Carr v. And On Behalf of All Others Similarly Situated

• Court: Illinois Supreme Court
• Writing for the Court: OPINION
• Citation: Carr v. And On Behalf of All Others Similarly Situated, 944 N.E.2d 327, 241 Ill.2d 15, 348 Ill.Dec. 374 (Ill. 2011)
• Decision Date: 03 February 2011
• Docket Number: No. 109485.,109485.
• Parties: William CARR, Indiv. and on Behalf of All Others Similarly Situated, Appellee,v.GATEWAY, INC., Appellant.

241 Ill.2d 15

944 N.E.2d 327

348 Ill.Dec. 374

William CARR, Indi

v. and on Behalf of All Others Similarly Situated, Appellee,

v.GATEWAY, INC., Appellant.

No. 109485.

Supreme Court of Illinois.

Feb. 3, 2011.

John T. Walsh, Peter Maginot, Meghan s. largent and Clayton E. Gillette, of Lathrop & Gage, LLP, of St. Louis, Missouri, and Stephen M. Hogan, of San Diego, California, for appellant.Stephen M. Tillery, Robert L. King and Aaron M. Zigler, of St. Louis, Missouri, and Stephen A. Swedlow and Maximilian C. Gibbons, of Chicago, all of Korein Tillery, for appellee.

OPINION

Justice GARMAN delivered the judgment of the court, with opinion.

[241 Ill.2d 17 , 348 Ill.Dec. 375] In 2001, plaintiff, William Carr, and his wife purchased a computer from defendant, Gateway, Inc. Carr subsequently filed suit alleging misrepresentation by Gateway as to the speed of the computer's processor. Gateway sought to dismiss the suit and compel arbitration in accordance with the terms of the sales contract. The circuit court of Madison County denied the motion, holding, inter alia, that there was no valid arbitration agreement between the parties. Gateway appealed under Rule 307(a) (1) (Ill.S.Ct. R. 307(a)(1) (eff.July 6, 2000)). While the case was on appeal, the National Arbitration Forum (NAF), the arbitral forum designated in the arbitration agreement, stopped accepting consumer arbitrations. Thereafter, the appellate court affirmed the circuit court on the basis that the arbitration agreement failed due to the unavailability of the arbitral forum. 395 Ill.App.3d 1079, 335 Ill.Dec. 253, 918 N.E.2d 598. We allowed Gateway's petition for leave to appeal. Ill. S.Ct. R. 315 (eff.Feb. 26, 2010). The present appeal concerns whether section 5 of the Federal Arbitration Act (Arbitration Act or Act) (9 U.S.C. § 5 (2006)) applies to permit the circuit court to appoint a substitute arbitrator due to the unavailability of the parties' designated arbitral forum.

BACKGROUND

Plaintiff Carr and others filed a class action complaint in June 2002 against defendants Intel Corporation, Gateway, Inc., and other computer manufacturers. The complaint alleged that defendants marketed Pentium 4 processors and computers in a misleading manner by claiming that the Pentium 4 processor was faster than its predecessor, the Pentium III. Carr alleged that, in fact, the Pentium 4 was slower than the Pentium III and Athlon processors from AMD (Advanced Micro Devices, Inc.).

Carr's allegations were contained in counts IV, V, and VI of the class action complaint. In 2003, the circuit court severed those counts and Carr's allegations proceeded separately. In the other action, styled Barbara's Sales, Inc. v. Intel Corp., the circuit court certified a class. The defendants in that action appealed and the case eventually came before this court, where we held that the class action could not proceed because the alleged representations

[944 N.E.2d 329 , 348 Ill.Dec. 376]

made by the defendants in that case were not actionable under Illinois law. Barbara's Sales, Inc. v. Intel Corp., 227 Ill.2d 45, 76, 316 Ill.Dec. 522, 879 N.E.2d 910 (2007).

With respect to the instant case, Carr alleged causes of action under California law and under Illinois's Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq. (West 2000)). The allegations in Carr's complaint were identical to those contained in the original class action complaint. Gateway filed a motion to dismiss or, in the alternative, to compel arbitration, based on an arbitration clause in a “Limited Warranty Terms and Conditions Agreement” that was included in the materials sent with the computer when it arrived at Carr's home. Gateway argued that Carr agreed to arbitrate all disputes.

