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Vukusich v. Comp. Accounting Corp.





Appeal from the Circuit Court of Kane County; the Hon. Patrick J. Dixon, Judge, presiding.


Defendants, Comprehensive Accounting Corporation (CAC), Leo Lauzen, A.T. Finkle, and Edward D. Muse, appeal from the judgment of the circuit court of Kane County compelling arbitration only between CAC and the plaintiffs, Mark and Dawn Vukusich (the Vukusichs), and denying their motion to stay the litigation against all of the defendants pending the arbitration. Defendant Ronald Mercer is not a party to this appeal.

CAC is a franchisor of bookkeeping, accounting, and tax services. On or about June 17, 1983, the Vukusichs entered into a franchise agreement with CAC whereby they were licensed to use the Comprehensive Accounting trademarks, service marks, and business system in connection with the promotion and conduct of a Comprehensive Accounting practice in return for the payment of certain franchise fees and the performance of other obligations. The franchise agreement required mandatory and binding arbitration; to wit:

"Any and all disputes or controversies, whether of law or fact, of any nature whatsoever, arising from or respecting this agreement, shall be decided by arbitration by the AMERICAN ARBITRATION ASSOCIATION (`Arbitrator') and in accordance with the rules and regulations of said Association."

A dispute arose between the Vukusichs and CAC, and CAC filed a demand for arbitration on December 18, 1985, alleging various breaches of the franchise agreement and seeking relief on account of those breaches. In response to CAC's demand for arbitration, the Vukusichs filed a "Statement of Additional Claim," asserting, inter alia, that the execution of the franchise agreement was induced by fraudulent misrepresentations made to them by CAC and its agents and employees. The Vukusichs' claim sought rescission of the franchise agreement and the return to them of all sums paid to CAC plus any appropriate damages and attorney fees and costs.

Shortly after filing their additional claim in arbitration, the Vukusichs filed the instant suit in the circuit court of Kane County. In their complaint, they alleged that defendant Ronald Mercer, acting as an employee, subfranchisor, and agent of CAC for the purpose of recruiting subfranchisees, made false representations concerning the business opportunity being offered to them by CAC which induced them to purchase the franchise. In count I of their complaint, the Vukusichs alleged that the foregoing course of conduct was in violation of the Franchise Disclosure Act (Ill. Rev. Stat. 1985, ch. 121 1/2, par. 701 et seq.); that notice of their election to void the franchise agreement had been served on each of the defendants as provided in section 21(b) of the Franchise Disclosure Act; and that they were entitled to recover damages in an amount in excess of $15,000 from CAC on account of Mercer's misconduct as its employee and from defendants Lauzen, Finkle, and Muse solely on the basis of their status as persons who "directly or indirectly control persons liable under section

of the [Franchise Disclosure] Act" or are "principal executive officers or directors" of CAC. In count II, the Vukusichs sought damages from Mercer and CAC for common law fraud on the theory that Mercer acted as CAC's agent and employee.

In light of the franchise-agreement arbitration clause, CAC filed a motion to compel arbitration and to stay all further proceedings in the lawsuit pending that arbitration, pursuant to section 2 of "AN ACT relating to arbitration and to repeal an Act therein named" (the Uniform Arbitration Act) (Ill. Rev. Stat. 1985, ch. 10, par. 102). After briefing and argument, the trial court entered an order on May 15, 1986, finding that the Vukusichs' complaint set forth claims for fraud in the inducement under the terms of the Franchise Disclosure Act and under common law; that the parties' franchise agreement provided for mandatory arbitration of any controversy arising out of or relating to the agreement; that the broad language of the arbitration clause and public policy favored the inclusion of fraud in the inducement among those types of disagreements subject to arbitration; that there appeared to be no authority which would exempt actions under the Franchise Disclosure Act from that policy; and that the co-defendants were not signatories to the agreement nor did they and the Vukusichs agree to be bound by any arbitration. Accordingly, the court ordered the litigation stayed as to CAC only, and it enjoined the Vukusichs from proceeding against CAC during the pendency of the arbitration proceedings. As noted, CAC, Lauzen, Finkle, and Muse appeal from that order.

The appellants, who for the most part will be referred to collectively as CAC in the discussion which follows, contend (1) that the court erred in finding the claims against the individual defendants to be nonarbitrable because they were not signatories to the agreement to arbitrate and (2) regardless of whether the plaintiffs were bound to arbitrate their claims against Lauzen, Finkle, and Muse, that the court erred in refusing to stay the litigation as to all defendants pending arbitration.

