Northern Indiana Commuter Transp. Dist. v. Chicago SouthShore

• Citation: 685 N.E.2d 680
• Decision Date: 08 September 1997
• Docket Number: No. 46S03-9703-CV-191,46S03-9703-CV-191
• Parties: NORTHERN INDIANA COMMUTER TRANSPORTATION DISTRICT, Appellant (Plaintiff below), v. CHICAGO SOUTHSHORE AND SOUTH BEND RAILROAD, Appellee (Defendant below).
• Court: Supreme Court of Indiana

Page 680

685 N.E.2d 680

NORTHERN INDIANA COMMUTER TRANSPORTATION DISTRICT, Appellant (Plaintiff below), v. CHICAGO SOUTHSHORE AND SOUTH BEND RAILROAD, Appellee (Defendant below).

No. 46S03-9703-CV-191.

Supreme Court of Indiana.

Sept. 8, 1997.

Michael C. Harris, Chesterton, for Appellant.

Stanley C. Fickle, Peter J. Rusthoven, Anne N. DePrez, Indianapolis, Michael J. Daley, Gregory C. Ward, Chicago, for Appellee.

ON PETITION TO TRANSFER

BOEHM, Justice.

Arbitration presumably intended to resolve this dispute without resort to the courts has now produced lawsuits and appeals in two different states. As their contract provided, the parties submitted a dispute over its interpretation to arbitration. After an arbitration panel issued an award, both parties sued, one in Indiana to overturn the award and the other in Illinois to enforce it. We hold that because the Illinois court was the first to enter a judgment on the validity of the award, the Full Faith and Credit Clause of the United States Constitution requires Indiana courts to accord that judgment the same effect it would receive in an Illinois state court. Under Illinois law, a stay for a reasonable time pending appeal of the Illinois judgment is at least one appropriate action for a trial court to take before determining the res judicata effect of that judgment. Although under the peculiar facts of this case the Indiana court had jurisdiction over the claims presented to it, we reverse the trial court's dismissal and direct that the Indiana proceedings be stayed for a reasonable time pending the outcome of the Illinois litigation.

Factual and Procedural Background

The parties to this lawsuit are Northern Indiana Commuter Transportation District ("NICTD"), an Indiana municipal corporation, and Chicago SouthShore and South Bend Railroad ("SouthShore"), an Indiana partnership engaged in the railway freight business. ¹ NICTD and SouthShore had an agreement whereby SouthShore operated its freight business over NICTD's rails and agreed to pay a fee for the privilege. In 1992 a dispute arose between NICTD and SouthShore over the amount of the annual fee. It is undisputed that the Agreement initially set the fee for each year after 1990 at twelve per cent of SouthShore's gross revenues for the prior year. However, the parties differed over whether a clause providing for mandatory renegotiation of the fee every third year to account for inflation applied to SouthShore itself, or only to a subsequent purchaser of SouthShore's rights. The parties were unable to resolve their differences through mediation and in 1993 NICTD initiated a demand for arbitration. The Agreement stipulated that Indiana law governed and provided that (1) "all arbitration proceedings shall take place within the State of Indiana"; and (2) if either party believed an arbitration decision was based on an "error of law," the aggrieved party could "institute an action at law within the State of Indiana to determine such legal issue."

These provisions notwithstanding, the parties agreed to hold the arbitration proceedings in Chicago for the convenience of the three Chicago-based attorneys who served as arbitrators. ² In the summer of 1994 an evidentiary hearing was held in the offices of a law firm in Chicago. On August 11, 1994, the arbitration panel ruled in a split decision that the inflation adjustment clause applied only to a subsequent purchaser of SouthShore, and not to SouthShore itself. Accordingly, the award set the annual fee at twelve per cent of SouthShore's annual gross revenues for the prior year.

On September 9, 1994, NICTD filed a declaratory judgment action in the Superior Court of LaPorte County, Indiana. Although not styled as a motion to vacate or modify the award, NICTD's complaint essentially asked for a declaration that its interpretation of the Agreement was correct and in substance challenged the arbitration decision. On October 26, 1994, SouthShore moved to dismiss the complaint for lack of subject-matter jurisdiction, citing the Uniform Arbitration Act's provision conferring jurisdiction to confirm the award on the courts of the State where the parties agreed to arbitrate. ³ On October 28, 1994, SouthShore filed an application to confirm the arbitration award in the Circuit Court of Cook County, Illinois. On December 15, 1994, NICTD filed a "motion in lieu of answer" in Illinois contesting the jurisdiction of the Illinois court over the arbitration. On February 22, 1995, the Indiana trial court granted SouthShore's motion to dismiss, agreeing with SouthShore that NICTD was attempting in effect to overturn the award and that only Illinois had jurisdiction because the arbitration took place there. On March 14, 1995, the Illinois trial court ruled that it had jurisdiction over SouthShore's application to confirm the award and denied NICTD's motion. On April 12, 1995, NICTD moved in the Illinois case to vacate or modify the award. SouthShore responded with a motion to strike NICTD's motion on the ground that NICTD had not filed within ninety days of the August 11, 1994 arbitration award, as required by the Illinois Uniform Arbitration Act. ⁴ On September 6, 1995, the Illinois trial court granted SouthShore's motion to strike, finding that the Act did not permit extension of the ninety day deadline. Finally, on December 20, 1995, the Illinois court entered its judgment confirming the award. NICTD appealed that ruling in Illinois, as well as the earlier Illinois ruling holding that Illinois had subject-matter jurisdiction over the arbitration.

