Donaldson, Lufkin & Jenrette Futures, Inc. v. Barr, 503 N.E.2d 786

Donaldson, Lufkin & Jenrette Futures, Inc. v. Barr

503 N.E.2d 786

Ill. App. Ct.

1987

Check Treatment

*1 FUTURES, INC., DONALDSON, Plaintiff-Appel- LUFKIN & JENRETTE lant, al., et Defendants-Appellees. v. EDWIN C. BARR (4th Division)

First District No. 86 - 1090 January 8, 1987. Opinion filed J., JIGANTI, dissenting. Block, Wedoff, counsel), (Eugene appel- R. for

Jenner & lant.

( Lloyd Obringer, Kadish and Therese M. Chicago, appellee both of for Edwin C. Barr. Ellis, Chicago,

Kirkland & appellee City Trade of the Chicago.

JUSTICE delivered the of the opinion LINN court: Plaintiff, Futures, Donaldson, Lufkin & (Donaldson), Jenrette from an of the appeals order circuit court which denied its application 1985, ch.10, for a arbitration Rev. stay proceedings. (Ill. par. Stat. for the on the it had 102(b).) stay ground Donaldson that not applied agreed to arbitrate the claims which compensation defendant-appellee and former C. had in his arbitra employee (Barr) Edwin Barr raised tion demand to Trade. The Chicago Board of trial court denied Donaldson’s application, finding that “in cases under the Uni arising *** form Arbitration Act if it is unclear whether is arbitra [a claim] ble, the matter would be directed to to arbitration allow the arbitrator his jurisdiction.” to determine own following raises the (1)

On Donaldson issues: whether the appeal to allowing juris- the arbitrator determine his own court erred in trial finding erred not the trial court diction; (2) whether did not cover Barr’s parties’ of the claims.

Background a originally commodity as futures operated

Plaintiff Donaldson offices, Chicago. which included one in broker and had several the trading office activities Chicago office was also the which directed Trade. Chicago on the Board of hired in the Chi- Barr locate

In Donaldson defendant for the com- vice-president of a and take the senior cago post office managers and account execu- included supervising Barr’s duties pany. on trading as activities five tives, managing Donaldson’s well Chicago Board of Trade. including the commodity exchanges, Chicago Barr in the membership with providing In addition to de- Trade, also several documents prepared Donaldson Board of compen- a provided which also duties and employment Barr’s scribed included a compensation Such these duties. analysis sation for car, per- a top-line the use of a $90,000 per year, straight salary from new gross generated 5% the of a maximum of centage from of 5% percentage and a bottom-line first year, business addition, In inclu- regard, related offices. was the notable Chicago sion 15% of bottom-line activities. profit office

In Donaldson sold firm and July operation its another ceased as a all activity exchanges, including Chicago broker on Board of Trade. Barr also working ambig- ceased for Donaldson under uous circumstances at the same approximately time Donaldson its sold commodity business.

In October Barr’s attorney sent Donaldson a letter in which $500,000 Barr demanded more than in additional com- employment pensation; $419,000 of this amount arose as 15% of allegedly op- erating income which was generated by Chicago his office from 1983 through 1985. Other claims included the recruitment of 5% of bonus first-year commissions new gross produced by offices employ- Donaldson, brought ees Barr as well as reimbursement of travel and entertainment expenses. for payment,

When Donaldson did not with Barr’s demand comply Trade, Barr sought pursuant arbitration before the Board of to that organization’s rules. The then a for the board set date arbitra- tion hearing December 1985.

In on response, December Donaldson in the filed circuit court of Cook County verified application for stay arbitra- *3 Barr, tion demanded as as request well a for a restrain- temporary ing order to prevent arbitration from until proceeding the court ruled on this application. complaint law, Donaldson also seeking verified at a judgment that declaratory discharged obliga- Donaldson had all its Barr, tions to as as seeking well relief from Barr on a of a breach Meanwhile, rental car agreement. in the proceedings on Donaldson’s application arbitration, for stay of the circuit court the Chi- granted cago Board Trade leave to a intervene as defendant. party In its petition, Donaldson that man- conceded board Rule 600.00 dated arbitration Board, dispute between members of the “which out Exchange arises parties.” (Chicago business such Board of However, Trade Rule 600.00.) Donaldson maintained that the as disputes to compensation which Barr raised not within were the the scope Chicago and Trade rule that there was no applicable other arbitration clause the It original agreement. in Barr’s dispute contention the trial court that the Donald- between son and Barr was not one out of mere employment which arose a con- tract; instead, it involved Board of and there- Trade business fore fell the scope addition, within of Rule 600.00. In the Board both of Trade as defendant-intervenor and Barr argued question that arbitrability unclear cases should be the arbitrator delegated to determine as a matter of law. the arbitrator must deter- (1)

