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City of Chicago v. Chicago Loop Parking LLC

Court of Appeals of Illinois, First District, Fourth Division

November 26, 2014

THE CITY OF CHICAGO, a Municipal Corporation, Petitioner-Appellant,
v.
CHICAGO LOOP PARKING LLC, Respondent-Appellee

Page 454

Appeal from the Circuit Court of Cook County. No. 13 CH 13381. Honorable Sophia H. Hall Judge Presiding.

SYLLABUS

Where the City of Chicago entered into a lease giving respondent the right to operate four garages in a certain area, the right to compensation if the city allowed any new public parking facility to open in the vicinity of the leased garages and an agreement to arbitrate disputes, the city conceded that it had no grounds to vacate or modify the final and binding arbitration award of $58 million in damages to respondent based on the city's approval of a new public parking garage near the garages respondent leased, and when the city filed a " Verified Petition to Enter Judgment on Arbitration Award, To Stay The Judgment, And To Modify The Judgment" pursuant to sections 9 and 13 of the Federal Arbitration Act and sections 2-1203, 2-1305 and 2-1401 of the Code of Civil Procedure, the trial court properly dismissed the city's petition and entered a judgment confirming the arbitration award, since no claim for relief from the valid arbitration award was stated bye the city under the Act or the Illinois postjudgment statutes. Decision Under

For Appellant: Martha M. Pacold, Reid M. Bolton, Bartlit Beck Herman Palenchar & Scott, LLP; Stephen R. Patton, Corporation Counsel of the City of Chicago, Benna Ruth Solomon, Deputy Corporation Counsel, Myriam Zreczny Kasper, Chief Assistant Corporation Counsel.

For Appellee: David A. Godon, Melanie E. Walker, Kendra L. Stead, Lawrence P. Fogel, Sidley Austin, LLP.

JUSTICE EPSTEIN delivered the judgment of the court, with opinion. Presiding Justice Fitzgerald Smith and Justice Taylor concurred in the judgment and opinion.

OPINION

Page 455

EPSTEIN, JUSTICE

[¶1] This case involves two sophisticated parties that willingly chose arbitration as their preferred method of resolving their disputes, thereby restricting the reach of the courts. Now, unhappy with the result of that choice -- a final and binding arbitration award it wishes to avoid -- one of the parties turns to the court for relief. This court finds, as did the trial court, that it has no authority to overturn the valid arbitration award.

[¶2] A brief chronology of events follows. In November 2006, appellant City of Chicago

Page 456

(the City) and appellee Chicago Loop Parking LLC, now known as LMG2, LLC (CLP), entered into an agreement whereby CLP paid the City $563 million in exchange for the City granting CLP a 99-year lease and concession to operate the four underground garages in Grant and Millennium Parks (the Concession and Lease Agreement). Unfortunately for the City -- and the taxpayers of Chicago -- the City would not realize the full benefit of that bargain due to subsequent events, which only can be characterized as a series of mistakes and unsuccessful strategic choices made by the City.

[¶3] A dispute arose in 2009 that the parties were not able to resolve. The City eventually conceded liability but disputed the amount of damages it owed CLP. In 2011, as they had previously agreed in the Concession and Lease Agreement, the parties proceeded to binding arbitration for a determination of damages. In 2013, after an eight-day evidentiary hearing, the three-member arbitration panel issued its final and binding award (the Arbitration Award). Thus, the City found itself owing CLP nearly $58 million in damages as the result of the Arbitration Award, and the City conceded there were no grounds on which to vacate or modify the award. That did not stop the City from trying (belatedly) to mitigate the damages.

