EDWARDSVILLE - Madison County Circuit Judge Sarah Smith partially denied a motion to compel arbitration in a suit alleging attorney David Cates breached a fiduciary duty to former partner Ryan Mahoney and committed fraud.
In her Jan. 8 order, Smith denied the motion to arbitrate the fraud claims but she severed other claims from Mahoney's complaint and sent them to arbitration.
Cates and Mahoney signed an operating agreement for the Cates Mahoney firm in 2013.
Cates dissolved the firm in May 2022, and they signed a separation agreement in August 2022.
Mahoney sued Cates as an individual and on behalf of Cates Mahoney in November 2022, seeking $9,450,000.
His counsel Thomas Rosenfeld claimed Cates settled a case without Mahoney’s knowledge two days before he dissolved the firm.
Rosenfeld claimed Cates settled a case without Mahoney’s knowledge in June 2022, while they negotiated a separation.
He claimed Cates concealed and misrepresented the status of the cases, omitting from their firm’s files evidence of the settlements in direct response to written inquiries.
Rosenfeld claimed the court should award the fees entirely to Mahoney as a penalty.
He alleged breach of fiduciary duty on behalf of Cates Mahoney and as an individual.
He also alleged constructive fraud, actual fraud, and breach of contract as an individual.
Cates moved to compel arbitration, claiming their operating agreement required it.
At a hearing in March 2022, Cates’s counsel John Kurowski said the separation agreement didn’t modify the operating agreement.
“There’s no reason to keep this case in this court,” he said.
Rosenfeld showed Smith a portion of the separation agreement, where Cates represented that the cases weren’t resolved prior to dissolution of the firm.
He said the separation agreement could have incorporated the operating agreement but didn’t.
Smith initially took the motion under advisement and reached a decision more than nine months later.
She declared the arbitration provision valid, finding the operating agreement applied to the separation agreement.
“If the parties have a valid arbitration clause the question is whether the issues in dispute fall within the scope of the arbitration clause,” she wrote.
Smith found that while the Supreme Court favors arbitration for resolution of disputes, parties to an agreement are bound to arbitrate only those issues they agreed to arbitrate.
On that basis, she severed claims for breach of fiduciary duty to Cates Mahoney and breach of contract with Mahoney, and she sent them to arbitration.
She found the remaining issue of fraud and fraudulent concealment was not an arbitrable matter as contemplated by the parties.
“The operating agreement contained specific and detailed language as it relates to duty of a member during dissolution,” she wrote.
“However, both agreements are silent as it relates to issues of fraud or fraudulent concealment,” she added.