Chicago Business Litigation Lawyer Blog

As Illinois arbitration lawyers, we were interested to see a ruling on the statute of limitations for enforcing an award won in private arbitration. Peregrine Financial Group Inc. v. Futronix Trading, Ltd. No. 1-09-2293 (Ill. 1st May 21, 210) pits Peregrine, a commodities brokerage firm, against Futronix, a client that became delinquent in its accounts with Peregrine. The plaintiff took the defendant to arbitration and won an award of the delinquent amount plus interest. However, that was in August of 2003, and the plaintiff waited until November of 2008 to file in court to enforce the award. The defendant successfully moved to dismiss on the grounds that the statute of limitations had passed, under Illinois Code of Civil Procedure sec. 13-205. The plaintiff moved to reconsider but was denied, and appealed both decisions to the First District Court of Appeal.

Defendants hired plaintiffs to act as their agent in commodities futures purchasing. However, the defendants did not maintain enough money in its account to cover its losses, causing it to go delinquent in the amount of $115,512.64. The plaintiff filed an arbitration action with the National Futures Association and won that amount plus costs. The defendants then moved and did not pay the award. Five years and three months later, the plaintiffs filed in Cook County court to confirm the award. Defendants moved to dismiss on several grounds, including the statute of limitations. The plaintiff argued that there is no statute of limitation on an arbitration award, but the trial court was unmoved. Plaintiff appealed.

On appeal, the First noted that sec. 13-205 of the Code of Civil Procedure explicitly includes “awards of arbitration” among the types of actions to which it applies. Nonetheless, the plaintiff cited a federal case, United Steelworkers of America v. Danly Machine Corp., 658 F. Supp. 736 (N.D. Ill. 1987), in support of its argument. In that case, the district court for northern Illinois specifically said Illinois law does not impose a statute of limitations on arbitration awards. However, the First said, the district court gave no support or reasoning for its statement, and federal law is not binding on state courts.

The First also rejected an argument that if a statute of limitations applies, it should be sec. 13-206 of the Code, which gives a 10-year statute of limitations for actions arising from “written evidence of indebtedness” such as written contracts and promissory notes. In support, the plaintiff cited Blacke v. Industrial Comm'n, 268 Ill. App. 3d 26, 644 N.E.2d 23 (1994), a case about whether sec. 13-205 applied to collection actions under the Workers’ Compensation Act. That court decided that 13-205 applies to all statutory rights of action unless the legislature specifically intended otherwise, and rejected the argument that sec. 13-206 applied to the Workers’ Compensation Act or any other statute. The plaintiff argued the inverse: that the 10-year statute of limitations applies because its cause of action was based on a contract. However, the First said, that’s not quite true -- the arbitration was based on a contract, but the suit seeking to enforce the arbitration award was not.

Finally, the court rejected three more arguments. One was based on public policy -- that applying the five-year statute of limitations would run counter to Illinois public policy of enforcing arbitration awards. While it’s true that Illinois has such a public policy, the court said, it also has a public policy to enforce statutes of limitations. The plaintiff then argued that the statute of limitations should have been tolled when the defendants moved without paying. But this did not prevent the plaintiff from filing, the court noted, although it would have required the plaintiff to serve notice of the claim by publication. The last argument plaintiff made was that fundamental fairness should require the court to allow the case to go forward. The First rejected this, saying the plaintiff hadn’t shown any good reason for its five-year delay in filing. Thus, it upheld both the original judgment of the trial court and its denial of plaintiff’s motion to reconsider.

Continue reading "Five-Year Statute of Limitations Applies to Enforcement of Arbitration Award, First District Finds" »

As Chicago business attorneys and Chicago consumer lawyers we were very interested to read the new law review article on the projected impact that mandatory consumer arbritration agreements could have in harming business arbitrations. Agreed upon arbitration of business disputes is a great way to resolve suhc disputes in a cost effective manner. On the other hand take or leave it clauses requiring consumers to arbitrate small disputes and banning class actions usually has the effect of barring acess to justice and redress for mass consumer frauds or unfair practices.

Click here to read the entire article: Revelation and Reaction: The Struggle to Shape American Arbitration in CONTEMPORARY ISSUES INTERNATIONAL ARBITRATION AND MEDIATION: THE FORDHAM PAPERS 2010, Martin Nijhoff, 2011.

Below is an abstract of the article:

In this article, Professor Stipanowich explores recent decisions by the U.S. Supreme Court and the implications for the respective domains of courts of law and arbitration tribunals regarding so-called “gateway” determinations surrounding the enforcement of arbitration agreements and the contracts of which they are a part. The decisions address the complex interplay between federal substantive law focusing on questions of arbitrability, a body of law defined and expanded by the Court under the Federal Arbitration Act (FAA), and the law of the states and bring into play competing judicial philosophies of contractual assent and contrasting views about the balance between policies promoting the autonomy of contracting parties and judicial policing of overreaching in the context of contracts of adhesion.

