Self-executing order kills chances to vacate arbitration award

Supreme Court Rule 91(b) provides:

All parties to the arbitration hearing must participate in the hearing in good faith and in a meaningful manner. If a panel of arbitrators unanimously finds that a party has failed to participate in the hearing in good faith and in a meaningful manner, the panel's finding and factual basis therefor shall be stated on the award. Such award shall be prima facie evidence that the party failed to participate in the arbitration hearing in good faith and in a meaningful manner and a court, when presented with a petition for sanctions or remedy therefor, may order sanctions as provided in Rule 219(c), including, but not limited to, an order debarring that party from rejecting the award, and costs and attorney fees incurred for the arbitration hearing and in the prosecution of the petition for sanctions, against that party.

I have served as an arbitrator in the Cook County Mandatory Court Annexed Arbitration program since it was instituted. On several occasions prior to the 1993 addition of Rule 91(b), I personally observed counsel come to hearings armed with only a newspaper, sometimes working the crossword puzzle while the other side put on a case. This was -- under the original arbitration rules -- permitted: The right to reject the inevitable adverse award was preserved. Nor was my experience unusual, as the comments to Rule 91(b) make clear: "Prior to the adoption of these sanctions, there were complaints by arbitrators that some parties and lawyers would merely attend but refuse to participate in arbitration. This paragraph was adopted to discourage such misconduct."

But not only does the rule apply to how a party conducts itself at the arbitration hearing itself, the rule has been interpreted in such a way as to include a party's prearbitration conduct within the ambit of the rule.

Campuzano v. Peritz, 2007 WL 2821967 (Ill.App. 1st Dist. 9/28/07), is the latest case to find that failure to comply with a self-executing discovery order is conclusive evidence of bad faith for purposes of an arbitration hearing.

Campuzano involved an auto accident: Lyda Campuzano said she was injured on account of defendants' negligence. Plaintiff served Interrogatories and notices for the defendants' depositions in due course -- but these were apparently ignored. Plaintiff filed a motion to compel. The court entered an order requiring defendants to answer the Interrogatories by November 8, 2004 and to appear for their depositions by November 15. The order specifically provided that "failure to comply with discovery would result in an order barring defendants from testifying or presenting evidence at the arbitration and at trial." (Slip. op. at 2.) (It is in this way that the order was 'self-executing': The specified sanction would follow automatically if compliance did not occur.)

Spurred thus to action, defendants complied... in part. Howard Peritz, the driver of the car at the time of the collision with Ms. Campuzano's vehicle, appeared for deposition on November 11. Revelie Peritz never appeared; neither Howard nor Revelie ever answered the Interrogatories.

The court-ordered discovery cut-off slipped by on November 29, 2004. The case was thereafter set for arbitration on April 5, 2005. No effort was made to vacate the discovery order during that time.

At the arbitration, plaintiff advised the panel about the unfulfilled discovery order; it was duly noted in the award form completed by the arbitrators. Defendants admitted negligence at the hearing, but apparently participated to the limited extent that they could under the order. However, the Appellate Court said the arbitrators "concluded that all parties participated in the arbitration in good faith." (Slip op. at p. 2.) Nevertheless (and to no one's surprise) the arbitrators entered an award in favor of plaintiff and against Howard Peritz.

When the case came back to the Circuit Court, defendants finally moved "to vacate the discovery order sanctioning their failure to comply with plaintiff's discovery requests." The opinion does not indicate whether compliance with the written discovery was tendered with the motion; my impression is that it was not. "Plaintiff responded by arguing the sanction was appropriate and moving to bar defendants' rejection of the arbitration award under Rule 91(b)." (Slip op. at p. 2.) The trial court denied defendants' motion, granted plaintiff's motion and entered judgment on the arbitration award.

Both the Appellate Court's majority opinion, written by Justice Robert Cahill, and the dissent, authored by Justice Robert E. Gordon, analyze the case in terms of good faith participation in the arbitration process under Supreme Court Rule 91(b).

