Ford Motor Credit Company v. Cornfield

No. 2--09--0544 Filed: 11-10-09
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
SECOND DISTRICT
______________________________________________________________________________
FORD MOTOR CREDIT COMPANY, d/b/a ) Appeal from the Circuit Court
Jaguar Credit, and TINLEY PARK J. ) of Du Page County.
IMPORTS, INC., d/b/a Jaguar of Tinley Park, )
)
Plaintiffs-Appellants, )
)
v. ) No. 09--CH--1891
)
LINDA CORNFIELD, ) Honorable
) Bonnie M. Wheaton,
Defendant-Appellee. ) Judge, Presiding.
_____________________________________________________________________________
JUSTICE BOWMAN delivered the opinion of the court:
Defendant, Linda Cornfield, submitted an arbitration demand for claims against plaintiffs, Ford
Motor Credit Company, d/b/a Jaguar Credit (Ford Credit), and Tinley Park J. Imports, Inc., d/b/a
Jaguar of Tinley Park (Jaguar of Tinley Park), arising from defendant's 2004 purchase of a used
Jaguar. Plaintiffs in turn filed a complaint for a declaratory judgment in the trial court, seeking a
declaration that defendant's previous settlement with the car's manufacturer barred her claims against
plaintiffs under the doctrines of res judicata and collateral estoppel and the prohibition against claim
splitting. Plaintiffs also argued that certain statutes of limitation applied. In conjunction with their
complaint, plaintiffs filed a motion for a temporary retraining order and preliminary injunction staying
the arbitration proceedings pending a ruling on the declaratory judgment action. Defendant countered
No. 2--09--0544
by filing a motion to stay the trial court proceedings and compel arbitration. The trial court denied
plaintiffs' motion and granted defendant's motion. On appeal, plaintiffs argue that the trial court erred
in denying their request for a preliminary injunction and granting defendant's motion to stay the
proceedings and compel arbitration. We affirm.
I. BACKGROUND
A. Underlying Action Against Jaguar Cars
Defendant purchased a used 2003 Jaguar from Jaguar of Tinley Park on June 30, 2004.
Jaguar of Tinley Park assigned the retail installment sales contract (RIC) to Ford Credit. In June
2006, defendant and her husband (the Cornfields) filed an action solely against the car's manufacturer,
Jaguar RAV, a/k/a Jaguar Cars (Jaguar Cars). They filed a second amended, four-count complaint
against Jaguar Cars on June 18, 2007, alleging as follows. The vehicle came with a 4-year, 50,000-
mile warranty, followed by a Jaguar "Reacquired Vehicle Limited Warranty" until June 30, 2009, or
100,000 miles. The warranties provided that Jaguar Cars would repair or replace free of charge any
nonconformities in the material or workmanship.
Count I of the second amended complaint against Jaguar Cars alleged that it had breached its
written warranties under the Magnuson-Moss Warranty -- Federal Trade Commission Improvement
Act (15 U.S.C. §2301 et seq. (2000)) and Illinois law, in that the car was subject to at least 12 repair
attempts, rendering it defective and unsafe to drive. Jaguar Cars had allegedly failed to repair or
replace the car without charge. The Cornfields revoked their acceptance of the car on January 20,
2006, but Jaguar Cars refused to accept the revocation. For count I, the Cornfields sought judicial
cancellation and revocation of the purchase contract; monetary damages for, among other things, the
purchase price of the car and cancellation of the RIC; and attorney and other fees. Count II alleged
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breach of implied warranty of merchantability under the Magnuson-Moss Warranty Act and Illinois
law. It alleged that the car was defective and it requested the same types of damages as count I.
Count III alleged common-law fraud in that Jaguar Cars misrepresented that the vehicle had not been
subject to a "lemon law" ruling, failed to disclose that it had actually reacquired the car based on a
"lemon law" ruling, and misrepresented that the vehicle had been inspected and was in a safe and
reliable condition. For this count, the Cornfields sought actual and punitive damages, the rescission
and revocation of all contracts, and the deletion of the "trade-line." Count IV alleged breach of the
Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS
505/1 et seq. (West 2004)). It incorporated the factual allegations of count III and further alleged
that Jaguar Cars' misrepresentations, failures to disclose, and refusals to accept the Cornfields'
revocation/rescission of their contracts violated the Consumer Fraud Act. It requested the same relief
as count III.
