*1 Illinois Official Reports
Appellate Court
Hartz v. Brehm Preparatory School, Inc.
,
BREHM PREPARATORY SCHOOL, INC.; BRIAN BROWN, Ph.D., Its Director; and RICHARD COLLINS, Ph.D., Defendants- Appellants.
District & No. Fifth District
No. 5-19-0327 Filed February 18, 2021
Decision Under Appeal from the Circuit Court of Jackson County, No. 18-L-35; the Hon. Christy W. Solverson, Judge, presiding. Review Judgment Vacated and remanded.
Counsel on John C. Ryan, D. Brian Smith, and Bentley J. Bender, of Feirich Mager Green Ryan, of Carbondale, for appellants. Appeal
Joseph M. Baczewski and Jerrod H. Montgomery, of Carbondale, for appellees.
Panel PRESIDING JUSTICE BOIE delivered the judgment of the court,
with opinion.
Justices Cates and Wharton concurred in the judgment and opinion. *2 OPINION The plaintiffs, Cynthia Hartz, individually, and as parent and next friend of L.R., a minor,
and James Ritchie, filed a complaint against the defendants, Brehm Preparatory School, Inc. (Brehm), Dr. Brian Brown, Ph.D., аnd Dr. Richard Collins, Ph.D., [1] alleging claims stemming from Brehm’s expelling of Hartz’s minor child, L.R., from Brehm’s private boarding school for learning disabled children. Brehm moved to dismiss the plaintiffs’ complaint on the basis that the contractual agreement between Hartz and Brehm required Hartz to arbitrate the claims raised in the plaintiffs’ complaint. Brehm appeals from the trial court’s order denying their combined motion to dismiss the plaintiffs’ complaint and for sanctions. For the reasons that follow, we reverse and remand for further proceedings consistent with this decision. I. BACKGROUND Brehm operates a private boarding school in Carbondale, Illinois, that provides educational and boarding school services for children with learning disabilities. Codefendant Dr. Richard Collins, Ph.D., served as Brehm’s director, and codеfendant Dr. Brian Brown, Ph.D., served as Brehm’s executive director. Hartz and Ritchie are husband and wife and reside in Pennsylvania along with Hartz’s
minor child, L.R. L.R. suffers from learning disabilities and other diagnoses which made him a potential candidate for services at Brehm’s school. In the spring of 2017, Hartz began making arrangements for L.R.’s ninth grade school year. Hartz and L.R. traveled to Carbondale on April 21, 2017, to tour Brehm’s facilities and meet with the school’s leadership. During the visit, Collins met with L.R. and informed Hartz that L.R. was a fit for Brehm’s program. Brehm furnished Hartz with an unsigned copy of the Brehm contract, which set out the proposed terms of an agreement between Hartz and Brehm concerning L.R.’s ninth grade education at Brehm for the 2017-18 school year. According to Hartz, she reviewed the Brehm contract and concluded thаt the agreement was “patently unfair” and “completely one sided.” Therefore, Hartz contacted Brehm and raised objections to the terms of the agreement with Brehm’s controller and agent, Clatus Bierman. Hartz maintains that she asked Bierman whether the terms of the contract were negotiable, and Bierman told Hartz that any proposed changes would need to be discussed with Brown and that any discussions would have to take place on August 26 and 27, which was the weekend students, including L.R., were to move into the facility for the school year. On August 26, 2017, the move-in weekend, Hartz and L.R. travelled to Carbondale,
Illinois, to move L.R. into his dormitory at Brehm. Hartz met with Brown, who told Hartz to “either sign the agreement” in the proposed form or “go home.” Hartz signed the Brehm contract; Ritchie did not.
*3 Thе Brehm contract provided that Hartz would pay Brehm $77,500 in tuition for the 2017-
18 school year, running from August 26, 2017, to June 2, 2018. Hartz and Ritchie paid the tuition in full, and L.R. began ninth grade at Brehm’s school. The Brehm contract, which was drafted by Brehm, contained an arbitration clause, which
provided:
“ARBITRATION. Any dispute, controversy or claim arising out of or relating in any way to the Agreement, including without limitation any dispute concerning the construction, validity, interpretation, enforceability or breach of the Agreement, shall be exclusively resolved by binding arbitration upon a Party’s submission of the dispute to arbitration. In the event of a dispute, controversy or claim arising out of or relating in any way to the Agreement, the complaining Party shall notify the other Party in writing thereof. Within thirty (30) days of such notice, the Parties shall attempt to resolve the dispute in good faith. Should the dispute not be resolved within thirty (30) days after such notice, the complaining Party shall seek remedies exclusively through arbitration. The demand for arbitration shall be made within a reasonable time after the claim, dispute or other matter in question has arisen, and in no event shall it be made after two years from when the aggrieved party knew or should have known of the controversy, claim, dispute or breach.
