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Dunston v. R.H. Love Galleries

June 4, 2008


The opinion of the court was delivered by: Judge Joan H. Lefkow


Plaintiff J. Peter Dunston ("Dunston"), filed a fifteen-count complaint against defendants R.H. Love Galleries, Inc. ("Love Galleries"), Richard H. Love ("Love"), and Tom Hosier ("Hosier") (collectively "defendants"), alleging violations of the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. §1962, and the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1, et seq., as well as claims for common law fraud and conversion. Pursuant to an arbitration agreement executed between Dunston and Love Galleries, defendants filed a motion to stay the instant litigation pending completion of the arbitration proceeding. For the reasons set forth below, the defendants' motion to stay the proceedings pending arbitration [#16] is granted.


According to the complaint, Dunston entered into a consignment agreement with Love Galleries, whereby Love Galleries agreed to sell a painting (entitled Path Through the Olive Trees by William Chadwick) on consignment for $40,000. Dunston was to receive 75% percent of the final sale price, and the agreement included an arbitration clause.

Pursuant to the consignment agreement, Dunston sent the painting to Love Galleries on May 10, 2005. Between May 10, 2005 and January 2007, Dunston contacted the defendants once each quarter to determine the status of the painting and was told the painting was on display but had not attracted any buyers. In approximately May 2007, Dunston again contacted the defendants and demanded the return of the painting. At this time, the defendants informed Dunston that the painting was on loan to a potential buyer.

On or around May 31, 2007, Love told Dunston the painting had been sold. Although Dunston contacted the defendants to collect the proceeds from the sale, the defendants have delivered neither the funds from the sale nor the painting itself.


I. Applicable Law

Pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., and the Supremacy Clause, U.S. Const. art. VI, cl. 2, federal law generally controls questions of arbitrability. ChampionsWorld, LLC v. U.S. Soccer Fed'n, Inc.,487 F. Supp. 2d 980, 985 (N.D. Ill. 2007) (citing Moses H. Cone Mem'l Hosp. v. Mercury Construction Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed. 2d 765 (1983)). The central purpose of the FAA is to "ensure that private agreements to arbitrate are enforced according to their terms." Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 53--54, 115 S.Ct. 1212, 131 L.Ed. 2d 76 (1995) (internal quotation marks and citations omitted). Under the FAA, arbitration is favored "unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." S⿡ S.p.A. v. Miller-St. Nazianz, Inc., 988 F.2d 1518, 1524 (7th Cir. 1993) (quoting Int'l Ass'n of Machinists v. Fansteel, Inc., 900 F.2d 1005, 1010 (7th Cir. 1990)). Also, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Mastrobuono, 514 U.S. at 62 n. 8 (quoting Moses H. Cone Mem'l,460 U.S. at 24--25). The party opposing arbitration bears the burden of establishing why the arbitration clause should not be enforced. See Shearson/Am. Express v. McMahon, 482 U.S. 220, 225--26, 107 S.Ct. 2332, 96 L.Ed. 2d 185 (1987).

The FAA provides that a motion to stay must be granted where a parties' claims are within the scope of an applicable arbitration agreement.*fn1 9 U.S.C. § 3; see also Sharif v. Wellness Int'l Network, Ltd., 376 F.3d 720, 726 (7th Cir. 2004). A district court "must grant the requested stay where two conditions are satisfied: (1) the issue is one which is referable to arbitration under an agreement in writing for such arbitration, and (2) the party applying for the stay is not in default in proceeding with such arbitration." Sims v. Montell Chrysler, Inc., 317 F. Supp. 2d 838, 840 (N.D. Ill. 2004) (quoting C. Itoh & Co. (Am.) Inc. v. The Jordan Int'l Co., 552 F.2d 1228, 1231 (7th Cir. 1977)).

II. Analysis

The consignment agreement between the parties includes an arbitration clause which provides, "Any dispute or controversy arising under, out of, or in connection with, or in relation to this Agreement shall be resolved and determined by arbitration in the City of Chicago, pursuant to the rule then obtaining of the American Arbitration Association." Pl.'s Compl., Ex. B, at 2.

The parties do not dispute the validity or applicability of the arbitration clause;*fn2 rather, the parties disagree as to the binding nature of any arbitration award rendered pursuant to the clause. The dispute arises from a disagreement over language used in a proposed agreed order. After defendants filed this motion to stay, the parties discussed an agreed stipulation to the stay. Defendants' counsel prepared an agreement to stay, and Dunston's counsel added the following sentence to the agreement: "Further, plaintiff's agreement to allow the arbitration is premised on the representation of the defendants' counsel that all Defendants will agree to participate in, and be bound by, the arbitration." Reply at 2. Defendants took issue with the phrase "and be bound by," and the parties stopped their discussions regarding the agreed order and resumed litigating this motion stay.

As a result, Dunston urges the court either to find that a future arbitral award would be binding, or, if the court finds such an award would not ...

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