An agreed order filed on July 29, 2008, dismissed the case between the Cornfields and Jaguar
Cars "pursuant to settlement." The order further states that Jaguar Cars agreed to pay the amounts
set forth in the Cornfields' petition for attorney fees and costs.
The settlement agreement between the Cornfields and Jaguar Cars is dated August 28, 2008.
It recites that the agreement was between the two parties and specifically mentions that Jaguar of
Tinley Park was not a party to the court case or the settlement agreement. The Cornfields agreed to
release Jaguar Cars from any claims they had in connection with their car. The parties agreed "to the
entry of an order of dismissal with prejudice of all claims pending in the aforementioned court action."
They also agreed that Jaguar Cars "shall ask the lender to delete the trade line from CORNFIELDs'
[sic] credit report." Jaguar Cars agreed to pay the Cornfields $57,000, exclusive of attorney fees.
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B. Arbitration Demand Against Plaintiffs
On November 12, 2008, defendant filed an American Arbitration Association demand against
plaintiffs, also stemming from her purchase of the Jaguar. The arbitration demand was brought
pursuant to an arbitration provision in the RIC. It provides that a party:
"may choose, at any time, including after a lawsuit is filed, to have any Claim related to this
contract decided by arbitration. Such Claims include but are not limited to the following: 1)
Claims in contract, tort, regulatory or otherwise; 2) Claims regarding the interpretation,
scope, or validity of this clause, or arbitrability of any issue; 3) Claims between you and us,
our employees, agents, successors, assigns, subsidiaries, or affiliates; 4) Claims arising out of
or relating to your application for credit, this contract, or any resulting transaction or
relationship, including that with the dealer, or any such relationship with third parties who do
not sign this contract."
The arbitration provision states that it is subject to the Federal Arbitration Act (9 U.S.C. §1 et seq.
(2000)).
In an amended demand, defendant alleged the following. The Cornfields purchased the car,
which had over 28,000 miles on it, for over $33,500. Jaguar of Tinley Park represented that the car
had been reacquired to promote customer goodwill and that it came with a " 'Jaguar Cars 12
months/12,000 mile limited warranty.' " It also included a warranty until June 30, 2009, or 100,000
miles, whichever came first. The Cornfields began to immediately experience mechanical problems
with the vehicle, and the problems continued throughout the car's life. The Cornfields brought the
car back to Jaguar of Tinley Park numerous times, and each of the repair orders provided that parts
and labor were guaranteed for 12 months or 12,000 miles. The Cornfields repeatedly asked that the
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transaction be revoked and plaintiffs cancel the sale, but plaintiffs did not accept their request. The
Cornfields hired an expert to inspect the vehicle. He stated that the car had a long history of
transmission and other problems that were never properly repaired. Due to the transmission
problems, the car had been bought back through a "lemon law" in California. It was then purchased
wholesale in Illinois. The expert opined that due to the problems, the car was worth only $9,741
when the Cornfields bought it.
Based on these allegations, defendant asserted the following claims against Jaguar of Tinley
Park: (1) breach of written warranty under the Magnuson-Moss Warranty Act; (2) breach of implied
warranty of merchantability under the Magnuson-Moss Warranty Act; (3) violations of the Consumer
Fraud Act for deceptive and unfair conduct; and (4) revocation of acceptance of goods. Defendant
sought relief in the form of the car's full purchase price; out-of-pocket expenses; damages for loss of
use, aggravation, and inconvenience and other compensatory damages; and punitive damages under
the Consumer Fraud Act. Regarding Ford Credit, defendant sought cancellation and revocation of
all contracts and refund of the money she had paid to Ford Credit. Defendant further sought attorney
fees and costs against both plaintiffs.
Subsequent to defendant's filing of the arbitration demand, plaintiffs filed a petition to
intervene in the action between the Cornfields and Jaguar Cars. The trial court denied the motion on
March 5, 2009, based on a lack of jurisdiction.
