Fahlstrom v. Jones
2011 IL App (1st) 103318
Ill. App. Ct.2011Background
- Plaintiff Glenn Fahlstrom and Jones formed an LLC (Fahlstrom Restaurant Group) to operate a Chicago restaurant, with each holding 48.75% and a chef holding 2.5%.
- The LLC operating agreement assigns day-to-day control to plaintiff and contains dispute resolution provisions including mediation and arbitration.
- On April 2, 2009, plaintiff and Jones executed a membership assignment selling plaintiff’s LLC interest to Jones and signed a $1,000 payment, which plaintiff later tore up in Jones’s presence.
- Plaintiff sued on April 14, 2009 seeking declaratory judgment and injunctive relief, alleging the assignment violated sections 3.5 and 5.5 of the operating agreement and seeking arbitration under the agreement.
- A circuit court granted a preliminary injunction and later denied plaintiff’s motion to compel arbitration.
- The issue on appeal is whether the membership assignment dispute falls within the arbitration clause of the operating agreement, requiring arbitration rather than court resolution.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the membership assignment dispute fall under the arbitration clause? | Fahlstrom argues the dispute is within the generic arbitration clause in §7.9. | Jones contends the assignment is a separate contract lacking an arbitration clause and not within §7.9. | Yes; the dispute is arbitrable under the operating agreement. |
| Who decides the validity of the membership assignment? | Arbitrator should decide under the broad arbitration clause. | Court, not arbitrator, should decide validity as a matter of contract law. | Arbitrator should decide; the assignment validity is within arbitration. |
Key Cases Cited
- Bass v. SMG, Inc., 328 Ill. App. 3d 492 (2002) (motion to compel arbitration analogized to injunctive relief; arbitration favored)
- Donaldson, Lufkin & Jenrette Futures, Inc. v. Barr, 124 Ill. 2d 435 (1988) (Arbitration Act favors enforcement of arbitration; scope of clause matters)
- Staley v. A.E. Staley Manufacturing Co., 200 Ill. App. 3d 725 (1990) (generic arbitration clause can cover disputes under subsequent related agreements)
- Diersen v. Joe Keim Builders, Inc., 153 Ill. App. 3d 373 (1987) (court determines existence of arbitration clause before ordering arbitration when contract at issue is challenged)
- Coady v. Harpo, Inc., 308 Ill. App. 3d 153 (1999) (challenge to underlying contract can raise questions about contract validity, not just arbitration clause)
- Ozdeger v. Altay, 66 Ill. App. 3d 629 (1978) (contracts involving related subject matter can fall within arbitration scope)