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LLC v. Hughes Socol Piers Resnick & Dym Ltd.

Court of Appeals of Illinois, First District, Second Division

November 8, 2016

G3 ANALYTICS, LLC and KEN ELDER, Plaintiffs-Appellants,
HUGHES SOCOL PIERS RESNICK & DYM LTD., a Limited Liability Partnership, and COHEN LAW GROUP P.C., Defendants-Appellees.

         Appeal from the Circuit Court of Cook County, No. 15-CH-5709; the Hon. Anna Helen Demacopoulos, Judge, presiding.


          Daniel F. Konicek, Amir R. Tahmassebi, and Andrew M. Cook, of Konicek & Dillon, P.C., of Geneva, for appellants.

          Matthew J. Piers, Joshua Karsh, and Kate E. Schwartz, of Hughes Socol Piers Resnick & Dym Ltd., of Chicago, for appellees.

          PRESIDING JUSTICE HYMAN delivered the judgment of the court, with opinion. Justices Neville and Mason concurred in the judgment and opinion.



         ¶ 1 Plaintiffs, G3 Analytics and Ken Elder, hired two Chicago law firms to investigate and prosecute potential claims under the Illinois False Claims Act (740 ILCS 175/1 et seq. (West 2014)) and the federal False Claims Act (31 U.S.C. § 3729 et seq. (2012)). After the defendants spent several months investigating the claims, plaintiffs terminated the relationship. When plaintiffs did not pay the legal fees which defendants billed them, defendants demanded mediation under the alternative dispute resolution (ADR) provision of the fee agreement. Plaintiffs refused to participate in mediation and instead sought a declaratory judgment that the fee agreement was unenforceable. Defendants moved to dismiss. In response, plaintiffs contended that Illinois law governed the fee agreement and under Illinois law, a trial court, rather than an arbitrator, decides the issue of the agreement's enforceability. The trial court disagreed and dismissed the action, finding that federal law, rather than Illinois law, governed the ADR provision due to the fee agreement's ties to interstate commerce. We agree with the trial court's reasoning, and affirm.

         ¶ 2 BACKGROUND

         ¶ 3 Plaintiffs are in the business of identifying, developing, and filing qui tam lawsuits-claims to combat fraud using state and federal false claims statutes. Plaintiffs who bring qui tam claims, if successful, may receive a share of the recovery. In January 2014, plaintiffs, a Michigan limited liability company and a Michigan resident, retained defendants, Chicago law firms Hughes Socol Piers Resnick & Dym Ltd. and Cohen Law Group P.C., to jointly investigate claims under the False Claims Act in multiple states for improper practices by certain financial institutions. The parties signed a written fee agreement in March 2014.

         ¶ 4 The fee agreement contains three provisions relevant to our determination: (i) the client withdrawal provision, which states, in part, "In the event our Law Firms are willing to proceed with the *** Litigation and you determine to withdraw, you agree to pay our Law Firms for all costs and expenses we have incurred, plus fees incurred to the date of your withdrawal"; (ii) the choice of law provision, which states, "Subject to the terms of the Alternative Dispute Resolution provision, this Agreement will be governed by the laws of the State of Illinois"; and (iii) the ADR provision, which states:

"Alternative Dispute Resolution: Any disputes relating to this Agreement, and any disputes relating to the action contemplated by this Agreement, including the services provided in the action, will be resolved by alternative dispute resolution. Alternative dispute resolution means that you and our Law Firms agree to submit all disputes to an independent mediator mutually agreed upon. If you and our Law Firms are unable to mutually agree to the selection of a mediator, a mediator will be chosen by JAMS/ENDISPUTE. In the event the parties are unable to resolve their disputes through mediation, the parties agree that the mediator shall require the parties to submit their disputes to an independent arbitrator selected by the mediator. The mediator will have the right to appoint himself as arbitrator in that proceeding. The parties shall be bound by the decision of the arbitrator and such decision shall be final and not subject to review except as the issue of malfeasance or bias on the part of the arbitrator. The decision of the arbitrator may be enforced in any court of competent jurisdiction. You and our Law Firms agree to equally share the cost of mediation and, if necessary, arbitration."

         ¶ 5 Between January and August 2014, defendants investigated and evaluated the viability of filing the False Claims Act claims. In August 2014, plaintiffs ended defendants' representation. Defendants sent plaintiffs a bill for their time and expenses. When plaintiffs would not pay, defendants demanded mediation under the fee agreement's ADR provision. Mediation was scheduled and continued on a number of occasions before plaintiffs filed a complaint for declaratory judgment. Specifically, plaintiffs contended that (i) the fee agreement was not binding in the absence of an arm's-length bargaining process, (ii) the fee agreement became unenforceable when plaintiffs terminated defendants' representation, (iii) the ADR provision violated public policy by not allowing plaintiffs to engage in discovery and depriving them of access to critical information necessary to file a cause of action, and (iv) the ADR provision became unenforceable by allowing the mediator to appoint himself or herself as arbitrator.

         ¶ 6 Defendants filed a combined motion to dismiss and to compel arbitration under section 2-619.1 of the Code of Civil Procedure (Code) (735 ILCS 5/2-619.1 (West 2014)), arguing that the complaint should be dismissed under section 2-615 of the Code (735 ILCS 5/2-615 (West 2014)) for failing to allege any cognizable basis for challenging or avoiding the agreement's ADR provision and for failing to sufficiently plead facts rather than conclusions. Defendants also sought dismissal under section 2-619(a)(9) of the Code (735 ILCS 5/2-619(a)(9) (West 2014)), because the agreement provides that ADR is the exclusive remedy and thus, constitutes an "affirmative matter avoiding the legal effect of or defeating the claim."

         ¶ 7 Defendants asserted that the Federal Arbitration Act (9 U.S.C. § 2 (2012)) applies, which requires an arbitrator to determine whether the agreement is enforceable. In a surreply, plaintiffs argued that under the fee agreement's choice of law provision, Illinois law applies, and under section 2 of the Uniform Arbitration Act (710 ...

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