The majority explains that this rule "requires that parties participate in an arbitration hearing in good faith by subjecting the case to the type of adversarial testing that would be expected at a trial." (Slip op. at p. 3, citing Walker v. Lewis, 352 Ill.App.3d 952, 956, 817 N.E.2d 928 (1st Dist. 2004)). In his dissent, Justice Gordon did not disagree with this fundamental proposition: "The point of Rule 91(b) that the majority is greatly concerned with, and rightfully so, is to 'prevent the abuse of the arbitration process and to uphold the integrity of the arbitration process.'" (Slip op. at p. 12, quoting State Farm Insurance Co. v. Kazakova, 299 Ill.App.3d 1028, 1033, 702 N.E.2d 254 (1st Dist. 1998)).

But, Justice Gordon contends, "The facts in this case do not indicate that defendant Howard's conduct in not answering plaintiff's written interrogatories was an abuse of the arbitration process, or that it affected the integrity of that process." (Slip op. at p. 12.) I suppose one must agree or disagree with this statement based on what is seen as the arbitration "process."

If arbitration "process" means the same as arbitration hearing, the dissent has a point: And, consistent with the original impetus of Rule 91(b), the Supreme Court uses the word "hearing" repeatedly in the text of the actual rule -- twice in that first sentence of Rule 91(b) alone. In Campuzano, therefore, while the defendants seem to have been somewhat lackadaisical in their approach to court-ordered discovery before the hearing, that does not mean that they were not, at the arbitration hearing itself, models of decorum and professional preparation.

In Campuzano, it seems apparent that all sides, including the trial court, saw plaintiff's attempt to debar the defendants' rejection of the award as an attempt to secure a finding that defendants had acted in bad faith at the hearing. Thus, defendants argued that their apparent good faith participation at the arbitration hearing should have preserved their right to reject the award. In support of their position, defendants cited cases such as Ruback v. Doss, 347 Ill. App. 3d 808, 815, 807 N.E.2d 1019 (1st Dist. 2004).

The majority found these citations of limited assistance. In Ruback, for example, the defense had argued that plaintiff had elicited testimony in contravention of the Dead Man's Act, 735 ILCS 5/8-201 -- and won the maximum possible award from the arbitrators in the process. The defense persuaded the trial court of this position without a transcript of the arbitration hearing itself.

The focus, in Campuzano and the cases on which the majority relies, on whether the defendants did or not participate in good faith at the arbitration is necessitated by the rule itself. Thus, the majority concludes, "A party does not participate in an arbitration in good faith and in a meaningful manner when he fails to comply with prearbitration discovery." (Slip op. at p. 6.)

In Campuzano, the defendants admitted negligence for purposes of the arbitration hearing. The dissent notes that, in general, "discovery as to a defendant is not necessary for arbitration or trial by the plaintiff when negligence is admitted." (Slip op. at p. 12.) The majority did not entirely disagree with this assertion, but felt it was irrelevant (slip op. at p. 9): "The dissent’s argument that prehearing discovery is less important when liability is admitted may well be valid. But the proper forum for that argument is the courtroom of the judge about to enter the order. There are procedural steps available to an attorney aggrieved by the entry of a nonappealable discovery order."

The question in my mind is whether arbitrators hearing cases after Campuzano or Lopez v. Miller, 363 Ill.App.3d 773, 844 N.E.2d 1017 (1st Dist. 2006), are now expected to find that a party has acted in bad faith whenever a party calls to the panel's attention a failure to comply with a discovery order, particularly a self-executing discovery order like that at issue in Campuzano.

Arbitrators in Illinois' mandatory court-annexed arbitration system have very limited powers as set out at Supreme Court Rule 90. In Cook County, arbitrators have been asked to submit to a couple of training sessions in recent years; one of the things that arbitrators have been instructed to do at those sessions is to remember to record, on the award form, those discovery issues that the parties call to their attention at a hearing. No particular instruction has been offered on how or whether the arbitrators should take this default into account in discharging their obligation to determine whether the parties acted in good faith at the hearing; the general instruction has been to record the existence of the order and let the court sort it out in post-arbitration motions. Perhaps, in light of Campuzano, these instructions will need to be revised.