Dustman v. Advocate Aurora Health, Inc.

2021 IL App (4th) 210157

192 N.E.3d 47

455 Ill.Dec. 630

J. Anthony DUSTMAN, M.D., Joseph B. Norris, M.D., and McLean County SurgiCenter, Ltd., Plaintiffs-Appellants,

v.ADVOCATE AURORA HEALTH, INC.; the Carle Foundation; the Center for Orthopedic Medicine, LLC, d/b/a The Center for Outpatient Medicine; and Bromenn Physicians Management Corporation, Defendants-Appellees.

NO. 4-21-0157

Appellate Court of Illinois, Fourth District.

Filed October 20, 2021

Thomas J. Pliura, of LeRoy, for appellants.

Douglas B. Swill, Matthew M. Morrissey, and Natalie K. DeLave, of Faegre Drinker Biddle & Reath LLP, Terrence J. Dee and Michelle S. Lowery, of McDermott Will & Emery LLP, and Amy G. Doehring and Julia R. Lissner, of Akerman LLP, all of Chicago, for appellees.

JUSTICE CAVANAGH delivered the judgment of the court, with opinion.

¶ 1 This appeal raises a question of arbitrability. The plaintiffs are J. Anthony Dustman, M.D., Joseph B. Norris, M.D., and McLean County SurgiCenter, Ltd. (SurgiCenter). The underlying dispute is over the sale of some shares in an Illinois limited liability company, The Center for Outpatient Medicine (Company), in which the plaintiffs are shareholders. Two other shareholders in the Company, Advocate Aurora Health, Inc. (Advocate), and Bromenn Physicians Management Corporation (Bromenn), sold their shares to another shareholder, The Carle Foundation (Carle). This sale effectively ended negotiations that were underway with a would-be partner of the Company, a Delaware corporation, AmSurg, which had offered the plaintiffs a handsome sum for 50% of their shares. The plaintiffs were chagrined at the scuttling of a lucrative deal. In the McLean County circuit court, they sued the defendants, Advocate, Bromenn, and Carle, for damages and injunctive relief. The operating agreement of the Company, however, included an arbitration clause, which the defendants moved to enforce. The court stayed the litigation and ordered the plaintiffs to proceed to arbitration. Pursuant to Illinois Supreme Court Rule 307(a)(1) (eff. Nov. 1, 2017), the plaintiffs appeal.

¶ 2 The plaintiffs argue, first, that the circuit court itself should have decided the question of arbitrability instead of leaving that question for the arbitrator to decide. (The plaintiffs adopt the arguments that another group of plaintiffs made in Seidl v. Advocate Aurora Health, Inc., No. 4-21-0128, which originally was consolidated with this appeal. A few days before oral arguments, the Seidl plaintiffs notified us that they had settled with the defendants.) The circuit court, however, did decide the question of arbitrability. The arbitrability of only one of the plaintiffs’ claims was at issue—count III, their claim of tortious interference with a prospective business relationship—and the court explicitly held that they had to arbitrate that claim.

¶ 3 Second, the plaintiffs argue that their claim of tortious interference does not fall within the scope of the arbitration clause. In our de novo review, we note that the arbitration clause is broadly worded to embrace "any dispute between the parties relating to this Agreement." We find that the plaintiffs’ tortious interference claim is, to some extent, related to the operating agreement. Consequently, the circuit court is correct: the tortious interference claim, like the other claims, must be arbitrated. The contract, the operating agreement, so requires.

¶ 4 Third, the plaintiffs argue that by previously spurning requests by Dustman and SurgiCenter for the mediation or arbitration of disputes, the defendants waived arbitration of the present disputes (that is, the disputes raised in the plaintiffs’ complaint). We disagree that a subjective intention by the defendants to relinquish their contractual right to arbitrate all future disputes is clearly inferable from their alleged refusals to previously engage in mediation or arbitration.

¶ 5 Fourth, the plaintiffs contend that the defendants cannot insist on the performance of a contract (i.e. , the operating agreement) that the defendants, allegedly, have materially breached by refusing requests by Dustman and SurgiCenter for mediation or arbitration. Despite those alleged breaches, however, the plaintiffs kept demanding, over and over again, that the defendants perform their promises in the mediation and arbitration section of the operating agreement. Recently, pursuant to the operating agreement, the plaintiffs themselves participated in a nonbinding mediation of the present disputes. Thus, the plaintiffs have manifested their election to keep the contract alive. Having so elected, the plaintiffs must continue to perform the promises they made in the contract—including their promise that, after failed mediation, they would submit to binding arbitration "any dispute between the parties relating to" the operating agreement.