[¶4] Five months after the Arbitration Award was entered, the City filed a " Verified Petition to Enter Judgment on Arbitration Award, To Stay The Judgment, and To Modify The Judgment" in the circuit court (the City's petition). CLP filed its own motion to confirm the Arbitration Award and also filed a motion to dismiss the City's petition pursuant to section 2-619.1 of the Illinois Code of Civil Procedure. 735 ILCS 5/2-619.1 (West 2012). There was no dispute that the Arbitration Award was final and binding and that no grounds existed under the Federal Arbitration Act (9 U.S.C. § 1 et seq. (2000)) (FAA) for vacating or modifying the award. There was no dispute that the circuit court had the authority, and was in fact required, to confirm and enter judgment on the Arbitration Award pursuant to section 9 of the FAA. 9 U.S.C. § 9 (2000). The City, however, sought to vacate or modify the judgment based on a contingent contract that the City entered into with a third party after the arbitration, which the City asserted would eliminate CLP's future damages. After full briefing and hearing argument from the parties, the circuit court confirmed the Arbitration Award but refused to vacate or modify its judgment and dismissed the City's petition. The City filed the instant appeal. As will be explained below, there is no legal or equitable remedy available to the City to undo the Arbitration Award -- the award it bargained for -- even where taxpayer funds are involved. There are no grounds for vacating or modifying the court judgment confirming the Arbitration Award. For the following reasons, we affirm the judgment of the circuit court of Cook County.

[¶5] BACKGROUND

[¶6] The Parties' Arbitration Agreement

[¶7] The Concession and Lease Agreement provides that any dispute between the parties " shall be exclusively and finally settled by arbitration in accordance with the Commercial Arbitration Rules of the [American Arbitration Association] then in effect." This arbitration provision expressly states: " The award shall be final and binding on the Parties. Judgment on the award may be entered by any court with competent jurisdiction." (Emphasis added.) The parties further agreed that " [t]he Federal Arbitration Act *** shall govern any arbitration conducted."

Page 457

[¶8] The Dispute

[¶9] The Concession and Lease Agreement contained a noncompete provision by which CLP was entitled to compensation if the City authorized any new competition by allowing any new public parking facility to open in a defined area in the immediate vicinity of CLP's leased garages (competing parking action). Soon after the parties entered into the Concession and Lease Agreement, the City approved a site plan for a new building (the Aqua) developed by Magellan Development, which included a 1,273-space public parking garage. On May 1, 2009, after construction of the Aqua was substantially completed, the City issued a public garage license to Standard Parking Corporation, the garage operator for the Aqua. The garage was located approximately one block from the CLP garages and within the competing parking area. CLP observed a decline in the number of its parkers. It is undisputed that the City's action entitled CLP to compensation. On August 20, 2009, CLP submitted a claim to the City for compensation.

[¶10] Attempts at Informal Dispute Resolution

[¶11] The City realized its mistake. On August 28, 2009, the City sent a letter to Standard Parking Corporation informing it that the Aqua's public garage license had been issued in error and was being rescinded. The City also offered to exchange the Aqua public garage license for an accessory garage license. Apparently, Magellan Development still owned the garage and chose to challenge the City's decision.

[¶12] Standard Parking Corporation filed an administrative proceeding contesting the rescission of its license. In the administrative proceedings, the City took the position that if the license was changed to an accessory garage license, only residents, tenants, and guests of the Aqua would be permitted to use the garage. On February 10, 2010, the City settled its dispute with Standard Parking Corporation by replacing its license with an accessory garage license.

[¶13] Unfortunately, the new license did not cure the City's competing parking action. It is undisputed that the Aqua garage continued to accept parkers from the general public. After pursuing informal dispute resolution procedures mandated by the Concession and Lease Agreement, the City and CLP were unable to resolve the dispute.

[¶14] The Arbitration Proceedings

[¶15] On March 1, 2011, CLP filed a statement of claim against the City with the American Arbitration Association, requesting " an amount to be determined at arbitration but in no event less than $200 million" to compensate it for past losses and losses projected over the balance of the 99-year lease period. CLP later reduced its demand but still sought over $137 million. The City's position was that the amount of damages was approximately $13 million including interest.

[¶16] On March 23, 2011, the City filed its answering statement in the arbitration asserting that the new license issued to Standard Parking Corporation in February 2010 cured the competing parking action and CLP was not entitled to any compensation after that date. While the matter was pending in arbitration, there were contested discovery issues. Eventually, under the facts established in the case, the City admitted liability. The City conceded that both the original public parking garage license and the replacement accessory license granted to the Aqua constituted competing parking actions that entitled CLP to compensation. Although the City chose not to contest its liability, it disputed the amount of damages it owed CLP.

Page 458

Thus, CLP was required to prove its losses at an arbitration governed by the FAA.

