The Thomas D. Philipsborn Irrevocable Trust dated July 10, 2005 v. Avon Capital, et al.
Filing
63
MEMORANDUM Opinion and Order Signed by the Honorable Harry D. Leinenweber on 10/1/2012: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
Before the Court are Defendants’ Renewed Motion to Stay and
Compel Arbitration and their Motion to Dismiss.
For the reasons
stated herein, the motions are denied.
I.
INTRODUCTION
The Court set out in some detail this case’s background in its
October 31, 2011 opinion, and will not repeat it all here.
Some
new information has been provided; unfortunately, much of it comes
in the form of emails for which no one has explained the identity
and affiliation of the senders and/or recipients.
Plaintiff Thomas D. Philipsborn Irrevocable Insurance Trust
(the “Plaintiff”) is an Illinois trust.
LLC
(“Avon”)
Defendant
is
Donald
a
Connecticut
Trudeau
Defendant Avon Capital,
limited
(“Trudeau”)
liability
company
(collectively,
and
the
“Defendants”) is a Connecticut resident and a manager and member of
Avon.
In 2007 and 2008, Plaintiff and Defendants engaged in a series
of transactions that involved the sale of three insurance policies
which insured the life of Thomas Philipsborn.
The Complaint and
its exhibits indicate that Trudeau was a primary contact for
Plaintiff and its agents.
Defendants
contend
that
they
sent
Plaintiff
three
sale
agreements – one for each policy – that were virtually identical
but for the name of the policy at issue and the purchase price.
Each, they claim, contained arbitration agreements.
Defendants
state that
the
Plaintiff
executed
and
returned
two
of
sales
agreements, but never returned the agreement at issue here (“the
AXA policy”).
Although it claimed otherwise in its complaint in
arbitration (discussed below), Plaintiff now appears to contend
that it never received a sales agreement for the AXA policy.
Instead, it claims that the contract for (at least) the AXA policy
was reflected in a series of written and oral promises – none of
which included an arbitration agreement.
The sales of the first two policies – for which there are
executed sales agreements – proceeded successfully. The AXA policy
was not yet outside of the contestability period, however, and so
was sold separately.
Plaintiff claims that it transferred the AXA
policy to Defendants, but never received the full purchase price.
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Defendants claim that a third party took possession of the AXA
policy, at least initially.
As discussed below, Plaintiff initially brought this action as
a complaint in arbitration against Avon alone.
Plaintiff
alleges
causes
of
action
for
breach
In this suit,
of
contract,
promissory estoppel, and unjust enrichment relating to the sale of
the AXA policy.
Trudeau.
Each count is brought against both Avon and
Defendants have moved to dismiss Trudeau, and to stay
and compel arbitration regarding the remainder of the suit.
II.
A.
LEGAL STANDARD
Motion to Stay and Compel Arbitration
The Federal Arbitration Act (“FAA”) obliges courts to stay
proceedings and compel arbitration if an issue in litigation is
covered by a valid arbitration agreement.
See Van Tassell v.
United Mktg. Grp., LLC, 795 F.Supp.2d 770, 786 (N.D. Ill. July 5,
2011).
To compel arbitration, the Court must find that a written
arbitration agreement existed.
See Zurich Am. Ins. Co. v. Watts
Indus., Inc., 417 F.3d 682, 690 (7th Cir. 2005); 9 U.S.C. § 4.
If
the existence of an arbitration agreement is genuinely disputed,
courts proceed to trial on that issue.
9 U.S.C. § 4.
In making
that determination, courts apply a standard akin to that for
summary judgment.
Van Tassell, 795 F.Supp.2d. at 787.
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B.
Motion to Dismiss
The Court accepts as true all well-pleaded facts in the
complaint and draws all inferences in Plaintiff’s favor.
Cole v.
Milwaukee Area Technical Coll. Dist., 634 F.3d 901, 903 (7th Cir.
2011).
A complaint must contain a “short and plain statement of
the claim,” including facts which allow the court to reasonably
infer that the defendant is liable for the alleged misconduct.
FED. R. CIV. P. 8(a)(2); Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
Exhibits attached to a complaint are part of the pleadings. Int’l.
Mktg., Ltd. v. Archer-Daniels-Midland Co., Inc., 192 F.3d 724, 729
(7th Cir. 1999).
Generally, under Illinois law, if the agent of a disclosed
principal signs a contract on the principal’s behalf, he is not
liable
for
breach
personally liable.
of
that
contract
unless
he
agreed
to
be
See Knightsbridge Realty Partners, Ltd.-75 v.
Pace, 427 N.E.2d 815, 819 (Ill. App. Ct. 1981).
III.
A.