According to Prof. Stipanowich, the Court’s current jurisprudence, which may be seen as establishing and expanding a “second tier” of the “revealed” substantive law of arbitrability under the FAA first given shape and substance in the 1980s, is a flashpoint for special concerns associated with standardized contracts directing consumers and employees to arbitrate. Prof. Stipanowich believes that this will inevitably add momentum to current efforts to enact national legislation outlawing pre-dispute arbitration agreements in consumer, employment and other classes of contracts, with possible negative consequences for business-to-business arbitration.

In part I of his article, Prof. Stipanowich offers a short history of the evolution of Supreme Court decisions concerning the “revelation” and expansion of federal substantive law under the Federal Arbitration Act (FAA). Parts II and III then discuss recent Supreme Court cases reflecting the Court’s continuing reliance on the wellspring of divined federal law as a basis for promoting party autonomy in arbitration while limiting lower courts’ ability to police such agreements. Part IV briefly explores the dynamic political response to the extreme, non-nuanced pro-arbitration position developed in modern Court jurisprudence. Finally, Prof. Stipanowich concludes the article by calling for carefully crafted legislation or administrative regulations limiting the use of arbitration agreements in adhesion contracts or establishing due process standards for such agreements.

Our Chicago attorneys handle business arbritration and consumer disputes involving mandatory arbitration clauses. You can contact one of our Chicago business law trial attorneys or Chicago consumer lawyers for a free consultation by clicking here or you can call our toll free number at (877) 990-4990.

In a case that presented questions very interesting to our Chicago arbitration and mediation attorneys, the Fourth District Court of Appeal has ruled that standing to arbitrate is not an issue that should itself be submitted to arbitration. In Equistar Chemicals, LP v. Hartford Steam Boiler Inspection and Insurance Company of Connecticut, No. 4-07-0478 (Ill. 4th 2008), Hartford, an insurance company, sought to hold Equistar responsible for damage to a turbine generator owned by Hartford’s insured, Trigen-Cinergy Solutions of Tuscola. Trigen had signed a contract with Equistar that included an arbitration clause, and Hartford filed a demand for arbitration of its claim as a subrogee of Trigen. In court, Equistar moved to stay arbitration until Hartford’s standing to invoke arbitration could be determined. That court denied the stay, saying standing should be determined by arbitrators.

Equistar has an ethanol plant in Tuscola, Ill. It hired Trigen to provide energy, water and wastewater treatment at the plant, and their contract included an arbitration agreement. Later, an Equistar employee allegedly acted negligently with a circuit breaker, causing an electrical arc that damaged a turbine generator belonging to Trigen. Hartford, as the insurer to Trigen, paid $853,442 to repair the damage, then filed a demand for arbitration with the American Arbitration Association. It requested the $853,442 in damages from Equistar, by virtue of its subrogee relationship with Trigen. Equistar responded by objecting in Illinois trial court to Hartford’s standing, the jurisdiction of arbitrators and the arbitrability of the claim. It later filed a motion to stay arbitration until, among other things, standing could be determined. The trial court denied that motion, concluding that Hartford had standing as a subrogee, but that standing can be determined in arbitration.

Equistar filed this interlocutory appeal, arguing that the Illinois Uniform Arbitration Act requires the court, not private arbitrators, to decide questions of standing. It quoted at length from the Act: “...if the opposing party denies the existence of the agreement to arbitrate, the court shall proceed summarily to the determination of the issue so raised[.] ... On application, the court may stay an arbitration proceeding commenced or threatened on a showing that there is no agreement to arbitrate. That issue, when in substantial and bona fide dispute, shall be forthwith and summarily tried and the stay ordered if found for the moving party.” Under this language, the Fourth said it’s clear that the Act requires courts to make the initial determination of whether parties have agreed to arbitrate. In this case, it added, there was no reason to delay things by sending the question to arbitration, since arbitrators would have no special skill in determining whether Hartford had standing to invoke arbitration.

In determining otherwise, the trial court had relied on language in the parties’ arbitration agreement saying “the decision of the arbitrators (including the decision that the dispute is arbitrable) shall be final and binding upon the parties[.]” The trial court had written that this language leads logically to the conclusion that arbitrators make determinations of arbitrability and the courts shall have no role. The Fourth disagreed, writing instead that this language only clarifies how much authority arbitrators should have; it does not expand their authority. Parties are free to give arbitrators that authority, the court wrote, but they can and should explicitly say so.

The Fourth next looked at the issue of Hartford’s standing as a subrogee -- an issue of first impression in Illinois. Equistar argued that Hartford, as Trigen’s subrogee, cannot compel arbitration because it was not a party to the arbitration agreement. Their agreement did not explicitly include subrogees, assignees or other third parties, and in fact explicitly said the parties did not have the right to incur obligations to third parties on behalf of the other, or commit the other party to a contract. Hartford countered that its right to arbitration comes through subrogation law, not the contract, making this language irrelevant. Illinois caselaw in Ervin v. Nokia, Inc., 349 Ill. App. 3d 508, 512, 812 N.E.2d 534, 539 (2004) defines contract-based theories that can bind a nonsignatory to an arbitration agreement, but subrogation is not among them. Two cases from other states have come to different conclusions on the issue, the court noted. And Illinois subrogation law puts the subrogee (in this case, Hartford) directly into the shoes of the subroger (Trigen).