Meanwhile, NICTD had initiated a timely appeal of the Indiana trial court's dismissal of its suit in LaPorte County. On February 20, 1996, the Indiana Court of Appeals reversed the trial court's dismissal. The court held that (1) Indiana had subject-matter jurisdiction because the Agreement, and not the place of arbitration, controlled the location of judicial review; and (2) the arbitrators' interpretation of the contract was contrary to law. Northern Indiana Commuter Transp. Dist. v. Chicago SouthShore and South Bend R.R., 661 N.E.2d 842 (Ind.Ct.App.1996). Even though the Indiana trial court's ruling dealt only with SouthShore's motion to dismiss on jurisdictional grounds, the Court of Appeals also ruled on the merits of NICTD's complaint. The court held that the inflation adjustment clause applied to SouthShore as well as any successor and remanded the case to arbitration for purposes of determining the amount of the fee. The earlier ruling of the Illinois trial court, which postdated the Indiana trial court's dismissal, had not been presented to the Indiana Court of Appeals at that point.

SouthShore moved for rehearing in the Indiana Court of Appeals on March 21, 1996. In the motion, SouthShore raised for the first time the December 20, 1995 Illinois trial court decision confirming the award. SouthShore contended that (1) the Full Faith and Credit Clause required Indiana courts to give that decision preclusive effect; and (2) the sua sponte ruling by the Court of Appeals on the merits of NICTD's complaint had denied SouthShore due process of law because SouthShore had never been given the opportunity to answer the complaint on the merits. In denying rehearing, the Court of Appeals first observed that full faith and credit generally requires a state "to give to a judgment at least the res judicata effect which the judgment would be accorded in the State which rendered it." Northern Indiana Commuter Transp. Dist. v. Chicago Southshore and South Bend R.R., 666 N.E.2d 447, 448 (Ind.Ct.App.1996) (citation omitted). However, noting that NICTD had appealed the Indiana dismissal before the Illinois court ruled that it had jurisdiction, the court held that Indiana was not required to give the Illinois judgment full faith and credit: "[B]ecause the Illinois court, as the second court, accepted jurisdiction before the issue regarding jurisdiction had been fully and fairly litigated and finally decided in the Indiana courts, we are not required to give full faith and credit to the Illinois decision to confirm the arbitration award." Id. at 449 (footnote omitted). The court also rejected the claim that SouthShore had been denied due process because the court viewed the arguments SouthShore would have made on the merits--had it been allowed to answer NICTD's complaint--as efforts to relitigate factual questions that were barred by the Agreement. Id. at 449-50.

Armed with the opinion of the Indiana Court of Appeals, NICTD moved in the Illinois trial court to vacate the Illinois judgment and argued that the Full Faith and Credit Clause required Illinois to give preclusive effect to the Indiana appellate decision. On July 24, 1996, the Illinois court denied NICTD's motion, observing that the Indiana Court of Appeals "certainly didn't give full faith and credit to the courts of the state of Illinois." SouthShore sought transfer from the Court of Appeals to this Court. We heard oral argument in this case on March 4, 1997, and granted transfer on March 11, 1997. Next, on June 18, 1997, the Appellate Court of Illinois affirmed the trial court's decision exercising jurisdiction and confirming the award. Chicago SouthShore and South Bend R.R. v. Northern Indiana Commuter Transp. Dist., 289 Ill.App.3d 533, 224 Ill.Dec. 595, 682 N.E.2d 156 (1997), reh'g denied. Most recently, a "certificate of importance" was issued by the Appellate Court, which had the effect of requiring review by the Illinois Supreme Court. See Ill.S.Ct.Rule 316 and discussion infra note 10. For the reasons explained below, we order that the Indiana proceedings be stayed for a reasonable time pending the outcome of the appellate proceedings in Illinois.

In broad brush, the parties' contentions in this Court are as follows. SouthShore argues that (1) Indiana courts must give full faith and credit to the Illinois judgment confirming the arbitration award; and (2) the...