DISCUSSION
Motion to Stay and Compel Arbitration
1. Whether There was a Written Agreement to
Arbitrate Regarding the AXA Policy
Because neither party has suggested otherwise, the Court
assumes that the following analysis applies equally to Trudeau and
Avon.
Furthermore, because neither party appears to challenge the
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admissibility of any provided documents, the Court assumes that
they are properly considered at this stage.
Defendants contend that although the parties never agreed on
most of the sale terms for the AXA policy, they did agree to
arbitrate.
This is so, it says, because Avon gave Plaintiff three
virtually identical sale contracts, each containing an arbitration
clause.
(For
support,
it
cites
arbitration, discussed below.)
Plaintiff’s
Complaint
in
It claims that Plaintiff accepted
the arbitration clause relating to the AXA policy, because even if
it never signed the sale agreement, Plaintiff accepted it by
transferring the AXA policy and/or by instituting an arbitration
claim.
Plaintiff’s
Plaintiff
contracts.
arbitration
received,
complaint
executed,
and
Def.’s Ex. E ¶ 9, 10.
clearly
returned
alleges
all
that
three
sale
That is a factual admission,
admissible (but not incontrovertible) here.
See Kohler v. Leslie
Hindman, Inc., 80 F.3d 1181, 1185 (7th Cir. 1996).
In considering
it, however, the Court also considers the entire record, and
affords Plaintiff an opportunity to explain the context. Enquip v.
Smith-McDonald Corp., 655 F.2d 115, 118-19 (7th Cir. 1981).
Plaintiff now argues (and offers an affidavit to support) that
the allegation in the arbitration complaint was based upon a
mistaken assumption that such a contract existed and would surface
eventually.
During discovery, Plaintiff contends, it learned that
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no such document exists.
See Zelechowski Aff. ¶ 5.
Although
Defendants rely on Plaintiff’s admission that it received all three
contracts, even they reject part of that admission, by claiming
that Plaintiff
agreement.
did
Given
not
actually
that
despite
return
the
an executed
volume
of
AXA sale
correspondence
provided to the Court, Defendants point to no other evidence that
a written arbitration agreement for the AXA policy existed or was
sent to Plaintiff, the Court finds that there is a question of
material fact as to whether the parties agreed in writing to
arbitrate AXA-related claims. See, e.g., Defs.’ Mem. In Supp. 2-3,
9; Reply 2-3 (and citations therein).
Because there is a factual issue as to whether a written
agreement existed, Defendants’ arguments that Plaintiff accepted it
by performance or by filing an arbitration petition are unavailing.
(Indeed, Defendants’ cited cases all involved written agreements.)
That Plaintiff filed an arbitration claim may be good evidence that
it intended to arbitrate; it does not, however, prove that the
parties agreed in writing to do so.
Defendants
argue
in
their
reply
that,
even
accepting
Plaintiff’s claim that the parties’ communications constitute the
contract, that contract necessarily includes the sales agreements.
However, as noted, the existence of such an agreement for the AXA
policy is disputed; it is unclear what benefit Defendants could
derive here from the arbitration clauses in the other two sales
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contracts.
Because of the factual question, the Court would
normally proceed to trial.
9 U.S.C. § 4.
However, a trial is not
necessary here, as the Court finds that Defendants waived any right
to arbitrate.
2.
Whether Defendants Waived Their Right to Arbitrate
“Despite
the
federal
policy
favoring
contractual right to arbitration can be waived.”
arbitration,
a
Kawasaki Heavy
Indus., Ltd. v. Bombardier Recreational Prods., Inc., 660 F.3d 988,
994 (7th Cir. 2011).
Waiver can be explicit or inferred.
Waiver
is inferred if, under the totality of the circumstances, the party
acted fundamentally inconsistently with its right to arbitrate.
Id.
Several factors are relevant; a party’s diligence or lack
thereof weighs heavily among them. Id. Additional factors include
whether the party participated in litigation, or delayed its
arbitration demand; prejudice to the other party is not necessary,
but is relevant. Id.
This is not an ordinary waiver case, wherein one party claims
that the other waived by participating in litigation. Essentially,
Defendants’ first filing in this Court was a motion to compel
arbitration.
To properly explain the Court’s conclusion, then,
some additional background is necessary.
By
September
2008,
Plaintiff
had
transferred
all
three
policies to Defendants (or at least, to the intermediaries), and
Defendants had paid the full purchase price for the first two
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policies.
Allegedly, Defendants had not paid fully for the AXA
policy, and so Plaintiff filed an arbitration demand and then an
arbitration complaint on October 14, 2008.
There may have been
some settlement discussions in the ensuing months. Eventually, the
arbitration was tentatively scheduled for September 2009.
