927 F. Supp. 2d 537
N.D. Ill.2013Background
- Plaintiffs sue Brenner, Fortuna Asset Management (FAM), and Horrell for breach of fiduciary duty and RICO fraud related to the Scattered Loan and Dearborn/LaSalle properties.
- FAM and Brenner have arbitration clauses in Investment Management Agreements requiring arbitration in Orange County, CA.
- Plaintiffs allegedly invested via Legacy Re, Rock Solid, and Ferenc; FAM provided discretionary trading and advised on investments.
- Scattered Loan default triggered complex post-default transactions affecting Dearborn and LaSalle properties.
- 407 Dearborn was formed from workout proceedings; Brenner, FAM, and/or Horrell allegedly controlled it during 2009–2011.
- Horrell is not a party to the arbitration agreements, but is sued in Count IV for RICO against Brenner and Horrell.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether arbitration is proper for the dispute scope | Plaintiffs argue some claims fall outside arbitration as 'Other Services' | FAM/Brenner contend all claims relate to Account/Investment Management | Counts I, III, and IV are arbitrable against Brenner/FAM; Count II not arbitrable for those defendants |
| Whether Brenner, as FAM’s agent, can compel arbitration | Brenner asserts equitable estoppel or agency to enforce clause | California law governs; Brenner as FAM’s agent enforces clause | Brenner can compel arbitration under agency (and Illinois law); motion to strike denied |
| Whether 407 Dearborn’s Count II falls within arbitration | D-boro claims arise from management at 407 Dearborn | Not based on Investment Management Agreements; should be arbitration | Count II not subject to arbitration; dismissed under Rule 12(b)(6) as to all defendants |
| Whether the RICO claim against Brenner is arbitrable | RICO claim ties to arbitration clause scope | Arbitration clause covers RICO-related disputes | RICO claim against Brenner subject to arbitration; Horrell’s Count IV dismissed for lack of arbitration against him |
Key Cases Cited
- AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986) (broad arbitration clause; act of interpreting contract for arbitration)
- Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) (doubts resolved in favor of arbitration; scope of arbitrable issues)
- Warrior & Gulf Navigation Co., 363 U.S. 574 (1960) (broad arbitration clauses favored; forceful evidence required to exclude)
- Kiefer Specialty Flooring, Inc. v. Tarkett, Inc., 174 F.3d 907 (7th Cir.1999) (scope of arbitration; doubts resolved in favor of arbitrability)
- Continental Cas. Co. v. American Nat. Ins. Co., 417 F.3d 727 (7th Cir.2005) (proper venue; convert motion to dismiss for improper venue)
- McCarthy v. Azure, 22 F.3d 351 (1st Cir.1994) (agency/non-party enforceability in arbitration; distinguish service contracts)
- Rosenblum v. Travelbyus.com Limited, 299 F.3d 657 (7th Cir.2002) (employment-arbitration scope; separate agreements)
- Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110 (3d Cir.1993) (agency/arbitration principles)
- Robison v. Caster, 356 F.2d 924 (7th Cir.1966) (Rule 9(b) fraud pleading standards)