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Kostakos v. Ksn Joint Venture No. 1

OPINION FILED MARCH 31, 1986.

STEVEN A. KOSTAKOS, PLAINTIFF-APPELLANT,

v.

KSN JOINT VENTURE NO. 1 ET AL., DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County; the Hon. Charles E. Freeman, Judge, presiding.

JUSTICE MCNAMARA DELIVERED THE OPINION OF THE COURT:

Plaintiff Steven A. Kostakos appeals from an order granting the motion of defendants William N. Nyman and Ronald S. Supena to compel arbitration and stay other proceedings. Plaintiff contends that defendants waived their right to compel arbitration, and that the trial court erred in staying all claims in this proceeding.

Plaintiff's amended complaint seeks to dissolve three entities: Larkin Condominiums, Ltd., a limited partnership with two general partners (defendants Geoterra Development Company and Nyman) and four limited partners (defendants Timothy Yocum, Ralph Meuntzer, Charles Wilson and KSN Joint Venture No. 1); KSN Joint Venture No. 1, which has three joint venturers (plaintiff, Nyman and Supena) and owns certain property (Point West Condominiums in Joliet, and the limited partnership share in Larkin); and Geoterra Development Company, a corporation in which plaintiff is a shareholder and director.

Larkin Condominiums was formed in 1980 by Nyman and Supena for the purpose of buying, renovating and converting an apartment project in Joliet to condominium ownership.

On December 16, 1980, plaintiff entered into an agreement with Nyman and Supena under which the three joint venturers became investors in, and limited partners of, Larkin. The KSN Joint Venture agreement contained an arbitration clause which reads:

"Arbitration. Any dispute arising out of or regarding this Agreement or the Property shall be determined by arbitration in the City of Chicago, Illinois, in accordance with the rules of the American Arbitration Association then in effect. The decision of the arbitrators shall be binding upon all of the parties, and judgment upon the award may be entered in any court having jurisdiction thereof."

In count I of his two-count complaint, filed August 25, 1983, plaintiff alleged that Nyman and Supena made false representations to him to induce him to become an investor in real estate projects and in Geoterra, to become a joint venturer in KSN, and to loan money to Larkin for the Point West project. Count II alleged that Nyman and Supena misapplied Geoterra's corporate assets.

During the next 15 months, defendants participated in discovery and filed various procedural motions, including: motion to quash service of summons; motion to dismiss for failure to join necessary parties; motion to dismiss for failure to plead properly; reply to petition to appoint receiver; request to admit facts; request to produce, motion for issuance of protective order; demand for bill of particulars; production of certain documents; and participation in depositions taken by plaintiff. In addition, in April 1984 defendants moved to dismiss for failure to attach a copy of the agreement at issue. In May 1984 plaintiff filed the agreement.

On November 9, 1984, defendants filed an answer which set up the arbitration clauses in the KSN agreement as an affirmative defense. On December 7, 1984, plaintiff moved to strike the affirmative defenses. This motion was never heard because on April 15, 1985, plaintiff was granted leave to file an amended complaint in six counts. In addition to the counts described above, count III requested imposition of a constructive trust because of defendants' misappropriation of partnership assets. Counts IV and V alleged fraud. Count VI was an action on promissory notes executed by Nyman and Supena in favor of plaintiff, the proceeds of which were used by defendants to pay rehabilitation costs at Point West. On June 20, 1985, the court set a trial date of October 11, 1985.

On July 16, 1985, defendants filed a motion to compel arbitration and to stay all other proceedings. The trial court initially denied the motion, but on October 11, 1985, the trial court granted defendants' motion for rehearing and granted their motion to compel arbitration.

• 1 Arbitration is a favored method of settling disputes in Illinois. (Brennan v. Kenwick (1981), 97 Ill. App.3d 1040, 425 N.E.2d 439.) Waiver of the right to arbitrate, however, may occur when a party acts in a manner which is inconsistent with the arbitration clause, thus indicating abandonment of the right. (Atlas v. 7101 Partnership (1982), 109 Ill. App.3d 236, 440 N.E.2d 381.) A party's conduct amounts to waiver when the party submits arbitrable issues to a court for decision. (Brennan v. Kenwick (1981), 97 Ill. App.3d 1040, 425 N.E.2d 439; Applicolor, Inc. v. Surface Combustion Corp. (1966), 77 Ill. App.2d 260, 222 N.E.2d 168.) Illinois courts disfavor a finding of waiver. Brennan v. Kenwick (1981), 97 Ill. App.3d 1040, 425 N.E.2d 439.

