Court Opinion

ID: 3147514
Source: CourtListenerOpinion
Date Created: 2015-10-22 18:32:39.894487+00
Date Added: 2024-06-11T11:55:18.331785
License: Public Domain

FIFTH DIVISION
                                                                             FEBRUARY 26, 2010

No. 1-09-2093

GREGORY RUFF,                                         )       Appeal from the
                                                      )       Circuit Court of
                Plaintiff-Appellant,                  )       Cook County.
                                                      )
       v.                                             )       No. 08 L 51292
                                                      )
SPLICE, INC.,                                         )
                                                      )
                Defendant-Appellee.                   )       Honorable
                                                      )       Alexander P. White,
                                                      )       Judge Presiding.

       JUSTICE LAVIN delivered the opinion of the court:

       In this case, we are asked to reinstate a default judgment arising out of an employment

contract that took a serpentine path from a California Labor Commissioner to the superior court

of California to the clerk of the circuit court of Cook County, only to be vacated by a trial judge

who determined that the California court lacked subject matter jurisdiction because the contract in

question contained an arbitration clause. We affirm the decision of the trial court.

                                         BACKGROUND

       On April 2, 2007, Gregory Ruff and Splice, Inc. (Splice) entered into an employment

contract under which Ruff was to become the chief executive officer (CEO) of the corporation for

a period of two years, followed by successive one-year terms, for an agreed-upon salary and

benefit package. This arm's-length agreement contained numerous provisions, the last of which

was a relatively commonplace contractual provision establishing that any disputes that might arise

would be handled in arbitration:
1-09-2093

       "Any dispute arising out of this Agreement shall be determined by arbitration in San

       Francisco, California under the rules of the American Arbitration Association then in effect

       and judgment upon any award pursuant to such arbitration may be enforced in any court

       having jurisdiction thereof, provided each of the parties to this Agreement will appoint one

       person as an arbitrator to hear and determine the dispute, and if the parties are unable to

       agree on a third arbitrator, then the two arbitrator so chosen will select a third impartial

       arbitrator and the decision of such arbitration panel will be final and conclusive upon the

       parties to this Agreement."

The agreement also contained a choice of law provision in paragraph 15(c), which provided:

       "This agreement shall be governed by and construed in accordance with the laws of the

       State of Illinois."

       Inevitably, disputes between the parties did arise and just three months later, Ruff resigned

from his position with Splice. After leaving his position as CEO, Ruff claimed that Splice owed

him approximately $160,000 in unpaid wages, vacation pay, reimbursable expenses, and severance

pay. Splice took a decidedly different view of the events that led to Ruff’s departure and advised

Ruff that no compensation would be forthcoming due to his alleged mismanagement of the

company during his brief tenure at the helm.

       On November 9, 2007, Ruff filed a claim with the Labor Commissioner of the State of

California (a remedy nowhere mentioned in his employment contract) seeking the payments from

Splice he alleged were owed to him. A hearing was conducted by the Commissioner regarding

the claim, but Splice apparently decided not to participate. The Commissioner awarded Ruff his

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requested damages of $185,519.49 and a default judgment on the award was subsequently

entered in that amount by the clerk of the California superior court for San Francisco County.

Ruff then registered the California judgment in the circuit court of Cook County in Illinois, in

order to attempt to enforce the foreign judgment against the Illinois corporation. Splice filed a

motion to dismiss and set aside the judgment, arguing, inter alia, that the arbitration clause in the

contract removed any subject matter jurisdiction from the Commissioner. Ruff, predictably

enough, took a different view and argued that the arbitration clause did not remove the California

courts or Commissioner from jurisdiction over the dispute. After a hearing on the motion, the

circuit court granted Splice’s motion and set aside the California judgment for want of proper

jurisdiction. Ruff timely appeals.

                                             ANALYSIS

       Ruff contends that the California superior court possessed subject matter jurisdiction

despite the Agreement’s arbitration clause and that Splice waived whatever rights it had under the

arbitration clause by failing to appear in any of the California proceedings.

       Section 2 of the Federal Arbitration Act provides that a written arbitration agreement

contained within a commercial contract "shall be valid, irrevocable, and enforceable." 9 U.S.C. §2

(2006). The United States Constitution provides that the judgments of one state’s court are

entitled to full faith and credit in every other state. U.S. Const., art. IV, §1. That full faith and

credit clause was implemented by Illinois through The Uniform Enforcement of Judgments Act

(Act), which provides:

               "A copy of any foreign judgment authenticated in accordance with the acts of

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        Congress or the statutes of this State may be filed in the office of the circuit clerk for any

        county of this State. The clerk shall treat the foreign judgment in the same manner as a

        judgment of the circuit court for any county of this State." 735 ILCS 5/12-652(a) (West

        2008).

