Hahn v. A.G. Becker Paribas, Inc., 87-0225

• Decision Date: 01 December 1987
• Docket Number: No. 87-0225,87-0225
• Parties: , 115 Ill.Dec. 693 Donald D. HAHN, an individual, and Hahn, Holland & Grossman, a partnership, Defendants-Counterplaintiffs, Appellants, v. A.G. BECKER PARIBAS, INC., a corporation, Becker Paribas Incorporated, a corporation, and Merrill Lynch, Pierce, Fenner & Smith, Inc., a corporation, Plaintiffs-Counterdefendants, Appellees.
• Court: United States Appellate Court of Illinois

Page 218

518 N.E.2d 218

164 Ill.App.3d 660, 115 Ill.Dec. 693

Donald D. HAHN, an individual, and Hahn, Holland & Grossman, a partnership, Defendants-Counterplaintiffs, Appellants, v. A.G. BECKER PARIBAS, INC., a corporation, Becker Paribas

Incorporated, a corporation, and Merrill Lynch,

Pierce, Fenner & Smith, Inc., a corporation,

Plaintiffs-Counterdefendants, Appellees.

No. 87-0225.

Appellate Court of Illinois,

First District, Second Division.

Dec. 1, 1987.

Howard J. Stein, P.C., James E. Hanlon, Jr., Katten, Muchin, Zavis, Pearl, Greenberger & Galler, Chicago, for defendants-counterplaintiffs, appellants.

Michael J. Koenigsknecht, Paul J. Novack, Gardner, Carton & Douglas, Chicago, for plaintiffs-counterdefendants, appellees.

Justice HARTMAN delivered the opinion of the court:

Defendants-counterplaintiffs, Donald D. Hahn, an individual, and Hahn, Holland & Grossman, a partnership (collectively "Hahn"), appeal from orders: (1) granting the motion for summary judgment of plaintiffs-counterdefendants, A.G. Becker Paribas, Inc., a corporation, Becker Paribas Incorporated, a corporation, and Merrill Lynch, Pierce, Fenner & Smith, Inc., a corporation (sometimes collectively "Becker"), denying Hahn's motion for summary judgment, vacating an arbitration award entered in Hahn's favor, and remanding the parties' claims and counterclaims for arbitration de novo; and (2) denying Hahn's motion for reconsideration.

On appeal, we are asked to consider as issues whether: (1) the circuit court erred in granting Becker's motion for summary judgment and denying Hahn's motion for summary judgment (Ill.Rev.Stat.1985, ch. 110, par. 2-1005); and (2) the circuit court erred in denying Hahn's motion for reconsideration (Ill.Rev.Stat.1985, ch. 110, par. 2-1203).

On July 28, 1983, Becker entered into a written contract with Hahn, who would prepare and furnish stock market research materials for Becker and, in return, Hahn would receive an annual fee of $600,000, payable in monthly installments, for a two-year period. The contract also provided that "[a]ny disputes, controversies or claims arising under or in regard to this Agreement shall be settled by arbitration under the applicable rules and regulations of the [National Association of Securities Dealers]" ("NASD").

At some point between July 28, 1983 and November 5, 1984, co-plaintiff-counterdefendant Merrill Lynch, Pierce, Fenner & Smith, Inc. purchased Becker and Becker apparently ceased to exist; it was succeeded by co-plaintiff-counterdefendant Becker Paribas, Inc.

Becker terminated the contract by letter on November 5, 1984. Hahn filed a statement of claim with NASD on March 19, 1985, alleging that Becker terminated the contract without cause and, as a result of the breach, Hahn suffered monetary damages of at least $450,000. Becker filed an answer and counterclaim with NASD on May 3, 1985, denying liability under the contract and alleging a misappropriation of certain proprietary information by Hahn.

Hearings were conducted before a NASD-appointed arbitration panel ("the panel") on December 10, 1985, February 4, 1986 and February 5, 1986. At the December 10, 1985, hearing, Becker immediately admitted its breach of the contract and liability for the breach. The issues remaining before the panel, therefore, were the extent of damages suffered by Hahn as a result of the breach, and Becker's counterclaim. Hahn requested $443,259 in damages; Becker maintained that Hahn was entitled to only $237,310.

At the hearing of February 4, 1986, Hahn's counsel presented records purporting to reflect attorney fees incurred by Hahn as a result of the arbitration. The records were marked for identification as "Exhibit 19." Hahn's counsel stated that the amount of fees identified in Exhibit 19 was not complete. According to Hahn's attorney, legal fees incurred by Hahn through February 3, 1986, amounted to $21,267.65, a sum greater than the amount recorded in Exhibit 19. There is no indication in the record that Hahn moved to admit Exhibit 19 into evidence. Becker did not object to Hahn's request for fees.