C. Plaintiffs' Action Against Defendant
Plaintiffs filed their complaint for a declaratory judgment and their motion for a temporary
restraining order and preliminary injunction on April 29, 2009. On May 5, 2009, the trial court
denied plaintiffs' motion for a temporary restraining order but set another date for a hearing on their
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request for a preliminary injunction. On May 15, 2009, defendant filed a motion to stay plaintiffs'
action and compel arbitration.
The trial court heard the pending motions on May 18, 2009. The trial court stated that the
parties' motions were "two sides to the same coin," and before they got "into any evidentiary hearing,
which would be encompassed in a preliminary injunction," the parties should argue the issues "as a
matter of law." After hearing arguments, the trial court stated that "the concept of res judicata
necessarily, necessarily [sic] involves an adjudication of a claim or defense," and there was nothing
in the order dismissing the case between the Cornfields and Jaguar Cars that decided any issue or
made any award. The trial court stated that it could not, "as a matter of law," grant plaintiffs a
preliminary injunction, because plaintiffs had not shown a likelihood of success on the merits; the trial
court did not believe that res judicata or collateral estoppel applied. The trial court further stated that
it did not believe that plaintiffs had shown an irreparable injury or an inadequate remedy at law. The
trial court granted defendant's motion to stay the action and compel arbitration, and it denied
plaintiffs' motion for a preliminary injunction. The trial court also denied plaintiffs' oral motion for
a stay pending appeal.
Plaintiffs timely filed this interlocutory appeal under Supreme Court Rule 307(a)(1) (188 Ill.
2d R. 307(a)(1)). On June 5, 2009, we granted plaintiffs' motion to stay the trial court's ruling
compelling arbitration, under Supreme Court Rule 305(d) (210 Ill. 2d R. 305(d)).
II. ANALYSIS
A. Motion
We first address defendant's "motion," incorporated into her brief, to strike or ignore
argument contained in plaintiffs' statement of facts. We note that defendant failed to properly file this
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"motion." See 735 ILCS 5/2--620 (West 2008); 210 Ill. 2d R. 361(a); Advincula v. United Blood
Services, 176 Ill. 2d 1, 7 (1996). In any event, we will disregard any improper comments in plaintiffs'
statement of facts and remind plaintiffs that any arguments and commentary should be confined to
the argument section of their brief. See 210 Ill. 2d R. 341(h)(6).
B. Standard of Review
We now turn to the question of the applicable standard of review. Plaintiffs assert that the
de novo standard applies whereas defendant submits that an abuse of discretion standard applies. In
interlocutory appeals, the trial court's decision to grant or deny the relief requested is generally
reviewed under an abuse of discretion standard. Czarnik v. Wendover Financial Services, 374 Ill.
App. 3d 113, 116 (2007). However, if the trial court does not make any factual findings and rules
on a question of law, we review its decision de novo. See Czarnik, 374 Ill. App. 3d at 116. These
same principles also specifically apply to a trial court's ruling on a request for a preliminary injunction.
We typically review such decisions for an abuse of discretion but will review de novo a ruling
involving a matter of law. Jones v. Department of Public Aid, 373 Ill. App. 3d 184, 193 (2007). But
cf. Northeast Illinois Regional Commuter R.R. Corp. v. Chicago Union Station Co., 358 Ill. App. 3d
985, 993-95 (2005) (applying abuse of discretion standard). In this case, the trial court did not make
any factual findings, explicitly stated that the parties should argue the issues "as a matter of law," and
stated that it was ruling "as a matter of law." Accordingly, we will review its ruling de novo.
C. Preliminary Injunction
Plaintiffs challenge the trial court's denial of their motion for a preliminary injunction. A
preliminary injunction serves to preserve the status quo until the merits of a cause have been decided.
Rochester Buckhart Action Group v. Young, 379 Ill. App. 3d 1030, 1033 (2008). The grant of a
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preliminary injunction is an extraordinary remedy, and courts do not favor their issuance. People ex
rel. Madigan v. Excavating & Lowboy Services, Inc., 388 Ill. App. 3d 554, 565 (2009). A plaintiff
seeking a preliminary injunction must show: (1) a clearly ascertainable right needing protection; (2)
irreparable harm will occur without the injunction; (3) no adequate remedy at law exists; and (4) there
is a substantial likelihood of success on the merits of the underlying action. Rochester Buckhart
Action Group, 379 Ill. App. 3d at 1034.
