Klehr v. Illinois Farmers Insurance Company , 2013 IL App (1st) 121843 ( 2013 )

ILLINOIS OFFICIAL REPORTS
Appellate Court
Klehr v. Illinois Farmers Insurance Co., 2013 IL App (1st) 121843
Appellate Court MEGAN KLEHR, Plaintiff-Appellant, v. ILLINOIS FARMERS
Caption INSURANCE COMPANY, Defendant-Appellant.
District & No. First District, Second Division
Docket No. 1-12-1843
Filed January 22, 2013
Held Although the trial court had subject-matter jurisdiction to entertain
(Note: This syllabus plaintiff’s complaint seeking a declaratory judgment challenging a
constitutes no part of discovery order entered in the arbitration of an uninsured motorist claim
the opinion of the court plaintiff filed, plaintiff’s action seeking interlocutory review of the
but has been prepared arbitrators’ discovery order was still unripe for action by the trial court
by the Reporter of until a final award was issued by the arbitrators, since the Uniform
Decisions for the Arbitration Act clearly intends to preclude intervention by the courts until
convenience of the the arbitration process is concluded.
reader.)
Decision Under Appeal from the Circuit Court of Cook County, No. 11-CH-34842; the
Review Hon. Rita M. Novak, Judge, presiding.
Judgment Affirmed.
Counsel on Brian J. Wiehe and Matthew J. Belcher, both of Belcher Law Office, of
Appeal Chicago, for appellant.
Danny L. Worker, Leena Soni, and Lisa M. Taylor, all of Lewis Brisbois
Bisgaard & Smith LLP, of Chicago, for appellee.
Panel JUSTICE CONNORS delivered the judgment of the court, with opinion.
Presiding Justice Harris and Justice Quinn concurred in the judgment and
opinion.
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(2011) (Klehr I) (unpublished order under Supreme Court Rule 23), and this case picks up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
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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
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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.
¶ 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
position. Taken together, this is enough to allege the existence of an actual controversy
between opposing legal interests, which is ordinarily sufficient to state a claim for a
declaratory judgment. See Beahringer, 204 Ill. 2d at 372.
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¶ 11 But merely alleging the existence of an actual controversy is not enough: the claim must
also be ripe for judicial decision. The supreme court has stated that determining ripeness in
the context of a declaratory judgment action requires considering whether the issue presented
is “fit for judicial decision” and whether “any hardship to the parties *** would result from
withholding judicial consideration.” Morr-Fitz, Inc. v. Blagojevich, 231 Ill. 2d 474, 490
(2008). The concept behind the ripeness doctrine is “to prevent the courts, through avoidance
of premature adjudication, from entangling themselves in abstract disagreements over
administrative policies, and also to protect the agencies from judicial interference until an
administrative decision has been formalized and its effects felt in a concrete way by the
challenging parties.” (Internal quotation marks omitted.) Id. We found that plaintiff’s claims
in Klehr I were unripe largely because “based on the allegations in the complaint, we cannot
know what discovery procedures, if any, the arbitrator *** may impose in this particular
case.” Klehr I, slip op. at 9. That has now changed because the arbitrators have ordered
plaintiff to comply with defendant’s discovery requests.
¶ 12 Given that plaintiff’s new complaint seeks only a legal interpretation of the interplay
between the discovery rules of the AAA and the Illinois Insurance Code (215 ILCS 5/143a
(West 2008)), we have no doubt that this issue is fit for judicial decision. See Morr-Fitz, 231
Ill. 2d at 492 (“ ‘Fitness for judicial decision means, most often, that the issue is legal rather
than factual.’ ” (quoting Minnesota Citizens Concerned for Life v. Federal Election Comm’n,
113 F.3d 129, 132 (8th Cir. 1997))). Moreover, we now know that the arbitrators have
allegedly ordered discovery, which was an allegation that was not present in Klehr I.
¶ 13 The harder question is whether the issue is fit for judicial decision now, that is, whether
there will be a significant hardship imposed by declining to review the arbitrators’
interlocutory order. Plaintiff claims two hardships. First, she contends that, absent a
declaratory judgment action, the arbitrators’ discovery order is unreviewable because of the
limited role of the courts in reviewing final arbitration awards. This is simply not correct,
given that the Uniform Arbitration Act requires courts to vacate awards when the arbitrators
exceed their powers. See 710 ILCS 5/12(a)(3) (West 2010). Plaintiff’s contention in this
declaratory judgment action is that the discovery that defendant seeks is not legally
authorized. If true, then the arbitrators have exceeded their powers by ordering plaintiff to
comply with the discovery request, and that order can be reviewed by the circuit court as part
of an application to vacate the award at the conclusion of the arbitration process.
¶ 14 Second, plaintiff contends that she will be forced to incur expenses and suffer delays in
her case by complying with the discovery order. This is not an insignificant consideration,
but we must view this potential hardship in light of the intent behind the Uniform Arbitration
Act. The dispositive question is whether allowing judicial review of the arbitrators’
interlocutory discovery ruling in order to mitigate the potential hardship of complying with
such ruling runs counter to the intent of the Act’s drafters. The Act itself is silent as to the
extent to which courts should intervene in the arbitration process prior to a final award, so
we look to its legislative history. Cf. Daley v. Lakeview Billiard Café, Inc., 373 Ill. App. 3d
377, 382 (2007) (“[T]he statute is silent *** and we thus examine the legislative history to
determine legislative intent ***.”); see also Donaldson, 124 Ill. 2d at 449 (“Because there
is no legislative history on the Illinois Arbitration Act, it is proper to consider the records of
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the National Conference of Commissioners on Uniform Laws, and particularly the writings
of the chairman of the subcommittee that undertook the drafting of the Act in construing the
Illinois act.” (Internal quotation marks omitted.)).
