TSP-Hope v. Home Innovators of Illinois

• Court: Appellate Court of Illinois
• Decided: June 26, 2008
• Docket: 4-07-1028 Rel
• Status: Published

Opinion

Filed 6/26/08 NO. 4-07-1028

IN THE APPELLATE COURT

OF ILLINOIS

FOURTH DISTRICT

TSP-HOPE, INC., an Illinois Not-for- ) Appeal from Profit Corporation, ) Circuit Court of Plaintiff and Counter- ) Sangamon County defendant-Appellant, ) No. 06CF497 v. ) HOME INNOVATORS OF ILLINOIS, LLC, an ) Illinois Limited Liability Company, ) Honorable Defendant and Counter- ) John W. Belz, plaintiff-Appellee. ) Judge Presiding. _________________________________________________________________

JUSTICE COOK delivered the opinion of the court:

Plaintiff, TSP-Hope, Inc., filed a complaint against

defendant, Home Innovators of Illinois, LLC, alleging various

issues involving a contract with defendant wherein defendant

agreed to build houses for plaintiff. Defendant responded to the

complaint and filed a counterclaim. Defendant eventually filed a

motion to dismiss pursuant to section 2-619 of the Code of Civil

Procedure (Code) (735 ILCS 5/2-619 (West 2006)), invoking the

contract's mandatory mediation and arbitration clause. The trial

court granted defendant's motion to dismiss. Plaintiff filed a

motion to reconsider, which the court denied. Plaintiff appeals.

We affirm.

I. BACKGROUND

Plaintiff is a not-for-profit corporation engaged in

the business of providing financial and educational services in

addition to financing the construction of homes to meet the

housing needs of Springfield, Illinois', low-income residents. Defendant is an Illinois limited-liability company engaged in the

business of residential construction. On July 25, 2005, plain-

tiff and defendant entered into a contract for the construction

of homes in Springfield. Sometime in the summer of 2006, work on

the houses stopped.

On August 16, 2006, plaintiff filed a complaint claim-

ing, among other things, breach of contract. On September 15,

2006, defendant filed a motion for extension of time to answer

complaint or otherwise plead. In that motion, defendant claimed

that on September 12, 2006, "[p]laintiff served [d]efendant with

a demand that [d]efendant file suit within 30 days to enforce

liens on the property, which property is a subject of the com-

plaint in the above-entitled cause." On October 12, 2006,

defendant filed its answer and counterclaim. The answer included

an affirmative defense alleging duress in written contract

formation and counterclaims involving foreclosure, enforcement of

mechanic's liens, and breach of contract.

On November 13, 2006, plaintiff filed a motion to

dismiss defendant's affirmative defense and portions of its

counterclaim. On February 7, 2007, plaintiff filed leave to

amend its complaint. On March 2, 2007, the trial court granted

plaintiff's motion for leave to amend its complaint and granted

plaintiff's motion to dismiss defendant's affirmative defense and

certain counterclaims. On March 19, 2007, defendant filed an

amended counterclaim, which included the breach of contract

claim, and on March 23, 2007, it filed an answer to plaintiff's

- 2 - amended complaint.

On July 2, 2007, defendant filed a motion to dismiss

plaintiff's complaint pursuant to section 2-619 of the Code

requesting dismissal of plaintiff's complaint and defendant's

counterclaims and an order for arbitration. The motion contained

a statement that prior to suit, defendant had verbally requested

mediation. Defendant attached the contract to its motion.

Section 15 of the contract provided as follows:

"15. Disputes - Should any dispute arise

relative to the performance of this contract

that the parties cannot satisfactorily resolve,

if the parties also agree, the dispute shall

be resolved in accordance with Illinois

Quality Assurance Builder Standards. If the

parties do not so agree, then the parties agree

that the dispute shall be resolved first by

utilizing mediation and[,] if not resolved, by

binding arbitration conducted by the American

Arbitration Association."

On July 24, 2007, defendant filed an amended counter-

claim, which included the breach-of-contract claim.

On September 18, 2007, the trial court granted defen-

dant's motion to dismiss as to the breach-of-contract claim,

finding that defendant's participation in the litigation had not

waived its right to arbitration as contained in the contract, the

litigation in court had not been substantial, and plaintiff had

- 3 - not shown prejudice.

