PORTAGE PARK CAPITAL, LLC, an Illinois Limited Liability Company, Plaintiff-Appellant, v. A.L.L. MASONRY CONSTRUCTION COMPANY., INC. d/b/a All Construction Group, an Illinois Corporation, Defendant-Appellee.
No. 1-24-0344
APPELLATE COURT OF ILLINOIS FIRST JUDICIAL DISTRICT FIFTH DIVISION
June 14, 2024
2024 IL App (1st) 240344
OPINION
¶ 1 Plaintiff Portage Park Capital appeals the circuit court‘s order compelling arbitration for all of the issues plaintiff raised and dismissing the case. The issue on appeal is whether the circuit court erred by determining that the validity of a mechanic‘s lien is subject to arbitration. For the reasons stated below, we hold that the circuit court did not err and affirm.
I. BACKGROUND
¶ 2
¶ 3 Plaintiff Portage Park Capital contracted with defendant A.L.L. Masonry Construction Company to construct a new self-storage building in Chicago, Illinois, for plaintiff. The contract is a standard form AIA agreement with an arbitration clause that provides as follows:
“If the parties have selected arbitration as the method for binding dispute resolution in the Agreement, any Claim subject to, but not resolved by, mediation shall be subject to arbitration which shall be conducted in Chicago, Illinois by a single arbitrator selected by mutual agreement of the parties.”
A claim subject to arbitration under the contract is defined as
“a demand or assertion by one of thе parties seeking, as a matter of right, adjustment or interpretation of Contract terms, payment of money, extension of time or other relief with respect to the terms of the Contract. The term ‘Claim’ also includes other disputes and matters in question between the Owner and Contractor arising out of or relating to the contract. The responsibility to substantiate Claims shall rest with the party making the Claim. Claims must be initiated by written notice.”
The parties agreed to submit all claims not resolved by mediation to arbitration.
¶ 4 Over the course of the parties’ dealings, disputes arose regarding the amount of money that plaintiff owed defendant. Accordingly, defendant filed a mechanic‘s lien for the amount it believed that it was still owed under the contract. A short time later, plaintiff made a demand for arbitration regarding the payment of money under the contract and the amount due. This arbitration is currently duly convened and pending. Plaintiff also filed this action in the circuit court of Cook County, seeking a
II. ANALYSIS
¶ 5
¶ 6 “A motion to compel arbitration is essentially a
A. Arbitrator‘s Ability to Consider Lien Validity
¶ 7
¶ 8 Section 9 of the Mechanics Lien Act provides that “[i]f payment shall not be made to the contractor having a lien ***, then such contractor may bring suit to enforce his lien in the circuit court in the county where the improvement is located.”
¶ 9 In order to enforce a lien, the party seeking enforcement must prove that the lien is valid. See Tefco Construction Co. v. Continental Community Bank & Trust Co., 357 Ill. App. 3d 714, 718-19 (2005) (“A mechanic‘s lien is valid only if each of the statutory requirements is strictly observed [citation], and the party seeking to enforce the lien bears the burden of proving that each requisite has been satisfied [citation].“); Watson v. Watson, 218 Ill. App. 3d 397, 399-400 (1991) (same); Ronning Engineering Co. v. Adams Pride Alfalfa Corp., 181 Ill. App. 3d 753, 758-59 (1989) (same); Edward Electric Co. v. Automation, Inc., 164 Ill. App. 3d 547, 549 (1987) (same); In re Cook, 384 B.R. 282, 291 (Bankr. N.D. Ala. 2008) (“Before a lien on property can be enforced, three issues must be addressed: (1) the validity of the lien (because an invalid lien is not enforceable) ***.“). These cases make clear that lien validity is a prerequisite to lien enforcement. That is, a court may not enforce a lien unless and until it has been determined that thе lien is valid. Thus, courts have consistently considered lien
¶ 10 Accordingly, the Illinois Supreme Court‘s holdings in O‘Brien and Sorg do not control here because the issue of whether an arbitrator could consider the validity of a mechanic‘s lien was never presented to either court. While Sorg involved a contract dispute, an arbitratiоn clause, and an allegedly fraudulent lien, the parties there never sought to compel arbitration on the question of the validity of the lien. Similarly, the supreme court‘s holding that “had a lien existed it would not have been affected by such an award” does not support concluding that the court intended lien validity to be nonarbitrable. (Emphasis added.) Sorg, 233 Ill. at 99. The court held only that, in the context of the case before it, where the arbitrator had decided only the amount due to the plaintiff in the underlying contract dispute but had not addressed any issues related to the mechanic‘s lien, the arbitrator‘s award would have no effect on the lien. Accordingly, O‘Brien and Sorg have nothing to say about what issues parties may arbitrate and provide no support for plaintiff here.
