Appeal from the Circuit Court of Madison County. No. 94-L-1428. Honorable Philip J. Kardis, Judge, presiding.
The opinion of the court was delivered by: Justice Goldenhersh
This case originated in 1994 when Sandra Bickel, now deceased, and her husband, Raymond Bickel, now individually and as the special administrator of the estate of Sandra Bickel, filed a lawsuit in the circuit court of Madison County against, inter alia, Doctor's Associates, Inc. (Doctor's), and Subway Development of Chicagoland, Inc. (Subway Development). The lawsuit claimed fraud, breach of contract, and willful and wanton breach of contract and sought a declaratory judgment that the arbitration clauses in their two franchise agreements were void and unenforceable. Here, Subway Development appeals from a $400,000 default judgment entered against it and in favor of the plaintiffs and from the denial of its motion to vacate that judgment. The other defendants are not a subject of this appeal. The issues raised by Subway Development are, in essence, (1) whether the service of the complaint was proper and (2) if service was proper, whether the $400,000 default judgment entered in favor of the plaintiffs and against Subway Development was proper. We affirm in part, vacate in part, and remand for a hearing on the issue of damages.
The instant case is a study in the art of protracted litigation. We will recite only those facts necessary for an understanding of our decision herein. All of the plaintiffs' claims arose out of or related to two Subway franchise agreements between the plaintiffs and Doctor's, dated November 23, 1984, and March 18, 1986, respectively. Both franchise agreements contain arbitration clauses which provide that any controversies or claims arising out of or relating to the contract be resolved through arbitration in Connecticut by the American Arbitration Association. On December 16, 1994, the plaintiffs filed suit in Madison County against, inter alia, Doctor's, the national franchiser of Subway sandwich shops, and Subway Development, a company operated by one of Doctor's sales agents. Doctor's is a Connecticut corporation while Subway Development is an Illinois corporation.
On January 5, 1995, the plaintiffs served both Doctor's and Subway Development by leaving a copy of the complaint and the summons in the Office of the Illinois Attorney General, with the secretary for the chief counsel. Subway Development and Doctor's previously filed sworn consents appointing the Illinois Attorney General as their agent for service of process. The Illinois Attorney General is the administrator for the Franchise Disclosure Act of 1987 (Act) (815 ILCS 705/1 et seq. (West 1992)). Doctor's disclosure statement, filed pursuant to the Act, states that the Illinois Attorney General is the agent for service of process for both Doctor's and Subway Development. The disclosure statement was distributed to prospective Subway franchise purchasers by both Doctor's and Subway Development.
On January 20, 1995, Doctor's filed a demand for arbitration against the plaintiffs and a petition for a preliminary injunction in the United States District Court for Connecticut. Doctor's sought to compel the plaintiffs to arbitrate their claims against Doctor's in Connecticut and requested a preliminary injunction against further prosecution in Madison County. The plaintiffs do not have an arbitration agreement with Subway Development, and Subway Development was not a party to the arbitration demand or the petition to compel arbitration filed by Doctor's. The district court scheduled a hearing on Doctor's petition to compel arbitration and motion for a preliminary injunction on February 13, 1995.
Neither Doctor's nor Subway Development entered its appearance in Madison County within 30 days after January 5, 1995. Affidavits of employees of the Illinois Attorney General's office show that the Attorney General's office was served on January 5, 1995, and that the Attorney General's office mailed two copies of the summons and complaint against Doctor's to Doctor's Florida and Connecticut addresses and two additional copies of the summons and complaint against Subway Development to Subway Development's Chicago office, as well as to Doctor's Florida office on behalf of Subway Development. On February 7, 1995, the circuit court of Madison County entered a default judgment on the issue of liability against Doctor's and Subway Development. The default judgment included a declaratory judgment that the arbitration clause was void and unenforceable. The circuit court scheduled a hearing on damages for April 4, 1995.
On February 10, 1995, Subway Development filed a general entry of appearance and a request for an additional 30 days to respond to the plaintiffs' complaint. On February 17, 1995, Doctor's likewise filed a general entry of appearance and the same request for an additional 30 days to respond.
After a hearing on February 13, 1995, the district court entered an order granting Doctor's petition to compel arbitration and motion to enjoin the Illinois action. The injunction did not, however, affect Doctor's or Subway Development's right to take steps to vacate the default judgment here in question.