In November 2007, the circuit court held an evidentiary hearing on Gateway's motion. Following the hearing, the circuit court denied the motion, ruling that the agreement containing the arbitration clause was not part of the sales contract entered into by the parties. The court also found that, even if the arbitration clause were part of the sales agreement, it could not be enforced because it was unconscionable due to the following: (1) the clause was nonnegotiable; (2) it was part of a preprinted form and was not read by Carr until several days after the computer was purchased; (3) the terms of the arbitration clause were one-sided; (4) Carr could be saddled with large costs in pursuing his claim through the designated arbitral forum; (5) Carr would be prohibited from pursuing his claim as a class action; and (6) Carr would be prohibited from pursuing a claim for punitive damages.

Gateway timely appealed. When it became known that the NAF had stopped accepting consumer arbitrations, the appellate court ordered supplemental briefing regarding the effect of this development on the case. In its decision, the court noted the circuit court had ruled that the agreement to arbitrate was not a part of the contract for the purchase of the computer. The appellate court assumed, for purposes of the appeal, that there was a valid agreement to arbitrate. The court noted a split among courts as to whether section 5 of the Arbitration Act applies in such cases. The court then held that the specific designation of the NAF as the exclusive arbitration forum was an integral part of the arbitration clause, noting that the NAF has a “very specific set of rules and procedures that has implications for every aspect of the arbitration process.” 395 Ill.App.3d at 1085, 335 Ill.Dec. 253, 918 N.E.2d 598. As further support for its decision, the appellate court also pointed to a clause in the agreement that allowed the arbitrator to impose monetary penalties on a party for bringing a dispute in any forum other than the NAF. Thus, the court found that section 5 of the Act could not be used to reform the arbitration provision. Id. at 1086, 335 Ill.Dec. 253, 918 N.E.2d 598.

ANALYSIS

I

This appeal requires us to interpret the parties' arbitration agreement. An agreement to arbitrate is a matter of contract. Salsitz v. Kreiss, 198 Ill.2d 1, 13, 260 Ill.Dec. 541, 761 N.E.2d 724 (2001). The interpretation of a contract involves a question of law, which we review de novo. Dowling v. Chicago Options Associates, Inc., 226 Ill.2d 277, 285, 314 Ill.Dec. 725, 875 N.E.2d 1012 (2007).

II

The arbitration provision at issue states in pertinent part as follows:

[944 N.E.2d 330 , 348 Ill.Dec. 377]

“You agree that any Dispute between You and Gateway will be resolved exclusively and finally by arbitration administered by the National Arbitration Forum (NAF) and conducted under its rules, except as otherwise provided below. The arbitration will be conducted before a single arbitrator, and will be limited solely to the Dispute between You and Gateway. * * * Should either party bring a Dispute in a forum other than NAF, the arbitrator may award the other party its reasonable costs and expenses, including attorneys' fees, incurred in staying or dismissing such other proceedings or in otherwise enforcing compliance with this dispute resolution provision. You understand that You would have had a right to litigate disputes through a court, and that You have expressly and knowingly waived that right and agreed to resolve any Disputes through binding arbitration. This arbitration agreement is made pursuant to a transaction involving interstate commerce, and shall be governed by the Federal Arbitration Act, 9 U.S.C. Section 1, et seq.” (Emphasis in original.)

Section 2 of the Arbitration Act (9 U.S.C. § 2 (2006)) provides:

“A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

In Borowiec v. Gateway 2000, Inc., 209 Ill.2d 376, 384, 283 Ill.Dec. 669, 808 N.E.2d 957 (2004), this court noted that Congress enacted the Arbitration Act to reverse long-standing judicial hostility to arbitration agreements and to place arbitration agreements on the same footing as other contracts. The Arbitration Act reflects a “ ‘liberal federal policy favoring arbitration agreements.’ ” Id. (quoting Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)). This court has recognized that, in construing federal laws, decisions of the federal courts are binding upon this court, to the end that such laws may be given uniform application. Busch v. Graphic Color Corp., 169 Ill.2d 325, 335, 214 Ill.Dec. 831, 662 N.E.2d 397 (1996).

Section 4 of the Arbitration Act (9 U.S.C. § 4 (2006)) permits a party in a civil action to petition the court for an order directing that arbitration proceed in the manner provided in the parties' arbitration agreement. Section 5 of the Arbitration Act is the provision with which we are concerned here. That section provides:

“If in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed; but if no method be provided therein, or if a method be provided and any party thereto shall fail to avail himself of such method, or if for any other reason there shall be a lapse in the naming of an arbitrator or arbitrators or umpire, or in filling a vacancy, then upon the application of either party to the controversy the court shall designate and appoint an arbitrator or arbitrators or umpire, as the case may require, who shall act under the said agreement with the same force and effect as if he or they had been specifically named therein; and unless otherwise...