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Salsitz v. Kreiss

December 1, 2000

NEIL SALSITZ ET AL., APPELLANTS, V. FRITZ KREISS ET AL., APPELLEES.


The opinion of the court was delivered by: Justice Heiple

Agenda 29-September 2000.

Under Supreme Court Rule 307(a), does a party who fails to appeal from an order denying a stay of arbitration lose the opportunity to contest the arbitrability of the dispute in a subsequent appeal of the arbitration award? The answer is yes.

In 1996 and 1997, plaintiffs Neil Salsitz, Biago D'Ugo and New Horizons Productions, Ltd., participated in arbitration of a dispute they had with defendants Fritz Kreiss and Alternative Utility Services of IL, Inc., over a joint business venture. On August 8, 1997, plaintiffs filed a complaint in the circuit court of Cook County seeking an injunction to stay the arbitration on the grounds that the matter was not subject to arbitration. On August 19, 1997, the circuit court denied the request for injunction. Plaintiffs did not appeal this order. After due notice to plaintiffs, final arbitration hearings were held on December 10 and 11, 1997. Plaintiffs did not appear at these hearings. On January 10, 1998, an arbitration award of $3,761,174.40 in compensatory damages and $1,250,000 in punitive damages was entered in favor of defendants. Plaintiffs did not move to reopen the arbitration hearings. The circuit court confirmed the award of compensatory damages, but rejected the punitive damages award.

On appeal, plaintiffs argued that the circuit court erred in denying their request for a stay of arbitration because the dispute was not subject to arbitration. The appellate court held that it had no jurisdiction to entertain this argument because plaintiffs failed to file an interlocutory appeal from the circuit court's denial of their motion to stay arbitration. 311 Ill. App. 3d 590, 593. The appellate court then affirmed the circuit court's confirmation of the arbitration award. 311 Ill. App. 3d at 596.

Before this court, plaintiffs renew their contention that the dispute is not subject to arbitration, and assert that the appellate court erred in holding that it lacked jurisdiction to entertain this contention. Plaintiffs concede that Rule 307(a) authorizes the interlocutory appeal of a denial of a motion to stay arbitration, but argue that such an interlocutory appeal is not required in order to preserve the issue of nonarbitrability. Plaintiffs are incorrect. Rule 307(a) lists specific types of interlocutory orders which are immediately appealable, and provides that "the appeal must be perfected within 30 days from the entry of the interlocutory order ***." If no appeal is taken from one of the types of orders enumerated in Rule 307(a), the order becomes final and is not subject to subsequent challenge on appeal. To the extent they conflict with this holding, Anderson v. Financial Matters, Inc., 285 Ill. App. 3d 123, 135 (1996), and Alpine Bank v. Yancy, 274 Ill. App. 3d 766 (1995), are overruled. Because plaintiffs did not appeal the circuit court's denial of their motion to stay arbitration, they may no longer contest the arbitrability of the dispute.

Plaintiffs also raise several arguments contesting the arbitration award itself. First, plaintiffs contend that the arbitrator should not have proceeded with arbitration when plaintiffs failed to appear at the hearings on December 10, 1997. As the appellate court noted, however, the rules of the American Arbitration Association, which govern this dispute, specifically permit the arbitrator to proceed in the absence of any party who, after due notice, fails to obtain a postponement. 311 Ill. App. 3d at 594. Furthermore, after the close of the hearings, plaintiffs failed to file a motion to reopen the hearings. We find no error in the arbitrator's decision to proceed with the hearings.

Plaintiffs next argue that the arbitration award was unjustified because the contract between the parties was mutually rescinded when defendants returned plaintiffs' original monetary investment to plaintiffs prior to arbitration. Plaintiffs overlook, however, the fact that defendants' dispute with plaintiffs centered primarily on plaintiffs' use of confidential proprietary information concerning defendants' company. The mere return of plaintiffs' investment thus did not suffice to rescind the contract.

Plaintiffs also contend that alleged ex parte communications between plaintiffs and the arbitrator during the arbitration process are grounds for reversal of the award. Plaintiffs failed to disclose these alleged contacts, however, until after the award was entered, and have therefore waived any objection.

Finally, plaintiffs argue that the circuit court erred in failing to hold an evidentiary hearing on their complaint objecting to the arbitration award. As the appellate court noted, however, the circuit court was required, in considering defendants' motion to dismiss plaintiffs' complaint, to accept the allegations of the complaint as true. 311 Ill. App. 3d at 595. Because the circuit court in making its ruling viewed the allegations of the complaint as true, there was no need to hold an evidentiary hearing to ascertain their truth.

The judgment of the appellate court is affirmed.

Affirmed.

CHIEF JUSTICE HARRISON, dissenting:

The answer to the question posed by the majority at the outset of its opinion is not yes. It is no. A party who decides against bringing an immediate appeal of an interlocutory order denying a stay of arbitration does not lose the opportunity to contest the arbitrability of the dispute in a subsequent appeal of the arbitration award.

Orders of the circuit court to compel or stay arbitration are injunctive in nature and subject to interlocutory appeal under Supreme Court Rule 307(a)(1) (166 Ill. 2d R. 307(a)(1)). Notaro v. Nor-Evan Corp., 98 Ill. 2d 268, 271 (1983). Rule 307 confers on parties the right to appeal certain interlocutory orders before entry of final judgment. It does not, however, require them to take such appeals. Under the rule, parties have the option of waiting until after final judgment has been entered to seek review of the circuit court's interlocutory order. See Anderson v. Financial Matters, ...


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