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Megan Klehr v. Illinois Farmers Insurance Company

January 22, 2013


Appeal from the Circuit Court of Cook County 11 CH 34842 Honorable Rita M. Novak, Judge Presiding.

The opinion of the court was delivered by: Justice Connors

JUSTICE CONNORS delivered the judgment of the court, with opinion. Presiding Justice Harris and Justice Quinn concurred in the judgment and opinion.


¶ 1 If a valid arbitration agreement exists and the parties have begun but not completed the arbitration process, can one of the parties obtain judicial review of the arbitrators' interlocutory ruling on a discovery issue by filing a declaratory judgment action in the circuit court? This question is at the heart of this case and appears to be one of first impression in Illinois and, so far as we can tell, nationally. The circuit court decided that it lacked subject-matter jurisdiction in such a situation and dismissed the complaint. We affirm, though on a different ground.

¶ 2 This appeal is the sequel to Klehr v. Illinois Farmers Insurance Co., No. 1-10-2459 (2011) (Klehr I)(unpublished order under Supreme Court Rule 23), and this case picks up where that one left off. As we related in Klehr I,in 2007, plaintiff Megan Klehr was a passenger in a car that was involved in a hit-and-run accident, and she filed an uninsured motorist claim with the driver's insurance carrier. The insurer settled plaintiff's claim after plaintiff filed a declaratory judgment action against it, but the settlement was insufficient to completely cover her injuries and so she filed an additional claim with her own insurance carrier, defendant Illinois Farmers Insurance Company. Not long after filing that claim, plaintiff demanded arbitration under the arbitration provision in her insurance policy and the matter was referred to the American Arbitration Association (AAA) for resolution.

¶ 3 This is where the problem underlying this case started. After the arbitration process began, defendant served several discovery requests on plaintiff, which included interrogatories, document requests, and a request to appear for a sworn statement. Plaintiff refused to comply, contending that discovery of the type sought by defendant is not permissible under the terms of the arbitration clause and applicable Illinois law or, alternatively, that any discovery must be conducted within 180 days of the initiation of the claim. Plaintiff did not bring the dispute to the arbitrators for a ruling, but instead filed a declaratory judgment action in the circuit court, in which she sought a declaration that the discovery period was closed and that plaintiff was therefore not required to answer defendant's discovery requests. The circuit court dismissed the complaint for failure to state a claim (see 735 ILCS 5/2-615 (West 2010)).

¶ 4 We affirmed on appeal in Klehr I, finding that plaintiff had not alleged an actual controversy. We reasoned that plaintiff's complaint was premature because plaintiff did not allege that she had referred the issue to the arbitrators, who had authority over discovery issues pursuant to the applicable rules of the AAA. See Klehr I, slip op. at 4-9.

¶ 5 Shortly after we issued our order in Klehr I, plaintiff filed a motion with the arbitrators asking for the same relief that she had sought from the circuit court. The arbitrators denied the motion and ordered plaintiff to respond to defendant's discovery requests. Rather than complying with the arbitrators' order, however, plaintiff filed the instant lawsuit, which again seeks a declaratory judgment that discovery is not allowed in this situation or, alternatively, that the discovery period is limited to the 180 days after the claim was filed. Defendant moved to dismiss the complaint on a number of bases, including for failure to state a claim under section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 2010)). The circuit court, however, sua sponte raised the issue of subject-matter jurisdiction and found that it had no jurisdiction to review the arbitrators' interlocutory discovery order because the arbitration process had not been completed. The circuit court accordingly dismissed the complaint for lack of subject-matter jurisdiction (see 735 ILCS 5/2-619(a)(1) (West 2010)), and plaintiff appealed.

