Efficient arbitrations are a hallmark of ADR Systems’ services. Our neutrals have arbitrated hundreds of disputes at less cost to parties than litigation in almost every respect. The Illinois Uniform Arbitration Act, 710 ILCS 5/1 et seq., has governed and guided many of the arbitration agreements that have brought these cases to us. But attorneys may not know much about this statute and how the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., may preempt it.

In this article, we will review the Illinois Uniform Arbitration Act’s key provisions, qualities and state arbitration law’s interplay with federal arbitration law and policy.

The Law on the Validity of Arbitration Agreements: 710 ILCS 5/1

• 1 states that a written arbitration agreement is “valid, enforceable and irrevocable save upon such grounds as exist for the revocation of any contract.” 710 ILCS 5/1. Thus, an arbitration agreement is a legally binding contract on par with other privately ordered agreements. Therefore, an arbitration agreement is a matter of contract law. Carr v. Gateway, Inc., 944 N.E.2d 327, 329 (Ill. 2011). So, an arbitration’s validity is evaluated like any other contract’s in Illinois. In re Marriage of Haller, 2012 IL App (5th) 110478, ¶ 26. See also Phoenix Ins. Co. v. Rosen, 949 N.E.2d 639, 644–45 (Ill. 2011) (analyzing whether principles of public policy and unconscionability invalidated a trial de novo provision of an arbitration agreement in an underinsured motorist policy).

Public policy in Illinois favors resolving disputes by arbitration, Id. at 647, and enforcing arbitration agreements, Kinkel v. Cingular Wireless LLC, 857 N.E.2d 250, 278 (Ill. 2006) (holding that an arbitration agreement was enforceable despite the presence of an unconscionable class action waiver owing to this policy and because the arbitration agreement contained a severability clause). Moreover, courts frequently construe arbitration awards to uphold them as valid. Salsitz v. Kreiss, 761 N.E.2d 724, 731 (Ill. 2001) (citing Rauh v. Rockford Products Corp., 574 N.E.2d 636, 644 (Ill. 1991) and Christian Dior v. Hart Schaffner & Marx, 637 N.E.2d 546, 553–54 (Ill. App. Ct. 1994) as examples).[1]

Thus, counsel should understand that Illinois courts will likely favor arbitration agreements and the resolution of any dispute through arbitration as valid and enforceable.

The Freedom of Contract in the Act

Parties interested in adding an arbitration agreement to a contract should know the Illinois Uniform Arbitration Act encourages their freedom of contract when drafting arbitration agreements.

For example, § 3 states that a method for the appointment of arbitrators in an arbitration agreement will be followed and that, in the absence of one, any method the parties agree on will suffice. 710 ILCS 5/3.

Additionally, the Act provides for the following unless otherwise agreed to by the parties:

• that the powers of the arbitrators will be exercised by a majority, 710 ILCS 5/4;
• that the arbitrators will appoint a time and place for the hearing, 710 ILCS 5/5;
• that if, during a hearing, an arbitrator for any reason ceases to act, the remaining arbitrator or arbitrators may continue with the hearing and determination of the controversy, Id;
• and that the arbitrators’ expenses and fees, excluding attorneys’ fees, incurred during the arbitration, will be paid as provided in the award, 710 ILCS 5/10.

Moreover, the Act, in lieu of specific instructions, refers generally to the parties’ own agreement and decisions to fill in the particulars of its own provision. Arbitrators shall deliver a copy of an award to each party personally or by registered mail or by another method provided in the agreement. 710 ILCS 5/8(a). That award will be made within a timeframe determined by the agreement (or within a timeframe ordered by the court, where applicable) — but the parties may extend that time in writing before or after its expiration. Id. at 8(b). And the Act states that arbitrators will decide the case per rules of law chosen by the parties, not pre-determining that Illinois law will necessarily govern a dispute being arbitrated in Illinois. Id. at 8(c).

All these provisions emphasize that parties are free to customize much of the dispute’s resolution process in advance of their dispute, that the Act exists alongside the private ordering of the parties’ arbitration agreement and that, at times, its provisions, like default rules, only operate where the parties did not instruct themselves on an issue.

Counsel, therefore, should know they are free, for the most part, to arbitrate as they wish — which places even more importance on the specificity and foresight of the arbitration agreement.

Vacatur of an Arbitration Award: 710 ILCS 5/12

As mentioned earlier, Illinois courts favor upholding arbitration awards. In no small party, this is because the grounds for vacating an award are few and far between — and extreme in nature:

• Where the award was procured by corruption, fraud and other undue means
• Where the arbitrator was evidently partial or corrupt, prejudicing one of the parties
• Where the arbitrator exceeded their powers
• Where the arbitrator prejudiced a party by refusing to postpone a hearing despite sufficient cause or by refusing to hear material evidence
• And where there was no arbitration agreement at all “and the issue was not adversely determined in proceedings … and the party did not participate … without raising the objection.”