¶ 15 In a situation where an arbitration clause requires “that disputes over the meaning,
interpretation and application of the contract shall be submitted to arbitration” (Maynard E.
Pirsig, Some Comments on Arbitration Legislation and the Uniform Act, 10 Vand. L. Rev.
685, 694 (1957)), the comments state:
“It is the purpose of the uniform act to defer consideration of [this] question until after
the award has been rendered. *** The award is now before the court with such
explanation as the arbitrator may have given. It is the duty of the court under subdivision
(3) [i.e., 710 ILCS 5/12(a)(3) (West 2010)] to measure the award against the powers of
the arbitrator conferred by the agreement. The issue then becomes whether the arbitrator
exceeded his authority in rendering the award.” (Emphasis added.) Id. at 706.
¶ 16 The meaning of this passage could not be clearer: if there is a dispute about an issue that
is subject to the arbitration agreement, then the courts cannot review the arbitrator’s ruling
on that issue until after the arbitration process is complete.
¶ 17 Plaintiff alleges in her complaint that the basis for arbitration in this case is section 143a
of the Illinois Insurance Code (215 ILCS 5/143a (West 2008)), which states that “any dispute
with respect to the coverage and the amount of damages shall be submitted for arbitration to
the American Arbitration Association and be subject to its rules for the conduct of the
arbitration hearings as to all matters except medical opinions.” (Emphasis added.) And, as
we noted in Klehr I, Rule 6 of the American Arbitration Association’s
Uninsured/Underinsured Motorist Arbitration and Mediation Rules (eff. Jan. 1, 2002) states:
“The arbitrator(s) shall have discretion to order pre-hearing exchange of information
by the parties including, but not limited to, the production of requested documents,
reports and records, as well as the attendance of any party for the purpose of conducting
any independent medical examination(s) and sworn statement(s).
*** Unless otherwise limited by order of the court, parties shall complete all
discovery no later than 180 days from the date the AAA forwards notification to the
respondent advising that a claim has been initiated.”
¶ 18 So the arbitrators may order discovery if they so choose, which they have done in this
case. Plaintiff argued to the arbitrators that they could not order discovery pursuant to Rule
6 because the 180-day discovery period had already lapsed, but the arbitrators disagreed with
plaintiff’s interpretation of the rule, which they are also allowed to do. American Arbitration
Association’s Uninsured/Underinsured Motorist Arbitration and Mediation Rule 37 (eff. Jan.
1, 2002) empowers the arbitrators to “interpret and apply these rules insofar as they relate to
the arbitrator’s powers and duties. *** All other rules shall be interpreted and applied by the
AAA.”
¶ 19 In short, what is happening in this case is this: the Illinois Insurance Code mandates that
the rules of the AAA apply to the arbitration of plaintiff’s claim, Rule 6 grants the arbitrators
authority over discovery, Rule 37 vests the arbitrators with the authority to interpret and
apply the rules, and plaintiff disagrees with the arbitrators’ interpretation of Rule 6. But
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rather than complete the arbitration process and then seek review in the courts, plaintiff
wants the courts to intervene now and overrule the arbitrators by means of a declaratory
judgment.
¶ 20 Based on the comments to the Uniform Arbitration Act, this is precisely the type of
dispute that the drafters intended to be reviewed by the courts only at the conclusion of
arbitration as part of a motion to vacate the award, and for the courts to step into this dispute
before the end of the arbitration process is contrary to the clear intent of the Act. Moreover,
allowing plaintiff to obtain interlocutory review of the arbitrators’ ruling would undermine
the entire point of arbitration. Illinois public policy favors arbitration as a dispute-resolution
mechanism because it “promotes the economical and efficient resolution of disputes.”
Phoenix Insurance Co. v. Rosen, 242 Ill. 2d 48, 59 (2011). If a declaratory judgment could
be used to circumvent the limited role of the courts in arbitration, then any party aggrieved
by an interlocutory order of the arbitrators could obtain judicial review prior to completion
of the arbitration process, which would reduce the efficiency and cost effectiveness of
arbitration as a dispute-resolution mechanism. The history of this case is a good example of
how prolonged the arbitration process could become if interlocutory judicial review were
available. This case has involved three separate declaratory judgment actions and two
separate appeals over a span of more than five years, and the delays in resolving plaintiff’s
insurance claim are all but entirely due to plaintiff’s repeated attempts to inject the courts
into the arbitration process.
¶ 21 So the parties’ dispute over the discovery order remains unripe for adjudication, and it
will remain unripe until the arbitrators issue their final award. Plaintiff therefore has not
stated a claim for a declaratory judgment and her complaint must be dismissed. See 735
ILCS 5/2-615 (West 2010). Of course, we take no position on the substantive merits of
plaintiff’s contentions regarding the arbitrators’ discovery ruling and she is free to pursue that
issue as part of a motion to vacate the arbitration award (see 710 ILCS 5/12(a)(3) (West
2010)), but not before arbitration is complete and not in the guise of a declaratory judgment
action.
¶ 22 Affirmed.
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