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Glenn Fahlstrom v. Laurence Jones and Fahlstrom Restaurant Group

June 14, 2011

GLENN FAHLSTROM,
PLAINTIFF-APPELLANT,
v.
LAURENCE JONES AND FAHLSTROM RESTAURANT GROUP, L.L.C., DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County No. 09 CH 15822 Honorable Stuart E. Palmer, Judge Presiding.

The opinion of the court was delivered by: Justice Harris

JUSTICE HARRIS delivered the judgment of the court, with opinion. Presiding Justice Cunningham and Justice Karnezis concurred in the judgment and opinion.

OPINION

Plaintiff Glenn Fahlstsrom brought a complaint for declaratory judgment and injunctive relief against defendants Laurence Jones and the Fahlstrom Restaurant Group, L.L.C., alleging defendants refused to arbitrate a dispute over the alleged sale of plaintiff's interest in the Restaurant Group to Jones. Following a hearing, the circuit court of Cook County entered a preliminary injunction against defendants. Plaintiff then filed a motion to compel arbitration, which the circuit court denied. Plaintiff filed this appeal. For the following reasons, we reverse.

JURISDICTION

The circuit court's interlocutory order denying plaintiff's motion to compel arbitration was entered on October 13, 2010. Plaintiff timely filed his notice of appeal from this order on November 12, 2010. This court has jurisdiction pursuant to Supreme Court Rule 307(a)(1) (eff. July 6, 2000), which allows interlocutory review of an order "granting, modifying, refusing, dissolving, or refusing to dissolve or modify an injunction." See, e.g., Bass v. SMG, Inc., 328 Ill. App. 3d 492, 496 (2002) (motion to compel arbitration is analogous to motion for injunctive relief).

BACKGROUND

In 2005, plaintiff and Jones formed Fahlstrom Restaurant Group, L.L.C. (LLC), a limited liability company, for the purpose of operating a restaurant, Glenn's Diner and Seafood House, in Chicago. Plaintiff and Jones each had a 48.75% interest in the LLC, and the restaurant's chef, David Najman, had a 2.5% nonvoting interest. Under the LLC's operating agreement, plaintiff was to have day-to-day control and authority over the operation and management of the restaurant.

The operating agreement contained a dispute resolution provision (section 7.9) under which "[a]ny dispute among the members, and any dispute between the company and any one or more of its members" was to be submitted to mediation, and subsequently, if mediation was unsuccessful, to arbitration. Another provision in the agreement (section 3.5) spelled out procedures for the purchase and sale of LLC membership interests in the event of a dispute so serious it required a member to withdraw from the company. A third section (section 5.5) prohibited the transfer or assignment of a member's interest "to any person other than the company without the unanimous consent of the members."

On April 2, 2009, plaintiff and Jones participated in what was apparently a contentious meeting at the restaurant. Accounts differed as to precisely what took place and what was said. However, it is undisputed that plaintiff and Jones signed an agreement (membership assignment) stating plaintiff was selling his interest in the LLC to Jones and waiving all claims for $1,000.

Plaintiff acknowledges Jones gave him a check for $1,000. Later in the evening of April 2, plaintiff tore up the membership assignment in Jones's presence.

On April 14, 2009, plaintiff filed his complaint for declaratory judgment and injunctive relief claiming the membership assignment was invalid on grounds, inter alia, it failed to comply with sections 3.5 and 5.5 of the LLC operating agreement, and the consideration was grossly inadequate. Plaintiff sought preliminary injunctive relief to allow him to continue to operate the restaurant during the pendency of the dispute over his ownership interest. He also sought an order directing the parties to resolve the dispute pursuant to the mediation and arbitration provisions of the LLC operating agreement.

Following a hearing, the circuit court entered a preliminary injunction against defendants, enjoining them from interfering with plaintiff's management of the restaurant. The court found, among other things, that a fair question had been raised regarding the adequacy of consideration. The court noted, for example, that plaintiff was owed "a significant amount of deferred salary" (at least $90,000 to $100,000), and even Jones's expert valued plaintiff's interest in the LLC at $33,000, "or 33 times the amount proposed by Jones to purchase Plaintiff's interest."

Plaintiff subsequently filed a motion to compel arbitration pursuant to section 2(a) of the Illinois Uniform Arbitration Act (Arbitration Act) (710 ILCS 5/2(a) (West 2008)). Jones objected, arguing the April 2, 2009 membership assignment was a separate contract not subject to the arbitration clause in the LLC operating agreement. Jones also claimed the court, not an arbitrator, should decide if the ...


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