The Thomas D. Philipsborn Irrevocable Trust dated July 10, 2005 v. Avon Capital, et al.

Filing 24

MEMORANDUM Opinion and Order Signed by the Honorable Harry D. Leinenweber on 10/31/2011:Mailed notice(wp, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

THE THOMAS D. PHILIPSBORN
IRREVOCABLE INSURANCE TRUST,
Plaintiff,

Case No. 11 C 3274

v.
Hon. Harry D. Leinenweber
AVON CAPITAL, LLC, and DONALD
TRUDEAU,
Defendants.

MEMORANDUM OPINION AND ORDER
Defendants have filed two motions: one to dismiss Plaintiff’s
Complaint under FED. R. CIV. P. Rule 12(b)(1) or stay this case and
compel arbitration, and one to file a reply longer than 15 pages.
The Court grants Defendants’ request to file their brief. However,
as explained below, it denies their Motion to Dismiss.

The Court

also denies their alternate request for a stay and order compelling
arbitration, but without prejudice to re-file.

Cf. Titus v.

Swalls, No. 7 C 0614, 2010 WL 4181138, at *1 (S.D. Ill. Oct. 20,
2010). For reasons that will become clear, counsel are reminded of
their duty of candor to the Court.
I.

INTRODUCTION

In 2007, Plaintiff Thomas D. Philipsborn Irrevocable Insurance
Trust (the “Trust”) and Defendants Avon Capital, LLC (“Avon”) and
Donald Trudeau (“Trudeau”) agreed that the Trust would sell three

life insurance policies to Avon.

Each policy insured the life of

Thomas Philipsborn, and the policies provided for a total payout of
approximately $20 million.
different companies:

The policies were issued by three

American General Life Insurance Company

(“American General”) ($5 million); Transamerica Occidental Life
Insurance Company (“Transamerica”) ($10 million); and AXA Equitable
Life

Insurance

Company

(“Axa”)

($5

million).

The

parties

apparently agreed to a total purchase price of $4,550,000.

The

policies were already collateral for outstanding loans; part of the
sale agreement required the buyer to pay off these loans with
purchase funds.

That is, $3,044,837 of the purchase price would

pay off the loans, and the remaining $1,505,163 would go to the
Trust.
Plaintiff intimates that the American General and Transamerica
sales proceeded successfully, and that it transferred all three
policies to Avon.

The Trust claims, though, that Defendants

shorted it $818,513 on the AXA sale.

Plaintiff contends that the

sale agreement was not reflected in a single written document, but
rather in a series of written and oral promises.

None of those

promises, they claim, included an arbitration agreement.
Although they are discussed in, neither the Complaint nor the
Motion to Dismiss, Defendants evidently submitted three nearly
identical Purchase Agreements to Plaintiff during the sale process.
The Trust executed two and returned them.

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The third governed the

AXA sale and remains unaccounted for.

The two Agreements that the

Trust signed permit Avon to accept the contract by countermining or
paying the purchase price.

Each also includes an arbitration

clause.
Defendants attached a copy of the American General Purchase
Agreement to their Motion to Dismiss.

They implied that that

contract governed the AXA sale under dispute.
The Trust initiated arbitration in September 2008.

In the

arbitration Complaint, the Trust alleged that it executed all three
Purchase Agreements.

It now claims that the Complaint reflects a

misunderstanding, and that no AXA Purchase Agreement exists. (That
Complaint also alleged that the Transamerica policy was foreclosed
upon because Avon never satisfied the loan that it secured.
claim is not at issue here.)

That

The American Arbitration Association

notified the parties in September 2009 that arbitration could not
proceed until Avon paid its portion of the arbitration fee.
Counsel for both sides conferred, and the resulting discussion is
the subject of much contention.
In October 2008, Defendants’ counsel wrote:
As for the AAA fees, Avon will agree to pay
them on or before October 26, with the
understanding that any right arbitration will
be waived if the fees are not paid. On that
point, however, we ought to retain some
flexibility such that if we are making
tangible progress toward settlement we can
revisit the issue. I know that you have said
Mr. Philipsborn will not agree to another
continuance of the hearing but, as we
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discussed, future developments might change
his view. We should keep the same flexibility
in mind when it comes to these fees. If we
agree on that, then I believe we are in a
position to confirm this with [AAA].
Judging by the piecemeal e-mail evidence appended to the various
filings, settlement talks may have continued through April 2010.
Apparently, Avon never paid its arbitration fees.
In May 2011, Plaintiff filed this action. Defendants now move
to dismiss, or alternatively to stay this case pending arbitration.
Plaintiff

opposes,

evidenced

by

claiming

their

arbitration.

that

the

communications)

parties’
does

not

contract

(as

provide

for

Plaintiff also claims that Defendants waived their

right to arbitrate by refusing to pay their fees in the first
arbitration.

