{ "id": 4278163, "name": "CASABLANCA TRAX, INC., Plaintiff-Appellee, v. TRAX RECORDS, INC., et al., Defendants-Appellants", "name_abbreviation": "Casablanca Trax, Inc. v. Trax Records, Inc.", "decision_date": "2008-06-06", "docket_number": "No. 1-06-2194", "first_page": "183", "last_page": "190", "citations": [ { "type": "official", "cite": "383 Ill. App. 3d 183" } ], "court": { "name_abbreviation": "Ill. App. Ct.", "id": 8837, "name": "Illinois Appellate Court" }, "jurisdiction": { "id": 29, "name_long": "Illinois", "name": "Ill." }, "cites_to": [ { "cite": "157 F.R.D. 405", "category": "reporters:specialty", "reporter": "F.R.D.", "case_ids": [ 7851106 ], "year": 1994, "pin_cites": [ { "page": "408" } ], "opinion_index": 0, "case_paths": [ "/frd/157/0405-01" ] }, { "cite": "916 F.2d 402", "category": "reporters:federal", "reporter": "F.2d", "case_ids": [ 10534064 ], "weight": 3, "year": 1990, "pin_cites": [ { "page": "403" }, { "page": "406-07" } ], "opinion_index": 0, "case_paths": [ "/f2d/916/0402-01" ] }, { "cite": "107 Ill. App. 3d 34", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3018616 ], "year": 1982, "pin_cites": [ { "page": "41" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/107/0034-01" ] }, { "cite": "183 Ill. 2d 66", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 209969 ], "weight": 2, "year": 1998, "pin_cites": [ { "page": "74-75" }, { "page": "76" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/183/0066-01" ] }, { "cite": "244 Ill. App. 3d 920", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 5101299 ], "weight": 2, "year": 1993, "pin_cites": [ { "page": "925-30" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/244/0920-01" ] }, { "cite": "200 Ill. App. 3d 725", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 2461209 ], "weight": 5, "year": 1990, "pin_cites": [ { "page": "728" }, { "page": "728" }, { "page": "731" }, { "page": "731" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/200/0725-01" ] }, { "cite": "124 Ill. 2d 435", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 3218645 ], "weight": 3, "year": 1988, "pin_cites": [ { "page": "445" }, { "page": "446" }, { "page": "447-48" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/124/0435-01" ] }, { "cite": "339 Ill. App. 3d 949", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 2468419 ], "year": 2003, "pin_cites": [ { "page": "953" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/339/0949-01" ] }, { "cite": "335 Ill. App. 3d 297", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 637126 ], "year": 2002, "pin_cites": [ { "page": "305" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/335/0297-01" ] }, { "cite": "328 Ill. App. 3d 492", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 2183365 ], "weight": 2, "year": 2002, "pin_cites": [ { "page": "496" }, { "page": "496" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/328/0492-01" ] } ], "analysis": { "cardinality": 784, "char_count": 18555, "ocr_confidence": 0.803, "pagerank": { "raw": 8.685371297493976e-08, "percentile": 0.49264841309280966 }, "sha256": "8bb119e87c439e451fa5a721e666a0c5458b2930d2d8da91547286b2bfc4ca5a", "simhash": "1:f9b4f7a6ffc2b834", "word_count": 2913 }, "last_updated": "2023-07-14T19:46:05.228492+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "CASABLANCA TRAX, INC., Plaintiff-Appellee, v. TRAX RECORDS, INC., et al., Defendants-Appellants." ], "opinions": [ { "text": "JUSTICE McNULTY\ndelivered the opinion of the court:\nWhat happens when the parties to a contract put a broad arbitration clause in one document, but include no such clause in a second document providing security for the promises made in the first document? At least under the circumstances of this case, we hold that the parties must submit the question of arbitrability to the arbitrator first, before addressing any claims that may not be subject to the arbitration clause.\nBACKGROUND\nRachel Cain Sherman and Larry Sherman used a number of trade names and record labels, including Trax Records, Inc., to create and market \u201chouse\u201d music. In 2002 they negotiated an agreement with Casablanca Trax, Inc., for production and distribution of recordings. On December 17, 2002, the parties signed three separate documents detailing the terms of the agreement.