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Arbitration Agreement Language

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When Is Final...FINAL?: The Need for Finality Language in an Illinois Arbitration Agreement 
written by Joshua Salzman

When an arbitration decision is awarded by an independently appointed arbitrator in a binding arbitration hearing, is it final?  Can the losing party bring a motion to reconsider the arbitration award in front of the arbitrator?  The Illinois Appellate Court of the Second District recently held that the answer to both of the aforementioned questions may be determined solely by the specificity of the arbitration agreement that was agreed upon between the parties prior to the arbitration hearing.

In the recent Appellate Court decision of Smola v. Greenleaf Orthopedic Associate, 982 N.E.2d 936 (2nd Dist., 2012), the Appellate Court distinguished existing case law, and reversed and remanded the holding of the trial court which held that the independent arbitrator did not possess the power to hear a motion to reconsider the award in favor of defendants via a binding arbitration hearing.   See, Smola v. Greenleaf Orthopedic Associates, 2012 Ill.App.2d 111277 (2nd Dist., 2012).  In Smola, a premises liability slip and fall case, the agreed upon independent arbitrator issued an “award” in favor of the defendants (owner of the property, property management).  The plaintiff requested that a motion to reconsider the arbitration award be heard in front of the independent arbitrator who awarded the finding for the defendants, prior to the award becoming final.  The defendants, however, disagreed and felt that the mere issuance of the award by the independent arbitrator made the award “final”, and simultaneously brought a motion to enforce the binding arbitration award in front of the presiding trial court.  Id at 939.  The trial court entered an order enforcing the arbitration award for the defendants, stating that “binding arbitration means binding arbitration” and once the arbitrator has issued his award, he had no further power under the doctrine of functus officio to reconsider the award, and thus it was final.  Id. at 940.

On appeal, the Second District Appellate Court reversed and remanded the trial court’s ruling and distinguished the existing case law of Kalish v. Illinois Education Association, 166 Ill.App.3d 406 (1988).  The Appellate Court stated that despite the Illinois Uniform Arbitration Act being silent on whether an arbitrator can hear a motion to reconsider an arbitration award once he/she has issued it, if the arbitration agreement between the parties is ambiguous as to when an award is considered “final”, the arbitrator is in the best position to determine that issue based on the arbitration agreement and intent of the parties.  Smola, supra at 942.  In Smola¸ the Appellate Court stated that the arbitration agreement between the parties did not have “final language” and was therefore silent and/or ambiguous as to when an award by an arbitrator would be considered “final”.  (The arbitration agreement between the parties in Smola merely contained language that stated that the “arbitrator will decide all pertinent issues in the case, including liability and damages.”)  Thus, the independent arbitrator selected by the parties in Smola was in the best position to determine whether or not the award he had issued was “final”, or whether he could hear a participating parties motion to reconsider.  Id. at 942.

This holding by the Appellate Court distinguished the previous holding in Kalish.  In Kalish, the Appellate Court held that since the Illinois Uniform Arbitration Act did not specifically grant the power to an arbitrator to hear a motion to reconsider, and the arbitration agreement between the participating parties in Kalish had clear finality language, the arbitrator did not have the authority to hear a motion to reconsider its own award.  Kalish, supra at 410.

Thankfully the lesson delineated by the Courts in Smola is simple, and potential crises and delays in obtaining a favorable arbitration award can easily be adverted.  It is now imperative in Illinois that when agreeing to binding arbitration with a plaintiff in any case, the arbitration agreement that is executed must clearly contain finality language to ensure that when the award is issued by the independent arbitrator, the award is final.



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