Defendants continue to argue that the parties agreed

in writing to arbitrate, and deny that they waived that right,
pointing

out

that

settlement

talks

continued

after

Plaintiff

“withdrew” their claim in arbitration.
II.

LEGAL STANDARD

The Federal Arbitration Act was enacted to protect arbitration
agreements from disfavor and place them on the same footing as
other contracts.
288-89 (2002).

E.E.O.C. v. Waffle House, Inc., 534 U.S. 279,

The FAA obliges courts to stay proceedings and/or

compel arbitration if an issue in litigation is covered by a valid
arbitration agreement.

Van Tassell v. United Mktg. Grp., LLC, ---

F.Supp.2d ----, 2011 WL 263-2727, at *13 (N.D. Ill. July 5, 2011).
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Because arbitration is a matter of contract, a court must
conclude that the parties agreed to arbitrate an issue before it
compels them to arbitrate.

Granite Rock Co. v. Int’l Bhd. of

Teamsters, 130 S.Ct. 2847, 2856 (2010).

The party seeking to

compel arbitration therefore must establish that the parties’
arbitration agreement “was validly formed, covers the dispute in
question, and is legally enforceable.”
A.

Van Tassell, at *13.

Motion to Dismiss or Stay Pending Arbitration

Upon a Rule 12(b)(1) motion, a Court may review all available
evidence to ascertain whether it has jurisdiction.

Provident Life

& Accident Ins. Co., v. Grganto, No. 97 C 4021, 1997 WL 711432, at
*1 (N.D. Ill. November 7, 1997).

However, in the Seventh Circuit,

when a party invokes a valid arbitration clause, the proper course
of action is to stay the proceedings.

Cont’l Cas. Co. v. Am. Nat’l

Ins. Co., 417 F.3d 727, 732 n.7 (7th Cir. 2005).

If the agreement

calls

dismissal

for

arbitration

in

another

district,

under

Rule 12(b)(3) may be appropriate. Id. at 733.
B.

Whether There Is An Arbitration Agreement

Courts should order arbitration only when satisfied that
neither an arbitration agreement’s formation nor its enforceability
is contested; if either is, a court must intercede.

Granite Rock

Co., 130 S. Ct. at 2857-58. Thus, challenges to the enforceability
of an entire contract belong to the arbiter.

Janiga v. Questar

Capital Corp., 615 F.3d 735, 737-38 (7th Cir. 2010).
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However,

challenges to an arbitration agreement’s validity, or claims that
no contract exists, belong to the courts. Id.

Thus, even if the

parties agree that they formed a contract, a court must settle any
dispute about whether it included an arbitration clause.

Hartford

Fire Ins. Co. v. Henry Bros. Constr., No. 10 C 4746, 2011 WL
3563138, at *3 (N.D. Ill. August 10, 2011).
Whether an arbitration agreement exists here is determined by
the Illinois law of contract formation.

See Goodale v. George S.

May Int’l Co., No. 10 C 5733, 2011 WL 1337349, at *1 (N.D. Ill.
April 5, 2011).

In Illinois, the goal of contract interpretation

is to give effect to the parties’ intent.
Ill.2d 208, 232 (2007).

Gallagher v. Lenart, 226

The contract language, given its ordinary

meaning and read in context, is the best evidence of that intent.
Id. Extrinsic evidence is only used to clarify an ambiguous or
incomplete contract. Weiland Tool & Mfg. Co. v. Whitney, 44 Ill.2d
105, 114-15 (1969). Furthermore, “instruments executed at the same
time, by the same parties, for the same purpose, and in the course
of the same transaction are regarded as one contract and will be
construed together.”

Gallagher, 226 Ill.2d at 233.

If a party denies that it agreed to arbitrate, it must come
forward with sufficient evidence to create a triable issue of fact,
as under Rule 56.
Cir. 2002).
the

Tinder v. Pinkerton Sec., 305 F.3d 728, 735 (7th

As on a motion for summary judgment, the court accepts

evidence

of

the

party

opposing
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arbitration,

and

draws

inferences in its favor.

Van Tassell, at *13.

If the party

opposing arbitration carries its burden, the case proceeds to a
trial on the arbitration question.

However, if a court finds a

valid, enforceable arbitration agreement, any doubts as to the
scope of the agreement will be resolved in favor of arbitration.
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 945 (1995).
C.

Waiver of the Right to Arbitrate

Finally, a court must decide whether a party has, through its
actions or inactions, waived its right to arbitrate.

