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Chicago Southshore and South Bend Railroad v. Northern Indiana Commutertransportation District

September 24, 1998

CHICAGO SOUTHSHORE AND SOUTH BEND RAILROAD, APPELLEE, V. THE NORTHERN INDIANA COMMUTERTRANSPORTATION DISTRICT, APPELLANT.


The opinion of the court was delivered by: Justice Nickels

Agenda 12-January 1998.

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 ...


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