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Peregrine Financials and Securities v. Hakakha

March 31, 2003


Appeal from the Circuit Court of Cook County. Honorable Lee Preston, Judge Presiding.

The opinion of the court was delivered by: Justice Quinn


This appeal stems from an arbitration clause contained in an agreement entered into between plaintiff Peregrine Financials and Securities (Peregrine) and defendant Faramarz Hakakha. After a dispute arose between the parties, Peregrine filed a suit in the circuit court of Cook County seeking money damages. Hakakha filed a motion to dismiss based on a mandatory arbitration clause in the agreement. Peregrine subsequently sought arbitration with the National Association of Securities Dealers (NASD) and filed a motion to compel arbitration with the circuit court, which was granted in October 2001. After the NASD ordered that the arbitration take place in California, near where Hakakha lived, Peregrine successfully petitioned the circuit court to modify its October 2001 order to require that the arbitration proceed in Cook County, rather than California. In this interlocutory appeal, Hakakha contests the propriety of the trial court's order requiring that the arbitration take place in Illinois. For the reasons set forth below, we reverse the judgment of the trial court.


In October 1999, Hakakha executed a client option agreement with Peregrine regarding brokerage services. In the agreement, Hakakha listed his address as Encino, California. According to the securities account and application agreement (account agreement), the parties waived their rights to seek remedies in court and agreed:

"[A]ll controversies that may arise between the parties concerning any transaction or the construction, performance, or breach of this or any other agreement between the parties pertaining to securities or other property *** shall be determined by arbitration. Any arbitration under this Agreement shall be conducted pursuant to the [F]ederal [A]rbitration [A]ct and the laws of the State of Illinois, before the New York Stock Exchange, Inc. or any arbitration facility provided by any other exchange of which [the clearing agent] is a member, or the NASD Regulation, Inc. or the Municipal Securities Rulemaking Board and in accordance with the applicable rules of the selected organization. *** The award of the arbitrators, or of the majority of them, shall be entered in any court, state or federal, having jurisdiction."

On March 28, 2001, Peregrine filed a complaint in the circuit court of Cook County, wherein it alleged that Hakakha had breached the account agreement. Peregrine sought $39,504.97 in damages in addition to attorney fees and interest. On May 14, 2001, Hakakha moved to dismiss the complaint, arguing that the trial court lacked personal jurisdiction over him and that, under the terms of the account agreement, the parties had agreed to submit all disputes and controversies to arbitration. He prayed for an order dismissing Peregrine's complaint and compelling it to submit its claim to arbitration in accordance with the arbitration clause in the account agreement.

On June 26, 2001, Peregrine filed a combined response to Hakakha's motion to dismiss and motion to compel arbitration. Relating to its motion to compel arbitration, Peregrine asserted that pursuant to the Uniform Arbitration Act (710 ILCS 5/1 et seq. (West 2000)), a stay in the court proceedings was appropriate because the previous day, Peregrine had commenced arbitration proceedings in the matter by filing a statement of claim with the NASD. Relating to the motion to compel, Peregrine stated that Hakakha "has no intention of filing, moving to compel, or subjecting himself to arbitration. [Hakakha] is trying to avoid subjecting himself to the jurisdiction of any tribunal that would grant [Peregrine] the relief to which it is entitled." Both Peregrine's statement of claim and March 28, 2001, complaint made identical claims and sought identical relief against Hakakha. Peregrine requested in the statement of claim that the arbitration be held in Chicago.

In his reply in support of his motion to dismiss, Hakakha noted that Peregrine had conceded the validity of the arbitration clause and he argued that Peregrine's complaint should therefore be dismissed under section 2-619(a)(3) of the Illinois Code of Civil Procedure (735 ILCS 5/2-619(a)(3) (West 2000)).

In a letter dated August 8, 2001, to Hakakha from a legal assistant at the NASD, Hakakha was informed that he was required to execute a uniform submission agreement (submission agreement) on or before September 27, 2001. This was necessary to show his agreement to participate in the arbitration proceedings. The letter also stated that, "If an arbitration involves a public customer, NASD *** will generally select a hearing location closest to the customer's residence at the time the dispute arose." The letter stated that the anticipated hearing location was Los Angeles, California.

In a surreply filed September 4, 2001, Peregrine argued that dismissal of its complaint under section 2-619(a)(3) was not required because the likelihood it could obtain complete relief in the arbitration proceeding was dependant upon Hakakha submitting himself to the proceeding by filing a submission agreement with the NASD, which he had failed to do.

On October 2, 2001, the trial court entered a written order denying Hakakha's motion to dismiss. Finding that both parties had conceded the validity of the arbitration clause contained in the account agreement, the trial court granted Peregrine's motion to compel arbitration.

Although a receipt stamp was not affixed to Hakakha's submission agreement, the document was signed by him on September 28, 2001. After the NASD had selected Los Angeles as the site of the arbitration, Peregrine filed a motion to change venue. In a letter dated December 6, 2001, the NASD informed the parties that it had granted "Respondents" motion to change venue and that the venue of the arbitration had been changed to Chicago. However, Hakakha, rather than Peregrine, was the respondent in the arbitration proceedings. After Hakakha filed a motion to reconsider the venue change, the NASD reinstated its original decision to hold the arbitration in Los Angeles.

On February 26, 2002, Peregrine filed an emergency motion for clarification of the trial court's October 2, 2001, order. In the motion, Peregrine argued that after the trial court had entered the October 2 order, Hakakha finally submitted to the NASD arbitration by filing the submission agreement. Citing section 4 of the Federal Arbitration Act (9 U.S.C. ยง4 (2000)), which allows a court to compel arbitration upon motion of a party, Peregrine requested that the trial court enter an order ...

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