Appeal from the Circuit Court of Cook County. Honorable Thomas P. Quinn, Judge Presiding.
The opinion of the court was delivered by: Justice South
This interlocutory appeal arises from an order of the circuit court of Cook County denying plaintiffs', Acme-Wiley, Icon and Stonebridge, motion to stay arbitration of claims asserted by defendant Sieg Buck.
The pertinent facts are as follows. Sieg Buck was hired by Icon as its chief executive officer in November of 2000. Buck and plaintiffs entered into an employment agreement which set out such matters as defendant's base salary, annual bonuses, employee benefits, equity participation, etc. It further provided:
"SEVERANCE - In the event we terminate your
employment for any reason other than Cause, the
Company will continue, for a twelve month period,
your base salary, medical benefits and insurance,
and provide reasonable outplacement services of your
choice. Cause shall be defined for the purposes of
this agreement as gross negligence, willful
misconduct, fraud, or commission of a felony. It
shall also include failure to apply your full
business time and best efforts to the requirements
of the Company, failure to routinely and openly
communicate and collaborate with Stonebridge's
Operating partners on Company matters, and failure
to implement the directives of Stonebridge's
Operating partners regarding the Company in a timely
manner. Termination for Cause, other than for
matters involving commission of a felony or fraud,
will be preceded by written notification to you of
Stonebridge's concerns and a single, 30-day
opportunity for you to permanently cure the issues
of concern, after which no other opportunities for
cure will be contractually required or provided.
DISPUTE RESOLUTION - Any dispute related to your
employment, performance or compensation shall be
resolved exclusively through arbitration, held in
Chicago, Il. by and in accordance with the rules of
the American Arbitration Association. Decisions of
the arbitrator shall be in accordance with
applicable state law and not based upon the
principle of ex-aequo et bono. The arbitrator shall
state the reason for any award and shall not have
the power to amend or modify this agreement. The
unsuccessful party shall pay all costs of
arbitration, including costs of the other party."
In October of 2002, Icon terminated Buck for cause as defined in the employment agreement. At that time, Icon offered Buck an opportunity to resign and tendered to him a separation agreement, which offered severance compensation for Buck and provided:
"Releases: You agree to release Stonebridge Partners
and its portfolio companies as well as the Company
and any of its affiliates, including all investors,
lenders, advisors, partners, and employees, from any
and all claims related to or arising from our
association and your employment. Likewise,
Stonebridge Partners and its portfolio companies as
well as the Company and any of its affiliates, all
as previously defined, agree to release you from any
and all such claims, unless related to illegal or
fraudulent actions uncovered during the term of this
Unlike the employment agreement, the separation agreement does not contain an arbitration clause with respect to dispute resolutions.
Defendant signed the separation agreement on October 24, 2002, and was compensated by plaintiffs as per the terms of that agreement.
On November 19, 2002, defendant sent a letter to plaintiffs demanding additional lump-sum payments based upon the salary continuation obligations contained in the employment agreement and declared that the separation agreement was unenforceable due to a lack of consideration and null and void because it was unconscionable and signed under duress and as null.
Plaintiffs responded by letter urging defendant to retract his repudiation of the separation agreement and to honor it since he had agreed to its terms and signed it. They also advised him that if they did not receive adequate assurances that he was going to honor the separation agreement, they would seek a declaratory judgment in the circuit court.
Thereafter, defendant commenced arbitration proceedings before the American Arbitration Association (AAA) in Chicago, Illinois, in accordance with the terms of the original employment agreement. The arbitration complaint alleged that Buck had been improperly terminated and libeled by plaintiffs in that Icon falsely stated that he inflated revenues in order to enhance his bonus. Plaintiffs then filed a verified complaint in chancery court for declaratory relief and injunctive relief, seeking to stay and permanently enjoin the arbitration proceedings on the grounds that no agreement to arbitrate existed in the separation agreement. Plaintiffs also sought a declaration that the arbitration clause in the employment agreement did not apply to any disputes regarding the separation agreement, which was a valid and enforceable contract. In addition, plaintiffs argued that by executing and receiving the benefits of the separation agreement, defendant had released any and all claims for severance payments pursuant to the terms of the employment agreement. Plaintiffs argued that the validity of the release contained within the separation agreement was a question of law to be decided by the court, not an arbitrator, and that defendant's libel claim was outside the scope of the arbitration clause contained within the employment agreement.
