John E. Reid and Associates, Inc. v. Wicklander-Zulawski and Associates

• Decision Date: 14 October 1993
• Docket Number: No. 1-92-0422,WICKLANDER-ZULAWSKI,1-92-0422
• Citation: 627 N.E.2d 348,255 Ill.App.3d 533
• Parties: , 194 Ill.Dec. 232 JOHN E. REID AND ASSOCIATES, INC., an Illinois Corporation, Plaintiff-Appellee, v.AND ASSOCIATES, an Illinois Corporation, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 348

627 N.E.2d 348

255 Ill.App.3d 533, 194 Ill.Dec. 232

JOHN E. REID AND ASSOCIATES, INC., an Illinois Corporation Plaintiff-Appellee, v. WICKLANDER-ZULAWSKI AND ASSOCIATES, an Illinois Corporation Defendant-Appellant.

No. 1-92-0422.

Appellate Court of Illinois First District, Fourth Division.

Oct. 14, 1993.

Rehearing Denied Nov. 22, 1993.

Gregory R. Sun and Mark H. Mennes, Chicago, for defendant-appellant.

Charles F. Marino and David M. Marino, Chicago, for plaintiff-appellee.

Presiding Justice CAHILL delivered the opinion of the court:

The plaintiff John E. Reid and Associates, Inc., ("Reid"), and the defendant Wicklander-Zulawski and Associates, ("WZ"), entered into commercial arbitration to resolve a dispute over a licensing agreement. The American Arbitration Association ("AAA") conducted the arbitration. The arbitrator ruled in favor of WZ, and Reid entered an application in the circuit court of Cook County under Section 12(a)(2) of the Illinois Arbitration Act (Ill.Rev.Stat.1991, ch. 10, par. 112(a)(2)), to vacate or modify the award. The trial court vacated the arbitrator's award. WZ appealed. We reverse.

On October 29, 1984, the parties entered into a license agreement which granted WZ a non-exclusive license to teach the "Reid Method of Criminal Interrogation and Behavioral Analysis Interviewing" in WZ's seminar "Interview and Interrogation Techniques." The agreement provided that any dispute was to be resolved by arbitration, specifically under the rules of the AAA.

On February 3, 1989, WZ filed a demand for arbitration with the AAA for an alleged breach of the agreement. The AAA submitted a list of ten arbitrators to the parties. Under AAA rules, WZ struck five of the ten arbitrators and ranked the remaining five in order of preference. WZ's fourth choice was Joel D. Gingiss. Reid struck eight of the ten names, listing Gingiss as its first choice. Since Gingiss was the highest ranked mutual choice, the AAA appointed him to be the sole arbitrator of the dispute.

On August 10, 1989, an attorney for WZ wrote a letter to Gingiss which revealed that Alan Barry, WZ's intellectual property attorney and potential witness at the arbitration proceeding, was familiar with Gingiss. Barry had helped negotiate the license agreement for WZ but was not to be an attorney of record at the arbitration proceeding. On August 17th, Barry wrote a letter to WZ explaining his relationship with Gingiss. A copy of this letter was sent to Reid's attorneys and Gingiss on September 12th. Barry's letter stated in part: "While I have met Mr. Gingiss on a couple of occasions, I have no on-going personal or business relationship with him. Mr. Gingiss is known to me by the fact that he has maintained a personal and business relationship with my parents." Barry explained his parents had owned a Gingiss Formalwear Center franchise since 1970, while Gingiss was the president of Gingiss International, the franchisor of the stores. Barry's father was also a vice-president at Gingiss while Gingiss's father was president of the company.

By letter to the AAA dated September 21, 1989, Reid alleged Gingiss's partiality to WZ, objected to Gingiss serving as arbitrator, asked that Gingiss recuse himself, and asked that another arbitrator be chosen. On October 16, 1989, the AAA confirmed Gingiss's appointment as arbitrator. The record is silent as to the procedures taken by the AAA in evaluating and ruling on Reid's objection to Gingiss.

Before hearings began on December 18, 1989, Reid again objected to Gingiss as arbitrator. Gingiss denied the objection and proceeded with the hearing. Barry testified for WZ at the hearing as both an occurrence witness and an expert witness. His testimony concerned his dealings with Reid's attorneys when the license agreement was drafted and the legal significance and scope of the agreement.

On February 14, 1990, Gingiss ruled and entered an award favorable to WZ. On March 6, 1990, Reid moved before the AAA to vacate the award, to allow another hearing before a different arbitrator, and to modify the award. Gingiss and the AAA denied the motion to modify the award, but did not rule on the motion to vacate based on partiality.

