Board of Managers of the Courtyards at the Woodlands Condominium v. IKO Manufacturing, Inc.

                                                             First Division
                                                               June 9, 1997









No. 1-96-2402


BOARD OF MANAGERS OF THE        )       Appeal from the 
COURTYARDS AT THE WOODLANDS     )       Circuit Court
CONDOMINIUM ASSOCIATION,        )       of Cook County.
                                )
          Plaintiff,            )
                                )
               v.               )
                                )
IKO MANUFACTURING, INC.,        )
ZALE GROVES, INC., ZALE GROUP,  )
INC., ZALE CONSTRUCTION CO.,    )
INC., ZALE ENTERPRISES, INC.,   )
                                )
          Defendants.           )
--------------------------      )
(ZALE GROVES, INC., ZALE GROUP, )
INC., ZALE ENTERPRISES, INC.,   )
ZALE CONSTRUCTION CO., INC.,    )
                                )
          Third-Party           )
          Plaintiffs-Appellees, )
                                )
               v.               )       
                                )
JOHNSTON ASSOCIATES INC.,       )       Honorable 
                                )       LORETTA C. DOUGLAS,
Third-Party Defendant-Appellant,)       Judge Presiding.
                                )
               and              )
                                )
IKO CHICAGO, INC., W.A.         )
ANDERSON CONSTRUCTION CO.,      )
LENNY SZAREK, INC., PRATE       )
ROOFING, INC., S.J. NITCH/ROOF  )
BROKERS, INC., and ALL AMERI-   )
CAN ROOFING, INC.,              )
                                )
     Third-Party Defendant.)    )


     JUSTICE BUCKLEY delivered the opinion of the court:

