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

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.