Not even errors of judgment or mistakes of law or fact are grounds for vacatur — unless a “gross error of law or fact appears on the award’s face, or where the award fails to dispose of all matters properly submitted to the arbitrator.” Herricane Graphics v. Blinder Const. Co., 820 N.E.2d 619, 624 (Ill. App. Ct. 2004) (citing Edward Electric Co. v. Automation, Inc., 93 N.E.2d 833, 838 (Ill. App. Ct. 1992)).

Courts may modify arbitration awards, 710 ILCS 5/13, and arbitrators may change them for similar reasons, 710 ILCS 5/9, but these amount only to cosmetic changes irrelevant to the case’s merits.

Thus, counsel should know that when parties agree to arbitrate future disputes, that award is almost assuredly final.

Preemption under the Federal Arbitration Act: 9 U.S.C. § 2

Whenever dealing with an arbitration agreement in Illinois, counsel should understand the doctrine of preemption under the FAA and how they can circumvent it.

Although the Illinois Uniform Arbitration Act gives “similar protection for arbitration as the [Federal Arbitration Act] at the state level,” the Supreme Court interprets the FAA’s preemptive capabilities as broadly as it interprets Congress’ Commerce Clause power. Perry v. Thomas, 482 U.S. 493, 490 (1987).

Rooted in a policy to treat arbitration agreements like other contracts, the FAA preempts any state arbitration law — other than those that revoke any contract — that deny, narrow, abrogate or undercut the validity, irrevocability and enforceability of an arbitration agreement for a transaction or contract involving interstate commerce. Volt Information Sciences, Inc. v. Board of Trustees of Stanford University, 489 U.S. 468, 474 (1989); Southland Corp. v. Keating, 465 U.S. 1, 15–16 (1984).[2]

This is because the Supreme Court expansively interprets the FAA’s definition of an arbitration agreement: “[a] written provision in any maritime transaction or a contract evidencing a transaction involving commerce.” 9 U.S.C. § 2. In Allied-Bruce Terminix Cos. v. Dobson, the Supreme Court held that the word “involving commerce” in § 2 of the FAA meant the same thing as the phrase “affecting commerce,” which Congress has often used when exercising the Commerce Clause’s full power. 513 U.S. at 273–74 (citing Russell v. United States, 471 U.S. 858, 859 (1985)). Moreover, the Court held that interstate commerce’s involvement in an arbitration agreement under § 2 is determined according to a commerce-in-fact analysis regardless of whether the parties contemplated their contractual relationship’s connection to interstate commerce. Id. at 281.[3] Thus, using the broad Commerce Clause framework established in US v. Lopez, 514 U.S. 549, 558–59 (1995), if the contracting parties’ relationship involves interstate commerce (via channels, instrumentalities, or the substantial effect test), the FAA likely applies to their arbitration agreement.

That is, unless the parties have explicitly declared in an arbitration agreement that a state arbitration law will govern the agreement to arbitration. Volt, 489 U.S. 468, 479 (“Where … the parties have agreed to abide by state rules of arbitration, enforcing those rules according to the terms of the agreement is fully consistent with the goals of the FAA, even if the result is that arbitration is stayed where the Act would otherwise permit it to go forward.”). Even so, a general choice-of-law provision is not guaranteed to satisfy Volt and control the dispute in place of the FAA. Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 59–64 (1995) (holding that the FAA applied despite a choice-of-law provision selecting New York law because ambiguity existed in the agreement as to whether the parties intended to preclude arbitrators from awarding punitive damages, which New York law forbids but the FAA does not).

In short, then, counsel should know that specificity in the agreement and foresight as to how a state’s arbitration law may conflict with the FAA’s highly pro-arbitration policy is necessary to overcome the FAA’s preemptive effect over a potentially conflicting state arbitration law.

The Illinois Uniform Arbitration Act: There’s a Lot to Know

The Illinois Uniform Arbitration Act establishes a highly pro-arbitration policy in Illinois, encourages parties’ freedom of contract, and makes it very difficult to vacate an arbitration award. All of this statute’s features are important to any attorney drafting an arbitration agreement or representing a client in an arbitration. Moreover, the law surrounding the Federal Arbitration Act’s preemption doctrine must be kept in mind so that all parties understand which law actually controls their arbitration. That can make all the difference.

ADR Systems, It’s Settled. ®

[1] See also Griggsville-Perry Community Unit V. IELRB, 2013 IL 113721, ¶ 33; Board of Education of City of Chicago v. Chicago Teachers Union, 430 N.E.2d 1111 (Ill. 1981); Garver v. Ferguson, 389 N.E.2d 1181 (Ill. 1979).

[2] See also Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281 (1995) (“What States may not do is decide that a contract is fair enough to enforce all its basic terms (price, service, credit), but not fair enough to enforce its arbitration clause.”).

[3] See also Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 57–58 (2003) (applying this commerce-in-fact analysis on three grounds to a debt-restructuring agreement to overturn a state supreme court decision that the FAA did not control in the case).