     This appeal arises from the trial court's denial of third-
party defendant Johnston Associates, Inc.'s (Johnston) motion to
compel arbitration and stay the third-party claims against it. 
The motion was based upon the existence of a written agreement to
arbitrate.  Johnston was brought into the underlying action in
March 1996, as a third-party defendant by defendant developer and
its affiliated entities for potential liability to plaintiff
condominium association for alleged defects in the design and
construction of roofs on a condominium development.  Johnston
raises the following issues:  whether the trial court erred in
refusing to compel arbitration under section 2(a) of the Illinois
Uniform Arbitration Act (710 ILCS 5/1 et seq. (West 1994)) after
finding a valid agreement to arbitrate, and instead denying
arbitration based on a number of factors set forth in J.F. Inc.
v. Vicik, 99 Ill. App. 3d 815, 426 N.E.2d 257 (1981), after
finding that those factors outweighed Johnston's contractual
right to arbitration and the public policy of the State of
Illinois in enforcing valid arbitration agreements.
     The Board of Managers of the Courtyard at the Woodlands
Condominium Association (plaintiff) is the entity charged with
the maintenance and upkeep of the common elements of a 128-
building condominium development located in Buffalo Grove,
Illinois.  The roofs of those condominiums are one of the common
elements that allegedly fall under the authority of plaintiff. 
Plaintiff commenced the underlying action in 1994, seeking
damages for alleged defects in the design and construction of the
condominium development.
     In plaintiff's amended complaint, plaintiff named four
entities as defendant developers:  Zale Groves, Inc., Zale Group,
Inc., Zale Enterprises, Inc., and Zale Construction Co., Inc.
(the Zale Defendants).  Plaintiff advanced theories of liability
against the Zale Defendants based on express and implied
warranties.
     Plaintiff alleged that defects in the roofs on all 128
buildings in the development have resulted in cracking shingles,
water leakage causing drywall damage, saturation of attic
insulation and other water damage.  According to plaintiff, these
defects resulted from the Zale Defendants' having provided
defective shingles; failure to provide roofs that properly drain;
failure to construct the roofs in conformity with steep roofing
and flashing standards; failure to properly cut and fit dormer
roof and wall sheathing; failure to properly install flashing and
wood fascia; failure to provide ice and water shield membrane
flashing; and constructing fascia with defective wood.
     On March 1, 1996, the Zale Defendants filed their third-
amended third-party complaint against Iko Chicago, Inc., W.A.
Anderson Construction Co., Lenny Szarek, Inc., Prate Roofing,
Inc., S.J. Nitch/Roof Brokers, Inc., All American Roofing, Inc.
and Johnston.  The Zale Defendants premised their third-party
action solely on theories of conditional contribution or
indemnification, predicating each third-party defendant's
liability on Zale's first being found liable to plaintiff.  The
Zale Defendants did not allege any independent causes of action
against any third-party defendant.
     The Zale Defendants allege that they entered into a written
contract with Johnston, as with most of the other third-party
defendants, for work on the development.  The contract between
Johnston and Zale Construction Co. is a preprinted form that
includes the following provision:
          "Either party may demand in writing
          arbitration of all claims, disputes or
          questions of this Contract or breach thereof
          in accordance with the prevailing rules of
          the American Arbitration Association, within
          reasonable time before the date legal
          proceedings would be barred by applicable
          statute of limitations, and judgment upon the
          award rendered by the arbitrators shall be
          final and may be entered in any court having
          jurisdiction thereof."
     In count VII of the third-amended third-party complaint, the
Zale Defendants allege that Johnston "entered into written
contracts with Zale Groves in which [Johnston] agreed to furnish
architectural and design services for the buildings."  The Zale
Defendants further allege that "the actions of which plaintiff
complains in its fifth amended complaint are services furnished
in part by third party defendant [Johnston]."
     Based upon the arbitration clause contained in its contract
with Zale Construction Co., Johnston filed and served a written
demand for arbitration with the American Arbitration Association
on April 4, 1996.  On that same date, Johnston filed a motion to
compel arbitration and stay the third-party claims against it
pursuant to section 2(a) of the Illinois Uniform Arbitration Act
(710 ILCS 5/1 et seq. (West 1994)).
     The Zale Defendants, plaintiff and W.A. Anderson
Construction Co. opposed Johnston's motion, relying on the
decision in J.F. Inc. v. Vicik, 99 Ill. App. 3d 815, 817, 426 N.E.2d 257, 259 (1981).  The Zale Defendants argued that
Johnston's motion should be denied because the "issues in this
case are inextricably intertwined, intermingled and dependent
upon each other such that the issues raised in count VII cannot
be severed."  The Zale Defendants also claimed that (1) they had
not created the multiplicity of parties in the litigation; (2)
their claim against Johnston could not proceed without a prior
determination of their liability to plaintiff; and (3) the public
policy favoring joinder of claims in a single judicial proceeding
outweighs the public policy favoring arbitration since
arbitration would be less efficient in that "the parties would be
needlessly compelled to relitigate the exact same issues already
adjudicated in this lawsuit."  The Zale Defendants never disputed
the existence of a valid arbitration agreement. 
     Johnston insisted that since there was no dispute as to the
agreement to arbitrate, Johnston's motion should be granted.  In
the alternative, if the trial court intended to consider the
analysis adopted in Vicik, Johnston argued that Vicik did not
support a denial of the motion for the following reasons:  (1)
Vicik has been criticized and never followed by other Illinois
courts, and at least one fifth district decision has declared
that Vicik is not good law; (2) the general rule enforcing
arbitration agreements in a multiparty proceeding should be
followed since the factors enumerated in Vicik are insufficient
to override that rule in this case; and (3) only the Zale
Defendants who had agreed to arbitrate (i.e., Zale Construction
Co.) would be exposed to duplication of effort.
     During oral argument on the motion, the trial court and
plaintiff raised concerns about allowing arbitration before a
determination of liability in the underlying case.  The Zale
Defendants argued that the Vicik ruling permits the trial court
to deny Johnston's motion even in the face of a valid arbitration
agreement.
     On June 11, 1996, the trial court entered its order denying
Johnston's motion based on the reasoning in Vicik.  While
recognizing the valid arbitration agreement, the trial court
