The opinion of the court was delivered by: Justice Rarick
Docket No. 97704-Agenda 32-September 2004.
Plaintiff, Eric Jensen, sought to rescind a franchise agreement with Quik International (Quik) pursuant to section 26 of the Franchise Disclosure Act of 1987 (Act) (815 ILCS 705/5 (West 2002)) on the grounds that Quik was not registered as a franchise with the Illinois Attorney General's office, as required by sections 5 and 10 of the Act. Quik sought to stay the litigation in the circuit court of Cook County and compel arbitration of Jensen's claim pursuant to an arbitration clause in the franchise agreement. The appellate court held that because compliance with the registration requirement of the Act was a condition precedent to an enforceable contract, the franchise agreement was not binding on Jensen, and he was not required to submit his claim to arbitration. 345 Ill. App. 3d 713. For the following reasons, we reverse the decisions of the circuit and appellate courts and remand the cause to the circuit court for further proceedings not inconsistent with this opinion.
Jensen entered into a franchise agreement with Quik, a Nevada franchisor, whereby Quik granted Jensen the right to operate a franchise in Illinois. The franchise agreement contained an arbitration clause, which provided that:
"[A]ny controversy or claim arising out of or relating to this Agreement or its breach, including without limitation, any claim that this Agreement or any of its parts are invalid, illegal or otherwise voidable or void, shall be submitted to arbitration ***."
Quik subsequently notified Jensen that it was in violation of the Act because its registration as a franchise with the Illinois Attorney General's office had expired at the time it entered into the franchise agreement with Jensen. The notice also informed Jensen of his rights under the Act, including the right to sue for damages and/or rescission of the franchise agreement.
Jensen filed a complaint against Quik, its president, and its chief executive officer, seeking damages and rescission of the franchise agreement. Count I alleged that Quik had violated sections 5 and 10 of the Act by failing to register as a franchise in Illinois. Count II alleged that Quik violated section 6 of the Act by making incomplete and misleading disclosures. Count III alleged a violation of the Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq. (West 2002)).
Quik filed a motion to stay the litigation pending arbitration, then filed an arbitration demand in Nevada pursuant to section 3 of the Federal Arbitration Act (FAA) (9 U.S.C. §3 (2000)). Jensen filed a cross-motion to stay arbitration pending the circuit court's ruling to stay the litigation. The circuit court denied Quik's motion to stay and granted Jensen's motion to stay arbitration. Quik appealed from both orders pursuant to Rule 307(a)(1), arguing that even though Quik was not registered as a franchisor, Jensen's claim had to be submitted to arbitration because the Federal Arbitration Act governed the agreement and required enforcement of the arbitration clause, superceding state law.
The appellate court affirmed, holding that the issue of whether the parties had entered into an enforceable contract is not arbitrable because the question of whether a contract existed is a question of law for the court. 345 Ill. App. 3d 713. Quik appeals.
Prior to addressing the merits of Quik's arguments, we set forth the relevant provisions of the Act. Section 5 of the Act provides in pertinent part:
"It is unlawful for any person to offer or sell any franchise required to be registered under this Act unless the franchise has been registered under this Act or is exempt under this Act." 815 ILCS 705/5(1) (West 2002).
Section 10 of the Act provides:
"No franchisor may sell or offer to sell a franchise in this State if (1) the franchisee is domiciled in this State or (2) the offer of the franchise is made or accepted in this State and the franchise business is or will be located in this State, unless the franchisor has registered the franchise with the Administrator[ *fn1 ] by filing such form of notification and disclosure statement as required under Section 16." 815 ILCS 705/10 (West 2002).
Section 26 provides that:
"Any person who offers, sells, terminates, or fails to renew a franchise in violation of this Act shall be liable to the franchisee who may sue for damages caused thereby. *** In the case of a violation of section 5, 6 [fraudulent practices], 10, 11 [amendment of disclosure statement], or 15 [escrow of franchise fees and surety bonds] ...