Board of Managers of Courtyards at Woodlands Condominium Ass'n v. IKO Chicago, Inc.

• Decision Date: 18 June 1998
• Docket Number: No. 83578,83578
• Citation: 697 N.E.2d 727,183 Ill.2d 66,231 Ill.Dec. 942
• Parties: , 231 Ill.Dec. 942 . IKO CHICAGO, INC., et al. (Johnston Associates, Inc., Appellant). Supreme Court of Illinois
• Court: Illinois Supreme Court

Page 727

697 N.E.2d 727

183 Ill.2d 66, 231 Ill.Dec. 942

BOARD OF MANAGERS OF the COURTYARDS AT the WOODLANDS CONDOMINIUM ASSOCIATION, Appellee, v. IKO CHICAGO, INC., et al. (Johnston Associates, Inc., Appellant).

No. 83578.

Supreme Court of Illinois June 18, 1998.

[183 Ill.2d 67] [231 Ill.Dec. 943] Daniel S. Breennan, Schiff Hardin & Waite, Chicago, for Johnston Associates Inc.

Robert J. Harris, Stein, Ray & Conway, Chicago, for Zale Groves, Inc.

C. Corey S. Berman, Kovitz, Shifrin & Waitzman, Buffalo Grove, for Courtyards at the Woodlands.

Chief Justice FREEMAN delivered the opinion of the court:

Plaintiff, Board of Managers of the Courtyards at the Woodlands Condominium Association, filed a complaint against the developers of the condominium, Zale Groves, Inc., Zale Group, Inc., Zale Enterprises, Inc., and Zale Construction Company (collectively, the Zale defendants), for alleged defects in the design and construction of the development's roofs. The Zale defendants filed a third-amended third-party complaint against Johnston Associates, Inc. (Johnston), and certain other entities which contracted with the Zale defendants to build the roofs. At issue in this case is the contract between Zale Construction Company and Johnston in which Johnston agreed to furnish architectural and design services for the buildings. The contract also included an arbitration clause. Based upon this clause, Johnston filed a written demand for arbitration with the American Arbitration Association. Johnston also filed a motion to compel arbitration and stay the third-party claims against it pursuant to section 2(a) of the Illinois Uniform Arbitration Act (710 ILCS 5/2(a) (West 1994)). Relying on J.F. Inc. v. Vicik, 99 Ill.App.3d 815, 55 Ill.Dec. 282, 426 N.E.2d 257 (1981), the trial court denied Johnston's motion, finding that the issues and parties were so "intertwined" and "interconnected" that "they could not be resolved without all the parties being a part of this litigation." Johnston appealed to the appellate court, which affirmed the trial court's decision. See 288 Ill.App.3d 801, 807, 224 Ill.Dec. 120, 681 N.E.2d 102. We granted Johnston's petition for leave to appeal (166 Ill.2d R. 315) and now reverse the decision of the appellate court.

BACKGROUND

The detailed facts of the case are fully set forth in the appellate court opinion. 288 Ill.App.3d 801, 224 Ill.Dec. 120, 681 N.E.2d 102. We will provide the relevant background necessary to dispose of the issue presented.

The plaintiff maintains the common elements of a 128-building condominium development in Buffalo Grove, Illinois. In 1994, plaintiff filed a complaint against the Zale defendants seeking damages for alleged defects in the design and construction of the condominium's roofs. On March 1, 1996, the Zale defendants filed their third-amended third-party complaint against IKO Chicago, Inc., W.A. Anderson Construction Company, Lenny Szarek, Inc., Prate Roofing, Inc., S.J. Nitch/Roof Brokers, Inc., All American Roofing , Inc., and Johnston. The Zale defendants premised their third-party action solely on theories of conditional contribution or indemnification. The Zale defendants did not allege any independent causes of action against any third-party defendant.

In count VII of the third-amended third-party complaint, the Zale defendants alleged that they entered into a written contract with Johnston in which Johnston agreed to furnish architectural and design services for the buildings. The Zale defendants further alleged that "the actions of which plaintiff complains in its fifth amended complaint are services furnished in part by third party defendant [Johnston]."

The contract between Johnston and Zale Construction Company included the following provision:

"Either party may demand in writing arbitration of all claims, disputes or questions of this Contract or breach thereof in accordance with the prevailing rules of the American Arbitration Association, within reasonable time before the date legal proceedings would be barred by applicable statute of limitations, and judgment upon the award rendered by the arbitrators shall be final and may be entered in any court having jurisdiction thereof."

Based on this arbitration clause, Johnston filed and served a written demand for arbitration with the American Arbitration Association on April 4, 1996. On that same day, Johnston filed a motion to compel arbitration and stay the third-party claims against it pursuant to section 2(a) of the Illinois Uniform Arbitration Act (the Act) (710 ILCS 5/2(a) (West 1994)).