This agreement to arbitrate shall be specifically enforceable. The arbitration shall be conducted by one arbitrator. If the Parties are not able to agree upon the selection of an arbitrator, within twenty (20) days of commencement of an arbitration proceeding by service of demand for arbitration, eaсh party shall select an arbitrator and the designated arbitrators shall independently select the arbitrator that will handle the arbitration. If the designated arbitrators cannot agree on the selection of the arbitrator within twenty (20) days of their appointment, the American Arbitration Association shall select such arbitrator in accordance with the terms of this agreement and its rules. The arbitration shall be conducted in accordance with the then existing Commercial Rules of the American Arbitration Association. The arbitration shall be conducted in Carbondale, Illinois.
The laws of the state of Illinois shall be applied in any arbitration proceedings, without regard to principles of conflict of laws.” In a separate section, at paragraph 11, the Brehm contract contained the following
language:
“BREACH OF CONTRACT: In the event Parent defaults on any obligation pursuant to this Agreement, including the obligation for payment of money due and owing or any other obligation, and in the event Brehm is required to employ the services of an attorney due to the default, in addition to all other rights and remedies available at law or in equity, Brehm shall also be entitled to recover its reasonable attorneys’ fees, costs of litigation, and cost of collection, including attorneys’ fees incurred in efforts to collect after judgment.
In the event Parent defaults on any obligation for the payment of money due and owing to Brehm, and such default is not cured within ten (10) business days after Parent’s receipt of written notice of default, then Brehm, at its sole optiоn, may immediately dismiss Student and require Student to immediately vacate Brehm’s premises and return home at Parent’s cost.
In the event of such dismissal for breach of contract, all tuition fees, costs, etc. shall be due and payable in accordance with the provisions of this Agreement.” ¶ 10 On or about October 28, 2017, Hartz attended a parent’s weekend function at Brehm’s
school. At the function, Brehm’s management informed Hartz that they had determined that L.R. was not a fit for Brehm’s program, and that L.R. would have to leave the school immediately. Collins and Brown told Hartz that L.R. would no longer be allowed to attend Brehm. Brehm removed L.R. from Brehm’s program after L.R. attended 56 days of the 245- day school year.
¶ 11 On April 10, 2018, the plaintiffs filed a six-count complaint against Brehm. The plaintiffs
alleged claims based on breach of contract, unjust enrichment, and professional negligence. Brehm moved to dismiss the complaint pursuant to section 2-619(a)(9) of the Code of Civil Procedure (Code) (735 ILCS 5/2-619(a)(9) (West 2018)) and for sanctions. Brehm’s motion to dismiss argued, among other things, that the Brehm contract contained an arbitration clause that required the plaintiffs’ claims to be submitted to arbitration.
¶ 12 In their response to the motion to dismiss, the plaintiffs argued that the arbitration clause
was both substantively and procedurally unconscionable, as was the Brehm contract as a whole, and that their tort law claims were not subject to the arbitration clause.