The court held that: Illinois trial ar- law; as and Barr’s claims jurisdiction (2) mine his a matter own and therefore would be scope fell within the of Rule 600.00 guably a interlocutory then filed notice of delegated to arbitration. Donaldson stay. of its for a application from denial appeal Opinion

I is whether which this court must address The first issue of Barr’s claims. arbitrability court determine initially should provi Hlinois starting inquiry statutory for this is relevant point reads, in pertinent part: sion which stay pro the court arbitration

“(b) may On application, that is showing on a there commenced threatened ceeding issue, and to arbitrate. That when substantial agreement no summarily shall tried fide be forthwith dispute, bona moving (Ill. if for the Rev. Stat. party.” ordered found stay 102(b).) ch. par. Supreme Court decision there been one Illinois only has Curiously, (Flood particular problem. even discussed this peripherally has 91, 242 41 Ill. 2d N.E.2d Country Mutual Insurance Co. of an decision, In construed 149.) court However, the actual policy. insurance clause in a standard automobile over cover disputes clause included issue was whether the arbitration had Although the court appellate as issues of age liability. well should determine his own jurisdic held that the arbitrator originally tion, the did not reach issue. supreme court courts, however, majority the current Among appellate Illinois agreement decide whether an view that court should Construction, Inc. & K example, exists. For in J Cement arbitrate N.E.2d Builders, Montalbano contract was of a construction issue in the context primary In dispute. specific there was an arbitrate whether court should held that a decision, expressly court appellate *4 question the initial narrow forum in which to determine always be the 2(a) under section decided this case Although of court arbitrability. have is still relevant because both 2(b), provisions and not section make a prelim that court requirement common denominator Pain/ hand, Argiris & Co. v. other Van C. On the inary decision. 825, 993, Ill. 3d 380 N.E.2d Associates, 63 (1978), App. Wetzel&

601 found of covered implicitly bylaws court that their brokerage without basis of au- dispute, initially considering to do so. thority other recent held that the

Similarly, responsibility decisions have of determining belongs to See Board Trust arbitrability the courts. of County College ees Cook Teachers Union Community Colleges v. of 617, 956; 487 139 Ill. 3d N.E.2d Monmouth Public (1985), App. 60, 1100; N.E.2d Consol Pullen 141 Ill. 3d 489 (1985), App. Schools v. v. Association Broadcasting Corp. idated American Arbitration 577, 1252; Ill. 3d v. (1983), 115 450 N.E.2d Board Education App. 256, 773; Williams 118 Ill. 3d 454 Lester Witte (1983), App. N.E.2d & 1100, 1; Co. v. Ill. see Lundy (1981), App. 98 3d 425 N.E.2d also Builders, Iser 161, Electric Co. v. Fossier Ltd. 84 (1980), Ill. 3d App. 439; 405 N.E.2d Hedgepeth 1040, Farris v. Ill. (1978), App. 58 3d 374 N.E.2d 1086. hand,

On the other several Illinois decisions have held when unclear, to arbitrate is then the agreement should arbitrator make determination as to own preliminary jurisdiction. his The leading in this line is School District No. v. Del authority cases Bianco Ill. 2d 25. That arose in the con (1966), App. N.E.2d case contract, text of a construction incorporated the arbitration procedure of the American Institute of also Architects. arose within a few after years Act, Illinois adopted Uniform Arbitration so that the court went into detailed its analysis statutory as to inter pretation 2. section This court concluded that the arbitrator should jurisdiction determine his own when the existence of an

agreement to arbitrate is unclear. It reasoned that any other result would undermine the parties’ original that the meaning of the arbitration clause be determined arbitrator. 68 Ill. App. 2d 145, 155, 215 N.E.2d 30. subsequent

Two Illinois approved cases have Del Bianco ra tionale, although neither actually referred the jurisdictional question to the arbitrator because clearness of the apparent agreement. See Altay Ozdeger (1978), App. Ill. 384 N.E.2d University Mayfair Roosevelt Construction Co. 28 Ill. App. see but Education v. Williams 454 N.E.2d 773. In supra, addition State law discussed it should also be noted Chicago Board Trade raised the briefly possibility Fed- eral Section 2 of the preemption. Federal Arbitration Act indicates contract which evidences a transaction involving (interstate) enforceable, except “upon grounds commerce such as exist at law *5 602 2 for the of contract.” U.S.C. sec. any (9 revocation equity also sec. 3 of where issue (stay proceedings See 9 U.S.C.

