Bass v. SMG, Inc.

Case Date: 02/26/2002
Court: 1st District Appellate
Docket No: 1-01-0907 Rel

SECOND DIVISION

February 26, 2002




No. 1-01-0907


RICHARD BASS, individually and derivatively ) Appeal from interlocutory
on behalf of INNOVATIVE CONSULTANTS, INC., ) order dated February 7, 2001
an Illinois corporation, ) entered in the Circuit Court
) of Cook County.
                      Plaintiff-Appellees,  )
)
                     v. )
) The Honorable
SMG, INC., a Delaware corporation, ) Edmund Ponce de Leon,
) Judge Presiding.
                    Defendant-Appellant. )
)


JUSTICE GORDON delivered the opinion of the court:

NATURE OF THE CASE

Defendant SMG, Inc. (defendant or SMG) appeals a decision of the circuit court of CookCounty denying its motion to compel arbitration of tort claims brought by plaintiff Richard 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 betweenSMG and IC (agreement or SMG-IC agreement), which contained an arbitration clause, madearbitration the appropriate mechanism for resolving Bass' claims for inducement to breachfiduciary duty, tortious interference with a contract, tortious interference with businessexpectancy and conspiracy. Pursuant to Supreme Court Rule 307(a)(1) (188 Ill. 2d R. 307) (Rule307), defendant brought this interlocutory appeal, arguing that the arbitration clause in theagreement is generic and sufficiently broad to cover plaintiff's tort claims as they relate to theterms of the agreement. For the reasons stated below, we reverse the circuit court's dismissal ofSMG's motion to compel arbitration of plaintiff's derivative claims and remand with directions toorder the parties to proceed to arbitration under the terms of the agreement. We affirm the circuitcourt'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 thecircuit court of Cook County in July 2000. In that complaint Bass alleged the followingbackground facts: IC was incorporated in 1989 as a broker of food products, assisting sellers indeveloping and buyers in obtaining specialized food lines. From the time of incorporationthrough the outset of the instant lawsuit, Shapiro has been president and controlling shareholderof IC, owning 51% of the outstanding voting stock. Bass is a director and the secretary-treasurerof IC, owning the remaining 49% of the voting stock. From its inception, IC developed arelationship with Den Fujita & Co., Ltc. (Fujita), a company holding 50% ownership of theMcDonald's restaurant franchise in Japan, with an interest in purchasing food products in theUnited States. SMG is a food products supplier and in December 1994, it entered into a "SalesRepresentative Agreement" with IC under which IC was appointed the exclusive salesrepresentative 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 toFujita. The agreement also required that SMG not sell any other product lines to Fujita. Theagreement was to remain in effect until December 15, 1999, and thereafter, was automaticallyrenewed for periods of one year unless either party elected to terminate by written notice not laterthan 90 days prior to the next scheduled termination date. The final clause in the agreementreferred to arbitration and read: "In the event of any dispute, claim or controversy between theparties regarding this Agreement, such dispute, claim or controversy shall be settled byarbitration in Chicago, Illinois, by a single arbitrator under the then commercial arbitration rulesof the American Arbitration Association."

During the life of the agreement, IC worked with SMG to develop and sell products toFujita. IC's commissions on these sales averaged $40,000 per year until 1999 when Fujita placedsample 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 expandedpurchasing 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 asprovided in the agreement. Bass alleged, however, that at about the same time the agreementwas terminated, SMG offered Shapiro a position as "Vice President of International Sales" underwhich 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 relationshipwith Fujita, but did not allege that the relationship denied IC any financial benefit outside thecommissions from SMG. In seeking relief against SMG and Shapiro, Bass alleged that their"misappropriating, purloining and otherwise wrongful dealing with IC's contractual customer andusurping and misappropriating business opportunities that rightfully belong to IC and Bass havehad 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. CountII 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 forthis inducement. Count V alleged that SMG tortiously interfered with the contract among Shaprio, Bass and IC. Count VI alleged that SMG tortiously interfered with the businessexpectancy 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 conspiracyagainst both SMG and Shapiro. When the instant appeal reached this court, Bass had settled hisclaims against Shapiro individually; thus, the only the claims currently before us are againstSMG.

Without challenging the factual allegations made in Bass' complaint, SMG filedcombined 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 anindividual, as opposed to a derivative, suit. SMG also moved to stay the proceedings and compelarbitration of Bass' claims pursuant to the arbitration clause. The trial court denied both motionsand, under Rule 307, SMG appealed the decision to this court.

Upon receiving defendant's appellate brief, Bass filed a motion to dismiss and strikearguments 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 jurisdictionover this interlocutory order, however, under Rule 307 because a motion to compel arbitration isanalogous to a motion for injunctive relief. Nagle v. Nadelhoffer, Nagle, Kuhn, Mitchell, Mossand Saloga, P.C., 244 Ill. App. 3d 920, 924, 613 N.E.2d 331, 334 (1993). The only questionbefore us on an interlocutory appeal of this type is whether there was a sufficient showing tosustain the order of the trial court granting or denying the relief sought. J & K CementConstruction, Inc. v. Montalbano Builders, Inc., 119 Ill. App. 3d 663, 667, 456 N.E.2d 889, 893(1983). In the instant case, the record does not reflect that the trial court held an evidentiaryhearing prior to entering its order, but because the facts at issue were not in dispute, such ahearing was not required. Federal Signal Corp. v. SLC Technologies, Inc., 318 Ill. App. 3d 1101,1105, 743 N.E.2d 1006, 1070 (2001). However, because there is no record of factual findings bythe 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, 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 orstay court action pending arbitration. 710 ILCS 5/2 (West 1998). SMG argues that the dispute inquestion falls within the arbitration clause in the SMG-IC agreement, and therefore, that the trialcourt 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 relationshipbetween SMG and IC, as required under the terms of the arbitration clause. SMG's argumentcenters on the assertion that Bass cannot avoid a bargained-for arbitration clause by labeling hiscause of action as a tort, because his claims regard the rights, relationships and expectanciescreated by the agreement. In essence, SMG contends that Bass' allegations fall under the aegis ofa breach of contract claim, or more specifically, a breach of the implied covenant of good faithand fair dealing claim, which Bass artfully chose not to plead in anticipation that he could escapefrom 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 notsufficiently relate to or fall within the scope of the SMG-IC agreement and that the plainlanguage of the agreement shows no intent to arbitrate them. Although we recognize thepotential validity of Bass' argument, under the specific facts presented here, we are persuadedthat SMG is correct in claiming that Bass' counts are arbitrable.

The Uniform Act governs the interpretation and enforcement of arbitration agreements. As an initial interpretive matter, we note that our supreme court has held that judicial opinionsfrom other jurisdictions interpreting such acts are given greater than usual deference since thegeneral purpose of a uniform act is to make consistent the laws of the states that have enacted it. Garver v. Ferguson, 76 Ill. 2d 1, 8, 389 N.E.2d 1181, 1183 (1979). Similarly, because theUniform Act and the Federal Arbitration Act (9 U.S.C.