¶ 11 Courts in other jurisdictions have concluded similarly. In Colorado, an apрellate court concluded that “the district court is the proper forum for contesting any disputes as to the procedural validity of [a] mechanic‘s lien” where the validity of the lien was not “put at issue and decided in arbitration.” Sure-Shock Electric, Inc. v. Diamond Lofts Venture, LLC, 259 P.3d 546, 550 (Colo. App. 2011). The Utah Supreme Court analyzed the validity of a mechanic‘s lien without considering whether the arbitrator could have ruled on the issue. See Worthington & Kimball Construction Co. v. C&A Development Co., 777 P.2d 475, 477-78 (Utah 1989). In Connecticut and Arizona, courts have ruled that a provision in a contract that explicitly reserves the rights of contractors with respect to statutory remedies under mechanic‘s lien laws prevents courts from compelling arbitration regarding such liens. See Madaio Glass, Inc. v. Stonestreet Hospitality Co., No. CV106004094, 2010 WL 4074483, at *3 (Conn. Super. Ct. Sept. 13, 2010); B&M Construction, Inc. v. Mueller, 790 P.2d 750, 751-52 (Ariz. Ct. App. 1989). And in Florida, a court determined that it was error to deny a lien foreclosure when the “arbitrator‘s award was silent on the matter.” Royal Palm Collection, Inc. v. Lewis, 36 So. 3d 168, 169 (Fla. Dist. Ct. App. 2010).1
However, these cases stand only for the proposition that a trial court may determine the validity of a mechanic‘s lien in certain circumstances, not that it must or that parties to a contract may not agree to submit the issue to an arbitrator.
¶ 12 Courts in Minnesota, Ohio, and Texas have held specifically that an arbitrator may determine the validity of a lien. See McMahon v. Schepers, No. C2-02-266, 2002 WL 31013031, at *2 (Minn. Ct. App. Sept. 10, 2002); Sebold v. Latina Design Build Group, L.L.C., 2021-Ohio-124, 166 N.E.3d 688, ¶¶ 13-15; CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 242-43 (Tex. 2002). Indiana, Michigan, and South Carolina courts have hеld that mechanic‘s lien foreclosures are broadly subject to arbitration. See Koors v. Steffen, 916 N.E.2d 212, 216-17 (Ind. Ct. App. 2009); Legacy Custom Builders, Inc. v. Rogers, No. 359213, 2023 WL 1870446, at *3 (Mich. Ct. App. Feb. 9, 2023); Cape Romain Contractors, Inc. v. Wando E., LLC, 747 S.E.2d 461, 466-67 (S.C. 2013). Of the states to have considered the issue, only New York has held that assessing the validity of a mechanic‘s lien is “beyond the power of the arbitrators to determine.” May v. New Amsterdam Casualty Co., 60 N.Y.S.2d 613, 615 (App. Div. 1946).
¶ 13 This conclusion does not result in tension by providing courts exclusive jurisdiction to enforce liens but denying courts exclusive jurisdiction to determine whether liens are valid. Courts have exclusive jurisdiction to enforce any arbitration award—arbitration awards are not self-executing. See
¶ 14 This result is consistent with bedrock principles of contract law. The goal in contract law is to “ascertain and give effect to the intent of the parties.” W.W. Vincent & Co. v. First Colony Life Insurance Co., 351 Ill. App. 3d 752, 757 (2004). And “an agreement to arbitrate is a matter of contract.” Salsitz v. Kreiss, 198 Ill. 2d 1, 13 (2001). Further, Illinois public policy favors arbitration. Illinois permits litigants to settle disputes through arbitration because “[a]rbitration is regarded as an effective, expeditious, and cost-efficient method of dispute resolution.” Royal Indemnity Co. v. Chicago Hospital Risk Pooling Program, 372 Ill. App. 3d 104, 110 (2007) (citing United Cable Television Corp. v. Northwest Illinois Cable Corp., 128 Ill. 2d 301, 306 (1989)). Because the law recognizes arbitrators as sufficiently capable of deciding disputes, if an issue falls within the scope of an otherwise valid arbitration clause, “judicial review of an arbitral award is extremely limited.” American Federation of State, County & Municipal Employees, AFL-CIO v. Department of Central Management Services, 173 Ill. 2d 299, 304 (1996).