Plaintiff, the Zale defendants, and W.A. Anderson Construction Company opposed Johnston's motion, relying on the decision in Vicik. The Vicik court held that the policy favoring arbitration may give way to competing policies favoring joinder of claims in light of the following factors: decreased delay, complexity and costs, resolution of common issues in a single forum, desirability of consistent results, and prejudicing or affecting parties who did not execute an arbitration agreement. 288 Ill.App.3d at 806, 224 Ill.Dec. 120, 681 N.E.2d 102. The Zale defendants argued that Johnston's motion should be denied because the "issues in this case are inextricably intertwined, intermingled and dependent upon each other such that the issues raised in count VII cannot be severed."

Johnston responded by stating that since there was no dispute as to the agreement to arbitrate, its motion should be granted. Johnston argued that the trial court should not apply the Vicik analysis because Vicik has been criticized by Illinois courts. Johnston further argued that the public policy considerations enumerated in Vicik were insufficient to override the general rule in Illinois that arbitration agreements in multiparty proceedings should be enforced.

On June 11, 1996, the trial court denied Johnston's motion based on the reasoning in Vicik. While recognizing the validity of the arbitration agreement, the trial court nonetheless found that the "problems would be enormous" if it were to allow arbitration to proceed either before or during litigation of the underlying action. The court stated that inconsistent results "might prejudice various other parties in this litigation. And prejudice is one of the factors that the court is considering here in relying on its ruling." On appeal, the appellate court affirmed the trial court. The court applied the Vicik factors and concluded that prejudices and inequities might result if the court compelled arbitration in this case. 288 Ill.App.3d at 806-07, 224 Ill.Dec. 120, 681 N.E.2d 102.

ANALYSIS

Johnston argues that the trial court erred in denying arbitration once the court found that a valid arbitration agreement existed. Johnston bases this argument upon section 2(a) of the Act, which provides:

"On application of a party showing an [arbitration] agreement * * *, and the opposing party's refusal to arbitrate, the court shall order the parties to proceed with arbitration, but if the opposing party denies the existence of the agreement to arbitrate, the court shall proceed summarily to the determination of the issue so raised and shall order arbitration if found for the moving party, otherwise, the application shall be denied." 710 ILCS 5/2(a) (West 1994).

Based on the plain language of the statute, Johnston is correct that at a hearing to stay a judicial proceeding and to compel arbitration, the trial court should concern itself solely with whether an agreement exists to arbitrate the dispute in question. See J & K Cement Construction, Inc. v. Montalbano Builders, Inc., 119 Ill.App.3d 663, 669, 75 Ill.Dec. 68, 456 N.E.2d 889 (1983).

Here, the parties do not deny the existence of the arbitration clause in the contract between Johnston and Zale Construction Company. The plaintiff and Zale defendants argue, however, that compelling arbitration would lead to inconsistent results, compromise judicial economy, and prejudice nonsignatories to the arbitration agreement because the third-party claims are "inextricably intertwined with the claims alleged by the plaintiff." Johnston responds that its "contractual right to arbitration and Illinois' public policy favoring arbitration outweigh concerns regarding judicial economy, duplication of effort and possibly inconsistent results."

The parties request that this court resolve the conflict between important state policies favoring enforcement of arbitration agreements and the policies supporting joinder and the resolution of multiparty conflicts in a single forum.

It is a well-established principle that arbitration is a favored alternative to litigation by state, federal and common law because it is " 'a speedy, informal, and relatively inexpensive procedure for resolving controversies arising out of commercial transactions.' " J & K Cement Construction, Inc., 119 Ill.App.3d at 667-68, 75 Ill.Dec. 68, 456 N.E.2d 889, quoting Layne-Minnesota Co. v. Regents of the University of Minnesota, 266 Minn. 284, 287-88, 123 N.W.2d 371, 374 (1963); First Condominium Development Co. v. Apex Construction & Engineering Corp., 126 Ill.App.3d 843, 846, 81 Ill.Dec. 810, 467 N.E.2d 932 (1984). In Illinois, the general rule is that agreements to arbitrate will be enforced despite the existence of claims by third parties or of pending multiparty litigation. See Iser Electric Co. v. Fossier Builders, Ltd., 84 Ill.App.3d 161, 166, 39 Ill.Dec. 686, 405 N.E.2d 439 (1980); Kostakos v. KSN Joint Venture No. 1, 142 Ill.App.3d 533, 538, 96 Ill.Dec. 862, 491 N.E.2d 1322 (1986); J & K Cement Construction, Inc., 119 Ill.App.3d at 674, 75 Ill.Dec. 68, 456 N.E.2d 889; Diersen v. Joe Keim Builders, Inc., 153 Ill.App.3d 373, 377, 106 Ill.Dec. 534, 505 N.E.2d 1325 (1987); Jacob v. C & M Video, Inc., 248 Ill.App.3d 654, 657, 188 Ill.Dec. 697, 618 N.E.2d 1267 (1993). However, Vicik carved an exception to this rule.

In Vicik, homeowners contracted with a general...