Richard S. Reizen and Eric P. Sparks
GR Review

Until recently, a conversation between a client seeking to overturn an arbitration award and counsel probably would have resembled the following exchange between the nerdy Lloyd Christmas (played by Jim Carrey) and the beautiful Mary (played by Lauren Holly) in the comedy classic Dumb and Dumber:


Lloyd:  What are the chances of a guy like you and a girl like me . . . ending up together?. . .
Mary:  Not good.
Lloyd:  You mean, not good like one out of a hundred?
Mary:  I'd say more like one out of a million.
Lloyd:  So you're telling me there's a chance.

While the typical client might not have received the news with the same optimism as Lloyd Christmas, a seasoned litigator might have offered similar odds.  However, based on a trio of recent decisions from the First District Appellate Court in Illinois, it appears those odds have changed dramatically.

As a threshold matter, the cases are legion in the First Appellate District and elsewhere that hold that where parties have agreed to resolve their disputes via arbitration, a fortiori, they have agreed to accept the arbitrator's decision, and therefore, the reviewing court should not overrule an award simply because it would have resolved the controversy differently.  See, First Merit Realty Services, Inc. v. Amberly Square Apartments, L.P., 373 Ill. App. 3d 457, 869 N.E.2d 394 (1^st Dist. 2007); and Gallaso v. KNS Cos., 364 Ill. App. 3d 124, 130, 845 N.E.2d 857 (1^st Dist. 2006).  It has long been held that:

"Courts encourage the settlement of disputes by arbitration and judicial review of arbitration awards is, accordingly, far more restricted than appellate review of a trial court's decision."  Garver v. Ferguson, 76 Ill. 2d 1, 8-9, 389 N.E.2d 181 (Ill. 1979).

Against that backdrop, Illinois courts hold that even where an arbitrator commits gross errors of judgment in law or a gross mistake of fact, "a court should not vacate an arbitration award unless the mistakes or errors are apparent on the face of the arbitration award."  Rauh v. Rockford Products Corp., 143 Ill. 2d 377, 386, 574 N.E.2d 636 (1991) (emphasis added).

Due to the stringent standard for review of arbitration awards, it is not surprising that there are few reported Illinois cases vacating arbitration awards.  However, the First Appellate District appears to be bucking this tradition lately with a series of cases decided in 2007.

First, in Spencer v. Ryland Group, Inc., 372 Ill. App. 3d 200, 865 N.E.2d 301 (1^st Dist. 2007), the First District reversed the dismissal of the petitioner's complaint to vacate an arbitration award.  The petitioner sought to vacate the arbitration award because the arbitrators failed to award attorneys' fees as required by the underlying contract at issue.  The appellate court reversed the trial court's dismissal, noting that the arbitrators had exceeded their authority by failing to award attorneys' fees.

Second, in First Merit Realty Services, Inc. v. Amberly Square Apartments, L.P., 373 Ill. App. 3d 457, 869 N.E.2d 394 (1^st Dist. 2007), the First District vacated an arbitration award because the arbitrators had failed to follow the language contained in certain termination provisions in the contracts at issue.  Had the arbitrators done so, then the decision would have been for the party defending the claim instead of an award for damages for the party prosecuting the claim.  Again, the court ruled that the arbitrators had exceeded their authority. 

Third, in TruServe Corp. v. Ernst & Young, 207 WL 2428510 (1^st Dist. August 28, 2007) (opinion still subject to revision), the First District court partially reversed the arbitrator's decision to award expert witness fees (which were in excess of $1,000,000), which it considered a gross mistake of law under a statutory decision providing for costs to be awarded to the prevailing party. 

While the First District insisted in each decision that it was not changing the applicable legal standard for reviewing an arbitration award, these three decisions overturned the arbitration awards on grounds that were rejected in earlier First District decisions.  To be sure, vacating awards for "material mistakes of law" and "exceeding its authority" are not new standards of review.  However, challenges to the arbitrator's interpretations of agreements and statutes have almost always been rejected.  As Justice Posner once commented concerning review of arbitration awards, the question is not how the arbitrator interpreted the parties' agreement, but whether the arbitrator interpreted the agreement.  Whether the standard has changed, the First Appellate Court's willingness to overturn awards does signal a departure from its prior practice.

Due to this emerging trend, certain practical matters should be considered when proceeding with an arbitration.

·        Litigants should consider whether to create more of a "trial record" in arbitration proceedings in order to maximize their chances to convince a court to vacate an adverse arbitration award.  Without an adequate record of the proceeding, a well-considered review may not be attainable.

·        Litigants should consider whether it is in their best interest to obtain a "reasoned award" that describes in detail the basis for the arbitration decision.  With a "reasoned award," the reviewing court will have a better understanding of how an arbitrator reached his or her decision and whether that decision reveals any errors worthy of review.

In short, while a participant to an arbitration can generally feel secure that an award will not be disturbed except in the most extreme cases, the First District appears more willing to closely review such awards and reverse if they are incorrect.  In other words: "[T]here is a chance!"

Richard Reizen is a partner in Gould & Ratner's Litigation Group and chair of the firm's Construction Law Group.  He may be reached at 312.899.1637 or via email at rreizen@gouldrater.com.  Eric Sparks is an associate in the Litigation Group and may be reached at 312.899.1636 or at esparks@gouldratner.com.