Keefe v. Allied Home Mortgage Corp.
2016 IL App (5th) 150360
| Ill. App. Ct. | 2017Background
- In 1999 Keefe refinanced a loan and signed an arbitration rider stating disputes "shall" be resolved by binding arbitration governed by the Federal Arbitration Act (Sections 1–4) and the National Arbitration Forum (NAF) Code in effect on May 18, 1999; it directed parties to obtain rules/forms from NAF and file claims at NAF offices.
- Keefe sued defendants in 2004 alleging upcharging and nondisclosure (class action claims including fraud, unjust enrichment, breach of fiduciary duty).
- Defendants moved to compel arbitration; the trial court denied the motion in 2007. This court reversed in 2009, severing a class-waiver provision and directing enforcement of the remainder of the arbitration clause.
- Shortly after that opinion, NAF agreed in a 2009 consent decree with the Minnesota Attorney General to stop accepting consumer arbitrations and ceased administering new consumer cases.
- Keefe moved in 2009 to declare the arbitration rider unenforceable because NAF could no longer arbitrate; defendants argued the court could appoint a substitute arbitrator under FAA §5 and/or rely on later NAF rules. The trial court ultimately granted the motion to compel; this appeal followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the arbitration rider’s designation of NAF is integral such that NAF’s unavailability voids the agreement | Keefe: NAF designation and the 1999 NAF Code are integral; NAF’s unavailability renders the clause unenforceable | Allied: NAF was not an exclusive forum; courts may appoint a substitute under FAA §5 | Held: NAF designation and the 1999 NAF Code were integral; designation was exclusive and cannot be replaced by §5 |
| Whether FAA §5 can be used to appoint a substitute arbitrator when NAF is unavailable given the rider’s terms | Keefe: §5 was intentionally omitted (rider incorporates only FAA §§1–4), so §5 cannot be invoked | Allied: §5 allows court appointment of substitute arbitrator to preserve arbitration | Held: §5 cannot be employed—rider incorporated only §§1–4 of the FAA and omitted §5, and cannot be rewritten into the contract |
| Whether the 1999 NAF Code permits substitution or otherwise governs procedure despite its absence from the record | Keefe: The 1999 NAF Code is integral; absence from the record prevents determining availability or substitution and thus makes arbitration unenforceable | Allied: Parties intended arbitration and procedural gaps can be filled; later NAF materials or court appointment could supply rules | Held: Absence of the 1999 NAF Code prevents knowing whether substitution or procedures are allowed; its omission renders arbitration unenforceable |
| Whether the trial court erred in compelling arbitration given NAF’s consent order and missing rules | Keefe: Consent judgment discredited NAF and the missing code prevents enforcement | Allied: The arbitration clause still requires arbitration; procedural gaps are curable | Held: Trial court erred; order compelling arbitration reversed and remanded |
Key Cases Cited
- Carr v. Gateway, Inc., 241 Ill. 2d 15 (court explained when designated forum is "integral" and §5 cannot supply substitute forum)
- Salsitz v. Kreiss, 198 Ill. 2d 1 (arbitration agreements construed to uphold validity when possible)
- Thompson v. Gordon, 241 Ill. 2d 428 (contract interpretation principles; give effect to parties' intent)
- Central Ill. Light Co. v. Home Ins. Co., 213 Ill. 2d 141 (plain, ordinary meaning controls unambiguous contract terms)
- QuickClick Loans, LLC v. Russell, 407 Ill. App. 3d 46 (Illinois pro-arbitration policy but arbitration agreements enforced as contracts)
- Keefe v. Allied Home Mortgage Corp., 393 Ill. App. 3d 226 (prior appellate decision severing class-waiver and enforcing remainder of clause)
- Hubbert v. Dell Corp., 359 Ill. App. 3d 976 (party seeking to compel arbitration bears burden to prove agreement exists and is enforceable)
- Brown v. Delfre, 2012 IL App (2d) 111086 (discusses effect of stating arbitration will be "by and according to" an institution’s rules on exclusivity)