In this case, the trial court focused on the fourth element, whether plaintiffs showed a
substantial likelihood of success on the merits of their declaratory judgment action, and we similarly
focus on this element. To show a likelihood of success on the merits, a party does not have to meet
the same burden of proof that is required at the final hearing. Stenstrom Petroleum Services Group,
Inc. v. Mesch, 375 Ill. App. 3d 1077, 1089 (2007). Rather, for the "first and fourth requirements,
'a plaintiff need only raise a fair question as to the existence of the right which [it] claims and lead the
court to believe that [it] will probably be entitled to the relief requested if the proof sustains [its]
allegations.' " Stenstrom Petroleum Services Group, Inc., 375 Ill. App. 3d at 1089, quoting LSBZ,
Inc. v. Brokis, 237 Ill. App. 3d 415, 425 (1992).
We initially note that plaintiffs do not dispute that they signed the RIC containing the
arbitration provision or were otherwise originally bound by it. They also do not appear to dispute
that in the absence of the Cornfields' litigation and settlement with Jaguar Cars, the provision would
require arbitration of defendant's allegations. Rather, plaintiffs argue that in light of the Cornfields'
prior action against Jaguar Cars, they have raised a fair question as to the applicability of the doctrines
of res judicata, collateral estoppel, waiver, and the prohibition against claim splitting. However, for
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plaintiffs to prevail on their underlying request for a declaratory judgment, the authority to decide the
applicability of these doctrines would need to rest with the trial court, rather than the arbitrator.
Under Illinois arbitration law, namely section 2(b) of the Uniform Arbitration Act (Illinois
Act) (710 ILCS 5/2(b) (West 2008)), a trial court "may stay an arbitration proceeding commenced
or threatened on a showing that there is no agreement to arbitrate." "The issue of whether a dispute
is beyond the scope of the agreement to arbitrate, by reason of a prior arbitration, may be tested in
the courts under section 2 of the Act." Horwitz, Schakner & Associates, Inc. v. Schakner, 252 Ill.
App. 3d 879, 883 (1993). Under the Illinois Act, it is the role of the trial court, rather than the
arbitrator, to determine the res judicata or collateral estoppel effect of a prior arbitration award
(Monmouth Public Schools, District No. 38 v. Pullen, 141 Ill. App. 3d 60, 66-67 (1985)) or a prior
judgment (Peregrine Financial Group, Inc. v. Ambuehl, 309 Ill. App. 3d 101, 107 (1999)).
"[A]lthough there is a broad presumption of arbitrability premised on the right to contract, arbitration
cannot be intended to afford a litigant an opportunity to relitigate a dispute that has been previously
resolved by a court of competent jurisdiction." Czarnik, 374 Ill. App. 3d at 117. Thus, if the Illinois
Act applied, plaintiffs could properly seek a stay of arbitration based on claims of collateral estoppel
and res judicata. The rule against claim splitting is encompassed within the doctrine of res judicata
(see Saxon Mortgage, Inc. v. United Financial Mortgage Corp., 312 Ill. App. 3d 1098, 1110 (2000)),
and the appellate court has also held that the trial court can decide whether a party has waived its
right to arbitrate (Glazer's Distributors of Illinois, Inc. v. NWS-Illinois, LLC, 376 Ill. App. 3d 411,
424 (2007)). Accordingly, if the Illinois Act applied, plaintiffs could also properly seek a stay of
arbitration based on waiver and the rule against claim splitting. In other words, under the Illinois Act,
it would be the trial court's role to determine if any of the doctrines relied on by plaintiffs applied.
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In this case, however, the arbitration provision at issue states that it is subject to the Federal
Arbitration Act (Federal Act). See also 9 U.S.C. §2 (2000) (Federal Act applies to any "contract
evidencing a transaction involving commerce"). Therefore, we must apply the Federal Act. The
Federal Act created substantive federal law that is applicable in both federal and state courts.
Southland Corp. v. Keating, 465 U.S. 1, 12, 79 L. Ed. 2d 1, 13, 104 S. Ct. 852, 859 (1984); cf.
