Case Title: Chicago Southshore & South Bend R. R. v. Northern Indiana Commuter Transportation Dist.

Citation: 

Docket Number: 83604

State: illinois

Court: Illinois Supreme Court

Date: 1998-09-24T00:00:00Z

Document:
Chicago Southshore v. Northern Indiana Commuter Trans. Dist., No. 83604 (9/24/98) 
                              Docket No. 83604--Agenda 12--January 1998. 
           CHICAGO SOUTHSHORE AND SOUTH BEND RAILROAD, 
           Appellee, v. THE NORTHERN INDIANA COMMUTER 
                              TRANSPORTATION DISTRICT, Appellant. 
 
             JUSTICE NICKELS delivered the opinion of the court: 
             This appeal arises from a contractual dispute between the 
           Northern Indiana Commuter Transportation District (NICTD), an 
           Indiana municipal corporation, and the Chicago Southshore and 
           South Bend Railroad (Southshore), an Indiana partnership. The 
           dispute resulted in arbitration proceedings which occurred in 
           Chicago. At issue is whether the arbitration award may be 
           confirmed in an Illinois court or whether any judicial 
           proceedings pertaining to the award must take place in Indiana. 
           For the reasons set forth below, we conclude that the Illinois 
           circuit court lacked subject matter jurisdiction over this cause, 
           and Indiana is the proper forum for legal proceedings connected 
           with the arbitration award. 
 
                     BACKGROUND 
             NICTD operates passenger rail service between South Bend, 
           Indiana, and Chicago, and Southshore operates freight service on 
           the same tracks. Under a written agreement, Southshore is 
           obligated to pay to NICTD a "maintenance of way" (MOW) fee 
           to help defray the expense of maintaining the tracks. In 1992 a 
           dispute arose as to the calculation of the MOW fee. NICTD 
           sought to invoke a provision requiring the MOW fee to be 
           adjusted for inflation in 1992 and every third year thereafter. 
           Southshore took the position that the agreement required 
           adjustment of the MOW fee only in the event of a sale of 
           control by Southshore. 
             Pursuant to their written agreement, NICTD and Southshore 
           were required to submit the dispute to arbitration. Section 16.7 
           of the agreement provides in part as follows: 
               "Section 16.7 Arbitration. The parties agree to negotiate 
                        in good faith to resolve any controversies which may arise 
                        hereunder. However, if any dispute remains unresolved 30 
                        days after notice of the existence of a dispute as delivered 
                        by one party to the other, either party may, thereafter, 
                        submit the matter to arbitration in accordance with the 
                        provisions of this paragraph. In the event a dispute is 
                        submitted to arbitration under the terms of this Agreement, 
                        [Southshore] and NICTD each shall appoint one arbitrator 
                        and those two arbitrators shall select a third arbitrator. The 
                        decision of a majority of the three arbitrators shall be final 
                        and conclusive between the parties, except that if either 
                        party claims that the arbitrators' decision is based upon an 
                        error of law it may, within 30 days after receipt of such 
                        decision, institute an action at law within the State of 
                        Indiana to determine such legal issue. In any such action at 
                        law, the parties shall stipulate the facts to be as set forth by 
                        the arbitrators. 
                        * * * 
               All arbitration proceedings shall take place within the 
                        State of Indiana and shall be governed by the rules of the 
                        American Arbitration Association." 
           The agreement further provided that it was to be interpreted 
           pursuant to the laws of the State of Indiana. 
             Although the parties' written contract provided that all 
           arbitration proceedings take place in Indiana, the parties agreed 
           that as a matter of convenience arbitration of the MOW fee 
           dispute could proceed in Chicago. By a two to one vote, the 
           arbitration panel resolved the dispute in Southshore's favor, 
           concluding that the parties' agreement provided for adjustment 
           of the MOW fee only in the event of a sale of control. 
             It is at this point that the jurisdictional dispute at issue in 
           the present appeal began to develop. NICTD filed a declaratory 
           judgment action in the superior court in LaPorte County, 
           Indiana, claiming that the arbitration award was based on an 
           error of law. Shortly thereafter, Southshore filed a motion in the 
           circuit court of Cook County to confirm the arbitration award 
           pursuant to section 11 of the Uniform Arbitration Act (710 
           ILCS 5/11 (West 1992)).[fn1] Each party moved to dismiss the 
           other party's action. The Indiana trial court ruled that 
           jurisdiction to review an arbitration award was proper only in 
           the state where the arbitration took place. Accordingly, the 
           Indiana trial court dismissed NICTD's declaratory judgment 
           action because arbitration took place in Illinois. Emphasizing the 
           Indiana trial court's ruling, the Illinois trial court determined 
           that it had subject matter jurisdiction to confirm the arbitration 
           award. Accordingly the Illinois trial court denied NICTD's 
           motion to dismiss the confirmation proceedings. NICTD moved 
           to vacate or modify the arbitration award, but the Illinois trial 
           court struck the motion as untimely because it was not filed 
           within 90 days after the delivery of the arbitration award as 
           required by sections 12 and 13 of the Uniform Arbitration Act 
           (710 ILCS 5/12(b), 13(a) (West 1992)). Thereafter, on 
           December 20, 1995, the Illinois trial court entered judgment 
           confirming the arbitration award. 
             NICTD appealed from both the dismissal of its Indiana 
           declaratory judgment action and the Illinois order confirming the 
           arbitration award. On February 20, 1996, the Indiana Court of 
           Appeals reversed the decision of the Indiana trial court. 
           Northern Indiana Commuter Transportation District v. Chicago 
           Southshore & South Bend R.R.,  661 N.E.2d 842  (Ind. App. 
           1996). The court of appeals held that jurisdiction was proper in 
           the Indiana trial court, and that the arbitrators' interpretation of 
           the contract was contrary to law. The Indiana Supreme Court 
           accepted the case for review. Thereafter, the Illinois Appellate 
           Court affirmed the Illinois trial court's judgment confirming the 
           arbitration award. 289 Ill. App. 3d 533. The case is presently 
           before this court on a certificate of importance issued by the 
           appellate court under Supreme Court Rule 316 (155 Ill. 2d R. 
           316). 
             While the present case was pending before this court, the 
           Indiana Supreme Court issued its decision in the declaratory 
           judgment proceedings in Indiana. Northern Indiana Commuter 
           Transportation District v. Chicago Southshore & South Bend 
           R.R.,  685 N.E.2d 680  (Ind. 1997). The Indiana Supreme Court 
           affirmed the Indiana appellate court's reversal of the dismissal 
           of the declaratory judgment action, but ordered the proceedings 
           stayed pending resolution of the present appeal to this court 
           regarding the Illinois confirmation proceedings. 
 