[¶17] A three-member arbitration panel heard evidence for seven days in October 2012. The parties submitted prehearing memoranda relating to issues involved in the evidentiary hearing, as well as posthearing memoranda. In addition to numerous fact witnesses, the arbitration panel heard testimony from CLP's expert witness and the City's three experts. The parties submitted nearly 1,000 exhibits. The hearing transcript constituted 1,784 pages. The arbitration panel heard closing arguments on November 20, 2012.

[¶18] The Arbitration Award

[¶19] On January 14, 2013, the arbitration panel issued a unanimous 22-page award to CLP of nearly $58 million, which included approximately $7.3 million in prejudgment interest (the Arbitration Award). The City was not pleased with the Arbitration Award, but it was binding and final. No grounds existed under the FAA for vacating or modifying the Arbitration Award.[1]

[¶20] In sum, the City found itself owing $58 million to CLP as the result of several choices made by the City, which can be summarized as follows: (1) agreeing to arbitrate any disputes under the Concession and Lease Agreement; (2) engaging in a competing parking action by issuing the original garage license to the Aqua; (3) engaging in a second competing parking action by issuing a replacement accessory garage license to the Aqua that still allowed public parking; and (4) proceeding to arbitration in the hope that the arbitration panel would find in favor of the City's position on the amount of damages.

[¶21] The Aqua Agreement

[¶22] After the arbitration panel issued its Arbitration Award, which the City states was nearly two times more than what it would cost (or would have cost) the City to buy out the entire license it had issued to the Aqua's garage operator, the City made a deliberate and strategic choice. The City chose to enter into a contingent agreement to terminate the Aqua's license in an attempt to reduce the impact of the Arbitration Award on taxpayers. Had this " fifth" choice by the City been made prior to the arbitration proceedings, the outcome in this case may have been far different. Then, the arbitrators could have considered the impact of this agreement on the issue of future damages to CLP.

[¶23] On May 17, 2013, after extended negotiations, the City entered into the contingent agreement with the owner of the Aqua entitled an " Agreement to Dispose of and Terminate Existing License and Grant New License" (the Aqua Agreement). Under the Aqua Agreement, the City would pay the owner of the Aqua between $23 million and $28.5 million, depending on certain developments and contingencies. In exchange, the Aqua would stop taking public parking within 30 days following the entry of an order by the circuit court of Cook County that grants the City at least $40 million in relief from the Arbitration Award. Thus, the Aqua Agreement would not go into effect unless and until a court reduces the City's liability to CLP by at least $40 million. The Aqua Agreement also provides that it is subject to the approval by the Aqua owner's members and

Page 459

the mortgagee, and is subject to the approval of the city council.

[¶24] The Trial Court Proceedings

[¶25] On May 23, 2013, the City filed a " Verified Petition To Enter Judgment On Arbitration Award, To Stay The Judgment, And To Modify The Judgment" pursuant to sections 9 and 13 of the FAA (9 U.S.C. § § 9, 13 (2000)) and sections 2-1203, 2-1305 and 2-1401 of the Code of Civil Procedure (735 ILCS 5/2-1203, 2-1305, 2-1401 (West 2012)). The City asserted that the " split-the-baby" Arbitration Award was " excessive" but conceded it had no basis to challenge the Arbitration Award under any of the statutory grounds available to it under the FAA. Instead, the City requested that the circuit court take three successive steps: first, confirm and enter judgment on the Arbitration Award; second, stay that judgment; and finally, vacate or modify the judgment " pursuant to 735 ILCS 5/2-1203 and/or 2-1401." As support for the final step, the City claimed that, as a result of the Aqua Agreement, CLP would incur no future harm from public parking at the Aqua, thus eliminating the future damages element of the Arbitration Award. The City argued that this fact justified the circuit court's exercise of its equitable powers to modify the judgment. The City argued that sections 2-1203 and 2-1401 of the Illinois Code of Civil Procedure were applicable pursuant to the plain language of section 13 of the FAA (9 U.S.C. § 13 (2000)) which provides that, " [t]he judgment so entered shall have the same force and effect, in all respects, as, and be subject to all the provisions of law relating to, a judgment ...


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