¶ 13 On November 14, 2018, the circuit court conducted a nonevidentiary hearing on Brehm’s
motion to dismiss. After considering arguments of counsel, the circuit сourt entered an order denying Brehm’s motion to dismiss on July 16, 2019. The circuit court noted that the Brehm contract “allows Brehm to litigate the claims but requires parents and/or guardians to arbitrate claims.” The circuit court, therefore, concluded that the Brehm contract lacked mutuality with respect to resolving disputes that made the arbitration clause in the Brehm contract substantively unconscionable. The plaintiffs moved to file a first amended complaint, and the circuit court granted the
motion to amend the complaint. On August 2, 2019, Brehm filed a notice of appeal from the circuit court’s order denying their motion to dismiss the plaintiffs’ complaint. During the pendency of this appeal, the plaintiffs filed the first amended complaint, which
included the same counts that were included in the first complaint (counts I through VI) and added additional counts (VII through XIII) alleging claims based on substantive unconscionability, procedural unconscionability, negligent infliction of emotional distress, fraudulent misrepresentation, and negligent misrepresentation. Brehm moved to dismiss the plaintiffs’ first amended complaint pursuant to sections 2-615 and 2-619 of the Code ( id. §§ 2- 615, 2-619). II. ANALYSIS On appeal, Brehm challenges the propriety of the interlocutory order denying their request
to dismiss the plaintiffs’ complaint based on the arbitration clause contained in the Brehm contract. Before considering the merits of Brehm’s appeal, we must first address the plaintiffs’ claims that the appeal should be dismissed for lack of jurisdiction, mootness, and prematurity. A. Jurisdiction As a preliminary matter, we must determinе whether we have jurisdiction to consider Brehm’s appeal. Brehm argues that this court has jurisdiction pursuant to Illinois Supreme *5 Court Rule 307(a)(1) (eff. Nov. 1, 2017). The plaintiffs argue that this court lacks jurisdiction because Brehm never filed a motion to compel arbitration and instead filed a motion to dismiss pursuant to section 2-619(a)(9) of the Code (735 ILCS 5/2-619(a)(9) (West 2018)), titled “THE DEFENDANTS’ COMBINED MOTION TO DISMISS THE PLAINTIFFS’ COMPLAINT AND FOR SANCTIONS.” Plaintiffs claim that the ruling on the section 2-619 motion to dismiss is not an appealable order. Illinois Supreme Court Rule 307 (eff. Nov. 1, 2017) provides for an appeal as a matter of
right. Brehm brought this appeal pursuant to section 307(a)(1), which provides: “An appeal may be taken to the Appellate Court from an interlocutory order of court: (1) granting, modifying, refusing, dissolving, or refusing to dissolve or modify an injunction[.]” Ill. S. Ct. R. 307(a) (eff. Nov. 1, 2017). To determine what constitutes an appealable injunctive order under Rule 307(a)(1), we
look to the substance of the action, rather than the form.
In re A Minor
,
was made to the trial court to compel arbitration or some other form of injunctive relief, or the
trial court’s order effectively constituted an injunctive order. See,
e.g.
,
Ward v. J.J.B. Hilliard,
W.L. Lyons, LLC
,
appealable under Rule 307(a)(1).
Salsitz
,
a stay pending arbitration. Brehm did not ask the trial court to compel arbitration in its pleadings or in its prayer for relief directed against the plaintiffs’ original complaint. However, in its motion and memoranda, Brehm repeatedly argued that the plaintiffs’ action should be dismissed because the plaintiffs’ claims came within the scope of a mandatory arbitration clause. Brehm’s section 2-619(a)(9) motion to dismiss argued that the plaintiffs’ claims were subject to a valid arbitration clause contained in the Brehm contract. Further, Brehm filed a supporting memorandum of law that argued that the plaintiffs’ complaint should be dismissed bаsed on the fact that the Brehm contract contained a valid and enforceable arbitration provision. While failure to request the court to compel arbitration is not simply a matter of “form over
function,” as argued by Brehm, and it would have been proper practice to file a motion to compel arbitration; “[a]n order denying a motion to dismiss a complaint on the basis of an arbitration clause has been found to be an order denying an injunction for purposes of Rule 307.” Siena at Old Orchard Condominium Ass’n , 2018 IL App (1st) 182133, ¶ 18. While Brehm filed a motion to dismiss pursuant to section 2-619, the affirmative matter they relied upon in seeking the dismissal was that the dispute was governed by a valid arbitration clause and that the controversy should proceed in arbitration. The substance of the action at the trial court revolved around the validity and applicability of the arbitration clause. In ruling on Brehm’s motion to dismiss, the trial court considered the arbitration clause and determined that it was substantively unconscionable and unenforceable. The trial court’s order effectively restrained Brehm’s exercise of the contractual right to compel arbitration, and thus we treat Brehm’s motion to dismiss as a motion to compel arbitration, even though that was not the motion’s title. Accordingly, based upon the content of the pleadings coupled with the findings of the trial court, we conclude that the order was injunctive in nature and, therefore, appealable under Rule 307(a)(1). B. Mootness The plaintiffs next argue that the pleadings filed by the parties after the entry оf the
interlocutory order at issue render this appeal moot. Specifically, the trial court, in its July 16,
2019, order, denied Brehm’s motion to dismiss the original complaint and also granted the
plaintiffs leave to amend their complaint. The plaintiffs filed a first amended complaint on July
17, 2019. The plaintiffs, therefore, argue that Brehm’s appeal from the denial of the motion to
dismiss the original complaint would serve no purpose when that complaint had effectively
*7
been withdrawn and replaced by the first amended complaint. The plaintiffs ask us to take
judicial notice of the pleadings filed after the entry of the interlocutory order at issue.