(1982). un- arbitration), (failure therein to and sec. 4 to arbitrate is referable agreement; petition having jurisdiction der to United States court Trade order to In its brief the of compel arbitration).) relies the Fed- involving possible on an Illinois decision preemption However, Exchange eral Act of State law remedies. where Securities arbitration, a case under sought survey the is a law remedy stay more appropriate. the Arbitration Act is Federal re Court has Supreme As the United States starting point, a preempted by statutory provision held that a California cently though stay Act even an action to section 2 of the Federal Arbitration v. Keat Corp. in the State court. brought (Southland arbitration was holding, 1, 79 Ed. 104 Ct. In so ing 852.) 465 U.S. L. S. 2 a na Congress the court that in section had declared emphasized v. (See Corp. tional also Prima Paint policy favoring arbitration. L. Ed. Manufacturing (1967) Flood & Co. 388 U.S. 18 Conklin Furthermore, deci 1801.) S. one Seventh Circuit 87 Ct. Illinois sion, law could preempt the court that Federal recognized v. Lib (Gault act in context commercial construction contracts. 1967), 711.) That case Cir. 376 F.2d bey-Owens-Ford (7th Glass Co. law courts determine assumed that under Federal implicitly is to where ascertaining this limited jurisdiction, although authority cases actually exists. Other Seventh Circuit arbitrate this makes supported judiciary have also view implicitly reso assumption This then leaves the only initial determination. initial a disputes particular lution of fall within specific whether International, Australia See Halcon Inc. Monsanto agreement. Co. v. (7th Ltd. Commonwealth Edison 1971), Cir. F.2d Gulf Co. 1976), F.2d but see Butler Products Corp. (7th Oil Cir. Cir. F.2d 733. Corp. 1966), v. Unistrut (7th above, on clear that trial court should appears Based it As of law. arbitrability make the initial as matter decision Illi- brief, noted in the plain language Donaldson its appellate addition, this the most recent cases supports nois statute result. In context, context, well the commercial as collective-bargaining correct do not that our conclusion is this view. We believe support note Beyond that we approach. merely predominant because is mean- instance, plain majority support that in view does our research As to Federal possible preemption, of the statute. ing de- make initial that courts should lends the conclusion support as to their own jurisdiction. termination

II irrespective merits of Our involves the inquiry next initial decision: or the court makes the the arbitrator whether of the Board within the ambit specific claims fall whether Barr’s pertinent part states in Rule 600.00. That rule Exchange of Ex if it arises out arbitrable agreement between board members are no decisions Illinois there change noting While business. how rule, it informative observe which construe this is nevertheless re clauses. Such search courts other arbitration interpreted have ar recognized many generic (broad) veals that courts have varieties clauses, construction and one of cases involves large group bitration Ozdeger Altay (1978), contracts. *6 contract in turn a broad

involved a construction which contained out to the agreement “arising relating to arbitrate all matters of or in this clause would The court this instance found that agreement.” It contract. agreement original cover a oral as well as subsequent a “generic” written contract contained arbitration reasoned clause, was in its arbitrable nonspecific designation which turn Therefore, it that the trial court must examine both disputes. appears wording of the clause and terms of contract particular and which it to determine the respective rights responsibil is included ities of the parties. University Mayfair in Roosevelt v. Construction Co.

Similarly, 1045, 835, the (1975), 28 Ill. 3d 331 N.E.2d also arose in App. dispute the context of a contract. This court first looked to the construction then generic-specific provision dichotomy. It found claims, arbitration clause “All and other matters in disputes, question arising of or than the relating out to this Contract” was even broader with this con generic disputes “all in connection provision arising Therefore, if disputes, explic tract.” it reasoned that certain even not contract, in the were within the of the arbi itly original covered 835. 1045, 1056-65, tration 28 331 N.E.2d App. clause. Ill. 3d Construction, Builders, J K Cement Inc. v. Montalbano Inc. & 920, continued the line of (1983), 663, 119 Ill. 3d 456 N.E.2d App. contract. The appli cases which arose in the context of construction claims, that all dis in the contract stated provision cable Montalbano out arising relating other matters this putes, question and Il decided to the Northern agreement according or breach were to be The bylaws. linois Association court found that Home Builders the defendant’s claims be sufficiently clause broad to encompass of the intention to wording parties’ cause broad clause revealed disagreements pertaining to home construction. types resolve all 604.