Ultimately, the Fourth decided that Hartford should have the same rights and obligations as Trigen. That means Hartford does not merely have a right to arbitrate, the court wrote -- it is required to do so under Trigen’s contract. Thus, it upheld the trial court’s decision to deny the motion to stay arbitration. This meant affirming the decision as a whole, even though it noted that it disagreed with the trial court that arbitrators should determine standing.

Continue reading "Fourth District Rules Standing to Sue Is Not an Arbitrable Issue, but Denies Stay of Arbitration" »

Our Chicago alternative dispute resolution lawyers noted a recent Fifth District Court of Appeal ruling upholding an arbitration agreement but severing its class-action waiver. In Keefe v. Allied Home Mortgage Corporation, No. 5-07-0463 (Ill. 5th 2009) (PDF), Rosemary Keefe was the lead plaintiff in a proposed class action against her mortgage broker. She refinanced through Allied Home Mortgage Capital Corp. in 1999, and as part of that deal, she signed a rider requiring binding arbitration of most disputes. Five years later, she filed a proposed class action against Allied, accusing it of consumer fraud and other torts for charging third-party fees (such as credit check fees) in excess of their actual cost and failing to disclose this. Allied moved to compel arbitration. Without an evidentiary hearing, the trial court ruled that the arbitration agreement was illusory and procedurally and substantively unconscionable, and Allied filed an interlocutory appeal.

The Fifth District started by examining de novo whether the agreement was indeed illusory. An illusory promise is something that appears to be a promise but holds out no performance, or only an optional performance. The Fifth found that it was not illusory, because the arbitration rider specified that the borrower may request arbitration in any judicial proceeding started by Allied. Furthermore, it noted, the rest of the contract may be considered part of the consideration granted to the plaintiff.

It next looked at the finding that the agreement was both procedurally and substantively unconscionable. A contract is procedurally unconscionable when some impropriety during the signing of the contract -- such as language that is difficult to find or understand -- robs the signer of a reasonable choice. That was not the case here, the court said. The arbitration rider was not hidden by fine print, it wrote, nor was it difficult to read or understand. Rather, the arbitration rider “conspicuously” used bold capital letters to notify the plaintiff that she was signing a contract that gave away her right to a jury trial. Nor did she need to sign it to obtain the refinancing.

The court also rejected the plaintiff’s argument that the rider was unconscionable because it failed to notify her of the cost of arbitration. The Fifth noted that the arbitration rider did contain a provision notifying the plaintiff that she can get copies of rules and forms related to arbitration at any National Arbitration Forum office or by mail order. Under Kinkel v. Cingular Wireless LLC, 223 Ill. 2d 1, 22, 857 N.E.2d 250, 264 (2006), this is not enough by itself to render the contract unconscionable, the court wrote, but it may be considered along with findings on substantive unconscionability.

Finally, the Fifth looked at whether the arbitration rider was substantively unconscionable. A contract is substantively unconscionable when the contract terms are unfair, one-sided or create a large imbalance between price and cost. The plaintiff first argued that the rider is cost-prohibitive because it specifies that no claim may be brought by class action. The Fifth found some merit in this. In Kinkel, the Illinois Supreme Court found that class-action waivers are not per se unconscionable, but courts should look at their fairness as well as the cost of bringing an individual claim relative to the damages. Once again following that decision, the Fifth found the cost of pursuing an individual claim was high relative to the potential damages, especially including arbitration and attorney fees. Taking into account Allied’s failure to reveal the cost of arbitration, the court ruled that the class-action waiver was unconscionable. But rather than declare the entire contract unconscionable, the court simply severed the class-action clause, reversed the rest of the trial court’s decision and remanded the case with directions to enforce the remainder.

Continue reading "Fifth District Enforces Mortgage Company Arbitration Agreement Except as to Class Actions" »

Retired Judge Kenneth A. Abraham has joined DiTommaso-Lubin as Of Counsel to head the firm's arbitration and mediation practice group and to act as a litigation consultant to the firm.

Ken brings to DiTommaso-Lubin nearly forty years of legal experience, including a decade and half on the bench as a trial judge.

To view Ken's profile click here.

To see a summary of Ken's extensive arbritration and mediation experience click here. If you would like to retain Ken as an abritrator or mediator, you can call us at our toll free number (877) 990-4990 or contact us on through the web by clicking here.

DiTommaso-Lubin is a litigation law firm which concentrates on business litigation, consumer rights litigation and class action litigation. Our Chicago business attorneys and Chicago consumer lawyers handle a wide variety of cases and have acheived multi-million dollar verdicts and settlements including the third largest settlement of 2004 according to Crain's Chicago Business. Vincent DiTommaso and Peter S. Lubin have both been named to Super Lawyers as business litigators, consumer lawyers and class action attorneys. Super Lawyers only includes 5% of Illinois attorneys in its listing.

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