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Edgewater Hospital v. Bio-analytical Serv.





APPEAL from the Circuit Court of Cook County; the Hon. FRANCIS T. DELANEY, Judge, presiding.


Rehearing denied March 13, 1978.

Bio-Analytical Services, Inc. (Bio-Analytical), and its president, Dr. Donald D. Mark, bring this interlocutory appeal from an order of the Circuit Court of Cook County denying their motion to compel arbitration of a dispute between Bio-Analytical and the Edgewater Hospital, Inc. (Edgewater). On appeal, Bio-Analytical seeks to have this order reversed and to have the cause remanded for entry of an order to compel arbitration and to stay and enjoin all proceedings pending such arbitration.

The controversy which is the subject matter of the present action developed out of a contractual agreement entered into by Bio-Analytical and Edgewater on September 30, 1972. Pursuant to this agreement, Bio-Analytical was to manage the clinical laboratory and pathology department at Edgewater. Bio-Analytical performed those services until mid-July 1975 when Edgewater initiated an action in the Circuit Court of Cook County for damages and an accounting on the grounds that Bio-Analytical and its president, Dr. Mark, had fraudulently used the supplies, equipment and personnel of Edgewater for their own personal gain, profit and benefit.

Rather than answering the complaint, Bio-Analytical filed a motion and application under sections 1 and 2 of the Uniform Arbitration Act (Ill. Rev. Stat. 1975, ch. 10, pars. 101 and 102) to stay all proceedings and to compel the plaintiff to proceed to arbitration of all issues between the parties pursuant to paragraph 12 of their agreement. That paragraph provides as follows:

"12. AGREEMENT ARBITRATION. If any disputes may hereafter develop between the parties with respect to the interpretation or construction of this agreement or for any other reason arising from the relationship between the parties, the same shall be determined and settled under the rules for compulsory arbitration by virtue of which each party shall select an independent representative and the two representatives so selected shall jointly select a third representative. The panel of three arbitrators thus appointed shall meet with the parties and arbitrate the dispute. The parties agree to abide by the findings and recommendations of the panel. In cases where this procedure is undertaken each party shall share one-half of the total expense of arbitration. In all arbitration cases an aggrieved party shall select its arbitrator and upon written notice to the other party, the other party shall select its arbitrator within one week of notice from the first party and the three arbitrators shall reach a conclusion to the problem within two weeks of the appointment of the third arbitrator. In the event either party should fail to select an arbitrator within the period specified then either party shall have the right to immediately institute appropriate proceedings in a court of competent jurisdiction."

The hospital moved to strike the motion for arbitration on two alternative grounds: that the dispute was not covered by the arbitration agreement or, that under paragraph 12 arbitration was not mandatory.

At the request of the trial court, the attorneys who negotiated the contract for the two parties appeared as witnesses at the evidentiary hearing on the motions; Ben Sherwood testified for Bio-Analytical and Joseph Stein appeared for Edgewater. The testimony of the two attorneys and the accompanying documentary evidence showed that the original draft of the contract had been written by Sherwood based upon a form contract which Dr. Mark had found in a professional publication. The arbitration clause in this first draft was identical to the clause in the executed contract with the exception that the first draft did not include the last sentence of paragraph 12. Sherwood's original draft was forwarded to Edgewater, whereupon Edgewater had Stein examine it. It was at this time that the last sentence of paragraph 12 was added.

Copies of this second draft were then sent by Edgewater's director, Dr. Mazel, to Dr. Mark on September 21, 1972. In the accompanying letter, Mazel informed Mark that:

"* * * since we have never been affiliated with a corporation before, it leave us sort of a dilemma regarding some of the items. Therefore, we have referred it to our attorney for further evaluation and trust this will meet with your approval."

Later, with specific reference to the arbitration clause, Mazel stated:

"We are not exactly clear on Item #12, the arbitration agreement, but feel certain this can be adjusted amicably if and when a problem arises."

On September 22, 1972, Stein sent a letter to Dr. Mark. He stated that it was his belief that there was "no substantial change in your agreement." There was no specific reference to the arbitration clause in this letter.

On September 25, 1972, Sherwood and Mark met to discuss the draft tendered by Mazel. On that date, Sherwood also talked with Stein by phone. Although Sherwood recalled a number of subjects which were specifically discussed, he did not recall having discussed the changes in paragraph 12. Similarly, his notes made pursuant to that conversation contained no reference to a discussion on the arbitration clause. Stein, on the other hand, testified that he and Sherwood did talk about the arbitration provision during their phone conversation. He stated that he specifically told Sherwood that the hospital did not want to ...

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