On May 14, 1990, Reid filed an application in the circuit court of Cook County to vacate or modify the arbitration award. The application contained four counts. The first count alleged partiality of the arbitrator. WZ answered the complaint in July of that year, and on June 18, 1991, Reid moved for summary judgment on the partiality count. At a hearing on September 23, 1991, the trial court found that Gingiss should have recused himself, but that Reid waived the partiality objection by not petitioning the circuit court for Gingiss's removal before the arbitration proceeding began. The court entered an order denying Reid's motion for summary judgment. Reid filed a motion for reconsideration and WZ filed a motion for summary judgment on the first count. On reconsideration, the court granted Reid's motion for summary judgment and denied WZ's similar motion. The court vacated the arbitration award and remanded the matter to the AAA for a new hearing with an arbitrator other than Gingiss. WZ appealed.

In addition to the facts above, Reid puts forth several other facts to justify a finding of partiality on the part of Gingiss. These facts became known to Gingiss after the arbitration hearing. First, Barry's time sheets revealed that he took part in WZ's choice of arbitrator. Second, on January 16, 1990, an attorney for WZ (not Barry) wrote a letter to the AAA's administrator, a copy of which was sent to Gingiss. In the letter, WZ informed the AAA that their expert witnesses had provided all the law necessary to decide the issue, and that no further legal research on the part of the arbitrator was necessary. Reid objected to this direct contact between WZ and the arbitrator by letter to the AAA dated January 22, 1990.

In Illinois, arbitration is governed by the Uniform Arbitration Act, Ill.Rev.Stat.1991, ch. 10, par. 101 et seq, now codified as 710 ILCS 5/1 (West 1992). The Act validates arbitration agreements and provides the circumstances under which an arbitration award may be confirmed, modified, or vacated by the circuit court. (Ill.Rev.Stat.1991, ch. 10, par. 101 et seq.) Section 12 of the Act provides that an award may be vacated where: "(a) * * * (2) There was evident partiality by an arbitrator appointed as a neutral or corruption in any one of the arbitrators or misconduct prejudicing the rights of any party * * *." Ill.Rev.Stat.1991, ch. 10, par. 112(a)(2).

The rules of the AAA, which were incorporated into the parties' license agreement, provide in pertinent part:

"Any person appointed as neutral arbitrator shall disclose to the AAA any circumstance likely to affect impartiality, including any bias or any financial or personal interest in the result of the arbitration or any past or present relationship with the parties or their representatives. * * * Upon objection of a party to the continued service of a neutral arbitrator, the AAA shall determine whether the arbitrator should be disqualified and shall inform the parties of its decision, which shall be conclusive." American Arbitration Association, Commercial Arbitration Rules, § 19 (1988) ("Rules of the AAA").

The Code of Ethics for Arbitrators in Commercial Disputes, ("the Code"), adopted jointly by the American Bar Association and the AAA, provides ethical guidelines for the recusal of an arbitrator. Canon II of the Code states "A. Persons who are requested to serve as arbitrators should, before accepting, disclose: * * *

(2) Any existing or past financial, business, professional, family or social relationships which are likely to affect impartiality or which might reasonably create any appearance of partiality or bias. Persons requested to serve as arbitrators should disclose any such relationships which they personally have with any party or its lawyer, or with any individual whom they have been told will be a witness. * * *

B. Person who are requested to accept appointment as arbitrators should make a reasonable effort to inform themselves of any interests or relationships described in Paragraph A above.

C. The obligation to disclose * * * is a continuing duty which requires a person * * * to disclose, at any stage of the arbitration, any such interests or relationships which may arise, or which are recalled or discovered.

* * * * * *

E. * * * In the event an arbitrator is requested to withdraw by less than all the parties because of alleged partiality or bias, the arbitrators should withdraw unless either of the following circumstances exists:

(1) If an agreement of the parties, or arbitration rules agreed to by the parties, established procedures for determining challenges to arbitrators, then those procedures should be followed or;

(2) If the arbitrator, after carefully considering the matter, determines that the reason for the challenge is not substantial and that he or she can nevertheless act and decide the case impartially and fairly, and the withdrawal would cause unfair delay or expense to another party or would be contrary to the ends of justice." Code of Ethics for Arbitrators in Commercial Disputes, Canon II.

On appeal, WZ contends the trial judge erred in granting Reid's motion for reconsideration and summary judgment. They argue: (1) there was no failure to disclose by Gingiss because his relationship with Barry's parents was already known to the parties; (2) the AAA did not err in refusing to replace Gingiss because his relationship with Barry's parents was too attenuated to constitute evident partiality; and (3) Reid waived his objection to partiality by waiting until after the arbitration was over to file an action in the circuit court.

Reid presents three reasons why the award should be vacated: (1) Gingiss failed to disclose an appearance of partiality; (2) the...