\nThe joint venture agreement (JVA) assigned to the Shermans responsibility for finding new artists and producing their recordings while Casablanca bore responsibility for marketing the recordings. Casablanca promised, in the JVA, to advance the Shermans $20,000 each month for expenses. Casablanca would recover the advances from sales of recordings released by the joint venture. The JVA also included the following provisions:\n\u201c19. Casablanca shall advise Trax and keep Trax up to date with respect to revenues generated by the joint venture on a monthly basis. A formal accounting shall be forwarded to Trax on a semiannual basis *** setting out those revenues generated by the joint venture during the prec[e]ding semi-annual period and the deductions of all allowable recoupments, costs, fees and expenses. ***\n* * *\n24. Any dispute arising ou[t] of or pursuant to this agreement shall not be taken to litigation, but shall be settled in the following sequence, although steps may be passed by mutual consent:\na) Negotiation;\nb) Mediation (non-binding arbitration);\nc) Binding arbitration.\u201d\nIn a separate document Casablanca promised to loan the Sher-mans $100,000, with scheduled monthly repayments deducted from the $20,000 advanced each month under the JVA. The loan agreement further provided:\n\u201cTo the extent that any monies have been advanced by the Lender to the Debtor prior to the effective date of this Agreement, it is hereby acknowledged by the parties hereto that all such prior advances shall comprise amounts advanced as part of the Advance under the Loan and that such prior advances were made to the Debtor on and subject to the terms and conditions contained in this Agreement.\u201d\nThe loan agreement did not include an arbitration clause.\nIn the third document the Shermans gave Casablanca a security interest in their music-related assets, including their recording equipment and the recordings made thereon. The security agreement secured \u201call duties and obligations of the Debtor to the Lender.\u201d If the Shermans defaulted on their secured debts, the security agreement gave Casablanca the right to \u201ctake possession of all or any part of the collateral with power to *** sell, lease or dispose of all or any part of the Collateral.\u201d The security agreement did not include an arbitration clause.\nCasablanca advanced to the Shermans the sums promised. In March 2004 the parties signed a modification of the JVA. The modification specified sales targets and granted Casablanca the right, if sales did not meet the targets, to recoup all of the monetary advances it made to the Shermans. The modification did not affect the arbitration clause or Casablanca\u2019s duty to account for sales.\nOn May 26, 2005, Casablanca sued the Shermans, along with the many recording companies the Shermans operated, seeking replevin of the collateral listed in the security agreement. In a second count Casablanca sought to recover for breach of both the JVA and the loan agreement. When the court awarded Casablanca judgment on the replevin count, Casablanca seized most of defendants\u2019 assets described in the security agreement.\nIn their answer to the second count defendants admitted that Casablanca had loaned them $100,000 under the loan agreement and advanced them $367,000 under the JVA. Because Casablanca deducted loan repayments from the advances, according to the complaint defendants owed a balance of less than $28,000 on the $100,000 loan covered by the loan agreement. Casablanca claimed:\n\u201c7. *** Plaintiffs advanced over $367,000.00 in cash and expenses for the benefit of Defendants (the \u2018Advances\u2019). Defendants are obligated to repay the Advances pursuant to the Joint Venture Agreement. ***\n8. The amounts due under the Loan Agreement and the Advances are collectively referred to as the \u2018Indebtedness.\u2019\n9. The Indebtedness is secured by a security interest in certain assets and equipment of the Defendants (the \u2018Collateral\u2019) and evidenced by that certain General Security Agreement.\u201d\nDefendants admitted the allegations of those three paragraphs.\nDefendants posed three affirmative defenses to the breach of contract claim, including charges that Casablanca breached the JVA by failing to account for sales and by failing to seek arbitration. The court struck the affirmative defenses, but it permitted defendants to file a motion for alternative dispute resolution. Defendants filed such a motion in December 2005.\nDefendants also sought leave to file a counterclaim that reiterated its affirmative defenses. Casablanca then moved for summary judgment on its claim for breach of contract. It offered in support the affidavit of its president, who swore to the allegations in the complaint, including the allegation that Casablanca \u201cperformed all its obligations under the Loan Agreement, Joint Venture Agreement, and Security Agreement.