The
American Arbitration Association (“AAA”) told the parties that any
remaining deposits were due 30 days in advance of the hearing.
As
the hearing drew closer, however, Avon had not paid its share.
In September, the AAA notified the parties that if the fees
were not paid by September 11, the arbitrator might suspend the
proceedings.
The parties evidently discussed moving the hearing
and Avon’s failure to pay.
On September 16, 2009, Defendants’
counsel sent Plaintiff’s counsel an e-mail, as follows:
I have spoken to Avon about your position concerning a
continuance of the hearings. We can agree to continue
the hearing until the week of November 16th, subject to
the arbitrator’s availability. As for the AAA fees, Avon
will agree to pay them on or before October 26th, with
the understanding that any right to 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 that Mr.
Philipsborn will not agree to another continuance of the
hearings, but, as we 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
[the AAA].
Zelechowski Aff. Ex. 2.
Plaintiff’s counsel avers that he later
contacted Defendants’ counsel and learned that Avon still had not
paid.
He contends that he asked whether counsel understood that
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this meant arbitration was waived; he was told, effectively, that
Plaintiff should do whatever it needed to do.
§ 13.
Zelechowski Aff.
Avon never paid the fees.
The parties received another payment-due notice from AAA on
November 3.
Plaintiff’s counsel avers that he then contacted AAA,
and upon learning that Avon still had not paid, asked to withdraw
the arbitration claim.
AAA evidently wrote again November 24,
stating that the claim had been removed from the arbitration
calendar and that the dates could be restored, but “all deposits
would have to be paid.”
Id. Ex. 4.
AAA evidently wrote to the parties on February 1, 2010, noting
that the case was still “active” and seeking an update.
Ex. R.
Defs.’
On February 5, evidently responding to an update, AAA
suggested that its mediators might be of service.
Defs.’ Ex. S.
AAA again sought an update on April 6, 2010, noting that last it
knew, the parties were in settlement negotiations.
Defs.’ Ex. T.
Plaintiff filed its Complaint in this case on May 16, 2011.
Defendants argue that the email and their attorney’s alleged
comments were equivocal, in that the offer to waive was contingent
on Plaintiff’s continued flexibility as long as the parties were
making settlement progress.
They argue that there is no evidence
that Plaintiff accepted this offer; somewhat perplexingly, in light
of the defense exhibits discussed above, they repeatedly stress
that
there
“is
no
evidence
regarding
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any
further
settlement
negotiations between the parties, much less evidence that such
negotiations were not productive.” See Reply 9. (No evidence, one
presumes, apart from this ongoing litigation.)
Also somewhat
surprisingly, they contend that “Avon did not refuse to arbitrate
and,
in
fact,
.
.
arbitration process.”
.
actively
participated
throughout
the
Reply 11.
The Court cannot agree that the September 16 email merely made
a contingent offer.
It stated that would Defendants would waive
their rights, but asked for “flexibility” to “revisit the issue” if
the parties were progressing toward settlement.
There is no
indication, however, that the issue was revisited either before or
after the deadline had passed.
Even if the email is not an explicit waiver, the Court finds
that Defendants implicitly waived any right to arbitrate.
At the
very least, that correspondence put Avon on notice that it was in
danger of forfeiting its right.
Furthermore, AAA explicitly told
the parties that all deposits would need to be paid before the
matter could be placed back on the arbitration calendar after
November.
Despite
all
this,
Avon
never
paid
or,
discussed the fees or further arbitration with AAA.
it
seems,
Its conduct
is, in the Court’s view, unambiguously inconsistent with a genuine
intent to arbitrate (as opposed to the intent to delay resolution
of this matter indefinitely).
As the Seventh Circuit has noted, a
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party’s diligence – or lack thereof – weighs heavily in the waiver
analysis.
Nor does Defendant’s persuasive authority save its motion.
See Zechman v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 742
F.Supp.
1359
(N.D.
Ill.
1990).
That
case
is
factually
distinguishable, and its analysis focuses intensively on the issue
of prejudice.
Despite Defendants’ consistent emphasis on the lack
of prejudice to Plaintiff, prejudice is simply not required.
(The
Court is somewhat skeptical, furthermore, that Plaintiff has not
been prejudiced by having to resort to litigation in the face of
Avon’s longtime failure to pay its deposit, only to face two rounds
of motions to compel arbitration.)
circumstances,
Defendants
have
In light of all of the relevant
waived
their
right
to
that
arbitration.
B.
Motion to Dismiss
Having decided not to compel arbitration, the Court turns to
the Motion to Dismiss.
As noted above, Plaintiff brings each of
its claims against both Avon and Trudeau.
