First District Offers Clarity Over What Falls Within a “Broad” Arbitration Clause
Levin Ginsburg attorneys Howard Teplinsky and Mark Evans obtained a favorable decision from the Illinois Appellate Court on an issue of first impression concerning broad and generic arbitration clauses. On June 7, 2024, they secured a ruling that filled in some of the grey area around what issues are captured under such clauses.
Portage Park Capital, LLC v. A.L.L. Masonry Constr. Co.
The Illinois Court of Appeals for the First District decided an issue of first impression about whether an arbitrator, versus the Circuit Court, can determine the “validity” of a contractor’s mechanics lien. Although this is a fairly narrow subject, the Court considered the scope of what it (and other courts) characterized as a “generic” arbitration clause – i.e., an arbitration clause that broadly covers claims either (a) seeking an interpretation of the contract terms or some relief with respect to the terms of the contract, or (b) other disputes “arising out of or relating to the contract.” In Portage Park, an owner of a self-storage facility filed a lawsuit against the defendant seeking to declare a mechanics lien invalid. The plaintiff and defendant were parties to a construction contract that contained a broad arbitration clause requiring the parties to arbitrate disputes “arising out of or relating to the contract.” Levin Ginsburg filed a motion to compel arbitration which the circuit court granted. The owner appealed that decision.
The Illinois Court of Appeals Decision
In its decision, the appellate court acknowledged that “[t]he contours of when a dispute ‘arises out of or relates to’ a contract are murky.” On the one hand, the broadest reading of this language could mean that the contracting parties agreed to arbitrate anything that would have not occurred “but for” the existence of the contract. On the other hand, a narrow reading would limit the language only to issues involving some “interpretation or construction of the contract.”
Although the Court did not attempt to make a bright line rule as to what “arises out of or relates to” a contract, it did offer some guidance. Specifically, the Court stated that “at the very least, if resolution of the claims raised in a complaint require the court to reference the contract, those claims ‘arise out of or relate to’ that contract.” In Portage Park, the Court found that the complaint itself repeatedly referenced the contract, and that the lien claim was “essentially the same cause of action as the contract dispute.” Therefore, the issue of a lien’s validity raised in the complaint fell within the contract’s arbitration provision.
Final Remarks
While some grey area still exists, the Portage Park Capital, LLC v. A.L.L. Masonry Constr. Co. decision does provide a good starting point in determining whether an issue falls within a “generic” arbitration clause: look to the complaint and determine if resolution of the claims raised would require that the court reference the contract.
If you have questions regarding mechanics liens and/or the arbitration process, please contact Howard Teplinsky, Mark Evans, or any of the attorneys practicing in Levin Ginsburg’s Commercial Litigation and Dispute Resolution group.
