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Zurich American Insurance Co. v. Personnel Staffing Group, LLC

Court of Appeals of Illinois, First District, Second Division

May 15, 2018

ZURICH AMERICAN INSURANCE COMPANY and AMERICAN ZURICH INSURANCE COMPANY, Plaintiffs-Appellees,
v.
PERSONNEL STAFFING GROUP, LLC; DANIEL S. BARNETT; and DASH MANAGEMENT, Defendants-Appellants.

          Appeal from the Court Circuit of Cook County. 17 L 003729 Honorable Thomas R. Mulroy, Jr., Judge Presiding.

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

          OPINON

          NEVILLE PRESIDING JUSTICE

         ¶ 1 After Zurich American Insurance Company (Zurich) filed a demand for arbitration of its dispute with its insured, Personnel Staffing Group, LLC (PSG), Zurich filed a complaint against PSG and two other defendants, alleging that PSG fraudulently transferred funds to the other defendants to avoid paying an anticipated arbitration award. PSG filed in court a counterclaim that matched claims it raised in the arbitration. The Cook County circuit court denied the defendants' motion to compel arbitration of the fraudulent transfer claim, and it denied the defendants' motion to stay proceedings on the fraudulent transfer claims pending resolution of the arbitration. The court also dismissed the counterclaims to compel arbitration of those claims. The defendants now appeal.

         ¶ 2 We find that Zurich's complaint concerns collection of the arbitration award and the circuit court correctly held that the parties did not agree to arbitrate issues regarding collection of arbitration awards. Staying proceedings on the fraudulent transfer claims pending arbitration would conflict with the purposes of the Uniform Fraudulent Transfer Act (Act). 740 ILCS 160/1 et seq. (West 2016). The defendants concede that the parties agreed to arbitrate the issues raised in their counterclaims. Accordingly, we affirm the circuit court's order.

         ¶ 3 BACKGROUND

         ¶ 4 In 2011, PSG bought workers' compensation insurance from Zurich subject to a "Loss Retrospective Agreement" (Agreement), which provided that PSG would pay Zurich an amount that depended on the workers' compensation claims eventually filed against PSG for the covered period. The Agreement established that Zurich would handle the claims and then bill PSG for the paid losses. Because Zurich would initially pay the claims, it effectively loaned the payments to PSG. The Agreement referred to this aspect of the Agreement as a "risk financing arrangement, " for which Zurich required collateral in the form of a letter of credit in "an amount sufficient to secure [PSG's] financial obligations under this Agreement." The Agreement also provided that "[a]ny dispute arising out of the interpretation, performance or alleged breach of this Agreement, shall be settled by binding arbitration."

         ¶ 5 For several years, PSG regularly paid Zurich the amounts Zurich billed, but disagreements arose, and PSG stopped reimbursing the full amounts demanded. In June 2016, the final policy term ended, and PSG bought insurance from another source. On December 1, 2016, Zurich filed a demand for arbitration to resolve its disputes with PSG. Zurich sought to recover more than $4.6 million for the retrospective premiums already due, and it sought a letter of credit in the amount of $39 million as security for future claims. PSG replied that Zurich had breached the Agreement by "engag[ing] in a pattern and practice of settling claims without regard for whether the settlements were reasonable, " by "fail[ing] to properly investigate and manage claims, " and by "failing to consult with PSG about settlements and reserve charges that exceed $10, 000."

         ¶ 6 Before the arbitration hearing began, Zurich filed the complaint that initiated the lawsuit now before this court. Zurich named as defendants PSG, Dash Management, Inc. (Dash), and Daniel S. Barnett. Barnett, the "majority member" of PSG, owned Dash, and PSG paid Dash management fees. Zurich alleged that the defendants violated the Act in 2015, when PSG distributed $4.5 million to Barnett and paid Dash $5.8 million in management fees.

         ¶ 7 The defendants filed a "Motion To Dismiss or Stay or in the Alternative for Judgment on the Pleadings." They argued that either the circuit court should dismiss the lawsuit and compel arbitration of the fraudulent transfer claims or the court should stay proceedings on the fraudulent transfer claims until the arbitrators issue a final award. In the alternative, the defendants sought judgment on the pleadings, arguing that PSG's debt to Zurich did not arise until 2017 and, therefore, Zurich could not challenge the transfers PSG made in 2015. The defendants also filed a counterclaim that raised the same issues PSG raised in arbitration. Zurich filed a motion to compel arbitration of the counterclaim.

         ¶ 8 The circuit court set a date for hearing the "Motion To Dismiss or Stay or in the Alternative for Judgment on the Pleadings." Following the hearing, the court entered an order in which it (1) denied the motion to dismiss the lawsuit to compel arbitration of the fraudulent transfer claims, (2) denied the motion to stay proceedings on Zurich's complaint, (3) denied the motion for judgment on the pleadings, and (4) granted Zurich's motion to compel arbitration of the counterclaims. The defendants filed a notice of appeal.

         ¶ 9 ANALYSIS

         ¶ 10 Illinois Supreme Court Rule 307(a)(1) (eff. Nov. 1, 2017) gives this court jurisdiction to decide this appeal. MHR Estate Plan, LLC v. K&G Partnership, 2016 IL App (3d) 150744, ¶ 15; Robert A. Besner & Co. v. Lit America, Inc., 214 Ill.App.3d 619, 623 (1991) (an order compelling arbitration is considered to be an appealable interlocutory order because it is injunctive). The circuit court considered only the pleadings and attached documents, deciding the issues as a matter of law. Therefore, we review the ...


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