LRN Holding, Inc. v. Windlake Capital Advisors, LLC
350 Ill. Dec. 776
| Ill. App. Ct. | 2011Background
- LRN and Ransburg sued Windlake to declare their contract void and recover fees from a sale of LRN assets.
- LRN engaged Windlake as exclusive broker; engagement fee was $35,000 and a closing success fee of $200,000 plus 2% of all consideration.
- Windlake brokered a transaction to Bosch Tool Corporation; Windlake received about $1.226 million.
- Plaintiffs allege Windlake was unregistered under Illinois Brokers Act, rendering the contract void ab initio and fees recoverable with interest and fees.
- Windlake moved to dismiss or stay and compel arbitration based on a broad arbitration clause; trial court granted stay and compelled arbitration.
- The appellate court must determine whether arbitration was properly compelled and which law governs arbitration procedures.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does an arbitration clause govern despite alleged unlicensed broker status? | LRN argues the Brokers Act makes the contract void; no valid contract exists. | Windlake contends a valid arbitration agreement exists and disputes fall within its scope. | Arbitration clause valid and scope covers the dispute. |
| Which forum governs: FAA or Illinois Uniform Arbitration Act? | IA Arbitration Act should apply when parties agree to state-law arbitration. | FAA governs because AAA rules and interstate commerce are involved. | FAA applies; AAA rules govern arbitration. |
| Who decides contract validity vs. arbitration when contract may be void ab initio? | Trial court should decide whether the contract is void before arbitration. | Arbitration clause requires disputes about the agreement to be arbitrated. | Disputes yli related to the agreement are to be arbitrated; judgment affirmed. |
Key Cases Cited
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) (arbitration provisions severable; challenges to contract go to arbitrator)
- Preston v. Ferrer, 552 U.S. 346 (2008) (who decides validity: arbitration vs. administrative/other forum)
- Jensen v. Quik International, 213 Ill.2d 119 (2004) (scope of stay; existence of arbitration agreement)
- Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468 (1989) (state law choice and FAA interaction; incorporation of rules)
- Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995) (federal arbitration rules apply absent explicit contrary state law)
- Aste v. Metropolitan Life Insurance Co., 312 Ill.App.3d 972 (2000) (license prereq; void contract and clauses under public policy)
- Kaplan v. Tabb Associates, Inc., 276 Ill.App.3d 320 (1995) (arbitration clauses void where license required)