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06/18/97 CHICAGO SOUTHSHORE AND SOUTH BEND RAILROAD

June 18, 1997

CHICAGO SOUTHSHORE AND SOUTH BEND RAILROAD, PETITIONER-APPELLEE,
v.
NORTHERN INDIANA COMMUTER TRANSPORTATION DISTRICT, RESPONDENT-APPELLANT.



APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY. No. 94 CH 9719. THE HONORABLE AARON J. JAFFE, JUDGE PRESIDING.

Rehearing Denied July 15, 1997. Released for Publication August 5, 1997.

Presiding Justice Cousins delivered the opinion of the court. Gordon and Leavitt, JJ., concur.

The opinion of the court was delivered by: Cousins

PRESIDING JUSTICE COUSINS delivered the opinion of the court:

The Chicago SouthShore and South Bend Railroad (SouthShore) initiated the instant action in Illinois, seeking confirmation of an arbitration award entered on August 11, 1994. The Northern Indiana Commuter Transportation District (NICTD) filed suit in Indiana seeking review of the arbitration award. SouthShore petitioned the Illinois trial court to confirm the award. NICTD contested the jurisdiction of the Illinois courts. The Illinois trial court denied NICTD's jurisdictional argument and confirmed the award. NICTD appealed. NICTD subsequently moved the Illinois trial court to vacate its judgment confirming the award. The trial court denied NICTD's motion to modify or vacate the judgment confirming the award. NICTD again filed an appeal. The two appeals have been consolidated. On appeal, NICTD contends that the Illinois courts: (1) did not have subject matter jurisdiction to review the arbitration award; (2) should not have exercised jurisdiction over NICTD under the principles of comity; (3) erred in refusing to enforce the arbitration contract between the parties as written; and (4) erred in refusing to allow NICTD a full and fair hearing on the merits of its claim and in failing to grant NICTD's petition to vacate judgment.

BACKGROUND

NICTD is an Indiana State Transportation District created pursuant to Indiana statute (Ind. Code ยง 8-5-15-1 et seq. (1992)). SouthShore is an Indiana partnership. On September 27, 1989, SouthShore and NICTD entered into a contract that governed the purchase of the assets of the bankrupt old South Shore Railroad and the subsequent operation of rail freight and passenger services over the line purchased. Pursuant to the contract, NICTD was to operate the passenger service while SouthShore would run the freight operation.

Section 16.7 of the contract provided for the method by which disputes were to be resolved by the parties. Specifically, section 16.7 of the contract provided, in relevant part:

"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, SSA (SouthShore) and NICTD each shall appoint one arbitrator and those two arbitrators shall select a third arbitrator. The decision of the majority of the three parties shall be final and conclusive between the parties, except that if either party claims that the arbitrator's 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. All arbitration proceedings shall take place within the State of Indiana and shall be governed by the rules of the American Arbitration Association."

Section 16.8 provides:

"This Agreement is to be interpreted pursuant to the laws of the State of Indiana."

The last relevant provision is section 16.9, which provides:

"It is intended that the subject matter hereof shall be embodied in definitive agreements to be prepared and executed by the parties subsequent to the date hereof. However, pending execution of such definitive agreements, this Agreement shall be deemed binding and enforceable and shall reflect the entire agreement of the parties with respect to the subject matter hereof, superseding any prior agreements or understandings."

During 1992, a dispute arose between NICTD and SouthShore concerning the interpretation of certain provisions contained within the contract. The parties were unable to resolve that dispute; therefore, NICTD invoked the arbitration provisions in the contract during 1993. All three appointed arbitrators were attorneys practicing in Chicago, Illinois. Also, SouthShore's attorney practices in Chicago. For the convenience of the arbitrators, NICTD agreed to allow the arbitration hearing to proceed in Chicago. The agreement to arbitrate in Chicago was reached before the arbitrators in a pre-arbitration memorandum. The arbitration hearings were held in Chicago on July 11-15 and August 2-3, 1994. The award was issued on August 11, 1994.

NICTD challenged the portion of the award dealing with the maintenance of way (MOW) fee by filing a complaint for declaratory judgment in Indiana on September 9, 1994. On February 22, 1995, the Indiana trial court found that, because the arbitration hearings took place in Illinois, Indiana courts lacked subject matter jurisdiction to hear NICTD's complaint for declaratory judgment. The Indiana trial court, therefore, dismissed NICTD's complaint for declaratory judgment action.

On October 28, 1994, SouthShore filed a motion for confirmation of the arbitration award in the Illinois trial court. In response, NICTD filed a special and limited appearance and contested the Illinois court's subject matter jurisdiction over the dispute and also contended that, under the principles of ...


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