On February 17, 1995, Doctor's and Subway Development filed a motion to set aside the default judgment. On March 15, 1995, the plaintiffs filed a motion in opposition to the motion to vacate the default judgment, including an affidavit of Sandra Bickel. With regard to damages, the affidavit stated that the plaintiffs "were damaged because of their lost investment in the Subway stores, the lost income from those stores[,] and the lost value of those stores in the sum of $400,000." Ms. Bickel's affidavit was filed for the express purpose of opposing Doctor's and Subway Development's motion to vacate the default. During the April 4, 1995, hearing on the motion to set aside the default, the plaintiffs' attorney stated as follows:
"[A]s to this hearing today, we are not asking for any damages. As a matter of fact, we are enjoined from asking for damages. The only exception to the injunction is they can ask to set aside the default judgment, which we feel is inappropriate, but that was an issue on appeal in the federal system, so there is no request for actual damages or punitive damages or anything here, just that this default judgment which was appropriate under the circumstances [sic]."
Despite the plaintiffs' attorney's statement that the plaintiffs were not seeking damages at that time, the plaintiffs later claimed that damages had been proved at the hearing.
On September 12, 1995, the United States Court of Appeals for the Second Circuit reversed the order compelling arbitration, vacated the preliminary injunction entered on February 13, 1995, and remanded that case, along with several other cases, to the district court. Doctor's Associates, Inc. v. Distajo, 66 F.3d 438 (2d Cir. 1995). The preliminary injunction remained in place, however, until November 22, 1995, when the Second Circuit issued its mandate vacating the injunction.
On November 16, 1995, the circuit court heard additional arguments concerning Subway Development's motion to set aside the default. At that time, the plaintiffs' attorney stated, "[T]his was argued back in April of this year[,] at which time we submitted an [a]ffidavit of damages." The plaintiffs' attorney moved that the issue of punitive damages be separated and that a default judgment be entered after a mandate issued from the Second Circuit vacating the preliminary injunction. The plaintiffs' attorney submitted a proposed judgment that would award $400,000 in compensatory damages. Subway Development's counsel objected to the proposed judgment and reminded the circuit court that the injunction was still in effect. Subway Development's counsel asked that if the motion to set aside was not granted, Subway Development be allowed a jury trial on the issue of damages. On December 6, 1995, the district court entered a temporary restraining order to enjoin the plaintiffs from proceeding with the Illinois lawsuit. On December 7, 1995, the circuit court, unaware of the temporary restraining order, entered a judgment awarding the plaintiffs $400,000 in compensatory damages and severing the remaining claims (i.e., punitive damages) for determination at a later date. The circuit court stated:
"The default judgment of February 7, 1995[,] scheduled a damage hearing for April 4, 1995. The affidavit of Sandra Bickel established that [p]laintiffs suffered actual damages in the sum of $400,000.00. [Doctor's and Subway Development] offered no contrary evidence. While the preliminary injunction issued by the [district court] previously enjoined the [p]laintiffs from prosecuting their claims against any of the [d]efendants in this case, it did not enjoin either [Doctor's or Subway Development]. ***
This [c]court, being advised that the [p]laintiffs are no longer enjoined from proceeding with their claims against any of the [d]efendants in this case, including [Doctor's and Subway Development], hereby enters judgment in favor of [p]laintiffs *** in the sum of $400,000.00, plus court costs."
On January 5, 1996, Doctor's and Subway Development filed a notice of appeal from the above-cited judgment.
Based upon the entry of the December 6, 1995, judgment, the plaintiffs argued that the district court should abstain from exercising jurisdiction over Doctor's motion to compel arbitration, because of the $400,000 default judgment. The district court rejected the plaintiffs' contention on the basis that "the Illinois judgment was entered almost immediately and without an evidentiary hearing," and it stated, "Such action does not constitute relatively substantial proceedings." Doctor's Associates, Inc. v. Distajo, 944 F. Supp. 1010, 1023 (D. Conn. 1996). The district court granted Doctor's motion to compel arbitration and issued a preliminary injunction against the Illinois proceedings, pending the outcome of arbitration. Distajo, 944 F. Supp. at 1023. The Second Circuit affirmed. Doctor's Associates, Inc. v. Distajo, 107 F.3d 126, 139 (2d Cir. 1997).
On March 6, 1996, Doctor's and Subway filed a motion to stay the appeal during the pendency of the preliminary injunction, which this court granted. On June 17, 1998, Sandra Bickel died. During 2000, this court issued an order to show cause why the stay of this appeal should not be lifted. Doctor's and Subway Development responded that because the federal injunction had never been modified or reversed, the instant appeal remained enjoined. On May 20, 2003, after two days of hearings, an arbitrator in Connecticut issued a final award on the claims for compensatory damages in the amount of $46,440 and denied the claim for punitive damages. The plaintiff filed a motion to confirm the award with respect to liability but asked the district court to vacate the arbitrator's award of damages on the basis that the damages were insufficient as a matter of law.
On November 19, 2003, the district court denied the motion to vacate and confirmed the arbitrator's final award. The district court also denied Doctor's request that the Illinois case between Subway Development and the plaintiff be permanently enjoined, and the preliminary injunction expired. The plaintiff moved this court to lift the stay of the appeal of Subway Development ...