That court also reasoned that such a broad encompass clause should disputes contracting. which were not at the See foreseeable time also J. F. Inc. v. Vicik 426 257. (1981), App. 815, Ill. 3d N.E.2d

Illinois courts in other have construed arbitration clauses broadly types of commercial agreements as well. In Illinois Su particular, the preme Court decision in Corp. Notaro v. Nor-Evan 98 Ill. (1983), 2d 268, 456 N.E.2d 93 instance, involved a In purchase agreement. a broad arbitration provision allowed the court to give large a con struction to the arbitration clause as words the instrument and of the parties intentions would See Security warrant. also Mutual Ca sualty (1979), Co. Harbor Insurance Co. 77 Ill. 2d. 397 N.E.2d 839; Co. State Farm Mutual Automobile Insurance v. Hanover Devel opment Corp. Ill. (1979), 73 3d 391 N.E.2d Farris v. App. Hedgepeth (1978), App. Bunge Corp. Ill. App. Williams 45 Ill. 844. N.E.2d As supra, noted the above arose in the context generally decisions contractors, commercial contracts among subcontractors, architects, companies, partnerships. insurance and A case is more analo gous to the instant it arose dispute because context of an em ployer-employee disagreement is Van C. Argiris & Co. v. Pain/Wetzel Associates, & N.E.2d 825. That involved of a real estate application association’s arbitration bylaws in the context a dispute claim for employee’s money over due owing. original and The the real estate incorporated bylaws, association’s both employer employee were mem organization bers of this at the dispute. bylaw time relevant “ read in ‘The *7 pertinent part: juris Arbitration committee shall have diction any controversy over between related to a commis members or sion or to such or charged by paid any claimed members to other ” matters their arising (63 out of Ill. agents.’ business brokers 993, 996, App. 3d 380 N.E.2d then that 828.) The court held this the and dispute plaintiff subject between defendant the to arbitra noted, however, tion. It be language should that this arbitration clause broad in that it to very any is covers com controversy relating see missions or business as brokers. But Board Education v. Wil 118 Ill. (1983), liams 454 N.E.2d 773. App. However, language, other have that despite courts held broad disputed not be an clause unless the dispute by will covered original agreement. mentioned in the written expressly matter was indicates This has even the arbitration clause result occurred when arising that is for out of or related “any dispute arbitration mandated City (1979), to the contract or See Croom v. De Kalb agreement.” Blades, F. Inc. Jar 389 N.E.2d Harrison App. Fund, Ill. Building Hospital man Memorial Insurance Country Flood Mutual Co. 224, cf. Ill. 2d 242 N.E.2d 149. claims, that Barr’s this case some of The record in indicates fell within dispute, definitely of an employment in context although law, the arbi Based on above Exchange business. scope Exchange falls some Rule 600.00 of the bylaws tration provision as a broad has characterized arbi previously where between what been means that it is limited arbitration clause. This tration clause and a stemming to claims from Ex only limited in the sense that it applies business, than the commodities business or business change rather However, it is more two re generic members generally. between itself spects: not, terms, only trading it does its limit to activities (1) by of,” out which Exchange; (2) phrase “arising on the contains Illinois decisions. broadly previous courts have often construed Therefore, that members we must conclude the business between must but does not Exchange-related, stem from business which necessar ily trading also note specifically Exchange. have to be on We that lies commercial dispute dispute somewhere between a and collec an Although Barr was he was tive-bargaining dispute. employee, origi executive, claims the right and his included as well nally profits, as salary. aside, determination of we preliminary

With now turn to which of Barr’s claims fall within parameters. could these demand letter from claimed that original attorney Barr’s Donaldson owed pay, expenses, Donaldson severance reimbursement for business for profits, top-line bottom-line new business Barr profits However, claim generated largest in several offices. far was for $419,000 Chicago in bottom-line from Donaldson’s office. As profits pursuant original noted to Donaldson’s letter to supra employment Barr, was entitled to 15% of the from profit Barr bottom-line the Chi office, which, in turn was or could have been from cago generated Chi Barr Exchange. of Trade on the claimed cago Similarly, business brought his 5% share of business he from all top-line profits new new encompass his offices. this claim could also income Presumably, in turn generated Chicago from office was the result busi his ness on Board Trade floor. we conclude case law applicable

Based on the record before us and an evi- should these two claims the trial court we remand traced hearing directly can alleged profits on whether be dentiary *8 Accordingly, on the Board of Trade. we Chicago to activities or with law, reverse hold that and as a matter of the trial court should initially determine own jurisdiction 2(b) its under section of the Illinois Uniform Furthermore, Arbitration Act. we for an evidentiary hearing remand to determine whether alleged the the office profits opera- tions on generated by trading were the Exchange.