The Complaint alleges
that “[a]t all relevant times . . . [Trudeau] was a member or
manager of Avon and held himself out as Avon’s agent.”
Compl. ¶ 7.
The remaining paragraphs generally refer to “Defendants” or “Avon
and Trudeau,” rarely distinguishing between the two (or, when they
do, noting things like that Trudeau wrote an e-mail reflecting
“Defendants’”
intent
to
purchase
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the
policies).
See,
e.g.,
Compl. ¶ 16.
Defendants move to dismiss Trudeau, arguing that he
cannot be held liable, as he was merely Avon’s agent.
Also, to the
extent that Trudeau is being held liable solely as a member of
Avon, they argue, Plaintiff’s claims are precluded by the Illinois
Limited Liability Company Act.
Plaintiff argues that Defendants misunderstand the Complaint.
Trudeau was named in his individual capacity, as he could have
acted simultaneously in Avon’s and his own interests.
Plaintiff
does not appear to argue that Trudeau is liable solely as a member
of
Avon,
however;
accordingly,
the
Court
need
not
address
Defendants’ argument under the Illinois Limited Liability Company
Act.
Plaintiff does not appear to dispute that Trudeau was, at
least in part, Avon’s agent.
Upon reviewing the Complaint and
exhibits, however, the Court cannot agree with Plaintiff that they
plausibly allege, either directly or by inference, that Trudeau
agreed to be personally bound to the contract or acted in his own
interest.
Plaintiff’s request to amend the Complaint to add such
allegations is granted. Nonetheless, the Court declines to dismiss
Trudeau.
Perhaps inadvertently, Plaintiff identified an exception to
the general bar on agent liability in Illinois:
an agent may be
liable if he takes an active part in violating some duty that his
principal owes to a third party.
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See Pl.’s Resp. 6-7 (citing
Merrill Tenant Council v. U.S. Dept. of Hous. and Urban Dev., 638
F.2d 1086, 1095 (7th Cir. 1981)).
Although Plaintiff cited the
case for the proposition that Trudeau could work both on his own
behalf and Avon’s (and even assumed arguendo that Trudeau could not
be liable as an agent), it also argued that “Avon owed a duty to
plaintiff to complete the sale of the AXA policy as agreed. . . .
[The] complaint alleges that Avon and Trudeau actively participated
in frustrating and preventing the completion of the transaction.”
Id. at 7.
This allegation, the Court finds, is fairly reflected in
the complaint; at this stage, Plaintiff has stated a claim against
Trudeau.
Some Illinois appellate courts (and at least one district
following them) have criticized this exception, narrowed it, or
declined to apply it to contract claims.
See, e.g., Strzelecki v.
Schwarz Paper Co., 824 F.Supp. 821, 829 (N.D. Ill. 1993) (citing
Gateway Erectors Div. of Imoco–Gateway Corp. v. Lutheran Gen.
Hosp., 430 N.E.2d 20, 22 (Ill. App. Ct. 1981)).
However, the
Seventh Circuit has applied the exception to a contract claim.
Merrill, 638 F.2d 1086, 1089-90, 1095.
Accordingly, this Court is
bound to follow suit. See Reiser v. Residential Funding Corp., 380
F.3d 1027, 1029 (7th Cir. 2004) (state intermediate courts do not
free district courts from Seventh Circuit holdings regarding state
law).
See also, Lance v. Employers Fire Ins. Co., 66 F.Supp.2d
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921, 924 (C.D. Ill. 1999) (noting that it was bound to follow
Merrill).
Defendants endeavor to distinguish Merrill on the grounds that
this Court need not (as the Seventh Circuit did in that case)
accept allegations in the Complaint.
This is so, they claim,
because the exhibits to the Complaint are inconsistent with any
theory supporting individual liability.
It is true that the clear
terms of a contract which is attached to a complaint prevail over
contrary allegations.
See Centers v. Centennial Mortg., Inc., 398
F.3d 930, 933 (7th Cir. 2005). Here, however, the alleged contract
for
the
AXA
policy
involved
a
series
of
oral
and
written
statements, and so is not fully represented in the exhibits.
In
any event, the Court relies on Merrill Tower for a different
proposition, and finds it controlling here.
The Motion to Dismiss
Trudeau is denied, but Plaintiff nonetheless has leave to amend its
Complaint.
IV.
CONCLUSION
For the reasons stated herein, Defendants’ Motion to Stay and
Compel Arbitration
is
denied, as
is their
Motion
to
Dismiss
Defendant Trudeau.
IT IS SO ORDERED.
Harry D. Leinenweber, Judge
United States District Court
DATE:
10/01/2012
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