On September 28, 2007, plaintiff filed a motion to

reconsider, claiming the trial court incorrectly applied the

federal standard to determine a waiver of the right to arbitrate

as opposed to the applicable Illinois law. On November 20, 2007,

the trial court denied plaintiff's motion to reconsider, finding

defendant's participation in the judicial process was not so

inconsistent with the right to arbitrate as to indicate an

abandonment of the right. Specifically, the court noted that (1)

on August 16, 2006, plaintiff commenced proceedings; (2) on

October 12, 2006, defendant filed an answer and counterclaim; (3)

later defendant filed an amended counterclaim; (4) defendant's

actions were responsive to plaintiff's pursuit of litigation; (5)

filing of a counterclaim and answer does not automatically result

in the waiver of arbitration rights; and (6) defendant did not

conduct any meaningful discovery by the time it filed the motion

to dismiss on July 5, 2007. This appeal followed.

II. ANALYSIS

We first note that defendant did not file a brief.

Defendant's failure to file a brief does not require automatic

reversal, and plaintiff continues to bear the burden of estab-

lishing error. First Capitol Mortgage Corp. v. Talandis Con-

struction Corp., 63 Ill. 2d 128, 131-32, 345 N.E.2d 493, 494-95

(1976). This court need not become defendant's advocate or

search the record for the purpose of sustaining the trial court's

judgment but may do so if justice so requires. Talandis, 63 Ill.

- 4 - 2d at 133, 345 N.E.2d at 495. "When the record is simple, and

the claimed errors are such that this court can easily decide

them on the merits without the aid of an appellee's brief, this

court should decide the appeal on its merits." Plooy v. Paryani,

275 Ill. App. 3d 1074, 1088, 657 N.E.2d 12, 23 (1995). In this

case, plaintiff's brief sufficiently presents the issue and the

record is relatively simple, so we address the merits of the

case.

Plaintiff argues that defendant waived its contractual

right to arbitrate by repeatedly submitting arbitrable issues to

the trial court for decision and by delaying its assertion to the

right to arbitrate for more than 10 months. Because the appeal

involves the court's legal conclusion and does not involve a

factual dispute, we review this issue de novo. La Hood v.

Central Illinois Construction, Inc., 335 Ill. App. 3d 363, 364,

781 N.E.2d 585, 586 (2002); but see Glazer's Distributors of

Illinois, Inc. v. NWS-Illinois, LLC, 376 Ill. App. 3d 411, 424,

876 N.E.2d 203, 214 (2007) (First District, reviewing the trial

court's decision that a party to a contract waived its right to

arbitration under an abuse-of-discretion standard).

While arbitration is a favored method of settling

disputes in Illinois, a party may waive its contractual right to

arbitration. Kostakos v. KSN Joint Venture No. 1, 142 Ill. App.

3d 533, 536, 491 N.E.2d 1322, 1325 (1986) (First District).

Illinois courts are reluctant to find a party waived its contrac-

tual right to arbitration. Kostakos, 142 Ill. App. 3d at 536,

- 5 - 491 N.E.2d at 1325. In determining whether a party has waived

its right to arbitrate a claim, the "'crucial inquiry is whether

the party has acted inconsistently with its right to arbitrate.'"

Glazer's, 376 Ill. App. 3d at 425, 876 N.E.2d at 215, quoting

Schroeder Murchie Laya Associates, Ltd. v. 1000 West Lofts, LLC,

319 Ill. App. 3d 1089, 1098, 746 N.E.2d 294, 301 (2001) (First

District). A party acts inconsistently with its right to arbi-

trate when it submits arbitrable issues to a court for decision.

Cencula v. Keller, 152 Ill. App. 3d 754, 757, 504 N.E.2d 997, 999

(1987) (Second District).

In this case, the undisputed facts show that defendant

filed an answer and counterclaim in response to plaintiff's

complaint and plaintiff's demand that defendant file suit within

30 days to enforce liens on the property. Defendant then filed

an amended complaint after the trial court granted plaintiff's

motion to dismiss defendant's affirmative defense and certain

counterclaims. Defendant also failed to assert its contractual

right to arbitrate for 10 1/2 months after plaintiff filed its

original complaint. The issue is whether these facts show that

defendant acted inconsistently with its right to arbitrate and

submitted arbitrable issues to the court for decision.