Roubik v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 181 Ill. 2d 373, 382 (1998) (applying federal
law to contract governed by the Federal Act). In conducting our analysis, we are cognizant that "as
a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in
favor of arbitration, whether the problem at hand is the construction of the contract language itself
or an allegation of waiver, delay, or a like defense to arbitrability." Moses H. Cone Memorial
Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25, 74 L. Ed. 2d 765, 785, 103 S. Ct. 927,
941 (1983).
In supplemental briefing ordered by this court to address the Federal Act, plaintiffs argue that
the Federal Act explicitly states that the court, not the arbitrator, has the responsibility to determine
the threshold issue of whether a contract to arbitrate exists. See 9 U.S.C. §3 (2000) (upon motion
by a party, the trial court shall stay the court action pending arbitration if it is "satisfied that the issue
involved in such suit or proceeding is referable to arbitration under such an agreement"). Plaintiffs
note that the United States Supreme Court has also stated that it is the trial court's role to determine
what issues the contract requires to be arbitrated. See First Options of Chicago, Inc. v. Kaplan, 514
U.S. 938, 944, 131 L. Ed. 2d 985, 993, 115 S. Ct. 1920, 1924 (1995). Plaintiffs further quote this
court's statement that " '[w]hether under federal rules or state law, there is no arbitration without a
valid contract to arbitrate.' " Bahuriak v. Bill Kay Chrysler Plymouth, Inc., 337 Ill. App. 3d 714, 719
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(2003), quoting Aste v. Metropolitan Life Insurance Co., 312 Ill. App. 3d 972, 975 (2000). Plaintiffs
argue that because the Cornfields' prior suit with Jaguar Cars was settled and the case was dismissed
with prejudice, the RIC and its arbitration provision have been satisfied and cancelled. Plaintiffs argue
that the trial court should have therefore concluded that they demonstrated a substantial likelihood
of success of showing that there was no contract to arbitrate. Plaintiffs also reassert their arguments
regarding res judicata, collateral estoppel, waiver, and the prohibition against claim splitting.
Under the Federal Act, the trial court is charged with determining questions of arbitrability,
specifically whether the parties are bound by an arbitration clause and whether the arbitration clause
applies to a specific controversy. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 154 L.
Ed. 2d 491, 497, 123 S. Ct. 588, 592 (2002). In other words, the arbitrability of a dispute refers to:
(1) whether a valid agreement to arbitrate under the contract exists, and if so, (2) whether the dispute
sought to be arbitrated is within the arbitration agreement's scope. John Hancock Mutual Life
Insurance Co. v. Olick, 151 F.3d 132, 137 (3d Cir. 1998); National Union Fire Insurance Co. of
Pittsburgh, PA v. Belco Petroleum Corp., 88 F.3d 129, 135 (2d Cir. 1996). In determining whether
the parties agreed to arbitrate a particular issue, the court should apply state law regarding the
formation of contracts. First Options of Chicago, Inc., 514 U.S. at 944, 131 L. Ed. 2d at 993, 115
S. Ct. at 1924.
However, the trial court's role in determining the arbitrability of a dispute does not apply to
gateway procedural issues. Procedural questions arising from the dispute and affecting its final
disposition are presumptively for the arbitrator, rather than the judge, to decide. That is, the
arbitrator presumptively should decide allegations of waiver, delay, or similar defenses to arbitrability.
Howsam, 537 U.S. at 84, 154 L. Ed. 2d at 497, 123 S. Ct. at 592. Other examples of gateway
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procedural questions are " 'prerequisites such as time limits, notice, laches, estoppel, and other
conditions precedent to an obligation to arbitrate.' " (Emphasis omitted.) Howsam, 537 U.S. at 85,
154 L. Ed. 2d at 498, 123 S. Ct. at 592, quoting Revised Unif. Arbitration Act §6, U.L.A. 13,
Comment 2 (Supp. 2002). The Howsam Court reasoned that parties would likely have originally
expected that the arbitrator would decide such procedural matters. Howsam, 537 U.S. at 84, 154
L. Ed. 2d at 497-98, 123 S. Ct. at 592.
Notwithstanding the distinction between the arbitrability of a dispute and procedural
questions, the Federal Act also allows the parties to contractually agree to submit the question of
arbitrability itself to arbitration. First Options of Chicago, Inc., 514 U.S. at 943, 131 L. Ed. 2d at
993, 115 S. Ct. at 1923; Bahuriak, 337 Ill. App. 3d at 719. Such an agreement must be clear and
unmistakable in order to be enforced. First Options of Chicago, Inc., 514 U.S. at 944, 131 L. Ed.
