Acme-Wiley Holdings, Inc. v. Buck

• Decision Date: 24 September 2003
• Docket Number: No. 1-03-1099.,1-03-1099.
• Parties: ACME-WILEY HOLDINGS, INC.; Acme-Wiley Corporation, d/b/a Icon Identity Solutions, Inc.; and Stonebridge Partners Management, L.P., Plaintiffs-Appellants, v. Sieg BUCK, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

799 N.E.2d 337

343 Ill. App.3d 1098

278 Ill.Dec. 619

ACME-WILEY HOLDINGS, INC.; Acme-Wiley Corporation, d/b/a Icon Identity Solutions, Inc.; and Stonebridge Partners Management, L.P., Plaintiffs-Appellants, v. Sieg BUCK, Defendant-Appellee.

No. 1-03-1099.

Appellate Court of Illinois, First District, Third Division.

September 24, 2003.

Daniel T. Graham, Funhouser Vegosen Liebman & Dunn Ltd., Chicago; Kenneth J. Turnbull, Kathleen L. McAchran, O'Melveny & Myers, LLP, New York, NY, for Appellants.

Mayer Brown Rowe & Maw, Barry A. White, Jeffrey W. Sarles, Michael Forde and Christopher C. Murray, for Appellee.

Justice SOUTH delivered the opinion of the court:

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 agreement."

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.

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 plaintiffs 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 plaintiffs 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...