Donaldson, Lufkin & Jenrette Futures, Inc. v. Barr

• Decision Date: 08 January 1987
• Docket Number: No. 86-1090,86-1090
• Citation: 503 N.E.2d 786,151 Ill.App.3d 597,104 Ill.Dec. 924
• Court: United States Appellate Court of Illinois
• Parties: , 104 Ill.Dec. 924 DONALDSON, LUFKIN & JENRETTE FUTURES, INC., Plaintiff-Appellant, v. Edwin C. BARR and the Board of Trade of the City of Chicago, Defendants-Appellees.

Page 786

503 N.E.2d 786

151 Ill.App.3d 597, 104 Ill.Dec. 924

DONALDSON, LUFKIN & JENRETTE FUTURES, INC., Plaintiff-Appellant, v. Edwin C. BARR and the Board of Trade of the City of Chicago Defendants-Appellees.

No. 86-1090.

Appellate Court of Illinois First District, Fourth Division.

Jan. 8, 1987.

Jenner & Block, Chicago (Eugene R. Wedoff, of counsel), for plaintiff-appellant.

Lloyd Kadish, Therese M. Obringer, Chicago, for Edwin C. Barr.

Kirkland & Ellis, Chicago, for Bd. of Trade of the City of Chicago.

Justice LINN delivered the opinion of the court:

Plaintiff Donaldson, Lufkin & Jenrette Futures, Inc. ("Donaldson") appeals from an order of the circuit court which denied its application for a stay of arbitration proceedings. (Ill.Rev.Stat.1985, ch. 10, par. 102(b).) Donaldson applied for the stay on the ground that it had not agreed to arbitrate the compensation claims which defendant-appellee and former employee Edwin C. Barr ("Barr") had raised in his arbitration demand to the Chicago Board of Trade. The trial court denied Donaldson's application, finding that "in cases arising under the Uniform Arbitration Act ... if it is unclear whether [a claim] is arbitrable, the matter would be directed to arbitration to allow the arbitrator to determine his own jurisdiction."

On appeal Donaldson raises the following issues: (1) Whether the trial court erred in allowing the arbitrator to determine his own jurisdiction; and (2) Whether the trial court erred in not finding that the scope of the parties' arbitration agreement did not cover Barr's claims.

BACKGROUND:

Plaintiff Donaldson originally operated as a commodity futures broker and had several offices, which included one in Chicago. The Chicago office was also the office which directed the trading activities on the Chicago Board of Trade.

In 1983, Donaldson hired the defendant Barr to locate in the Chicago office and take the post of a senior vice president for the company. Barr's duties included supervising managers and account executives, as well as managing Donaldson's trading activities on five commodity exchanges, including the Chicago Board of Trade.

In addition to providing Barr with membership in the Chicago Board of Trade, Donaldson also prepared several documents which described Barr's employment duties, and which also provided a compensation analysis for these duties. Such compensation included a straight salary of $90,000 per year, the use of a car, a top-line percentage of a maximum of 5% of the gross generated from any new business for the first year, and a bottom-line percentage of 5% from related offices. In addition, and notable in this regard, was the inclusion of 15% of the bottom-line profit of the Chicago office activities.

In July 1985, Donaldson sold its operation to another firm and ceased activity as a broker on all exchanges, including the Chicago Board of Trade. Barr also ceased working for Donaldson under ambiguous circumstances at approximately the same time that Donaldson sold its commodity business.

In October, 1985, Barr's attorney sent Donaldson a letter in which Barr demanded more than $500,000 in additional employment compensation; $419,000 of this amount allegedly arose as 15% of the operating income which was generated by his Chicago office from 1983 through 1985. Other claims included the recruitment bonus of 5% of the gross first year commissions produced by new offices or employees Barr brought to Donaldson, as well as reimbursement of travel and entertainment expenses.

When Donaldson did not comply with Barr's demand for payment, Barr sought arbitration before the Chicago Board of Trade, pursuant to that organization's rules. The Board then set a date for the arbitration hearing in December 1985.

In response, on December 12, 1985, Donaldson filed in the Circuit Court of Cook County a verified application for a stay of the arbitration demanded by Barr, as well as a request for a temporary restraining order to prevent arbitration from proceeding until the court ruled on this application. Donaldson also filed a verified complaint at law, seeking a declaratory judgment that Donaldson had discharged all its obligations to Barr, as well as seeking relief from Barr on a breach of a rental car agreement. Meanwhile, in the proceedings on Donaldson's application for stay of arbitration, the circuit court granted the Chicago Board of Trade leave to intervene as a party defendant.

