Marks v. Bober

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Marks v. Bober

State: Illinois

Court: 1st District Appellate

Docket No: 1-09-1988 Rel

Case Date: 03/12/2010

Preview:FIFTH DIVISION March 12, 2010

No. 1-09-1988

CAROL S. MARKS, Plaintiff-Appellee, v. LAWRENCE M. BOBER, an Individual, and RSM McGLADREY, INC., a Delaware Corporation, Defendant-Appellants.

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Appeal from the Circuit Court of Cook County. No. 09 L 1468

The Honorable Dennis J. Burke, Judge Presiding.

JUSTICE LAVIN delivered the opinion of the court: In this appeal, we consider whether an arbitration clause in a contract for narrowly described accounting services would apply to disputes that arose from subsequent investment advice services that were not mentioned in the retainer contract. Carol Marks alleged that she entered into a contract with Lawrence Bober, a managing director of RSM McGladrey, Inc. (McGladrey), to help manage accounting for various investment accounts she held. Marks also alleged that subsequently she later entered into a separate, oral investment advisory agreement with defendants. Her lack of satisfaction with those services (but not the accounting work) led her to file suit. Defendants sought to compel arbitration of the present dispute pursuant to the terms of the initial contract for accounting services. This is an interlocutory appeal from the circuit court's denial of defendants' petition to compel arbitration. For the reasons detailed below, we affirm the circuit court's order denying defendants' petition to compel arbitration and remand this matter to the circuit court for further proceedings.

1-09-1988 BACKGROUND In February 2006, Marks met Bober while looking for help managing accounting for various investments. On February 21, 2006, Bober sent Marks a letter outlining the business proposal they had discussed in their meeting. Bober wrote that he and Marks had discussed "the capabilities of [McGladrey's] reporting software service which is formally known as `Portfolio Reporting Services' (`PRS')." Bober explained to Marks that McGladrey would "enter security positions as of December 31, 2005 and related monthly activity of [her] assets beginning January 1, 2006." Bober continued, "[McGladrey] will reconcile all accounts and perform procedures to verify that the custodians have properly accounted for income and expenses. On a quarterly basis, [McGladrey] will provide [Marks] with various reports." Bober asked Marks to sign the enclosed letter if she chose to engage McGladrey in PRS services. On March 31, 2006, Bober sent Marks a second letter (the Engagement Letter) outlining the terms of their engagement for Portfolio Reporting Solutions (PRS) services. The Engagement Letter included a "Scope of Engagement" clause, which read, "[McGladrey is] being engaged to perform the services described in [their] letter of February 21, 2006." The Engagement Letter included a "Professional Judgment" clause, which provided, "[McGladrey] will use [its] professional judgment in applying tax, accounting, investment or other rules applicable to this engagement." The Engagement Letter also provided a "Binding Arbitration" clause, which provided, "In the event that a dispute arises at any time between RSM MCGLADREY and [Marks] that cannot be resolved through discussion or mediation, [Marks] agree[s] to submit to binding arbitration under the commercial arbitration rules of the American Arbitration

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1-09-1988 Association." Marks executed this agreement on April 19, 2006. Throughout the remainder of that year, Marks alleged that defendants failed to implement the PRS services from the Engagement Letter, and instead used a "bait and switch" approach to solicit Marks to invest in various securities. According to Marks, Bober began providing her with investment advisory services, actively sought new investment opportunities, and acted as brokerdealer on her behalf by putting together securities purchases. Marks alleged that "nothing in the services being provided for accounting purposes as had been set forth in the engagement letter had anything to do with the investment and securities sales which Bober and McGladrey began to offer [her]." Further, "McGladrey charged [her] separately for these and emphasized that the investment advisory services it offered her were separate from the accounting services to be provided through the PRS program." Neither Bober nor McGladrey was registered with either the Securities and Exchange Commission or the State of Illinois to provide such services. The record does not indicate that Marks and defendants entered into a written contract covering the investment services. The alleged damages in this dispute resulted from Bober's advice to Marks that she should invest in an entity known as Lancelot Investors Fund II, L.P. (Lancelot). Marks invested approximately $500,000 with Lancelot, which in turn, invested that money in a hedge fund, Thousand Lakes, LLC (Thousand Lakes). According to Marks, this investment turned out to be a "disaster." After Marks had committed her investment, Thousand Lakes was exposed as a fraudulent "Ponzi" scheme, resulting in economic damage to Marks. Marks filed a four-count complaint, alleging: (1) her investment in Lancelot was voidable

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1-09-1988 and that she was entitled to rescission of that investment contract; (2) Bober and McGladrey breached their fiduciary duties; (3) Bober and McGladrey orally agreed to provide investment advisory services and breached that contract by failing to investigate the Lancelot investment; and (4) Bober and McGladrey negligently represented themselves in holding out to be investment experts. Marks did not allege any violations of the defendants' accounting duties outlined in the Engagement Letter. Upon being served in 2009, defendants petitioned the circuit court to compel arbitration pursuant to the arbitration clause in the Engagement Letter. Marks opposed arbitration, arguing that her complaint related to a separate, oral investment advisory agreement and services related to that agreement which did not fall within the arbitration provision in the Engagement Letter. Defendants responded that there was no separate investment advisory agreement and that plaintiff had not provided evidence of such. On July 1, 2009, the circuit court, in a lengthy and lucid written order, denied defendants' petition to compel arbitration, finding that the investment advisory services were not within the scope of the Engagement Letter and the investment advisory services provided by defendants that allegedly resulted in the losses to Marks were covered by a separate oral contract between the parties. On July 24, 2009, defendants moved for reconsideration and included an affidavit of Bober explaining that he gleaned from the PRS service reports that Marks' investments were not being managed efficiently. Bober stated that he raised those concerns with Marks and facilitated appointments between Marks and other financial advisors, who eventually recommended Lancelot. Bober explained that defendants did not provide investment advice and denied

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1-09-1988 recommending Lancelot as an investment. Bober attested that al the services provided to Marks "related to, and derived from, the initial [PRS] reports." The motion for reconsideration was denied on July 30, 2009, and this timely appeal followed. On appeal, defendants contend that Marks' action should be stayed and arbitration compelled because Marks agreed to arbitrate disputes with defendants. Defendants assert that the alleged claims were within the broad scope of the arbitration agreement, and if there is any doubt as to the scope of the agreement, there is a presumption of arbitrability under the Federal Arbitration Act (the FAA) (9 U.S.C.

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