                      ANALYSIS 
             NICTD advances several arguments why any judicial 
           proceedings arising from the arbitration proceedings must occur 
           in Indiana. NICTD first argues that the Illinois trial court lacked 
           subject matter jurisdiction to confirm the arbitration award. 
           NICTD further argues that it is an agency of the State of 
           Indiana, and under principles of comity and sovereign immunity 
           it may not be sued in a court outside the State of Indiana. 
           NICTD also contends that it was contractually entitled to 
           judicial review of legal issues in an Indiana court. Alternatively, 
           NICTD contends even if jurisdiction were proper in Illinois, the 
           Illinois trial court erred in refusing to consider the merits of 
           NICTD's motion to modify or vacate the arbitration award 
           based on errors of law. We conclude that the Illinois trial court 
           lacked subject matter jurisdiction in this case. 
             Illinois is one of 35 states that have adopted the Uniform 
           Arbitration Act. Section 1 of the Uniform Arbitration Act 
           provides that a written agreement to submit any existing or 
           future controversy to arbitration is valid and enforceable. 710 
           ILCS 5/1 (West 1996). Under section 16 of the Uniform 
           Arbitration Act, "[t]he making of an agreement described in 
           Section 1 providing for arbitration in this State confers 
           jurisdiction on the [circuit] court to enforce the agreement under 
           this Act and to enter judgment on an award thereunder." 710 
           ILCS 5/16 (West 1996). Accordingly, under the plain language 
           of the statute, the parties' written agreement must provide for 
           arbitration in Illinois in order for Illinois courts to exercise 
           jurisdiction to confirm an arbitration award. 
             Here, the parties' written agreement provides for arbitration 
           in Indiana, not Illinois. Notwithstanding the language of the 
           Uniform Arbitration Act, Southshore argues that courts have 
           routinely reviewed arbitration awards where the arbitration 
           agreement did not specify the place of arbitration. In support of 
           this contention, Southshore cites Stephanie's v. Ultracashmere 
           House, Ltd., 98 Ill. App. 3d 654 (1981), United Artists Corp. v. 
           Gottesman, 135 Misc. 92, 236 N.Y.S. 623 (1929), Stancioff v. 
           Hertz, 10 Mass. App. Ct. 843, 406 N.E.2d 1318 (1980), and Tru 
           Green Corp. v. Sampson,  802 S.W.2d 951  (Ky. App. 1991). 
           Southshore's reliance on these cases is clearly misplaced, and 
           perhaps somewhat disingenuous. In both Stephanie's and Tru 
           Green, the arbitration agreements did in fact specify the location 
           of arbitration and arbitration took place at the designated 
           location. In Stancioff, the court held that Massachusetts acquired 
           jurisdiction to enter judgment on an arbitration award where the 
           parties could not agree on the locale for arbitration and the 
           American Arbitration Association chose Massachusetts as the 
           site of the arbitration pursuant to an association rule. See also 
           L.R. Foy Construction Co. v. Dauley, 647 F. Supp. 166 (D. Kan. 
           1982) (agreement to be bound by American Arbitration 
           Association rules, which could result in Kansas being selected 
           as location for arbitration, fulfilled Kansas statutory requirement 
           that the agreement provide for arbitration in that state). Finally, 
           the decision in United Artists Corp. was based on principles of 
           in personam jurisdiction which have no application to the 
           present case. 
             Two other cases cited by Southshore--Kress Corp. v. Edw. 
           C. Levy Co., 102 Ill. App. 3d 264 (1981), and State ex rel. Tri- 
           City Construction Co. v. Marsh,  668 S.W.2d 148  (Mo. App. 
           1984)--also fail to support its position. Kress involved the 
           narrow question of whether state or federal arbitration law 
           applied to the parties' dispute; the court's jurisdiction was not 
           at issue. Kress, 102 Ill. App. 3d at 267. In Tri-City 
           Construction, it was held that under the Uniform Arbitration 
           Act, Missouri courts have jurisdiction to confirm an arbitration 
           award "whenever the agreement either provides for arbitration 
           to take place within [Missouri] or, absent specific agreement, 
           when arbitration is undertaken with the consent of the parties 
           within [Missouri]." (Emphasis added.) Tri-City Construction, 