¶ 6 Fifth, the plaintiffs object that the defendants’ motion to compel arbitration failed to comply with the procedural requirements of the operating agreement. According to the operating agreement, however, the only preconditions to submitting a dispute to arbitration are (1) a failed mediation of the dispute and (2) a request to arbitrate the dispute. Mediation was unsuccessful, and the defendants’ motion qualifies as a request for arbitration. Consequently, as the operating agreement puts it, "the dispute shall be submitted to and settled by binding arbitration." (Emphasis added.)

¶ 7 Accordingly, we affirm the interlocutory judgment ordering the plaintiffs to proceed to arbitration.

¶ 8 I. BACKGROUND

¶ 9 A. The Particulars of the Proposed Deal With AmSurg and How the Deal Fell Through

¶ 10 A nine-member board of managers runs the Company. Advocate had two managers on the board, and Carle had one manager. Some orthopedic surgeons from McLean County Orthopedics, Ltd., also were on the board.

¶ 11 Around January 2018, through its board of managers, the Company began discussions with AmSurg. The plan was to develop a business relationship, specifically, a partnership, between the Company and AmSurg. In the course of their negotiations, the two businesses signed a confidentiality agreement.

¶ 12 On December 6, 2018, Advocate said it was willing to divest its ownership in the Company down to 25% so as to allow AmSurg to become a majority owner of the Company. AmSurg planned to buy 50% of the physician class member shares. The negotiations appeared to be sailing smoothly until January 17, 2019, when a potential obstacle appeared. That day, someone from the Company (the record does not appear to specify who) sent Advocate a letter expressing the following concern:

"[The Company] did not know about ADVOCATE'S existing agreement with SCA that may have an impact with an AMSURG/[Company] transaction until it was disclosed by Aron in an e-mail on January 7, 2019. As you might imagine, this has caused surprise and concern, given that [the Company] has been negotiating and meeting with AMSURG for the past 6 months as you are aware.

* * *

Full timely disclosure of this pre-existing conflict to the [the Company's] Board by (ADVOCATE'S) Board representatives might have allowed the [Company's] Board to better assess the merits and roadblocks of the AMSURG proposal, as well as other potential proposals. We expect that the Board representatives of (ADVOCATE) have now fully disclosed any other information relevant to these critical discussions about [the Company's] future. If there is anything else the Board should know, let me know immediately."

The record does not appear to reveal what "SCA" stands for, who "Aron" is, or what the nature of the "conflict" was.

¶ 13 On April 17, 2019, AmSurg offered $18 million for a 55% interest in the Company, which came to between $11,000 and $12,000 for each physician-owned share that AmSurg would buy.

¶ 14 On October 3, 2019, AmSurg added its signature to the letter of intent already signed by the shareholders of the Company. By that time, however, Advocate had withdrawn its support for the proposed deal with AmSurg.

¶ 15 In a board meeting on October 3, 2019, Robert Seidl, the chairman of the board, asked the two Advocate board members what the problem was. He wanted to know " ‘if anything else [was] going on or if anything else [had] happened to make Advocate not want to move forward with AmSurg.’ " According to the complaint, the board members in the know were less than forthcoming:

"29. Neither ADVOCATE board member nor the CARLE board member (attending by telephone) disclosed that ADVOCATE was in secret negotiations to sell all of its Bloomington-Normal assets, including its shares in [the Company], to CARLE.

30. Thereafter, [the Company's] deal with AMSURG collapsed.

31. In June of 2020 CARLE offered to buy plaintiffs’ shares for $8,000 per share."

This offer by Carle was thousands of dollars less per share than AmSurg had offered.

¶ 16 Count I of the plaintiffs’ complaint (which was substantially identical to the Seidl plaintiffs’ complaint) sought compensation for an alleged breach of fiduciary duties by the defendants. Count II sought an injunction forbidding the defendants to amend the terms of the operating agreement or to transfer Advocate's shares to Carle or any other entity. Count III sought damages for tortious interference with a prospective business relationship. Count IV sought a declaratory judgment that because the actions of Advocate and Carle resulted in an "Adverse Terminating Event," as defined in section 8.03(A) of the operating agreement, section 8.03(C) and (D) entitled the remaining shareholders of the Company to buy the shares of Advocate and Carle at a 40% discount.

¶ 17 B. The Mediation and Arbitration Clause of the Operating Agreement

¶ 18 The shareholders in the Company have entered into an operating agreement. Section 19.13 of the operating agreement, a section titled "Arbitration; Mediation," provides as follows:

"A. Right to Mediate or Arbitrate.

Except as set forth in Section 19.14 hereof, any

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