2d at 993, 115 S. Ct. at 1924. Here, the RIC clearly allowed either party to have "the interpretation,
scope, or validity of this clause, or arbitrability of any issue" (emphasis added) decided by arbitration,
which is what defendant sought to do. As we later discuss, though, broad provisions such as these
are subject to certain exceptions.
We first analyze whether the particular doctrines relied on by plaintiffs are procedural issues
for the arbitrator or questions of arbitrability for the trial court before turning to plaintiffs' more
general argument that it was the trial court's role to decide whether a valid contract to arbitrate still
exists in this case.
1. Res Judicata
We begin with res judicata. Res judicata provides that a final judgment rendered on the merits
by a court of competent jurisdiction is conclusive as to the rights of the parties involved and their
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privies, and, as to them, constitutes an absolute bar to a subsequent action involving the same claim,
demand, or cause of action. Nowak v. St. Rita High School, 197 Ill. 2d 381, 389 (2001). Res
judicata creates a bar as to every matter that might have been offered to sustain or defeat the claim
or demand, in addition to every matter that was originally offered. Nowak, 197 Ill. 2d at 389. For
res judicata to apply, there must be: (1) a final judgment on the merits rendered by a court of
competent jurisdiction; (2) an identity of causes of action; and (3) identical parties or their privies in
both actions. Hudson v. City of Chicago, 228 Ill. 2d 462, 467 (2008).
The answer to the question of whether the court or the arbitrator determines the application
of res judicata depends on whether the res judicata objection to the current arbitration proceeding is
based on a prior arbitration proceeding or a prior court judgment. The majority of the federal
appellate courts hold that where the res judicata objection is based on a prior arbitration proceeding,
it is a legal defense that is a part of the dispute on the merits for the arbitrator to resolve. See Chiron
Corp. v. Ortho Diagnostic Systems, Inc., 207 F.3d 1126, 1132 (9th Cir. 2000); National Union Fire
Insurance Co., 88 F.3d at 135-36; John Hancock Mutual Life Insurance Co., 151 F.3d at 138. In this
manner, res judicata is a gateway procedural question for the arbitrator rather than a question of
arbitrability for the court. Indeed, the Howsam Court directly referenced "estoppel" as a procedural
question for the arbitrator (Howsam, 537 U.S. at 85, 154 L. Ed. 2d at 498, 123 S. Ct. at 592), and
the doctrine of res judicata is also referred to as "estoppel by judgment" (Torcasso v. Standard
Outdoor Sales, Inc., 157 Ill. 2d 484, 491 (1993)).
However, where the res judicata objection is based on a prior court judgment from the same
jurisdiction, it is a question for the trial court because it invokes the trial court's authority to protect
the finality and integrity of its own prior judgments. Chiron Corp., 207 F.3d at 1134; John Hancock
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Mutual Life Insurance Co., 151 F.3d at 138; In re Y&A Group Securities Litigation, 38 F.3d 380,
383 (8th Cir. 1994) ("The district court, and not the arbitration panel, is the best interpreter of its own
judgment"); Miller Brewing Co. v. Fort Worth Distributing Co., 781 F.2d 494, 499 (5th Cir. 1986).
But cf. Klay v. United Healthgroup, Inc., 376 F.3d 1092, 1109 (11th Cir. 2004) (not distinguishing
between prior arbitration awards and the court's own judgments in stating that Howsam requires the
arbitrator to decide the issue of res judicata). The presumption is that the court that issued the
original decision has more insight into what was originally considered and decided and thus its
preclusive effect. Chiron Corp., 207 F.3d at 1134. This justification does not exist where the original
decision was issued by the arbitrator and thus the trial court is not "uniquely qualified to ascertain its
scope and preclusive effect." Chiron Corp., 207 F.3d at 1134. The justification is also lacking where
the original decision was issued by a foreign jurisdiction. See Zurich American Insurance Co. v.