           668 S.W.2d  at 151. As the Indiana Supreme Court observed, 
           Tri-City Construction "deal[t] with construction of the [Uniform 
           Arbitration] Act to fill a necessary void--failure to specify any 
           jurisdiction at all." Northern Indiana Commuter Transportation 
           District v. Chicago Southshore & South Bend R.R.,  685 N.E.2d 680 , 695 n.18 (Ind. 1997). 
             In determining that the Illinois trial court could exercise 
           jurisdiction, our appellate court concluded that the parties 
           waived the contractual provision requiring judicial proceedings 
           in Indiana. The appellate court observed that a contractual right 
           with respect to arbitration can be waived, and that waiver of a 
           contractual provision may occur when a party conducts itself in 
           a manner that is inconsistent with the provision, indicating an 
           abandonment of a contractual right. 289 Ill. App. 3d at 540. 
           Subsequent to the appellate court's decision, however, the 
           Indiana Supreme Court reached precisely the opposite 
           conclusion: 
             "Although NICTD waived the requirement that 'all' 
                        arbitration proceedings occur in Indiana, the written 
                        agreement, indicating governing Indiana law and a right to 
                        sue in Indiana, remained intact. This is not sufficient, as a 
                        matter of Indiana law, to constitute a waiver of the explicit 
                        contractual right to seek judicial review in a court in 
                        Indiana. Nor is this an explicit revision of the Agreement. 
               It is of course true that conduct inconsistent with an 
                        arbitration agreement--notably filing a lawsuit in a court of 
                        competent jurisdiction--can effect a waiver of the right to 
                        arbitrate. [Citations.] In that circumstance, however, the 
                        party filing suit has acted inconsistently with the arbitration 
                        agreement and has in effect abandoned it. There is nothing 
                        inherently inconsistent in agreeing to conduct arbitration in 
                        Chicago for convenience, but treating all other provisions 
                        of the Agreement as unaffected. Indeed, because Indiana 
                        law is specified as controlling, that is at least facially a 
                        wholly sensible approach. Accordingly, we conclude that 
                        the Indiana trial court had jurisdiction over the subject 
                        matter, even if it may be bound by full faith and credit to 
                        enter a judgment of dismissal upon final resolution of this 
                        matter in Illinois." (Emphasis added.) Northern Indiana 
                        Commuter Transportation District, 685 N.E.2d  at 695-96. 
             We agree with the Indiana Supreme Court's analysis in 
           view of all of the circumstances of this factually unusual case. 
           There is no dispute that the parties' written agreement to 
           conduct arbitration proceedings in Indiana had the legal effect 
           of conferring jurisdiction upon the courts of Indiana. Although 
           NICTD consented to arbitration in Illinois, the written 
           arbitration agreement was never formally modified in this 
           regard, and NICTD could reasonably assume that its 
           acquiescence to arbitration in Illinois would not have the effect 
           of transferring jurisdiction to Illinois in contravention of the 
           original arbitration agreement. Moreover, NICTD's conduct has 
           been entirely consistent with the understanding that jurisdiction 
           would remain in Indiana. NICTD initiated legal proceedings in 
           Indiana pursuant to the written arbitration agreement, and has 
           steadfastly opposed the exercise of subject matter jurisdiction by 
           the Illinois trial court. Under these circumstances, the parties' 
           deviation from the contractual provision regarding the place of 
           arbitration did not give rise to subject matter jurisdiction in 
           Illinois. 
 
                     CONCLUSION 
             The judgment of the appellate court is reversed, and the 
           judgment of the circuit court of Cook County confirming the 
           arbitration award is vacated. 
 
           Appellate court judgment reversed; 
                    circuit court judgment vacated. 
 
 
           [fn1]    To avoid confusion, we will refer to the LaPorte 
           County, Indiana, superior court and the circuit court of Cook 
           County as the Indiana and Illinois trial courts, respectively.