Following the conclusion of hearings on February 5, 1986, the panel apparently determined that Hahn's award should include attorney fees incurred through the end of the hearings. The panel instructed a NASD staff attorney, Linda Garofola ("Garofola"), to obtain an updated statement of fees from Hahn's attorney, including fees claimed through the hearing process. The panel also instructed Garofola not to notify Becker of this request.

Garofola telephoned Hahn's counsel on the next day, February 6, advising him of the panel's request; he responded by letter the same day, stating that the records tendered at the February 4, 1986 hearing reflected $21,267.75 in fees incurred by Hahn through January 24, 1986, but fee services rendered to Hahn from January 25, 1986, through February 5, 1986, amounted to an additional $8,851, totalling $30,118.65 in legal fees. Neither the panel nor Garofola nor Hahn's counsel notified Becker of the panel's request or of the letter and fee statement mailed to Garofola by Hahn's counsel.

Garofola drafted the arbitration decision and submitted it to the panel for their signatures. The written decision was mailed to the parties on February 26, 1986. Hahn was awarded $333,120.53 in damages: $292,050 assessed against Becker for the breach; $10,951.88 in interest; and $30,118.65 in legal fees incurred by Hahn as a result of the arbitration.

Becker's counsel received a copy of the decision on February 26, 1986 and telephoned Garofola the following day to question the legal fees assessed against Becker. Garofola replied in writing, enclosing a copy of the fee statement prepared by Hahn and informing Becker's counsel that he could request a reopening of the hearings, but such hearings would be limited to the amount of attorney fees included in the award; the panel would not reconsider the initial determination to award legal fees to Hahn.

Becker filed a complaint against Hahn on April 17, 1986. Citing section 12(a)(1-3) of the Uniform Arbitration Act ("the Act") (Ill.Rev.Stat.1985, ch. 10, par. 112(a)(1-3)), Becker alleged: the panel exceeded its authority in awarding attorney fees to Hahn; ex parte communications between NASD staff and Hahn's counsel were not revealed to Becker; Hahn received $8,000 more in attorney fees than were requested at the hearing; ex parte materials were solicited and received by the panel after the conclusion of the hearings and without Becker's knowledge; and the foregoing acts amounted to "undue means" within the meaning of the Act and misconduct prejudicial to Becker. Becker requested a vacatur of the award.

Hahn filed an answer and verified counterclaim in response. Hahn admitted supplying additional evidence to the panel but denied any misconduct or use of undue means prejudicial to Becker. Hahn also raised several affirmative defenses, arguing that: Becker waived any objection to the award; the complaint failed to state a cause of action; and the complaint was filed without reasonable cause, entitling Hahn to have attorney fees assessed against Becker. Hahn's counterclaim alleged that the award was final and binding on the parties, and that Becker refused to pay the damages assessed against it. Hahn requested judgment confirming the panel's decision and a further award of fees, costs and interest.

Becker submitted a verified answer to Hahn's counterclaim on June 2, 1986, claiming that the award was not final and binding on the parties and should be vacated or modified.

On July 16, 1986, Becker moved the circuit court for partial summary judgment, contending that the panel exceeded its authority in awarding the fee and urged that the fee portion of the award be vacated. Hahn also filed a motion for summary judgment on July 16, refuting the existence of any grounds for vacating the award or genuine issues of material fact. Becker moved the circuit court for summary judgment anew on October 10, 1986, this time requesting vacatur of the entire arbitration award.

Following a hearing on November 17, 1986, the circuit court granted Becker's motion for summary judgment, denied Hahn's motion, vacated the award in its entirety and remanded the cause for arbitration de novo. At the hearing, the circuit court announced the following findings: the panel initiated ex parte contacts with Hahn's attorney and received additional evidence without notice to Becker. Also unbeknownst to Becker, the panel rendered an award which included the ex parte submission and its fee calculations. Such ex parte contacts call into question the fairness of the decision making process and undermine the objectivity which must prevail at arbitration hearings. Solicitation of evidence following the hearings, without notice to opposing parties, was precisely the kind of conduct which justifies vacating the award under section 12 of the Act. The gravity of the misconduct, moreover, tainted the entire process and vacatur of the award could not be limited to the fee portion, alone. Finally, the court concluded that the panel exceeded its authority in awarding the fees, which also warranted vacating the award.

On December 17, 1986, Hahn moved the circuit court for reconsideration, asserting that the court "misperceived" the chronology of events surrounding the ex parte submission: the panel received the additional evidence after it decided to award full attorney fees to Hahn. Therefore, the fee statement submitted by Hahn "could not have played any part in the award other than to quantify the amount of fees requested." Hahn's motion was denied on January 12, 1987.

Hahn's notice of appeal, filed on January 16, 1987, appealed the order entered November 17, 1986, ruling on the cross-motions for summary judgment and vacating the award, and the order of January 12, 1987, denying Hahn's motion to reconsider.

I.

Hahn contends that the circuit court erred...