arbitration;

2. if the dispute is clearly not within the clause "then there is no agreement to arbitrate and the court should deny arbitration"; and,

3. where the scope of an agreement to arbitrate "is reasonably in doubt, the issue of arbitrability should initially be determined by the arbitrators * * *," (68 Ill.App.2d 154-155, 215 N.E.2d 30).

The present dispute is in the first category. The parties have not only agreed to arbitrate disputes over the construction and application of the contract itself, but also "any act of omission of any partner, or any other matter in any way relating to the partnership business or the affairs of the partnership, or the rights, duties, and the liabilities of any person hereunder." Such broad language clearly encompasses both the alleged misconduct of the defendants and State Farm's act of seeking dissolution. Arbitration is governed by agreement. (Ill.Rev.Stat.1977, ch. 110, par. 102(a).) Here the parties have, by contract, bound themselves to arbitrate all disputes without limitation.

This is not a case like Flood v. Country Mutual Insurance Co. (1968), 41 Ill.2d 91, 242 N.E.2d 149, where the parties agreed to arbitrate only a limited number of specified issues. The instant case is also distinguishable from Harrison F. Blades, Inc. v. Jarman Memorial Fund Inc. (1969), 109 Ill.App.2d 224, 248 N.E.2d 289, and Silver Cross Hospital v. S. N. Nielsen Co. (1972), 8 Ill.App.3d 1000, 291 N.E.2d 247 in that the arbitration agreement in those cases was limited to disputes "arising in connection with" the contract. In the latter two cases the courts found that the specific disputes in question were not governed by the contract. Here, however, the agreement goes further to include not only disagreements over the meaning of the contract, but also any and all acts of a partner relating to the partnership. (For a discussion of this distinction see Kalevitch, Arbitrability: The Uniform Arbitration Act in Illinois, 4 Loy.L.J., (1973), 23, 26, 30.)

State Farm cites the case of Goldmann Trust v. Goldmann (1965), 26 Wis.2d 141, 131 N.W.2d 902 wherein the arbitration clause in dispute was virtually identical to that in the case at bar. The dispute in Goldmann concerned an attempt by one partner to dismiss a permanent partnership employee. A specific provision of the partnership agreement required mutual consent of the partners to dismiss a permanent employee. The partner seeking to dismiss the employee sought arbitration of the question of dismissal rights. The Wisconsin Supreme Court, by a four to three vote, refused to uphold an order to arbitrate. The court found that the existence of a specific provision requiring mutual consent made the contractual intent so clear that there was nothing to arbitrate. In the present case there is no specific provision controlling the dispute, and thus Goldmann is distinguishable.

State Farm also argues that Article XI of the agreement makes remedies "alternate and cumulative" and thus a partner has unfettered access to judicial adjudication. The full text of Article XI is as follows "In the event either partner shall fail to make the required contributions referred to in Article V hereof within thirty (30) days after demand therefore, said partner may be expelled from the Partnership and said partner shall receive no further payments nor shall he be entitled to any share of the profits unless and until said contribution shall be made in full together with interest thereon at the then prevailing rate. The remedy provided for herein shall be alternative and cumulative and all other remedies which may be provided for by law shall not be construed as restricting either partner from commencing an action or taking such steps as it may desire to enforce the payment of obligations due to the Partnership."

A full reading of this Article shows that its provisions are expressly limited to a failure to make a required contribution referred to in Article V. ¹ These contributions were the initial contributions to be made when the leasehold was established and construction begun. State Farm's complaint makes no mention of any failure to make these initial contributions and thus Article XI is not applicable to the resolution of the disputes raised in State Farm's complaint. Indeed, Article XI far from being a limitation on arbitration of the present dispute, supports a deferral to arbitration. The failure to make an initial contribution alone was singled out as being subject to alternative and cumulative remedies. If the partners had intended to make the remedies available for dissolution to be "alternative and cumulative" they could have expressly done so.

Along the same line, State Farm argues that because Article VIII of the Agreement calls for immediate dissolution of the partnership upon certain specified events, the arbitration clause could not have been meant to be all inclusive. However, the events specified in Article VIII all relate to the insolvency of the partnership and are not the basis of the present dispute between the parties as there is no claim that the partnership is insolvent. Therefore we conclude that the present dispute is clearly within the scope of the arbitration clause.

Beyond the issue of the scope of the arbitration clause, State Farm raises two other arguments to support its contention that arbitration is improper. First it points out that under the express language of Section 1 of the Uniform Arbitration Act courts will not compel arbitration where the agreement to arbitrate is itself subject to revocation. Section 1 provides:

"A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration in a controversy thereafter arising between the parties is valid, enforceable, and irrevocable save upon such grounds as exist at law or in equity for the revocation of any contract." (Ill.Rev.Stat.1975, ch. 10, par. 101.)

Unfortunately there is a dearth of case law concerning the Act's use of the term "revocation." The historical context of Section 1 is that under the common law while arbitration awards would be judicially enforced,...