\u201d Defendants verified their answer in which they charged Casablanca with failing to send defendants the semiannual accounting reports the JVA required.\nIn April 2006 the trial court granted Casablanca summary judgment on the breach of contract claim and denied the motion for arbitration. The court agreed with Casablanca\u2019s contention that the arbitration clause in the JVA did not apply to a dispute over the repayment of advances made pursuant to the JVA:\n\u201cWhile the Joint Venture Agreement deals generally with how the parties are to cooperate and further their common interest under the venture, the Loan Agreement and Security Agreement govern the lending relationship created when Defendants borrowed money and took substantial Advances from Casablanca. *** [Tjhese instruments unmistakably evidence the intent to treat the lending relationship differently and more formally than the other aspects of the venture relationship.\u201d\nThe court also held that \u201cDefendants did not invoke the arbitration provision [and] made no demand for arbitration.\u201d\nDefendants moved to vacate the judgment. In June 2006, several weeks before the hearing on the motion to vacate, Casablanca began the process of selling, pursuant to the security agreement, the assets it seized under the replevin count. Casablanca claimed that it circulated a notice of public sale setting a sale date of June 28, 2006. Defendants responded with affidavits stating that they did not receive statutorily requisite notice. The court denied defendants\u2019 motion to stay the sale. On June 28 Casablanca sold itself all of the assets it had seized. Two days later the trial court denied defendants\u2019 motion to vacate the judgment on the breach of contract claim. Defendants now appeal.\nANALYSIS\nDefendants claim that the court committed reversible error when it denied the motion for arbitration. On appeal we need to determine whether the record sufficiently supports the trial court\u2019s decision denying arbitration. Bass v. SMG, Inc., 328 Ill. App. 3d 492, 496 (2002). Insofar as the trial court decided the issue as a matter of contract interpretation, we review the ruling de novo. Bass, 328 Ill. App. 3d at 496; In re Marriage of Turrell, 335 Ill. App. 3d 297, 305 (2002).\nDefendants formally moved for arbitration in December 2005, less than seven months after Casablanca filed this lawsuit. We find on this record no indication that defendants ever acted in a manner inconsistent with the assertion of their right to arbitrate. See Liberty Chevrolet, Inc. v. Rainey, 339 Ill. App. 3d 949, 953 (2003). The record contradicts the trial court\u2019s finding that defendants failed to invoke the arbitration clause. Defendants did not waive the right to arbitrate.\nCasablanca argues that the trial court correctly interpreted the contracts. The JVA requires arbitration of \u201c[a]ny dispute arising ou[t] of or pursuant to\u201d the agreement. The parties adopted the language of \u201c[t]he broadest arbitration clauses.\u201d Donaldson, Lufkin & Jenrette Futures, Inc. v. Barr, 124 Ill. 2d 435, 445 (1988). Our supreme court noted that in some cases, even in cases where the parties adopted such a broad clause, the subject matter of a dispute may not clearly fall within the scope of the agreement. Barr, 124 Ill. 2d at 446. The court said that \u201cwhen the language of an arbitration clause is broad and it is unclear whether the subject matter of the dispute falls within the scope of arbitration agreement, the question of substantive arbitrability should initially be decided by the arbitrator.\u201d Barr, 124 Ill. 2d at 447-48.\nHere the security agreement and the loan agreement include no arbitration clause. Casablanca argues that the entire debt protected by the security agreement arose solely under the loan agreement, without reference to the JVA. We disagree. The loan agreement applies to only the $100,000 loan specified therein and to \u201cany monies [that] have been advanced by the Lender to the Debtor prior to the effective date of this Agreement.