¶ 15 These tenets demonstrate that courts view the act of contracting as volitional and the terms within a contract as the thoughtful result of a bargained-for exchange. Put more plainly, the terms of a contract are what the parties voluntarily agreed to. Accordingly, courts should not read limiting principles into statutes regarding the issues parties may or may not arbitrate when the legislature did not expressly provide such a limitation. If it is the intent of the parties to arbitrate a claim, courts should generally defer to that intent. See Smola v. Greenleaf Orthopedic Associates, S.C., 2012 IL App (2d) 111277, ¶ 16 (“whether an issue is subject to arbitration
¶ 16 However, the opposite is also true: parties are not required to submit claims to arbitrators just because arbitrators are empowered to hear those claims. Instead, agreements to arbitrate are “matter[s] of contract” and “[t]he parties to an agreement are bound to arbitrate only those issues whiсh by clear language and their intentions expressed in the language show they have agreed to arbitrate.” (Internal quotation marks omitted.) Clanton v. Oakbrook Healthcare Centre, Ltd., 2023 IL 129067, ¶ 29. Accordingly, courts determine the scope of an agreement to arbitrate “using ordinary contract principles.” Id. ¶ 30. These principles require that “[i]n the absence of an ambiguity, the intention of the parties at the time the contract was entered into must be asсertained by the language utilized in the contract itself.” (Internal quotation marks omitted.) Id. Further, provisions of the contract should not be read in isolation but should be considered in the broader context of the contract as a whole. Id.
¶ 17 The arbitration agreement at issue covers two types of claims: (1) “a demand or assertion by one of the parties seeking, as a matter of right, adjustment or interpretation of Contract terms, payment of money, extension of time or other relief with respect to the terms of the Contract” or (2) “other disputes and matters in question between the Owner and the Contractor arising out of or relating to the contract.” The language of this agreement closely tracks with what courts have characterized as a “generic” arbitration clause. See Bass v. SMG, Inc., 328 Ill. App. 3d 492, 498 (2002). In Illinois, “courts have generally construed ‘generic’ arbitration clauses broadly, concluding that the parties are obligated to arbitrate any dispute that arguably arises under an agreement containing a ‘generic’ provision.” (Emphasis in original.) Fahlstrom v. Jones, 2011 IL App (1st) 103318, ¶ 17.
¶ 18 Below, the circuit court determined that the mechanic‘s lien arose out of or related to the contract because, “the questions raised in the complaint *** involve the pay аpps, whether they were overinflated, and the values listed in the subcontractors’ agreements versus what‘s on the mechanic‘s lien.” The circuit court explained that, in order to answer these questions, it “would have to look at requirements under the contract.” To determine the validity of the mechanic‘s lien, the circuit court reasoned that it would need to refer to the parties’ contractual requirements.
¶ 19 The contours of when a dispute “arises out of or relates to” a contract are murky. On one end of the spectrum, a broad reading of this language could reasonably include anything that would not have occurred “but for” the existence of the contract. On the other end, a narrow reading could be limited only to those disputes that involve some “interpretation or construction of the cоntract.” While this court has never provided a black-letter rule, courts in other jurisdictions have settled somewhere in between these options, determining that, for a dispute to arise out of or relate to a contract, it must ” ‘raise some issue the resolution of which requires a reference to or construction of some
¶ 20 The narrowest reading of “arises out of or relates to” is plainly wrong when considered in light of Illinois case law. See Bass, 328 Ill. App. 3d at 500 (agreeing with federal courts that “broad arbitration clauses do not limit arbitration to the literal interpretation or performance of the contract“). Illinois‘s public policy favoring arbitration militates toward reading “generic” arbitration clauses broadly. Fahlstrom, 2011 IL App (1st) 103318, ¶ 17. However, if “generic” arbitration clauses only reached disputes that involved “interpretation or construction” of a contract, such clauses would fail to reach disputes that indisputably fall within an arbitrator‘s purview. See, e.g., Buckeye, 546 U.S. at 449 (holding that “a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator“); Bass, 328 Ill. App. 3d at 502 (concluding that tort claims of breach of fiduciary duty, misappropriation of business opportunity, and tortious interference with сontract, among others, ” ‘[arose] from the very heart’ of the relationship between [the companies] and are significantly related to the agreement defining that relationship,” and were thus subject to arbitration); Fahlstrom, 2011 IL App (1st) 103318, ¶ 18 (recognizing the principle that “[w]here an agreement contains a generic arbitration clause, that clause covers a dispute arising under a subsequent agreement between thе same parties if the original agreement and the subsequent agreement concern the same subject matter” (citing A.E. Staley Manufacturing Co. v. Robertson, 200 Ill. App. 3d 725, 730-31 (1990))).
