Salsitz v. Kreiss

• Court: Appellate Court of Illinois
• Citation: Salsitz v. Kreiss, 311 Ill. App. 3d 590, 724 N.E.2d 1019, 244 Ill.Dec. 131 (Ill. App. 2000)
• Decision Date: 03 February 2000
• Docket Number: No. 1-99-0779., No. 1-99-0690
• Parties: Neil SALSITZ, Biagio D'Ugo, and New Horizon Productions, Ltd., an Illinois corporation, Plaintiffs-Appellants, v. Fritz KREISS and Alternative Utility Services of IL Inc., an Illinois corporation, Defendants-Appellees.

724 N.E.2d 1019

311 Ill. App.3d 590

244 Ill.Dec. 131

Neil SALSITZ, Biagio D'Ugo, and New Horizon Productions, Ltd., an Illinois corporation, Plaintiffs-Appellants, v. Fritz KREISS and Alternative Utility Services of IL Inc., an Illinois corporation, Defendants-Appellees.

Nos. 1-99-0690, 1-99-0779.

Appellate Court of Illinois, First District, Fourth Division.

February 3, 2000.

Nunc Pro Tunc December 2, 1999.

Rehearing Denied January 7, 2000.

Joel H. Greenburg, Alan O. Amos, Chicago, for Appellants.

Anthony E. Blumberg, Chicago, for Appellees.

Justice SOUTH delivered the opinion of the court:

Plaintiffs, Neil Salsitz, Biagio D'Ugo and New Horizons Productions, Ltd. (New Horizons), seek review of a trial court ruling confirming an arbitration award in favor of defendants Fritz Kreiss and Alternative Utility Services of IL, Inc. (AUS).

On March 9, 1994, D'Ugo, Salsitz and Kreiss entered into a business venture. They executed a letter of understanding and an addendum to the letter of understanding, a stock incentive option program. The addendum contained a clause whereby the parties agreed to arbitrate disputes arising between them pursuant to the rules of the American Arbitration Association (AAA). Plaintiffs agreed to invest $6,500 each in Kreiss' business.

On June 17, 1994, plaintiffs requested the return of their investment. Kreiss returned D'Ugo's and Salsitz's original investments. Plaintiffs sought additional money for expenses and filed suit in the Third Municipal District of Cook County. In that case, plaintiffs sued for breach of contract, and each plaintiff pled a count of fraud arising out of the contractual relationship between the parties. Defendants moved to dismiss the municipal court action based upon the presence of the arbitration clause in the contract. Plaintiffs filed a response denying that they agreed to arbitrate such claims, arguing that there was no agreement to arbitrate since the arbitration clause was in a separate portion of the contract from that which was at issue. Plaintiffs further argued that the contract had been rescinded.

The trial court ordered the civil action stayed, and directed that the arbitrator determine whether particular matters were arbitrable. Plaintiffs did not pursue arbitration. However, defendants filed their own demand for arbitration on November 16, 1995. In their demand for arbitration, defendants sought an injunction preventing plaintiffs from unfairly competing with AUS; monetary damages for plaintiffs' violation of the Illinois Trade Secrets Act (765 ILCS 1065/4(a) et seq. (West 1993)); damages for tortious interference with defendants' existing contracts; tortious interference with defendants' prospective business relations; breach of contract; and breach of fiduciary duty. On the next day, plaintiffs non-suited the Third Municipal District action.

An arbitrator was selected, a preliminary hearing was conducted on September 10, 1996, and arbitration hearings occurred thereafter on December 11, 1996, January 30, 1997, March 26, 1997, April 10, 1997 and June 16, 1997. Another hearing was set for August 19, 1997. On August 8, 1997, before the next hearing, plaintiffs filed an action in chancery seeking to prohibit the completion of the arbitration through injunction; and in count II, declaring the arbitration clause invalid or non-binding. Plaintiffs also filed an emergency motion for a temporary restraining order which was denied as not constituting an emergency; a motion for injunctive relief, which was denied; and an amended motion for injunctive relief, which was denied. The arbitration proceeded.

The parties were notified by the arbitrator that the final arbitration hearings would be held on December 10 and 11, 1997. Plaintiffs did not appear for those hearings, and the arbitration was completed. On December 11, 1997, the arbitrator declared the hearings closed, and notice of this declaration was issued by the AAA on December 24, 1997. This notice also stated that the arbitrator would issue an award within 30 days. No motions to reopen the hearings were ever filed by plaintiffs. On January 10, 1998, thirty days after the close of hearings, an award was entered in favor of defendants and issued to all parties.