\u201d The loan agreement sets its effective date at the same date on which the parties signed the JVA, before Casablanca started making the advances of $20,000 per month that form the bulk of the debt here. As Casablanca did not make those advances prior to the effective date of the loan agreement, the loan agreement does not cover the advances under the JVA. In the complaint Casablanca recognized that the security agreement protected a debt that included both the amount due under the loan agreement and the advances made pursuant to the JVA. Because defendants have repaid most of the debt under the loan agreement, the remaining debt arose almost entirely from the JVA. Thus, Casablanca seeks to enforce the security agreement, a contract that includes no arbitration clause, but which relates closely to the JVA, which has a broad arbitration clause.\nIn A.E. Staley Manufacturing Co. v. Robertson, 200 Ill. App. 3d 725 (1990), the defendant, an executive with the plaintiff, agreed to continued employment in exchange for certain retirement benefits. The contract included a clause broadly requiring arbitration of \u201c \u2018[a]ny controversy or claim arising out of or relating to this Agreement.\u2019 \u201d A.E. Staley, 200 Ill. App. 3d at 728. The parties later signed a \u201c \u2018Supplemental Executive Retirement Plan\u2019 \u201d (A.E. Staley, 200 Ill. App. 3d at 728) that included no arbitration clause. When the plaintiff terminated the defendant\u2019s employment, it paid amounts it calculated under both agreements. The defendant demanded full payment of benefits due under the supplemental plan and sought arbitration of the dispute. The plaintiff sued for a judgment declaring that it had no duty to arbitrate because the defendant made no claim under the original retirement agreement and the supplemental plan had no arbitration clause. The court granted the plaintiff the summary judgment the plaintiff sought. The appellate court reversed, holding: \u201cIn order to get the full scope of defendant\u2019s benefits, the documents must be read in conjunction.\u201d A.E. Staley, 200 Ill. App. 3d at 731. The court found that the dispute arose out of the initial retirement agreement. A.E. Staley, 200 Ill. App. 3d at 731.\nThe appellate court followed A.E. Staley in Nagle v. Nadelhoffer, Nagle, Kuhn, Mitchell, Moss & Saloga, P.C., 244 Ill. App. 3d 920 (1993). In that case the parties signed an employment contract that included an arbitration clause. Later they signed a stock redemption agreement that did not include such a clause. The plaintiff resigned and sought payment of amounts due under the stock redemption agreement. The trial court denied defendants\u2019 motion for arbitration. The appellate court held:\n\u201cA generic arbitration clause in an employment contract is broad enough to encompass any dispute which concerns [the plaintiffs] employment *** or his termination thereof ***. ***\n* * *\nThe extent to which the stock redemption agreement depends on, or is interrelated with, the employment agreement is unclear from the record before us. *** The arbitrator, not the court, is the entity designated to interpret ambiguities in the contract. [Citation.] Therefore, we conclude that the question of whether the arbitration clause in the employment agreement covers disputes under the stock redemption agreement is itself arbitrable.\u201d Nagle, 244 Ill. App. 3d at 925-30.\nHere the debt for which Casablanca seeks repayment arose under the JVA. The arbitrator should, in the first instance, address Casablanca\u2019s arguments that the arbitration clause does not apply to its claims.\nThe loan agreement governs repayment of the $100,000 loan Casablanca made to defendants. Neither that agreement nor the security agreement that protects that loan includes an arbitration clause. According to section 2(d) of the Uniform Arbitration Act:\n\u201cAny action or proceeding involving an issue subject to arbitration shall be stayed *** or, if the issue is severable, the stay may be with respect thereto only.\u201d 710 ILCS 5/2(d) (West 2004).\nThis section leaves the court two options when a case includes one issue subject to arbitration and a separate issue not subject to arbitration. The court may \u201cstay the entire proceeding pending arbitration, or, if the issue is severable, the stay may be granted with respect to that issue only.\u201d Board of Managers of the Courtyards at Woodlands Condominium Ass\u2019n v. IKO Chicago, Inc., 183 Ill. 2d 66, 74-75 (1998). Policies favoring arbitration support a stay of all court proceedings pending arbitration \u201cwhere the arbitrable and nonarbitrable issues, although severable, are also interrelated in terms of a complete resolution of the cause between the parties.\u201d Kelso-Burnett Co. v. Zeus Development Corp., 107 Ill. App. 3d 34, 41 (1982); see also IKO Chicago, 183 Ill. 2d at 76.