Reversed and remanded.

JOHNSON, J., concurs. JIGANTI,

JUSTICE dissenting: It is clear that under 12(a)(5) sections and of the Uniform Arbi- tration Act the ultimate determination of be arbitrability is to resolved However, court. there remains in Illinois the unresolved issue as to the in the point proceedings at which this ultimate determination should opinion be made. majority adopts position Donaldson court, in all seemingly cases, trial should make the initial arbi- determination. Based Uniform trability upon provisions Ar- bitration Act itself public and the considerations that underlie policy State, arbitration in this I dissent. respectfully Section of the 2(b) Uniform Arbitration Act provides: application,

“On court may stay proceeding arbitration commenced or on showing threatened is no agree there issue, ment to arbitrate. That when in substantial bona and fide shall dispute, be forthwith and tried summarily stay or dered if found for the If moving opposing found for the party. the court shall order the party, parties proceed arbitration.” l. Rev. 102(b). Il Stat. ch. par.

Section of the 12(a)(5) Uniform Arbitration Act also deals with the question of whether a is within particular alleged setting factual agreement parties to be arbitrated. That section provides:

“There was no arbitration and the issue was not adversely determined under Section proceedings did not in the party participate hearing without rais ing objection; the fact that the relief such that but it could not or be court is granted by would not circuit not ground vacating refusing (Ill. to confirm award.” Rev. 112(a)(5).) Stat. ch. par. however, judicial

Section no determination applies only prior when Thus, reading conjunction under section 2 has been section 2 in made. are with section 12 follows that there certain instances necessarily arbitrability, court not but which the trial does determine of an arbi- subsequently upon review rather makes the determination *9 court, the trial requiring A contrary interpretation trator’s decision. under arbitrator, all initial determinations rather than the to make the statute. It is an 2 in read section 12 out of section would effect construction, however, leg- statutory elementary principle enacted. to each meaning provision islature intended and effect should make the trial court The certain factual instances which artfully review were initially upon decision either arbitrability (1975), Co. University Mayfair set forth in Roosevelt v. Construction 1045, There court found that 331 N.E .2d 835. 28 Ill. 3d App. deter initially in which the trial court should there are two situations within the the matter is clearly mine where arbitrability; namely, or, the matter where alternatively, of the arbitration scope provision As for of the arbitration scope provision. is not within the clearly ends of the court falling spectrum, those cases these two within stated: of a arbitrability given

“If the the issue of the parties present the court a section 2 and it to proceeding appears matter in or is exists as to whether the matter is that a reasonable doubt in the con provision not within the tract, arbitrability refer the issue of then the court should decision, judicial to ultimate subject arbitrator for initial determination at of either in a section party the instance *** proceeding University Mayfair .” Roosevelt v. Construc 1045, 1051, 28 Ill. 3d 331 N.E. 2d 835. (1975), App. tion Co. has not followed in other position Mayfair this been Although Community (Board Trustees Court decisions Appellate Illinois App. 139 Ill. (1985), Teachers Union County College Colleges Cook (1983), Education v. Williams 617, 3d N.E.2d Broadcasting Corp. 454 N.E .2d Consolidated Ill. App. 577, 450 115 Ill. (1983), App. Association American Arbitration practical not the most only I 1252), procedure N.E.2d believe is the approach more handling importantly method of arbitration but the Uniform Ar of the drafters of contemplation was within merits of us, where the In a case such as before bitration Act. arbitrability, the determination are entwined with the entire matter of trying task court is faced with cumbersome neither de This is be reached. arbitrability as to can before a decision that favors arbitra policy the public nor with comport sirable does 135 Ill. Co. v. Allstate Insurance (Schutt tion. referring Mayfair, Moreover, the court noted 644.) subsequent in a the court enables

the matter arbitrator section 12 proceeding utilize the arbitrator’s in the expertise court’s judicial ultimate determination of the University issue. Roosevelt v. Mayfair 1045, 1051, C o App. 3d 331 N.E.2d 835. Construction Consequently, considering after sections 2 light the poli- cies favoring arbitration and I believe the judicial economy, decision of the trial court should affirmed. be

LOCAL INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, AFL-CIO, DETORRICE, Plaintiff-Appellant, v. PATRICIA Defendant-Appellee. INTERNATIONAL BROTHERHOOD — LOCAL *10 WORKERS, AFL-CIO, OF Plaintiff-Appellant, ELECTRICAL SABATHNE, Defendant-Appellee. CHRISTOPHER 2-85-0904, Second District Nos. - 0914 cons. 2-85 Rehearing 9, 1987. Opinion February filed December denied 1986.