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04/07/87 Cac Graphics, Inc., Et Al. v. Taylor Corporation Et Al.

April 7, 1987





507 N.E.2d 171, 154 Ill. App. 3d 283, 107 Ill. Dec. 507 1987.IL.451

Appeal from the Circuit Court of Cook County; the Hon. David J. Shields, Judge, presiding.


JUSTICE STAMOS delivered the opinion of the court. SCARIANO, P.J., and HARTMAN, J., concur.


Plaintiff brought an action seeking a declaratory judgment as to the net worth of a printing business sold by them to defendants. Defendants objected that presenting this matter to the circuit court created a controversy under an arbitration clause entered into by the parties in a related agreement and demanded arbitration. Following a hearing, the circuit court stayed the proceedings before it and ordered the parties to arbitrate the entire dispute before a Minnesota arbitration panel. Plaintiff appeals.

Plaintiff, CAC Graphics , was engaged in the business of designing, manufacturing, and marketing greeting cards, stationary, and similar paper products through its ownership of the Nu-Art Group. CAC was owned by plaintiff Century America Corporation (Century). Defendant Taylor Corporation (Taylor) was also engaged in the greeting card and stationery business. Defendants Glen Taylor and Albert Fallenstein were officers and directors of Taylor at the time of all relevant events. Chicago Title and Trust Company, holder of a subject escrow valued at approximately $1 million, was also named as a defendant.

CAC owned all of the shares of an Illinois corporation called Nu-Art, Inc., which in turn owned all issued shares of the Nu-Art Group, a collection of three subsidiaries. In the fall of 1984, CAC entered into an agreement to sell the Nu-Art Group to Taylor, who would purchase all issued shares of Nu-Art, Inc. As agreed upon by a written share purchase agreement, dated November 1, 1984, the purchase price would be the net worth of the Nu-Art Group as of December 31, 1984. This net worth was to be determined by a certified audit by the public accounting firm of Coopers & Lybrand, in accordance with generally accepted accounting principles. The document defined the rights and obligations of the parties with respect to the sale of the Nu-Art Group. At the closing, Taylor paid a portion of the purchase price and deposited $1 million into escrow, to be disbursed by defendant Chicago Title according to the determination by Coopers & Lybrand. The share purchase agreement specified that the legal relationships between the parties under the agreement were to be determined under Illinois contract law. The share purchase agreement did not contain an arbitration clause.

On December 31, 1984, the parties also entered into a noncompetition agreement under which CAC, Century, and William Hokin, officer and director of CAC, agreed not to compete with Taylor for a period of five years. As consideration for this agreement, Taylor agreed to pay Hokin $1.5 million in quarterly installments. An "offset" provision was also contained in the non-competition agreement which stated that to the extent that there were any amounts due Taylor from CAC pursuant to the share purchase agreement which CAC was unwilling to pay, Taylor might offset such amounts against the payments due Hokin under the non-competition agreement. The non-competition agreement also contained a clause which provided for arbitration in Minnesota "of any controversy arising under this agreement." Taylor never contended that Hokin violated the non-competition agreement.

In early 1985, Taylor delivered to Coopers & Lybrand a financial statement of Nu-Art's net worth as of December 31, 1984. CAC thereafter proposed adjustments to the financial statement which Coopers & Lybrand declined to accept. In light of these conflicting financial analyses, Coopers & Lybrand refused to make a determination of the net worth of the Nu-Art Group.

As a result of the above dispute over the net worth of the Nu-Art Group, Taylor suspended its quarterly payments to Hokin under the noncompetition agreement. When Hokin attempted thereafter to draw on the letter of credit securing Taylor's payments to him, Taylor instituted a Minnesota action to enjoin him from doing so. On December 30, 1985, Taylor gave CAC and Hokin notice of its election to exercise its right of offset under the non-competition agreement, based on the fact that amounts were now due Taylor under the share purchase agreement. Thereafter, Taylor did not make payment to Hokin but deposited the disputed sum in escrow.

On February 14, 1986, CAC and Century filed suit against Taylor and officers Glen Taylor and Albert Fallenstein for Taylor's refusal to make payments under the non-competition agreement. CAC sought therein a declaratory judgment as to the net worth of Nu-Art, damages for Taylor's breach of contract to Hokin, and damages for Taylor's false financial statements which caused Coopers & Lybrand to fail to make a valuation of Nu-Art.

Thereafter, Taylor sought to compel arbitration of the dispute pursuant to the arbitration clause in the non-competition agreement. CAC responded by filing an amended complaint in which it sought to enjoin Taylor from proceeding with arbitration. After a hearing, at which the circuit court found that the entire dispute embodied in plaintiffs' amended complaint, as it had arisen and developed, was arbitrable, the court entered an order on April 16, 1986, staying CAC's action pending arbitration. On June 2, 1986, upon reconsideration, the court affirmed its previous order.

CAC's first contention on appeal is that the instant dispute does not contain any issue which is subject to arbitration. Rather, the issue is the net worth of Nu-Art, a dispute under the share purchase ...

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