Illinois courts have held a party waives its contrac-

tual right to arbitrate under the following circumstances: (1)

filing a motion for summary judgment (Applicolor, Inc. v. Surface

Combustion Corp., 77 Ill. App. 2d 260, 267, 222 N.E.2d 168, 171

(1966) (First District)); (2) answering a complaint, participat-

- 6 - ing in discovery for two years, and asserting arbitration in

response to a motion for summary judgment (Epstein v. Yoder, 72

Ill. App. 3d 966, 972, 391 N.E.2d 432, 437 (1979) (First Dis-

trict)); (3) answering a complaint with claims of setoffs against

the plaintiff, participating in discovery, and waiting 13 months

and 22 months from when plaintiff filed complaints against the

two separate defendants before asserting a right to arbitration

(Gateway Drywall & Decorating, Inc. v. Village Construction Co.,

76 Ill. App. 3d 812, 817, 395 N.E.2d 613, 616-17 (1979) (Fifth

District)); (4) filing an answer claiming additional credits,

filing a bill of particulars listing the additional credits, and

waiting 9 1/2 months before asserting the arbitration right

(Cencula, 152 Ill. App. 3d at 758, 504 N.E.2d at 1000); (5)

engaging in discovery, opposing an earlier attempt to compel

arbitration, and failing to file for arbitration when given the

opportunity (Schroeder, 319 Ill. App. 3d at 1098, 746 N.E.2d at

302); and (6) filing a complaint seeking complete relief without

mentioning arbitration and requesting arbitration only after the

trial court and appellate court denied its request for a tempo-

rary restraining order and the other party had filed a motion to

dismiss the complaint (Glazer's, 376 Ill. App. 3d at 426, 876

N.E.2d at 216).

Unlike the cases cited above, in this case, the parties

did not conduct any discovery, nor did defendant interject

pleadings that were anything more than responsive to plaintiff's

claims. Defendant did, though, file counterclaims that clearly

- 7 - fell under the arbitration paragraph as they involved issues that

would be considered "dispute[s] aris[ing] relative to the perfor-

mance of [the] contract." "While [Illinois courts have] held

that submitting arbitrable issues to a court of law, as by filing

a counterclaim, may result in the waiver of the right to arbitra-

tion (Brennan v. Kenwick (1981), 97 Ill. App. 3d 1040, 1042-43,

425 N.E.2d 439, 441), the filing of a counterclaim and answer

does not automatically result in waiver of arbitration rights."

D.E. Wright Electric, Inc. v. Henry Ross Construction Co., 183

Ill. App. 3d 46, 53, 538 N.E.2d 1182, 1187 (1989) (Fifth Dis-

trict), citing Edward Electric Co. v. Automation, Inc., 164 Ill.

App. 3d 547, 555, 518 N.E.2d 172, 177 (1987) (First District).

In this case, the filing of a counterclaim appeared to

be responsive to plaintiff's complaint and responsive to plain-

tiff's demand on September 12, 2006, that defendant file suit

within 30 days to enforce liens on the property. A lienholder

forfeits its mechanic's lien if it fails to commence an action to

foreclose the lien within 30 days after receipt of the owner's

written demand to sue as required by section 34 of the Mechanics

Lien Act (Act) (770 ILCS 60/34 (West 2006)). Vernon Hills III

Ltd. Partnership v. St. Paul Fire & Marine Insurance Co., 287

Ill. App. 3d 303, 308, 678 N.E.2d 374, 377-78 (1997). Assuming

plaintiff's demand satisfied the written-demand requirements of

section 34 of the Act and triggered the tolling of the 30-day

limitations period, defendant was forced to file the foreclosure

action or lose its liens under the Act. Under these circum-

- 8 - stances, the filing of responsive pleadings along with the 10

1/2-month delay in asserting a right to arbitration does not

establish that defendant acted inconsistently with its right to

arbitrate. See Edward Electric, 164 Ill. App. 3d at 554-55, 518

N.E.2d at 177 (in finding defendant did not waive its right to

arbitration, the court noted that defendant conducted no discov-

ery and that the defendant's counterclaims were filed in response

to plaintiff's complaint and in order to protect defendant's

rights from litigation stemming from plaintiff's original and

first-amended complaints).

III. CONCLUSION

For the reasons stated, we affirm the trial court's

judgment.

Affirmed.

APPLETON, P.J., and KNECHT, J., concur.

- 9 -