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Quick & Reilly Inc. v. Zielinski

June 22, 1999

QUICK & REILLY, INC. AND JOHN A. MASI, SR., PETITIONERS-APPELLANTS,
v.
BETH BABICH ZIELINSKI, RESPONDENT-APPELLEE.



APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY THE HONORABLE AARON JAFFE JUDGE PRESIDING. No. 97-CH-16539

The opinion of the court was delivered by: Justice Cousins

JUSTICE COUSINS delivered the opinion of the court:

On December 31, 1997, petitioners, Quick & Reilly, Inc., and John A. Masi, Sr., filed a "Petition in the Nature of a Motion and/or Application to Vacate Arbitration Award" with the circuit court of Cook County following the entering of an arbitration award in favor of respondent, Beth Babich Zielinski; petitioners challenged only the portion of the arbitration award that assessed attorney fees against them. On March 5, 1998, respondent filed a motion for summary judgment and confirmation of the arbitration award. On April 6, 1998, petitioners filed their cross-motion for summary judgment. Following a hearing on the matter, the circuit court entered an order granting respondent's motion for summary judgment, denying petitioners' motion for summary judgment, and confirming the arbitration award. Petitioners appeal, contending: (1) the arbitration panel exceeded its authority in awarding attorney fees; (2) the arbitration panel acted in manifest disregard of the law in awarding attorney fees; and (3) petitioners did not waive their right to contest attorney fees, as alleged by respondent.

BACKGROUND

In March 1995, Beth Babich Zielinski established a brokerage account with Quick & Reilly, Inc., and its employee/broker, John A. Masi, Sr. The purported purpose of this account was to set aside certain of Ms. Zielinski's premarital funds in a conservative investment vehicle in case those funds were later needed by her mother, who was suffering from Alzheimer's disease and had resided in a nursing home since 1984. In October 1995, Ms. Zielinski purchased $100,000 worth of municipal bonds, as Mr. Masi purportedly represented to her that such bonds were backed by the full faith and credit of the State of Illinois and were suitable for her investment objectives. However, the bonds were not backed by the State of Illinois and were not intended for sale to individuals. Instead, sale of bonds was to be restricted in minimum quantities of $250,000 to institutional investors who, "in the aggregate, own and invest at least $100 million in securities of unaffiliated investors." In March 1996, Ms. Zielinski lost over 75% of her investment, and the issuer of the bonds subsequently defaulted and filed for bankruptcy.

On October 26, 1996, Ms. Zielinski filed a statement of claim with National Association of Investment Dealers (NASD) Office of Dispute Resolution. Therein, she alleged three causes of action against petitioners: (1) fraud and misrepresentation under Illinois common law in violation of section 12(2) of the Securities Act of 1933 (15 U.S.C. §77l(2) (1994)), section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. §78j(b) (1994)), and the Securities Exchange Commission Rule 10b-5 (17 C.F.R. §240.10b-5 (1996)); (2) recommending an unsuitable investment in violation of Securities Exchange Commission Rule 10b-5 (17 C.F.R. §240.10b-5 (1996)) and "the New York Stock Exchange 'know your customer rule' "; and (3) failure to supervise in violation of section 27 of the NASD Rules of Fair Practice and "section 20 of the Exchange Act, 15 U.S.C. §78t." She requested an entry of an award against petitioners for compensatory damages of $100,643.38, prejudgment interest on the compensatory damages, punitive or exemplary damages of $301,903.14, cost of suit, including reasonable attorney fees, and such other amounts as the arbitrators deemed appropriate.

On December 4, 1997, following arbitration, the arbitration panel submitted its award in favor of Ms. Zielinski. The panel found Quick & Reilly, Inc., and Mr. Masi jointly and severally liable for $27,240 in actual damages, $1,188.33 in costs, and $11,500 in attorney fees. The panel also found Quick & Reilly, Inc., solely liable for an additional $58,480 in actual damages, $2,376.66 in costs, and $23,000 in attorney fees. Ms. Zielinski's claims for punitive damages were dismissed with prejudice and denied in the entirety. In regard to the issue of attorney fees, the panel specifically indicated that it "considered the arguments of the parties, as well as the Illinois Securities Law[] [of 1953] [(815 ILCS 5/13 (West 1996))], and determined that authority existed for an award of attorney[] fees to the Claimant, Beth Babich Zielinski[.]"

On December 31, 1997, petitioners filed a "Petition in the Nature of a Motion and/or Application to Vacate Arbitration Award" with the circuit court of Cook County challenging only the portion of the arbitration award that assessed attorney fees against them. Therein, it was alleged that the arbitration panel was "without the power to award attorney[] fees, because none of the statutory or common law claims asserted by the Claimant permit an award of attorney[] fees." As such, it was asserted that the panel acted in manifest disregard of the law, and the arbitration award should be vacated pursuant to the federal Arbitration Act (9 U.S.C. §1 et seq. (1994)) and the Illinois Uniform Arbitration Act (710 ILCS 5/1 et seq. (West 1996)).