¶ 6 The initial question in this case is whether the circuit court has subject-matter jurisdiction over plaintiff's claim, which is an issue that we review de novo. See In re Luis R., 239 Ill. 2d 295, 300 (2010). The subject-matter jurisdiction of the circuit court is broad and encompasses "all justiciable matters except when the Supreme Court has original and exclusive jurisdiction relating to redistricting of the General Assembly and to the ability of the Governor to serve or resume office. Circuit Courts shall have such power to review administrative action as provided by law." Ill. Const. 1970, art. VI, § 9. Whether an action constitutes a "justiciable" matter is the critical inquiry in this context, and the supreme court provided the proper analysis in Luis R.:

"Generally speaking, a 'justiciable matter' is 'a controversy appropriate for review by the court, in that it is definite and concrete, as opposed to hypothetical or moot, touching upon the legal relations of parties having adverse legal interests.' [Citation.] To invoke a circuit court's subject matter jurisdiction, a petition or complaint need only 'alleg[e] the existence of a justiciable matter.' [Citation.] Indeed, even a defectively stated claim is sufficient to invoke the court's subject matter jurisdiction, as '[s]ubject matter jurisdiction does not depend upon the legal sufficiency of the pleadings. [Citation.] In other words, the only consideration is whether the alleged claim falls within the general class of cases that the court has the inherent power to hear and determine. If it does, then subject matter jurisdiction is present." (Emphasis in original and added.) Luis R., 239 Ill. 2d at 301.

¶ 7 In this case, plaintiff's complaint seeks a declaratory judgment, which is a type of case that is within the power of the circuit court to hear. See 735 ILCS 5/2-701 (West 2010). It is understandable that the circuit court was concerned about whether this is the kind of case that is appropriate for judicial review at this time, but the circuit court does have jurisdiction over plaintiff's complaint because plaintiff seeks declaratory relief, which the circuit court is empowered to provide. The circuit court was therefore incorrect to dismiss the complaint for lack of subject-matter jurisdiction.

¶ 8 Yet merely because the circuit court has jurisdiction over plaintiff's claim does not necessarily mean that the claim is valid. The circuit court raised the issue of jurisdiction because it could see no legal basis for judicial review of interlocutory decisions by an arbitration panel prior to a final arbitration award. The authority of the courts to review arbitration awards is controlled by sections 10 through 13 of the Uniform Arbitration Act (710 ILCS 5/10 to 13 (West 2010)), but the Act does not provide a mechanism for review of interlocutory orders by the arbitrators. Indeed, aside from confirming, modifying, or vacating a final arbitration award, the role of the courts in the arbitration process is generally limited to determining the existence of a valid arbitration agreement. See Donaldson, Lufkin & Jenrette Futures, Inc. v. Barr, 124 Ill. 2d 435, 449-50 (1988) ("[T]he sole question for the court to determine is whether there was an agreement to arbitrate. [Citation.] If it is obvious that there was an agreement to arbitrate the dispute in question, that is, if the dispute clearly falls within the scope of the arbitration agreement, the court should order arbitration. If it is clear that it does not, arbitration should be refused. [Citation.] *** [I]n unclear cases and in the face of an omnibus arbitration clause *** the court should initially defer the arbitrability question to the arbitrator ***.").

¶ 9 What makes this case difficult is that plaintiff did not bring this action under the Uniform Arbitration Act, instead framing her claim as an action for a declaratory judgment. To state a claim for a declaratory judgment, plaintiff need only allege that she has a tangible legal interest, that defendant has an opposing interest, and that there is an actual controversy between the parties concerning those interests. See Beahringer v. Page, 204 Ill. 2d 363, 372 (2003). An actual controversy "does not mean that a wrong must have been committed and injury inflicted. Rather, it requires a showing that the underlying facts and issues of the case are not moot or premature, so as to require the court to pass judgment on mere abstract propositions of law, render an advisory opinion, or give legal advice as to future events" (Emphasis omitted.) (Internal quotation marks omitted.) Id. at 374-75.

ΒΆ 10 In Klehr I, we found that plaintiff's claim was premature because the arbitrator had not made a ruling on the discovery issue, which would make any opinion by a court on the subject merely advisory. See Klehr I, slip op. at 4-9. Plaintiff's new lawsuit has corrected that problem by including an allegation that the arbitrators ruled against her on the discovery issue. As with her previous lawsuit, what plaintiff seeks in this case is in essence interlocutory judicial review of the arbitrators' discovery order in the guise of a declaratory judgment. Unlike Klehr I, however, plaintiff now appears to state a cause of action, at least based on the allegations of the complaint. Plaintiff alleges that defendant has demanded discovery and that the arbitrators have ordered her to comply. She also alleges that she does not want to comply with the order, and she has provided us with legal reasons supporting her ...

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