State Farm Fire and Casualty Company v. Watts Regulator Company
2016 IL App (2d) 160275
| Ill. App. Ct. | 2016Background
- On Sept. 7, 2013, a Watts-manufactured fitting allegedly fractured and caused water damage to Cecilia Montero’s home; State Farm paid $14,385 and filed subrogation suit on April 15, 2015 seeking $15,385.
- The parties were signatories to Arbitration Forums’ Property Subrogation Arbitration Agreement, which before amendment made product-liability subrogation claims (≤ $100,000) subject to compulsory arbitration.
- Arbitration Forums posted an amendment on Nov. 4, 2014, effective Jan. 1, 2015, stating product-liability claims would no longer be compulsory as of Jan. 1, 2015, but “cases filed prior to January 1, 2015, will remain in arbitration’s jurisdiction and will be processed to hearing.”
- Watts moved to compel arbitration, arguing the claim accrued (date of loss: Sept. 7, 2013) before the amendment so it remained arbitrable; State Farm argued the amendment’s filing-date language meant claims filed after Jan. 1, 2015 (like this suit) were not subject to compulsory arbitration.
- Trial court denied Watts’s motion to compel arbitration; Watts appealed.
- The appellate court affirmed, holding the amendment unambiguously turns on filing date, rejecting judicial estoppel and forfeiture arguments, and declining to rely on extrinsic affidavit evidence.
Issues
| Issue | Plaintiff's Argument (State Farm) | Defendant's Argument (Watts) | Held |
|---|---|---|---|
| Forfeiture of arbitration defense | Watts did not preserve arbitration in its answer; State Farm raises forfeiture | Watts says State Farm’s appellate forfeiture argument is itself forfeited given prior communications | Court found State Farm forfeited the forfeiture argument and declined to bar Watts’ arbitration defense |
| Judicial estoppel | State Farm may interpret the amendment as turning on filing date; prior positions in other cases were legal, not factual | Watts: State Farm took contrary positions in other suits and should be estopped from opposing arbitration | Court held judicial estoppel inapplicable because State Farm’s alleged inconsistency is a legal interpretation, and judicial estoppel generally addresses factual inconsistencies |
| Interpretation of amendment / arbitrability | Amendment unambiguously preserves arbitration for "cases filed prior to Jan. 1, 2015" — filing date controls | Amendment should protect claims that accrued before Jan. 1, 2015 (date of loss), so Montero’s 2013 loss remains arbitrable | Court held amendment unambiguous: filing date controls; because suit was filed Apr. 15, 2015, claim is not subject to compulsory arbitration |
| Use of extrinsic affidavit (McKernan) | Admit judicial notice of affidavit filings but do not rely on extrinsic interpretive evidence when contract is unambiguous | Watts moved to strike affidavit from appendix; argued it wasn’t in trial court and improperly addresses interpretation | Court took judicial notice that affidavit was filed elsewhere but gave it no weight as the amendment was unambiguous; denied motion to strike |
Key Cases Cited
- New Hampshire v. Maine, 532 U.S. 742 (2001) (explains purpose and discretionary nature of judicial estoppel)
- People v. Jones, 223 Ill. 2d 569 (2006) (judicial estoppel does not apply to merely legally inconsistent positions)
- J & K Cement Constr., Inc. v. Montalbano Builders, Inc., 119 Ill. App. 3d 663 (1983) (arbitration contracts are interpreted like other contracts)
- Gallagher v. Lenart, 226 Ill. 2d 208 (2007) (contract interpretation focuses on parties’ intent; plain language controls)
- Litton Fin. Printing Div. v. NLRB, 501 U.S. 190 (1991) (discusses limits on arbitrability after contract expiration)
- Nolde Bros., Inc. v. Local No. 358, 430 U.S. 243 (1977) (presumption that arbitration clauses survive expiration as to disputes arising under expired agreement)