In its petition, Donaldson conceded that the Board Rule 600.00 mandated arbitration of any dispute between members of the Board, "which arises out of the Exchange business of such parties." Chicago Board of Trade Rule 600.00. However, Donaldson maintained that the disputes as to compensation which Barr raised were not within the scope of the Chicago Board of Trade Rule, and that there was no other applicable arbitration clause in the original agreement. It was Barr's contention in the trial court that the dispute between Donaldson and Barr was not one which arose out of a mere employment contract; instead, it involved Chicago Board of Trade business, and therefore fell within the scope of Rule 600.00. In addition, both the Board of Trade as defendant-intervenor and Barr argued that question of arbitrability in unclear cases should be delegated to the arbitrator to determine as a matter of law.

The trial court held that: (1) in Illinois the arbitrator must determine his own jurisdiction as a matter of law; and (2) Barr's claims arguably fell within the scope of Rule 600.00 and therefore would be delegated to arbitration. Donaldson then filed a notice of interlocutory appeal from the denial of its application for a stay.

OPINION:

I.

The first issue which this court must address is whether a court should initially determine the arbitrability of Barr's claims. The starting point for this inquiry is the relevant Illinois statutory provision which reads in pertinent part:

"(b) On application, the court may stay an arbitration proceeding commenced or threatened on a showing that there is no agreement to arbitrate. That issue, when in substantial and bona fide dispute, shall be forthwith and summarily tried and the stay ordered if found for the moving party...."

(Ill.Rev.Stat.1965, ch. 10, par. 102(b).)

Curiously, there has been only one Illinois Supreme Court decision which has even peripherally discussed this particular problem. (Flood v. Country Mutual Insurance Company (1968), 41 Ill.2d 91, 242 N.E.2d 149.) In that decision, the court construed the scope of an arbitration clause in a standard automobile insurance policy. However, the actual issue was whether the arbitration clause included disputes over coverage as well as issues of liability. Although the appellate court had originally held that the arbitrator should determine his own jurisdiction, the supreme court did not reach this issue.

Among the Illinois appellate courts, however, the current majority view is that the court should initially decide whether an agreement to arbitrate exists. For example, in J & K Cement Construction, Inc. v. Montalbano Builders, Inc. (1983), 119 Ill.App.3d 663, 75 Ill.Dec. 68, 456 N.E.2d 889, the primary issue in the context of a construction contract was whether there was an agreement to arbitrate a specific dispute. In that decision, the appellate court expressly held that a court should always be the forum in which to determine the initial narrow question of arbitrability. Although the court decided this case under section 102(a) and not 102(b), it is still relevant because both provisions have as a common denominator the requirement that the court make a preliminary decision. On the other hand, in Van C. Argiris & Co. v. Pain/Wetzel and Associates, Inc. (1978), 63 Ill.App.3d 993, 20 Ill.Dec. 616, 380 N.E.2d 825, the court implicitly found that the scope of arbitration bylaws covered a brokerage dispute, without initially considering the basis of their authority to do so.

Similarly, other recent decisions have held that the responsibility of determining arbitrability belongs to the courts. (See, Board of Trustees of Community Colleges v. Cook County College Teacher's Union (1985), 139 Ill.App.3d 617, 94 Ill.Dec. 79, 487 N.E.2d 956; Monmouth Public Schools v. Pullen (1985), 141 Ill.App.3d 60, 95 Ill.Dec. 372, 489 N.E.2d 1100; Consolidated Broadcasting Corp. v. American Arbitration Association (1983), 115 Ill.App.3d 577, 71 Ill.Dec. 373, 450 N.E.2d 1252; Board of Education v. Williams (1983), 118 Ill.App.3d 256, 73 Ill.Dec. 676, 454 N.E.2d 773; Lester Witte & Co. v. Lundy (1981), 98 Ill.App.3d 1100, 54 Ill.Dec. 489, 425 N.E.2d 1; See also, Iser Electric Co. v. Fossier Builders, Ltd. (1980), 84 Ill.App.3d 161, 39 Ill.Dec. 686, 405 N.E.2d 439; Farris v. Hedgepeth (1978), 58 Ill.App.3d 1040, 16 Ill.Dec. 311, 374 N.E.2d 1086.

On the other hand, several Illinois decisions have held that when an agreement to arbitrate is unclear, then the arbitrator should make the preliminary determination as to his own jurisdiction. The leading authority in this line of cases is School District No. 46 v. Del Bianco (1966), 68 Ill.App.2d 145, 215 N.E.2d 25. That case arose in the context of a construction contract, which incorporated the arbitration procedure of the American Institute of Architects. The case also arose within a few years after Illinois adopted the Uniform Arbitration Act, so that the court went into detailed analysis as to its statutory interpretation of section 2. This court concluded that the arbitrator should initially determine his own jurisdiction when the existence of an agreement to arbitrate is unclear. It reasoned that any other result would undermine the parties' original agreement that the meaning of the arbitration clause be determined by the arbitrator. 68 Ill.App.2d 154, 155, 215 N.E.2d 25, 30.

Two subsequent Illinois cases have approved the Del Bianco rationale, although neither actually referred the jurisdictional question...