\nThe security agreement establishes that the same collateral protects the loan under the loan agreement and the advances under the JVA. The arbitrator\u2019s resolution of the debt under the JVA and use of collateral to pay the debt may dispose of all issues concerning repayment of the separate $100,000 loan. We find the issues surrounding the loan agreement and the arbitrable advances under the JVA so interrelated that judicial economy favors a stay of all court proceedings pending arbitration. Accordingly, we reverse the judgment entered in favor of Casablanca on its claim for breach of contract and we remand for arbitration of that claim.\nCasablanca contends that it had a right to conduct the judicial sale to itself of all of defendants\u2019 assets under section 9 \u2014 610 of the Uniform Commercial Code (810 ILCS 5/9 \u2014 610(a) (West 2004)), without reference to this lawsuit. Casablanca concludes that reversal of the judgment on the claim for breach of contract does not affect the validity of the sale.\nSection 9 \u2014 610 establishes that \u201c[ajfter default, a secured party may sell *** or otherwise dispose of any or all of the collateral.\u201d 810 ILCS 5/9 \u2014 610(a) (West 2004). The security agreement here gives Casablanca the right to sell the collateral to satisfy the debt after defendants default. The Uniform Arbitration Act requires the court to stay proceedings in any case involving an issue subject to arbitration, unless that issue is severable from nonarbitrable issues in the case.\nThe court resolved a similar issue in Morrie Mages & Shirlee Mages Foundation v. Thrifty Corp., 916 F.2d 402 (7th Cir. 1990). There a purchase agreement included an arbitration clause. In a separate agreement, with no arbitration clause, the defendant guaranteed payment of amounts required by the purchase agreement. The guarantee specifically made the defendant\u2019s liability absolute and unconditional if the purchaser defaulted. Morrie Mages, 916 F.2d at 403. The plaintiff sued to enforce the guarantee. The trial court denied the defendant\u2019s motion to stay proceedings pending arbitration, finding the absolute guarantee immediately enforceable. The United States Court of Appeals for the Seventh Circuit reversed. The broad arbitration clause in the purchase agreement assigned to the arbitrator the initial decision as to whether the purchaser had defaulted. Morrie Mages, 916 F.2d at 406-07; see also Stone Distribution Co. v. Meyers, 157 F.R.D. 405, 408 (N.D. Ill. 1994).\nHere, too, the broad arbitration clause in the JVA gives the arbitrator authority to decide whether the parties have agreed to arbitrate issues of default and the amount of debt that remains unpaid. The separate security agreement, like the separate guarantee in Morrie Mages, includes no arbitration clause. Following the reasoning of Mor-rie Mages, we hold that the trial court should have stayed proceedings on the sale of defendants\u2019 assets pending arbitration.\nCasablanca made the advances at issue pursuant to the JVA, which includes a broad arbitration clause. Therefore, the arbitrator must decide the arbitrability of issues related to repayment, even where those issues also involve a security agreement that has no arbitration clause. Because the loan agreement interlocks with the JVA, judicial economy favors a stay of proceedings on any claims related to the loan agreement pending the arbitrator\u2019s decision on arbitrability of claims for repayment of advances under the JVA. The arbitrator\u2019s decision must precede any sale pursuant to the security agreement. We reverse the judgment of the trial court and remand for proceedings consistent with this opinion.\nReversed and remanded.\nMcBRIDE, P.J., and JOSEFH GORDON, J., concur.", "type": "majority", "author": "JUSTICE McNULTY" } ], "attorneys": [ "Duane Morris, John T. Schriver, and Richard P. Darke, all of Chicago, for appellants.", "Barbara L. Yong and Caren A. Lederer, both of Golan & Christie LLP, of Chicago, for appellee." ], "corrections": "", "head_matter": "CASABLANCA TRAX, INC., Plaintiff-Appellee, v. TRAX RECORDS, INC., et al., Defendants-Appellants.\nFirst District (6th Division)\nNo. 1\u201406\u20142194\nOpinion filed June 6, 2008.\nDuane Morris, John T. Schriver, and Richard P. Darke, all of Chicago, for appellants.\nBarbara L. Yong and Caren A. Lederer, both of Golan & Christie LLP, of Chicago, for appellee." }, "file_name": "0183-01", "first_page_order": 199, "last_page_order": 206 }