• 2, 3 We first look at defendant's acts to determine if they indicate defendants' abandonment of the right to arbitrate. Under various factual and procedural settings this court has held that: filing a motion for summary judgment constitutes waiver (Applicolor, Inc. v. Surface Combustion Corp. (1966), 77 Ill. App.2d 260, 222 N.E.2d 168); filing an answer without asserting the right to arbitrate constitutes waiver (Gateway Drywall & Decorating, Inc. v. Village Construction Co. (1979), 76 Ill. App.3d 812, 395 N.E.2d 613; Epstein v. Yoder (1979), 72 Ill. App.3d 966, 391 N.E.2d 432); filing two complaints and two motions for preliminary injunctions does not constitute waiver (Atlas v. 7101 Partnership (1982), 109 Ill. App.3d 236, 440 N.E.2d 381); filing an answer including the affirmative defense of the arbitration agreement, along with a counterclaim in the alternative, does not constitute waiver (Kessler, Merci, & Lochner, Inc. v. Pioneer Bank & Trust Co. (1981), 101 Ill. App.3d 502, 428 N.E.2d 608); and contesting venue does not constitute waiver (Brennan v. Kenwick (1981), 97 Ill. App.3d 1040, 425 N.E.2d 439). In the present case, defendants filed an answer containing no counterclaims, and participated in numerous procedural motions and some discovery proceedings. They did not, however, submit any substantive questions to the court for determination. (See Brennan v. Kenwick (1981), 97 Ill. App.3d 1040, 425 N.E.2d 439.) The existence of a waiver is determined by the types of issues submitted, not by the number of papers filed with the court. (See Applicolor, Inc. v. Surface Combustion Corp. (1966), 77 Ill. App.2d 260, 222 N.E.2d 168.) Additionally, defendants did not file interrogatories or take depositions, procedures not available in arbitration. They did subpoena documents, which is allowed in arbitration. We find that defendants' participation in the judicial forum was not so inconsistent with the contractual right to arbitrate as to indicate an abandonment of that right.

• 4 We must also look at any delay in defendants' assertion of their right to arbitrate, and any prejudice the delay caused plaintiff. (See Brennan v. Kenwick (1981), 97 Ill. App.3d 1040, 425 N.E.2d 439; Gateway Drywall & Decorating, Inc. v. Village Construction Co. (1979), 76 Ill. App.3d 812, 395 N.E.2d 613.) Initially, we note that plaintiff delayed nine months in submitting the KSN agreement as an exhibit to the complaint. Plaintiff also delayed in joining the necessary parties. Moreover, plaintiff delayed in filing an amended complaint with four new counts for five months after defendants filed the answer setting up the arbitration agreement as an affirmative defense. Defendants then delayed four months before filing a motion to compel arbitration. Thus, both parties contributed to the delays, and we cannot say as a matter of law that the trial court abused its discretion in finding that the delay caused by defendants did not constitute a waiver of the right to arbitrate.

The three cases relied upon by plaintiff are distinguishable. In Gateway Drywall & Decorating, Inc. v. Village Construction Co. (1979), 76 Ill. App.3d 812, 395 N.E.2d 613, defendant filed an answer which included counterclaims without asserting any right to arbitrate. In the present case, defendants' right to arbitrate was asserted in the answer and was the first motion heard after the amended complaint was filed by plaintiff. In Epstein v. Yoder (1979), 72 Ill. App.3d 966, 391 N.E.2d 432, defendant filed an answer omitting any reference to arbitration, participated in discovery for two years, and finally asserted his arbitration rights for the first time in response to a motion for summary judgment. Again, here defendants raised their right to arbitration in their answer. In Applicolor, Inc. v. Surface Combustion Corp. (1966), 77 ...


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