On February 3, 1998, Ms. Zielinski filed her response to petitioners' petition alleging, inter alia, the affirmative defense of waiver and estoppel. She contended that because petitioners failed to contest her right to attorney fees in their statement of answer to the arbitration panel, petitioners waived their right to contest said fees and should be estopped from asserting the argument before the circuit court. Petitioners, however, denied Ms. Zielinski's affirmative defense in their response on February 17, 1998.

On March 5, 1998, Ms. Zielinski filed a motion for summary judgment and confirmation of arbitration award, contending that no errors appeared on the face of the award (see Garver v. Ferguson, 76 Ill. 2d 1, 10-11, 389 N.E.2d 1181, 1184 (1979)), and that petitioners' allegations that the arbitrators "acted in manifest disregard of the law" and "exceeded their authority" in awarding Ms. Zielinski compensation for attorney fees incurred in prosecuting her claim were without merit.

On April 6, 1998, petitioners filed their cross-motion for summary judgment seeking a vacatur of that portion of the arbitration award that awarded attorney fees to Ms. Zielinski for the reasons stated in their initial petition before the court.

On August 6, 1998, following a hearing on the parties' cross-motions for summary judgment, the circuit court entered an order granting respondent's motion, denying petitioners' motion, and confirming the arbitration award. Petitioners appeal.

We reverse and vacate that portion of the arbitration award assessing attorney fees against petitioners.

OPINION

Before addressing the merits of petitioners' appellate contentions, it should briefly be noted that their statement of facts contains both argument and comment in violation of Supreme Court Rule 341(e)(6) (134 Ill. 2d R. 341(e)(6)). Although appellate courts have been reluctant to impose sanctions for this type of violation, sanctions may become necessary to enforce respect for the rule. Sherman Hospital v. Wingren, 169 Ill. App. 3d 161, 163, 523 N.E.2d 220, 222 (1988). We will consider this warning to be sufficient sanction in this case and address the merits of the appeal.

It is well settled that, whenever possible, a court should construe an arbitration award in a manner that upholds its validity. Rauh v. Rockford Products Corp., 143 Ill. 2d 377, 386, 574 N.E.2d 636, 641 (1991), citing Merritt v. Merritt, 11 Ill. 565 (1850). Further, judicial review of an arbitrator's award is intended to be more limited than appellate review of a trial court's decision. Garver, 76 Ill. 2d at 8, 389 N.E.2d at 1183. Section 12(a) of the Illinois Uniform Arbitration Act (Illinois Act) enumerates various grounds on which an arbitration award is to be vacated. See 710 ILCS 5/12(a) (West 1996). Petitioners rely on sections 12(a)(2) and (a)(3) of the Illinois Act, *fn1 which state that a court must vacate or modify an arbitration award where there was evident partiality or misconduct on the part of the arbitrators, thereby prejudicing the rights of either party (710 ILCS 5/12(a)(2) (West 1996)), or where the arbitrators exceeded their powers (710 ILCS 5/12(a)(3) (West 1996)). If the arbitrators have acted in good faith, however, the award is conclusive upon the parties. Garver, 76 Ill. 2d at 7-8, 389 N.E.2d at 1183. And, a presumption exists that the arbitrator did not exceed his or her authority. Father & Sons, Inc. v. Taylor, 301 Ill. App. 3d 448, 453, 703 N.E.2d 532, 535 (1998). Such deference is accorded because the parties have chosen in their contract how their dispute is to be decided, and judicial modification of an arbitrator's decision deprives the parties of that choice. Tim Huey Corp. v. Global Boiler & Mechanical, Inc., 272 Ill. App. 3d 100, 106, 649 N.E.2d 1358, 1362 (1995). " 'A contrary course would be a substitution of the judgment of the Chancellor in place of the Judges chosen by the parties, and would make an award the commencement, not the end, of litigation.' " Garver, 76 Ill. 2d at 9, 389 N.E.2d at 1184, quoting Burchell v. Marsh, 58 U.S. (17 How.) 344, 349, 15 L. Ed. 96, 99 (1855).

I.

We will first address petitioners' contention that they did not waive their right to contest attorney fees, as alleged by Ms. Zielinski. In our view, Ms. Zielinski's contention before the circuit court and on appeal, that petitioners have waived their right to contest attorney fees by referring in their statement of answer to a prearbitration settlement proposal that offered to pay said fees, is not well founded. Specifically, Ms. Zielinski contends that "[d]uring the arbitration proceeding, rather than challenge, in their Answer, the Panel's authority to hear Ms. Zielinski's claim for attorney[] fees, [petitioners] repeatedly acknowledged that [Ms.] Zielinski was entitled to attorney[] fees." (Emphasis omitted.) As such, having submitted the position that ...


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