¶ 21 Moreover, if the generic section of the arbitration clause in this case were limited only to claims that involve interpretation or construction of the contract, the section would be superfluous. The first section of the clause already extends the arbitration agreement to “a demand or assertion by one of the parties seeking, as a matter of right, adjustment or interpretation of Contract terms, payment of money, extension of time or other relief with respect to the terms of the Contract“—in other words, claims involving the interpretation or construction of the contract. If the second section of the clause is limited to the same claims as the first section, there would have been no need to include it. Given that, “[g]enerally, when interpreting a contract, we must give effect to all of the contract‘s provisions if it is possible to do so,” reading such a redundancy into the agreement here would be improper. Wood v. Evergreen Condominium Ass‘n, 2021 IL App (1st) 200687, ¶ 51; see Evans v. Lima Lima Flight Team, Inc., 373 Ill. App. 3d 407, 413 (2007) (“Contractual terms should be construed so as to avoid the conclusion that other terms are redundant.“).
¶ 22 Instead, at the very least, if resolution of the clаims raised in a complaint require the court to reference the contract, those claims “arise out of or relate to” that contract. Significantly, every dispute regarding a mechanic‘s lien involves some reference to or construction of the contract because “the liens act becomes a term of every construction contract between the owner and the contractor for construction of a building.” J&K Cement Construction, Inc. v. Montalbano Builders, Inc., 119 Ill. App. 3d 663, 673 (1983). Therefore, any reference to the
¶ 23 Additionally, Illinois courts have recognized that “the adjudication of an action to foreclose a mechanic‘s lien involves essentially the same cause of action as that upon which the lien claim is based.” Thorleif Larsen & Son, Inc. v. PPG Industries, Inc., 177 Ill. App. 3d 656, 660 (1988). Here, the lien claim is based upon a contract dispute bеtween plaintiff and defendant. Thus, the lien claim is essentially the same cause of action as the contract dispute. Any argument that the two are unrelated lacks any support in fact or law. Accordingly, the trial court did not err in concluding that the dispute here arose from or related to the contract.
B. Section 2-619 Motion to Dismiss
¶ 24
¶ 25 Plaintiff next contends that the circuit court procedurally erred when it determined that resolving plaintiff‘s claims would require it to refer to the contract. Plaintiff argues that, because a section 2-619 motion “admits the legal sufficiency of the complaint” (Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351, 361 (2009)) and because “[n]o contract interpretation was needed based on the face of the Complaint,” the circuit court was bound by the complaint. This argument appears to rely on plaintiff‘s mistaken standard for when a claim arises out of or relates to a contract. However, the circuit court did not need to find, nor did it find, that contract interpretation was necessary; instead, it found only that it “would have to look at requirements under the contract.” The complaint on its face directs the court to look at requirements under the contract; therefore, plaintiff‘s argument completely misses the mark.
¶ 26 However, even if the complaint did assert that any reference to the contract in this case would be unnecessary, the circuit court would not have been obligated to accept the truth of that assertion. “The defendant does not admit the truth of any allegations in plaintiff‘s complaint that may touch on the affirmative matters raised in the 2-619 motion.” Barber-Colman Co. v. A&K Midwest Insulation Co., 236 Ill. App. 3d 1065, 1073 (1992). Accordingly, the party opposing a motion to compel arbitration “cannоt rely on bare allegations alone to raise issues of material fact.” Eco Brite Linens LLC v. City of Chicago, 2023 IL App (1st) 210665, ¶ 9. Therefore, the circuit court‘s comments, suggesting that it would need to refer to the contract to resolve the claims before it, were not improper.
III. CONCLUSION
¶ 27
¶ 28 The judgment of the circuit court of Cook County is affirmed.
¶ 29 Affirmed.
Portage Park Capital, LLC v. A.L.L. Masonry Construction Co., 2024 IL App (1st) 240344
Decision Under Review: Appeal from the Circuit Court of Cook County, No. 23-CH 008139; the Hon. Anna Loftus, Judge, presiding.
Attorneys for Appellant: Craig Penrose, of Laurie & Brennan LLP, of Chicago, for appellant.
Attorneys for Appellee: Frederick J. Sudekum and Jacob R. Coz, of Sudekum, Cassidy & Shulruff, Chtrd., and Howard Teplinsky and Mark L. Evans, of Levin Ginsburg, both of Chicago, for appellee.