On June 12, 1998, plaintiffs' chancery complaint was amended to include a third count seeking to vacate the arbitration award pursuant to section 12 of the Uniform Arbitration Act (710 ILCS 5/12 (West 1997)). In support of this count, plaintiffs pled the presence of undue means, citing ex parte communications with the arbitrator. Plaintiffs also alleged in count III that the final arbitration hearing proceeded without them, that they were, therefore, unable to present evidence on their own behalf, and that they were unaware of the hearing date due to the failure of their lawyers to notify them that they (the lawyers) would not attend the hearing.

The final order of the chancery court was entered dismissing the verified amended complaint and confirming the arbitrator's compensatory damage award but rejecting the punitive damages award.

Defendants filed a motion to dismiss, which we have taken with this appeal. They argue there are no issues to appeal because the appeal is, in part, untimely under Supreme Court Rule 307(a)(1), and the remaining issues concerning undue influence and procedural and evidentiary defects have been waived as a matter of law. We grant defendants' motion as to the issue of arbitrability but deny the motion as to the remaining issues.

The law is well established that an order of the circuit court granting or denying a motion to compel arbitration and stay court proceedings is an appealable order. Robert A. Besner & Co. v. Lit America, Inc., 214 Ill.App.3d 619, 622, 158 Ill.Dec. 590, 574 N.E.2d 703, 705 (1991). Under Supreme Court Rule 307 (155 Ill.2d R. 307(a)(1)), an order of the circuit court granting a motion to stay arbitration and commence or continue court proceedings is immediately appealable. Orders staying or compelling arbitration are injunctive in nature and subject to this rule. Besner, 214 Ill.App.3d at 623, 158 Ill.Dec. 590, 574 N.E.2d at 705. Under this rule, "the appeal must be perfected within 30 days from the entry of the interlocutory order by filing a `Notice of Interlocutory Appeal' * * *." 155 Ill.2d R. 307(a).

Upon review of the record, we find that the issue as to whether this matter is subject to arbitration must be dismissed because this court lacks jurisdiction. Plaintiffs filed a motion to stay arbitration in this case, which was denied on August 19, 1997. No appeal was taken from this order within 30 days. Thus, those matters have become the law of the case (Hwang v. Tyler, 253 Ill.App.3d 43, 192 Ill.Dec. 283, 625 N.E.2d 243 (1993)), and this court lacks jurisdiction over the issue as to whether the matter was properly the subject of arbitration.

Plaintiffs argue that there is a split of authority as to whether Rule 307 requires that an interlocutory order to compel or stay an arbitration must be appealed, if at all, within 30 days of the order. The First District holds that appellate rights are lost if a Rule 307 order is not appealed within 30 days. Besner,214 Ill.App.3d at 622,158 Ill.Dec. 590,574 N.E.2d at 705. However, the Second District holds that an appeal from such an order may await a final order disposing of all issues in the case. Anderson v. Financial Matter, Inc., 285 Ill.App.3d 123, 135, 220 Ill.Dec. 249, 672 N.E.2d 1261, 1269-70 (1996). Since Anderson departs from the ruling in Besner and the cases which have followed its holding, we decline to follow Anderson.

Plaintiffs next argue that the arbitration award should be vacated due to the fundamental unfairness of the arbitrator's decision to continue the hearings without plaintiffs' presence and to close these hearings after the December 10, 1997, hearing, in violation of the Uniform Arbitration Act.

The arbitration clause in the addendum to the letter of understanding states:

"9. ARBITRATION: In the event there are any claims or disputes between PARTIES hereto, such claims or disputes shall be submitted by the PARTIES for resolution and binding arbitration within Lake County, IL, in accordance with the rules of the American Arbitration Association as in effect under IL law."

The agreement to arbitrate determined that the parties agreed that the AAA rules would apply rather than the procedures set forth in the Uniform Arbitration Act (the Act). Under Rule 30 of the AAA, under certain circumstances the arbitrator may elect to proceed with the hearing in the absence of any party or representative. Rule 30 states:

"30. Arbitration in the Absence of a Party or Representative. Unless the law provides to the contrary, the arbitrator may proceed in the absence of any party or representative who, after due notice, fails to obtain a postponement. An award shall not be made solely on the default of a party. The arbitrator shall require the party who is present to submit such evidence as the arbitrator may require for the making of an award."

Plaintiffs suggest that the hearings were unfair because the arbitrator conducted the December 10, 1997, hearing in their absence without calling to inquire as to why they were absent. However, nothing in the AAA rules and specifically Rule 30, requires the arbitrator to make such an inquiry.

In Salsitz's affidavit regarding notice of the arbitration hearings, he states he received a call on the evening of December 9, 1997, from his bankruptcy attorney that she had received notice of an arbitration hearing scheduled for the next day. She advised him that since she was not the attorney of record in the arbitration proceeding, she would not...