nonetheless found that the "problems would be enormous" if it
were to allow arbitration to proceed either before or during
litigation of the underlying action.  Zale Construction Co. would
be a party to the litigation and its potential liability to
plaintiff would be determined without the trial court's
consideration of whether the subcontractors followed Johnston's
design and whether that design was the cause of the defects
alleged by plaintiff.  The court noted that inconsistent results
"might prejudice various other parties in this litigation.  And
prejudice is one of the factors that the court is considering
here in relying on its ruling."  
     On appeal, we will examine whether the trial court should
have ordered arbitration of the third-party claims against
Johnston once it found that an agreement to arbitrate existed. 
Johnston claims that the Illinois Uniform Arbitration Act (710
ILCS 5/1 et seq. (West 1994)) mandates that a court order
arbitration if it finds that a valid arbitration agreement
exists.  While we do not dispute the general rule of law that a
valid agreement to arbitrate will be enforced despite pending
multiparty litigation, we also recognize that prejudices and
inequities might result from compelling arbitration in this case. 
J.F. Inc. v. Vicik, 99 Ill. App. 3d 815, 817, 426 N.E.2d 257, 259
(1981). 
     In Vicik, a general contractor entered into a written
contract with homeowners, which contained a general arbitration
clause.  Before completing the project, a dispute arose between
the general contractor and the homeowners.  Several
subcontractors that had not been paid by the general contractor
as a result of the dispute filed lawsuits to foreclose on their
mechanics liens.  The general contractor filed a demand for
arbitration of its dispute with the homeowners, and the
homeowners sought to consolidate the foreclosure actions and stay
the arbitration proceeding.
     The trial court denied the homeowners' motion, and the
Illinois Appellate Court reversed, holding that "[t]he issues and
parties to whom the arbitration agreement applies have become
inextricably intermingled with a multiple-party lawsuit involving
parties not subject to the arbitration clause.  ***  Enforcement
of the arbitration agreement would violate the very policy under
which arbitration is favored."  Vicik, 99 Ill. App. 3d at 821,
426 N.E.2d  at 262.  Accordingly, the Vicik court specified that
arbitration may be enjoined in multiparty lawsuits under
"strictly limited circumstances":
          "Where an arbitration agreement involves
          some, but not all, of the parties to a
          multiparty litigation, the policy favoring
          arbitration must be weighed against the
          policies favoring joinder of claims.  Where
          arbitration would increase rather than
          decrease delay, complexity and costs, it
          should not receive favored treatment. 
          However, it is not sufficient to show merely
          that litigation would be the speedier and
          more economical means of resolving
          controversy.  It also must be shown that the
          issues and the relationships among the
          parties to the multiparty litigation are
          closely intermingled.  Factors to be
          considered are whether the claims of all the
          parties arise from the same project and
          involve common issues and evidence.  Also
          important is the possibility of inconsistent
          results."  Vicik, 99 Ill. App. 3d at 819-20,
          426 N.E.2d  at 261.
In sum, the Vicik court recognized that the policy favoring
arbitration may give way to competing policies favoring joinder
of claims in light of the following factors:  decreased delay;
complexity and costs; resolution of common issues in a single
forum; desirability of consistent results; and prejudicing or
affecting parties who did not execute any arbitration agreement.
     In this case, the Vicik factors support the trial court's
denial of Johnston's motion to compel arbitration and stay
certain third-party claims.  First, the Zale Defendants, like the
homeowners in Vicik, did not initiate the underlying lawsuit. 
Rather, plaintiff condominium association filed its lawsuit
against the Zale Defendants alleging roof defects resulting from
improper design and/or construction and the installation of
defective roofing material.  The Zale Defendants, which
subcontracted the design and construction of the project,
subsequently filed their third-party complaint seeking to have
the subcontractors assume the liability to plaintiff in the event
that plaintiff's claim against the Zale Defendants succeeded.  
     Moreover, the close relationship of the parties and claims
weighs in favor of enjoining the arbitration motion filed by
Johnston.  The Zale Defendants' claims against Johnston and the
seven other third-party defendants are expressly contingent upon
and derivative of plaintiff's claims against the Zale Defendants. 
All first- and third-party claims arise out of the same
construction project, relate to the same alleged defects and
involve the design of Johnston.  Here, as in Vicik, there are
inextricable interrelationships between the issues and parties. 
Thus, Johnston's claims should not be severed from the underlying
lawsuit pending arbitration.  The rights of all the parties may
not equitably and consistently be determined in separate
proceedings and instead should be adjudicated by a single trier
of fact, who will determine the defendants' and third-party
defendants' respective liabilities, if any, to plaintiff and
among each other.  See Oldenburg v. Hagemann, 159 Ill. App. 3d
631, 640, 512 N.E.2d 718, 724 (1987) ("The purpose of a third-
party action is to determine the rights and liabilities of all
parties before a single tribunal and upon the same evidence"). 
     Finally, there would likely be an increase in costs and
inefficiencies resulting from a separate arbitration proceeding
in this case.  It is reasonable to conclude that if all the
claims against Johnston were stayed pending arbitration, the Zale
Defendants would be forced to defend claims in both proceedings
arising out of nearly identical facts.  Illinois courts not only
favor arbitration, as Johnston notes, but also respect the
importance of principles of joinder in promoting judicial
efficiency.  See Lake County Forest Preserve District v. Keefe,
53 Ill. App. 3d 736, 739, 368 N.E.2d 1096, 1098 (1977) ("The
courts of Illinois clearly favor consolidation of causes where
the same can be done as a matter of judicial economy").  Where
the two principles conflict, the Vicik court sets forth the
limited circumstances where the benefits of joinder outweigh the
policies favoring arbitration.  See Vicik, 99 Ill. App. 3d at
819-20, 426 N.E.2d  at 261.  In this case, the trial court
correctly balanced countervailing interests and policies and
concluded that arbitration should not be compelled where it would
not result in any judicial economy or provide any other benefit
in the underlying lawsuit.
     For the foregoing reasons, we affirm the judgment of the
circuit court of Cook County denying Johnston's motion.
     AFFIRMED.
     O'BRIEN and GALLAGHER, JJ., concur.