Despite this respect given to foreign judgments, Illinois courts recognize that a collateral attack

on a foreign judgment may be sustained in limited situations, including where the rendering court

lacked subject matter jurisdiction of the case or personal jurisdiction over the defending party.

Doctor’s Associates, Inc. v. Duree, 319 Ill. App. 3d 1032, 1040 (2001). Because the trial court’s

ruling was a matter of law, the standard of review for this issue is de novo. McRaith v. BDO

Seidman, LLP, 391 Ill. App. 3d 565, 587 (2009).

        Although the Illinois courts have not yet addressed the specific issue raised by Ruff, the

United States Supreme Court case of Preston v. Ferrer,552 U.S. 346, 169 L. Ed. 2d 917, 128 S.

Ct. 978 (2008), is instructive. In Preston, the plaintiff sought to recover fees allegedly owed to

him pursuant to a contract for services with the defendant. The contract contained an arbitration

clause, similar to the arbitration clause in the instant case, requiring the parties to arbitrate any

disputes relating to the contract. The plaintiff attempted to initiate arbitration proceedings but the

defendant filed a complaint with the Labor Commissioner of the State of California. The question

of jurisdiction was brought before the California superior court, which denied the plaintiff’s

motion to compel arbitration and enjoined the plaintiff from proceeding before an arbitrator. The

California Court of Appeal affirmed the lower court’s order, stating that California law vested the

Commissioner with "exclusive original jurisdiction." Preston, 552 U.S. at 351, 169 L. Ed. 2d at

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924, 128 S. Ct. at 982, quoting Ferrer v. Preston, 145 Cal. App. 4th 440, 447, 51 Cal. Rptr. 3d
628, 634 (2006). The United States Supreme Court reversed, stating that national policy favoring

arbitration of disputes "foreclose[s] state legislative attempts to undercut the enforceability of

arbitration agreements." Preston, 552 U.S. at 353, 169 L. Ed. 2d at 925, 128 S. Ct. at 983,

quoting Southland Corp. v. Keating, 465 U.S. 1, 16, 79 L. Ed. 2d 1, 15, 104 S. Ct. 852, 861

(1984). The Supreme Court further held that when parties agree to arbitrate any dispute arising

under a contract, the Federal Arbitration Act "supersedes state laws lodging primary jurisdiction

in another forum, whether judicial or administrative." Preston, 552 U.S. at 360, 169 L. Ed. 2d at

929, 128 S. Ct. at 987.

       California, in fact, had recognized this principle even prior to the holding in Preston. In

Baker v. Aubry, 216 Cal. App. 3d 1259, 265 Cal. Rptr. 381 (1990), the plaintiff filed a complaint

with the Commissioner seeking overtime pay from an employer. The Baker court held that, in the

context of a binding arbitration agreement, questions concerning the construction and scope of

the arbitration clause are determined by federal law. Baker, 216 Cal. App. 3d at 1263, 265 Cal.

Rptr. at 383. Baker also acknowledged that the Federal Arbitration Act served to effectuate the

national policy of favoring arbitration by withdrawing the power of the states to require a judicial

forum for the resolution of claims which parties agreed to resolve through arbitration. Baker, 216
Cal. App. 3d at 1265. The Commissioner ultimately dismissed the plaintiff’s complaint upon

finding that the matter was subject to a written arbitration agreement.

       In the instant case, the Commissioner rendered a judgment pursuant to state laws that

allegedly vested it with jurisdiction, but the holding in Preston makes it clear that the Federal

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Arbitration Act preempts California state law vesting jurisdiction in the Commissioner rather than

an arbitration proceeding, conducted under the rules of the American Arbitration Association, as

provided in this contract. As a result, the Commissioner lacked jurisdiction to enter the judgment

that Ruff sought to enforce in Illinois.

        Ruff attempts to distinguish Preston by arguing that, unlike Splice, the plaintiff in Preston

chose to appear before the Commissioner and the California superior court, essentially contending

that Splice somehow waived its rights under the arbitration clause by failing to appear in the

California proceedings. This argument is both unpersuasive and devoid of binding authority.

