Bankers Life & Casualty Insurance v. CBRE, Inc.
2016 U.S. App. LEXIS 13831
7th Cir.2016Background
- Bankers (tenant) hired CBRE (broker) under a Listing Agreement to present offers, assist in negotiations, and answer questions about sublease/relocation deals; Illinois law required certain broker duties.
- CBRE prepared cost-benefit analyses (CBAs) comparing Bankers’ sublease to Groupon and a relocation to new space; Bankers told CBRE it wanted to net $7 million and relied on CBRE’s analyses.
- A CBA showed a $6.9 million net benefit from moving to 111 E. Wacker, prompting Bankers to sublease to Groupon and lease the new space.
- The CBA omitted a $3.1 million tenant-improvement allowance Bankers agreed to for Groupon; had Bankers known, it would have declined the deal and CBRE would not have earned its $4.5 million commission.
- Bankers arbitrated (JAMS), claiming breach of contract, violation of the Illinois Real Estate License Act, and negligent misrepresentation; the arbitrators ruled for CBRE, later relying on a disclaimer in the CBAs to excuse liability.
- The district court confirmed the award; the Seventh Circuit majority reversed, concluding the panel exceeded its authority by grounding its award on a unilateral disclaimer outside the Listing Agreement; Judge Sykes dissented, urging deference under the Illinois Uniform Arbitration Act.
Issues
| Issue | Bankers' Argument | CBRE's Argument | Held |
|---|---|---|---|
| Whether CBRE breached the Listing Agreement by providing inaccurate CBAs that answered Bankers’ questions | CBRE was contractually required to answer questions accurately; the inaccurate CBA breached the Listing Agreement and caused $3.1M loss | The CBAs were not part of the Listing Agreement; any disclaimer in the CBA relieved CBRE of liability | Majority: CBAs (and their disclaimer) were not part of the Listing Agreement; the panel exceeded authority by relying on the unilateral disclaimer; award reversed and remanded |
| Whether arbitrators exceeded authority by basing award on documents outside the contract (disclaimer in CBAs) | Arbitrators must ground awards in the parties’ contract; relying on CBRE-only disclaimer amended the contract without consent | Arbitrators interpreted the Listing Agreement to cover CBAs as the “answers” promised; grounding in contract justifies upholding award | Majority: panel improperly amended contract via extraneous disclaimer; exceeded authority. Dissent: panel’s interpretation drew its essence from contract and should be upheld |
| Whether the arbitration award should be vacated for an evident miscalculation (the $3.1M omission) | The panel endorsed a $3.1M arithmetic error that is apparent on the face of the award and warrants vacatur/modification | The panel found no calculation error to modify because its ruling was contractual (disclaimer excuse), not a numeric award error | Majority: the arbitrators endorsed a material miscalculation and cannot insulate it via a unilateral disclaimer; vacatur/remand appropriate |
| Proper scope of judicial review under the Illinois Uniform Arbitration Act (deference to arbitrators) | Public policy and contract interpretation require that arbitrators be bound by the contract; courts may vacate awards that exceed arbitrator powers | Arbitral awards deserve extreme deference; courts may not overturn mere errors of judgment — only awards not drawing essence from contract should be vacated | Dissent: defer and affirm. Majority: limited deference here because panel’s reasoning relied on outside documents and effectively rewrote the contract, so reversal is warranted |
Key Cases Cited
- Wise v. Wachovia Securities, 450 F.3d 265 (7th Cir. 2006) (parties who arbitrate limit judicial review to defects like excess of arbitrator power)
- Garver v. Ferguson, 76 Ill.2d 1 (Ill. 1979) (arbitration awards not vacated for mere errors of law or fact unless gross mistakes appear on the face of the award)
- Rank v. Rockford Products Corp., 143 Ill.2d 377 (Ill. 1991) (arbitrators’ authority is limited by unambiguous contract language; awards must be grounded in the parties’ contract)
- Shearson Lehman Bros. v. Hedrich, 266 Ill.App.3d 24 (Ill. App. 1994) (evident miscalculation by arbitrators may justify modification or correction of award)
- First Merit Realty Servs., Inc. v. Amberly Square Apartments, L.P., 373 Ill.App.3d 457 (Ill. App. 2007) (arbitrators cannot ignore plain contract language or alter the agreement)
- Prostyakov v. Masco Corp., 513 F.3d 716 (7th Cir. 2008) (vacatur appropriate only when arbitrators’ interpretation is so irrational it is no interpretation at all)