At the outset, CAC notes that it is clear the Vukusichs' claim that they were fraudulently induced to enter into the contract with it falls within the scope of the arbitration clause contained in the franchise agreement between them. It is conceded that the individual defendants were not signatories to that franchise agreement. CAC contends, however, that in the instant case each of the individual defendants was alleged by the Vukusichs to be an employee and agent of CAC. Thus, CAC asserts, the claims against the individual defendants arise from acts allegedly undertaken in the scope of their employment or involved liability imposed upon them vicariously by statute as a consequence of their status with the corporate signatory, CAC. Accordingly, CAC argues, because the Vukusichs' claims against the individual defendants are all in substance claims against it as the real party in interest, the Vukusichs should not be permitted to assert in a judicial forum claims which they have agreed to arbitrate. In support, CAC cites several foreign-jurisdiction cases: In re Oil Spill by the "Amoco Cadiz" (7th Cir. 1981), 659 F.2d 789; Barrowclough v. Kidder, Peabody & Co. (3rd Cir. 1985), 752 F.2d 923; and Chilean Nitrate Sales Corp. v. The Nortuna (S.D.N.Y. 1955), 128 F. Supp. 938.

The Vukusichs assert the trial court correctly held that the violations of the Illinois Franchise Disclosure Act alleged against the individual defendants were not arbitrable because there was no written arbitration agreement between themselves and such defendants. In support of their argument that without a written agreement to arbitrate, no right to arbitrate can be implied nor can there be any arbitrable issues, they cite Flood v. Country Mutual Insurance Co. (1968), 41 Ill.2d 91; Blades, Inc. v. Jarman Memorial Hospital Building Fund, Inc. (1969), 109 Ill. App.2d 224; and Lehman v. Eugene Matanky & Associates, Inc. (1982), 107 Ill. App.3d 985. They point out the Franchise Disclosure Act gives an aggrieved party separate and distinct rights of recovery against a corporation and its individual officers and employees and, in the absence of an agreement to arbitrate, no arbitrable issue is presented. Thus, they have a right to seek redress from the courts as to these individual defendants. The Vukusichs additionally dispute CAC's assertion that the issue of fraud in the inducement is arbitrable, contending that Illinois law does not provide that provisions of a contract entered into by fraudulent inducement are separable; that is, if fraud exists, the entire contract is void. Finally, the Vukusichs question whether CAC's use of the term "all defendants" is meant to include defendant Mercer as well. The Vukusichs point out they had a separate contract with Mercer, he is represented by separate counsel, and he has not appealed from the trial court's order. Accordingly, they assert, this court's ruling should in no way pertain to their suit against him.

CAC replies, pointing out that the Vukusichs have neither addressed nor rebutted its "real party in interest" analysis whereby nonsignatories were found to be bound by an agreement to arbitrate where the real party in interest in the claim was a party to the contract containing the arbitration provision. Moreover, it distinguishes cases cited by the Vukusichs in support of their argument on the basis those cases deal with whether particular issues are arbitrable, not whether particular parties may enforce or be bound by an arbitration provision. CAC vigorously reasserts its preliminary contention that the issue of whether there was fraud in the inducement of the contract is an arbitrable issue. It notes the trial court's judgment specifically found so, and no cross-appeal was filed by the Vukusichs. Consequently, no question as to this issue may be raised here. In response to the Vukusichs' contention regarding defendant Mercer, CAC points out that in both counts of the Vukusichs' complaint against CAC for fraud in the inducement, they have alleged, inter alia, that Mercer's actions as to them were performed in his capacity as an employee or agent of CAC. Accordingly, CAC contends, since the complaint against Mercer involves the fraud issue, which is subject to arbitration, the court has no discretion to deny a stay of the litigation as to defendant Mercer. In support, it cites section 2 of the Uniform Arbitration Act (Ill. Rev. Stat. 1985, ch. 10, par. 102(d)) and Kelso-Burnett Co. v. Zeus Development Corp. (1982), 107 Ill. App.3d 34.

• 1 Initially, we agree that the Vukusichs may not challenge the court's finding that the issue of fraud in the inducement is arbitrable. Although it is the general rule that an appellee may advance any argument in support of the court's judgment (Ozment v. Lance (1982), 107 Ill. App.3d 348), the Vukusichs' argument is not supportive of the court's judgment since its finding that the issue of fraud in the inducement is arbitrable is the basis for its judgment compelling arbitration between CAC and the Vukusichs.

In Cleys v. Village of Palatine (1980), 89 Ill. App.3d 630, 635, it was stated that "where a general decision for the appellee contains a specific finding unfavorable to him and he fails to file a cross-appeal, the adverse finding is not properly before the reviewing court." Also, in Material Service Corp. v. Department of Revenue (1983), 98 Ill.2d 382, 387, it was stated that "[f]indings of the trial court adverse to the appellee do not require the appellee's cross-appeal if the judgment of the trial court was not at least in part against the appellee." It is clear in the instant cause that the judgment of the trial court was, at least in part, against the Vukusichs, and their cross-appeal was necessary in order to raise this issue. Cf. Management Recruiters of O'Hare, Inc. v. Process & Environmental Equipment ...

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