We agree with the plaintiffs that we have authority to take judicial notice of the pleadings
filed in the trial court after thе interlocutory order was entered. See,
e.g.
,
Northbrook Bank &
Trust Co. v. Abbas
,
exist because events subsequent to the filing of the appeal render it impossible for the
reviewing court to grant the complaining party effectual relief.”
Bettis v. Marsaglia
, 2014 IL
117050, ¶ 8. An issue becomes moot if the parties’ rights or interests are no longer in
controversy and the resolution of the issue will have no practical effect.
Wheatley v. Board of
Education of Township High School District 205
,
court of jurisdiction to hear and determine matters in the pending litigation that arise
independently of and are unrelated to the interlocutory order before the reviewing court.
Witters v. Hicks
,
Santander Consumer USA, Inc.
,
¶ 36 In the case at bar, the trial court entered a two-page order articulating the basis for denying
Brehm’s section 2-619 motion to dismiss. Here, unlike Sturgill , the trial court’s findings and analysis allow for a substantive review of the order denying Brehm’s motion to dismiss. Accordingly, Brehm’s appeal is not premature. D. Validity and Enforceability of the Arbitration Clause On appeal, Brehm claims that the trial court erred in denying its motion to dismiss the
plaintiffs’ complaint pursuant to section 2-619(a)(9) of the Code because the Brehm contract contained a valid and enforceable arbitration clause and the plaintiffs’ claims arose out of, and were related to, the Brehm contract. Brehm initially argues that the trial court exceeded its authority in determining that the entire Brehm contract was substantively unconscionable. Brehm then argues that the trial court erred in finding that the arbitration clause in the Brehm contract was substantively unconscionable. As noted above, an order to compel or deny arbitration is injunctive in nature and
appealable under Illinois Supreme Court Rule 307(a)(1) (eff. Nov. 1, 2017). In an appeal brought pursuant to Rule 307(a)(1), the only issue is whether there was a sufficient showing to sustain the trial court’s order granting or denying the relief sought. Hollingshead , 396 Ill. App. 3d at 1099. An order denying a motion to compel arbitration, entered without an evidentiary hearing, is reviewed de novo . In a motion to dismiss pursuant to section 2-619(a)(9), the moving party asserts that a claim
is barred by an “affirmative matter avoiding the legal effect of or defeating the claim.” 735
ILCS 5/2-619(a)(9) (West 2018). In Brehm’s section 2-619(a)(9) motion, Brehm asserted that
the mandatory arbitration clause was the affirmative matter that defeated the plaintiffs’ claims.
Brehm, therefore, carried the initial burden to establish that the Brehm contract contained a
valid written arbitration clause and that the parties’ dispute fell within the scope of that
arbitration clause.
Hubbert v. Dell Corp.
,
trial court’s inquiry is limited to “certain gateway matters,” such as whether the parties have a
valid arbitration clause, and if so, whether the issues in dispute fall within the scope of the
arbitration clause. See
Buckeye Check Cashing, Inc. v. Cardegna
,
substantively unconscionable based on a lack of “mutuality in response to resolving disputes.” Given the trial court’s determination, we initially consider the contract defense of mutuality of obligation. Mutuality of оbligation is a specific contract defense that may be considered separately
from unconscionability. The doctrine of mutuality requires a contract to be based on an
exchange of reciprocal promises.
Keefe v. Allied Home Mortgage Corp.
,
agreement was illusory where there was a $200,000 arbitration floor.
Carter
,
and that the plaintiffs pay for those services. Brehm promised to provide certain education services, and in exchange, the plaintiffs paid the tuition in full. Therefore, we conclude that the plaintiffs’ promise to arbitrate, even if not met with a reciprocal promise to arbitrate all matters by Brehm, is nonetheless supported by consideration. We next consider the contractual defense оf unconscionability. Unconscionability may be
either procedural or substantive or a combination of both.
