Galasso v. KNS Companies, Inc.

845 N.E.2d 857, 364 Ill. App. 3d 124, 300 Ill. Dec. 968, 24 I.E.R. Cas. (BNA) 496, 2006 Ill. App. LEXIS 169
CourtAppellate Court of Illinois
DecidedMarch 9, 2006
Docket1 — 05—0284
StatusPublished
Cited by20 cases

This text of 845 N.E.2d 857 (Galasso v. KNS Companies, Inc.) is published on Counsel Stack Legal Research, covering Appellate Court of Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Galasso v. KNS Companies, Inc., 845 N.E.2d 857, 364 Ill. App. 3d 124, 300 Ill. Dec. 968, 24 I.E.R. Cas. (BNA) 496, 2006 Ill. App. LEXIS 169 (Ill. Ct. App. 2006).

Opinion

PRESIDING JUSTICE QUINN

delivered the opinion of the court:

Defendant KNS Companies, Inc. (KNS), appeals from an order of the circuit court of Cook County affirming an arbitration award in favor of plaintiffs Nicholas W Galasso (Nicholas) and Jeffrey D. Ga-lasso (Jeffrey). On appeal, defendant contends that the arbitrator exceeded his authority by determining the existence of employment contracts and awarding damages beyond those provided for in the alleged contracts. Defendant also contends that the circuit court should have modified the arbitrator’s determination where it contained evident miscalculations of figures and mistakes in descriptions. For the following reasons, we affirm.

I. Background

KNS is a closely held Illinois corporation with 24 shareholders. KNS is in the business of producing interior linings for steel drums and pails. KNS’s board of directors observed informal procedures. Nicholas and Jeffrey are father and son, respectively, and were employed by KNS until 2002.

Nicholas was president and a director of KNS. Nicholas was primarily responsible for the day-to-day operations of KNS, and through informal relations with members of the board of directors and shareholders, operated KNS with little or no supervision. Jeffrey was employed by KNS and held the office of executive vice president and treasurer. He was elected treasurer in an informal action by the board of directors on December 5, 1999. Prior to December 5, 1999, Jeffrey was not an officer of KNS. Jeffrey’s responsibilities included full charge of the plant, including plant personnel, manufacturing, inventory, purchasing and lab technical projects.

On April 26, 2002, KNS relieved Nicholas of his duties as president of KNS. KNS’s board of directors agreed to compensate Nicholas as president emeritus of KNS from April 26, 2002, through December 2002. After being named president emeritus, on May 14, 2002, Nicholas was suspended by KNS from employment pending an audit. Jeffrey was also suspended on the same date, pending an audit. In June 2002, pursuant to their employment agreements, Nicholas and Jeffrey each filed a demand for arbitration with the American Arbitration Association (Association). Nicholas and Jeffrey alleged that KNS breached their employment contracts by terminating their employment and failing to pay wages and benefits due under their employment contracts. KNS denied that Nicholas and Jeffrey had valid employment contracts during the arbitration proceedings.

The record contains two documents entitled “Employment Agreement” between KNS and Nicholas, and between KNS and Jeffrey. These agreements also contain an arbitration clause, which provides:

“Any controversy or claim arising out of, or relating to, this Agreement or the breach thereof, shall be settled by arbitration in accordance with the rules then obtaining of the American Arbitration Association, and judgment upon the award rendered may be entered in any Court having jurisdiction thereof.”

Following seven days of testimony, on July 14, 2004, the arbitrator found in favor of Nicholas and Jeffrey and awarded various monetary awards. The arbitrator specifically found that Nicholas and Jeffrey each had an employment contract and agreement with KNS, which expired in December 2002. The arbitrator found that neither Nicholas nor Jeffrey breached any of the terms or conditions of their employment contracts and agreements with KNS, and each of them devoted his best efforts to the business interests of KNS. The arbitrator determined that KNS was liable to Nicholas for the following amounts: $194,000 for unpaid compensation for the period May 1, 2002, through December 7, 2002; $3,500 in business expenses; $2,666.74 for medical insurance for the period from August 1 through December 8, 2002; and $3,263.55 for medical expenses from May 2002 through December 8, 2002. The arbitrator determined that KNS was liable to Jeffrey for the following amounts: $101,000 for unpaid compensation for the period from May 1, 2002, to December 7, 2002, and $7,968.40 for medical expenses and insurance. The arbitrator also determined that Nicholas and Jeffrey were entitled to reasonable attorney fees in the amount of $80,000. The arbitrator further determined that KNS was liable for the administrative fees and expenses of the Association and the arbitrator. Accordingly, the arbitrator directed KNS to pay Nicholas and Jeffrey $24,900 for amounts previously advanced to the Association.

On July 19, 2004, Nicholas and Jeffrey filed an action in the circuit court to confirm the final award of the arbitrator. KNS filed a motion to vacate or modify the arbitrator’s award. On December 21, 2004, the circuit court entered an order affirming the arbitrator’s final award and denying KNS’s motion. KNS appeals from that order.

II. Analysis

A. KNS’s Claim That the Arbitrator Lacked the Authority to Determine the Existence of Employment Contracts

KNS first contends that the circuit court should have vacated the arbitrator’s award where the arbitrator exceeded his authority. Relying on Kilianek v. Kim, 192 Ill. App. 3d 139 (1989), KNS argues that the arbitrator had no authority to determine whether a contract existed in this case because it was an issue of law determinable only by the courts.

However, our supreme court addressed this issue in Jensen v. Quik International, 213 Ill. 2d 119 (2004). In Jensen, the plaintiff sought to rescind a franchise agreement with the defendant on the grounds that the agreement violated the Franchise Disclosure Act of 1987 (Franchise Act) (815 ILCS 705/5 (West 2002)), because the defendant franchisor was not registered with the Attorney General’s office at the time of sale. Jensen, 213 Ill. 2d at 120-21. The defendant sought to stay any litigation on the agreement pending arbitration pursuant to an arbitration clause contained therein; however, the circuit court denied the motion. Jensen, 213 Ill. 2d at 121. The appellate court affirmed the denial, holding that because compliance with the Franchise Act was a condition precedent to an enforceable contract, the agreement and the arbitration clause were not binding because the contract did not exist if the Franchise Act had been violated. Jensen, 213 Ill. 2d at 122. Therefore, the appellate court found, the question of whether the Franchise Act had been violated had to first be determined in a court of law prior to enforcement of the arbitration clause. Jensen, 213 Ill. 2d at 121-22. Our supreme court disagreed and reversed the trial and appellate courts.

In its decision, the supreme court concluded that registration with the Attorney General’s office was not a condition precedent to an enforceable franchise agreement. The Franchise Act provides that in the case of a violation of the statute, the available remedies are rescission and damages. The Franchise Act does not provide that agreements entered into in violation of the Act are invalid and unenforceable. Jensen, 213 Ill. 2d at 127. Our supreme court also noted that Illinois public policy favors arbitration as a means of resolving disputes. Jensen, 213 Ill. 2d at 128-29.

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845 N.E.2d 857, 364 Ill. App. 3d 124, 300 Ill. Dec. 968, 24 I.E.R. Cas. (BNA) 496, 2006 Ill. App. LEXIS 169, Counsel Stack Legal Research, https://law.counselstack.com/opinion/galasso-v-kns-companies-inc-illappct-2006.