A party can

waive that right either expressly or by implication.

Grumhaus v.

Comerica Sec., Inc., 223 F.3d 648, 650 (7th Cir. 2000).

The test

for waiver is whether, under the totality of the circumstances, the
party seeking arbitration acted in a way that is fundamentally
inconsistent with the exercise of that right. Id. at 650-51.

Once

a party selects a forum, courts should enforce that decision; the
key question is whether the party intended its forum choice, not
whether any party would be prejudiced by switching. Id. at 650.
D.

Candor to the Court

Counsel for both sides share an obligation to be candid with
the Court.

A lawyer’s duty to present facts and analyze the

applicable law in the light most favorable to his client “is not a
mandate

to

engage

in

blatant

gamesmanship

or

revisionist

history. . . . [A]dvocacy meant to distract, confuse, or obfuscate
is unhelpful and inconsistent with an attorney’s obligations as an
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officer of the court.”

U.S. Commodity Futures Trading Com’n v.

Lake, 540 F.Supp.2d 994, 1014 (N.D. Ill. 2008) (citations omitted).
Lack of candor can lead to dismissal with prejudice.

Humphrise v.

Cracker Barrel, No. 03 C 3765, 2004 WL 1630512, at *1 (N.D. Ill.
July 16, 2004).
III.
A.

DISCUSSION

Dismissal Versus Stay

The Seventh Circuit tells us that when a party seeks to compel
arbitration, the proper practice is to stay rather than dismiss the
case.

Thus, this Court denies the motion to dismiss.

However,

Defendants’ alternative requested relief of a stay and order
compelling arbitration may be available.

Accordingly, the Court

must determine whether there is a valid arbitration agreement in
order to rule on the substance of Defendants’ motion.
B.

Whether the Parties Agreed to Arbitrate

Defendants maintain that the parties agreed in writing to
arbitrate.

In contrast to their original motion, Defendants now

argue that the parties never agreed on most of the terms of the AXA
sale, but agreed on arbitration.

They also argue that even if the

parties forged a contract comprised of more than the Purchase
Agreements, those Agreements (and their arbitration clauses) still
form part of the contract.

For support, they point to Plaintiff’s

initial arbitration demand, the arbitration complaint, and the fact
that the Trust signed Avon’s Purchase Agreements which required
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arbitration.

Finally, they argue that Plaintiffs accepted the

terms of the AXA Purchase Agreement by performance — that is, by
transferring the AXA policy.
Defendants assert that the “equivocal” e-mail from their
counsel could not have waived their arbitration rights, and stress
that Plaintiffs have suffered no prejudice in this process.
prejudice

argument

is

somewhat

questionable,

in

Their

light

of

Plaintiff’s claim that Defendants’ refusal to pay the arbitration
fees compelled them to file this suit.
have

offered

such

scant

and

In any event, the parties

incomplete

information

on

the

arbitration that this Court cannot properly evaluate the waiver
argument at this stage.
Defendants’

claim

that

compelling

arbitration

effect the parties’ original intent may have merit.

would

best

However, most

of this argument appears for the first time in their reply brief,
which overlaps very little with the original motion.

Accordingly,

the Court declines to rule on the substance of the stay motion
without offering Plaintiff an adequate chance to respond.

If they

so choose, Defendants may re-file their motion to stay, putting
forth whatever arguments they believe have merit in light of the
full case history and Rule 11.
Both parties began this case with a baffling disinclination to
familiarize the Court with the relevant facts and procedural
history.

Although they may have preferred to keep the true

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circumstances to themselves, awaiting an opportunity to deploy them
as “smoking guns” against the other party, such an approach is an
active hindrance to this Court and the pursuit of truth.

In

particular, Defendants’ Motion to Dismiss skirted the line of
actively misleading the Court.

Although the Response and Reply

briefs were a marked improvement, this Court concludes that the
parties have revealed the relevant information in such a convoluted
and deficient manner that it cannot reach a decision as to the
arbitrability
Defendants’

of

Plaintiff’s

Motion

without

claims.

prejudice

It
to

accordingly

re-file

with

denies
a

more

complete analysis of the facts.
IV.

CONCLUSION

For the reasons stated herein, the Court rules as follows:
1.

Grants Defendants’ Request File a Brief in Excess of 15

Pages;
2.

Denies Defendants’ Motion to Dismiss under Rule 12(b)(1);

3.

Denies Defendants’ Request to Stay This Action Pending

and

Arbitration, without prejudice to re-filing.
IT IS SO ORDERED.

Harry D. Leinenweber, Judge
United States District Court
DATE: 10/31/2011
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