Razor v. Hyundai Motor America
,
222 Ill. 2d 75, 99 (2006). Substantive unconscionability concerns the actual terms of the
contract and examines the relative fairness of the obligations assumed.
Kinkel
, 223 Ill. 2d at
28;
Razor
,
the contract that deprived a party of a meaningful choice. at 23. Factors to be considered
include all of the circumstances surrounding the transaction, such as the manner in which the
contract was entered into, whether each party had a reasonable opportunity to understand the
terms of the contract, and whether important terms were hidden in a maze of fine print. Both the conspicuousness of the clause and the negotiations relating to it are important, albeit
not conclusive facts in determining the issue of procedural unconscionability. (citing
Frank’s Maintenance & Engineering, Inc. v. C.A. Roberts Co.
,
section 19 of the Brehm contract, along with other provisions in the Brehm contract. The court found that the arbitration clause required parents to arbitrate claims, while provisions in section 11 of the Brehm contract allowed Brehm to pursue all other rights and remedies available at *11 law or in equity in the event of a breach of contract by a parent. In other words, the trial court concluded that Brehm could choose an arbitral forum or a judicial forum, while the plaintiffs were restricted to an arbitral forum. Section 11 оf the Brehm contract, titled “BREACH OF CONTRACT,” provides:
“In the event Parent defaults on any obligation pursuant to this Agreement, including the obligation for payment of money due and owing or any other obligation, and in the event Brehm is required to employ the services of an attorney due to the default, in addition to all other rights and remedies available at law or in equity, Brehm shall also be entitled to recover its reasonable attorneys’ fees, costs of litigation, and costs of collection, including attorneys’ fees incurred in efforts to collect after judgment.
In the event Parent defaults on any obligation for the payment of money due and owing to Brehm, and such default is not cured within ten (10) business days after Parent’s receipt of written notice of default, then Brehm, at its sole option, may immediately dismiss Student and require Student to immediately vacate Brehm’s premises and return home at Parent’s cost.
In the event of such dismissal for breach of contract, all tuition, fees, costs, etc.,
shall be due and payable in accordance with the provisions of this Agreement.”
As discussed previously, an agreement to arbitrate is construed in the same manner and
according to the same rules as all other contracts.
Carter
,
¶ 56 The question of unconscionability cannot be answered without viewing the arbitration
clause in the context of the Brehm contract as a whole and against the backdrop of the full and precise claims made by the plaintiffs, as the legal issue of unconscionability hinges on the totality of the circumstances. See Kinkel , 223 Ill. 2d at 22. According to the record, the plaintiffs’ claims of unconscionability of the arbitration clause were not based solely on a lack of consideration or mutuality. The plaintiffs made other claims of procedural and substantive unconscionability. Accordingly, although we reverse the circuit court’s denial of the motion to dismiss based on a lack of mutuality, we note that, on remand, there remain unresolved issues that pertain to the plaintiffs’ unconscionability claims. A fundamental principle of arbitration is meaningful choice, namely that parties can freely
and fairly negotiate their own terms of dispute resolution rather than being subjected to the
fixed rules of a judicial forum. As noted in
Kinkel
, “substantive unconscionability” refers to
contractual terms that are “ ‘inordinately one-sided in onе party’s favor.’ ”
Id.
at 28 (quoting
Razor
,
“substantively unconscionable” based on a lack of mutuality of obligation. In reaching this conclusion, the trial court looked beyond the arbitration clause and recognized that the Brehm contract only allowed Brehm the choice of choosing arbitration or all other rights and remedies available by law or in equity. As discussed above, the lack of a mutual promise to arbitrate is not enough, on its own, to invalidate an arbitration clause within a contract which is supported by other consideration. Based on the full context of the order, it is clear the trial court found that the arbitration clause, and not the contract as a whole, was substantively unconscionable and, therefore, unenforceable. It bears repeating that questions regarding the validity of the Brehm contract as a whole
are to be decided by the arbitrator and that questions regarding the validity and conscionability
of the arbitration clause are for the circuit court.
Buckeye Check Cashing, Inc.
,
vacated, and the cause is remanded for further proceedings consistent with this decision. Vacated and remanded.
Notes
[1] This court has been asked to review the trial court’s ruling denying the defendants’ motion to dismiss. For purposes of the trial court’s ruling on the validity of the arbitration agreement, the defendants’ position is consistent. Therefore, we will refer to the defendants in this matter collectively as Brehm.