The court denied plaintiffs' motion to stay arbitration as to Icon and Stonebridge and found that the severance provision contained within the employment agreement required compensation only in the event Icon terminated defendant, but that according to the terms of the settlement agreement, defendant had not been terminated but had resigned instead, and that the question of whether there had been a resignation or a termination was a "dispute related to *** employment" to be determined by an arbitrator. The court further held that defendant's libel claim was a dispute related to his employment, performance and compensation, which fell within the broad scope of the arbitration provision contained within the employment agreement. The court stayed the arbitration as to Acme-Wiley on the grounds that it was not a signatory to the employment agreement. On the other hand, the court denied the stay as to Stonebridge on the grounds that it was not clear whether it had been a signatory to the employment agreement.
Two issues have been raised for our consideration: (1) whether the circuit court erred in allowing defendant to pursue his claim in arbitration without first overcoming the validity of the release agreement in court; and (2) whether it was error to require Stonebridge to arbitrate with Buck even though Stonebridge was not a signatory to the employment agreement.
In rendering its decision, the court relied on a federal labor law case, Niro v. Fearn International, Inc., 827 F.2d 173 (7th Cir. 1987). In that case, plaintiff worked for defendant, Fearn International, Inc., and was represented in collective bargaining by his union. Fearn fired plaintiff for reporting to work while under the influence of alcohol or drugs, and the union filed a grievance on plaintiff's behalf protesting the discharge. After negotiations, the parties entered into a settlement agreement pursuant to which plaintiff would be reinstated contingent upon his successful completion of an alcohol abuse program. However, before completing that program, plaintiff was hospitalized for overdosing on PCP. Upon learning of plaintiff's use of PCP, Fearn deemed him in breach of the settlement agreement and terminated his employment for a second time. The union filed an action against Fearn to compel arbitration over the alleged breach of the settlement agreement. The district court ordered arbitration over the alleged breach of the settlement agreement, the second discharge. Fearn appealed, arguing that the alleged breach of the settlement agreement was not an arbitrable subject. The Seventh Circuit found in favor of the union and held that a settlement agreement is an arbitrable subject when the underlying dispute is arbitrable, except in circumstances where the parties expressly exclude the settlement agreement from being arbitrated. The court went on to say:
"We begin with the axiom that 'arbitration is a
matter of contract and a party cannot be required to
submit to arbitration any dispute which he has not
agreed so to submit.' [Citations.] But arbitration
is favored and should be ordered 'unless it may be
said with positive assurance that the arbitration
clause is not susceptible of an interpretation that
covers the asserted dispute.' [Citation.] It is of
course for the court to determine whether a dispute
is subject to arbitration, unless the parties have
'clearly and unmistakably' established that an
arbitrator is to determine issues of arbitrability.
We conclude that a settlement agreement is an
arbitrable subject when the underlying dispute is
arbitrable, except in circumstances where the
parties expressly exclude the settlement agreement
from being arbitrated. To hold otherwise would
eviscerate the usefulness of settlements reached in
grievance and arbitration settings, by complicating
what should be a relatively simple and cheap
procedure." Niro, 827 F.2d at 175.
The court stated that in uncertain situations the presumption should favor arbitrability and that, if the parties desire that a settlement agreement should not be arbitrable, they may so prescribe. Fearn maintained, however, that the union had failed to pursue preliminary grievance procedures, but the court found that that alleged failure was ...