Nothing in Preston suggests that its holdings were limited to situations where both parties

appeared before the forum that lacked jurisdiction. Such a limitation would serve no purpose and

would only result in increased expense on the parties and unnecessary strain on the judicial

system. Simply put, we see no reason why Splice should have been required to engage in

litigation in a forum that lacked jurisdiction.

        Splice’s decision not to participate in the California proceedings was both eminently

sensible and consistent with its contractual right to arbitration. Furthermore, despite any

intimation to the contrary, subject matter jurisdiction cannot be conferred by waiver, stipulation,

consent or estoppel. Jones v. Industrial Comm’n, 335 Ill. App. 3d 340, 343 (2002). Subject

matter jurisdiction can be raised at any time and may even be raised sua sponte by a reviewing

court. Jones, 335 Ill. App. 3d at 343.

        Furthermore, Illinois courts are properly reluctant to find waiver in this context. TSP-

Hope, Inc. v. Home Innovators of Illinois, LLC, 382 Ill. App. 3d 1171, 1174 (2008). The

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primary inquiry in determining whether waiver has occurred is if a party has acted inconsistently

with its right to arbitrate, such as submitting arbitrable issues to a court for decision. TSP-Hope,

Inc., 382 Ill. App. 3d at 1174.

       Ruff's final argument that California law holds "an arbitration provision does not oust the

court of jurisdiction to hear the matter, but merely means if one party chooses to arbitrate, a

petition may be filed to stay proceedings, order arbitration and then confirm the award" is

similarly unpersuasive. See Dial 800 v. Fesbinder, 118 Cal. App. 4th 32, 44-46, 12 Cal. Rptr. 3d
711, 719-20 (2004). Ruff fails to recognize that it is not the agreement’s arbitration clause that

ousted the Commissioner’s jurisdiction, but instead section 2 of the Federal Arbitration Act as

discussed in Preston and Baker. Furthermore, Dial 800 predates Preston by approximately four

years. Finally, it is worth noting that Dial 800 is a California case and that the agreement between

Ruff and Splice explicitly provided that it would be governed and construed by Illinois law.

Accordingly, we find that the circuit court did not err here.

       For the foregoing reasons, we affirm the judgment of the circuit court of Cook County.

       Affirmed.

       TOOMIN, P.J., and FITZGERALD SMITH, J.,, concur.

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              1-09-2093

Plea se Use
                                   REPORTER OF DECISIONS – ILLINOIS APPELLATE COURT
Following                                         (Front Sheet to be Attached to Each Case)
Form:

                          GREGORY RUFF,
Complete
TITLE                                                                  Plaintiff-Appellant,
of Case                   v.

                          SPLICE, INC.,

                                                                       Defendant-Appellee.

                                                                       No. 1-09-2093
Docket No.                                                       Appellate Court of Illinois
                                                               First District, FIFTH Division
COURT
                                                                     February 26, 2010
                                                                   (Give month, day and year)
Opinion
Filed

                                  JUSTICE LAVIN delivered the opinion of the court:

JUSTICES                          Toomin, PJ. and Fitzgerald Smith, J.                                                     concur
                                                                                                                           [s]

                                                                                                                  dissent[s]
                                          Lower Court and Trial Judge(s) in form indicated in the margin:

                                  The Honorable     Alexander P. White,                       Judge Presiding.
APPEAL from
the Circuit Ct. of
Cook County,
Law Div.
                                        Indicate if attorney represents APPELLANTS or APPELLEES and include
                                             attorneys of counsel. Indicate the word NONE if not represented.

                          Attorney for Plaintiff-Appellant:            Beau T. Greiman
                          Gregory Ruff                                 The Law Offices of Beau T. Greiman, P.C.
For                                                                    24115 W. 103rd St., Suite B
APPELLANTS,                                                            Naperville, IL 60564
John Doe, of                                                           Phone: 630-369-9901
Chicago.

For                       Attorneys for Defendant-Appellee:            Eric D. Stubenvoll, Joseph R. Dietz
APPELLEES,                Splice, Inc.                                 Fisher Kanaris, P.C.
Smith and Smith                                                        200 South Wacker Drive, 22nd Floor
of Chicago,
                                                                       Chicago, IL 60606
Joseph Brown,
(of Counsel)                                                           Phone: 312-474-1400

Also add
attorneys for
third-party
appellants or
appellees.

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