Watts Industries, Inc., 466 F.3d 577, 581 (7th Cir. 2006) (preclusive effect of California state court
judgment on arbitration proceeding was a defense and an issue for the arbitrator rather than the
federal circuit court). The trial court's authority to protect the integrity of its own judgments will
allow it to decide a res judicata issue based on its prior judgments notwithstanding any contractual
provision to arbitrate the arbitrability of disputes. See J. Wong, Court or Arbitrator--Who Decides
Whether Res Judicata Bars Subsequent Arbitration Under the Federal Arbitration Act?, 46 Santa
Clara L. Rev. 49, 73-74 (2005); see also Howsam, 537 U.S. at 84-85, 154 L. Ed. 2d at 498, 123 S.
Ct. at 592-93 (emphasizing contracting parties' original expectations regarding who would determine
a particular type of dispute and comparative expertise of courts and arbitrators in determining which
forum should decide issues).
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Accordingly, the general rule is that it is the arbitrator's role to decide the applicability of res
judicata, except in situations where a party asserts res judicata based on the trial court's own prior
judgment. In the instant case, plaintiffs assert res judicata from the prior case's dismissal with
prejudice based on a settlement agreement. Plaintiffs cite various cases for the proposition that a
dismissal with prejudice or a consent judgment operates as an adjudication on the merits. See Elliott
v. LRSL Enterprises, Inc., 226 Ill. App. 3d 724, 728 (1992); Vanslambrouck v. Marshall Field Co.,
98 Ill. App. 3d 485, 487 (1981). But cf. Sterling v. Rockford Mass Transit District, 336 Ill. App. 3d
840, 846 (2003) (what constitutes an adjudication on the merits depends on the context in which the
ruling was made). However, we conclude that this situation falls under the general rule requiring the
arbitrator to decide the question of res judicata. Although plaintiffs are technically invoking a prior
court judgment, that judgment was an agreed order between the Cornfields and Jaguar Cars that
dismissed the case pursuant to a settlement agreement; the judgment did not resolve any of the
original claims on the merits. We emphasize that the issue currently before us is not whether a
dismissal with prejudice or a consent judgment can have a res judicata effect, but rather who is
charged with answering that question.
The situation here is similar to a trial court's confirmation of an arbitration award. In Chiron
Corp., the defendant argued that the trial court should decide the res judicata issue because it had
entered judgment upon the arbitration award, and under section 13 of the Federal Act (9 U.S.C. §13
(2000)), an arbitration judgment is to be treated the same as a court judgment. Chiron Corp., 207
F.3d at 1133. The Chiron court noted that section 13 does not state which forum should determine
the judgment's effect, and the court stated that while a confirmed arbitration award has the effect of
a court judgment for enforcement purposes, it is not the equivalent of a court judgment for all
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purposes. Chiron Corp., 207 F.3d at 1133. The court pointed out that a trial court is required to
enter judgment on a confirmed arbitration award without reviewing the award's merits or legal
analysis, unlike a judgment issued by the court after full judicial proceedings. Chiron Corp., 207 F.3d
at 1133. Further, a typical court judgment is subject to being reopened and/or appealed on the merits,
unlike a confirmed arbitration award. Chiron Corp., 207 F.3d at 1133. The court additionally
reasoned that even if an arbitration award were treated as a court judgment, it would still be
distinguishable from the court's own prior judgment. Chiron Corp., 207 F.3d at 1134. The court
stated that "the presumption [is] that the court issuing the original decision is best equipped to
determine what was considered and decided in that decision and thus what is or is not precluded by
that decision," but such reasoning does not apply "when the district court merely confirmed the
decision issued by another entity, the arbitrator, and was not uniquely qualified to ascertain its scope
and preclusive effect." Chiron Corp., 207 F.3d at 1134.
Similarly, in the prior case against Jaguar Cars the trial court's entering of an agreed order to
dismiss the case was not the equivalent of resolving the claims on the merits after fully litigating the
issues. Furthermore, determining whether res judicata applies requires reading and interpreting the
settlement agreement, which the trial court did not do in the prior case and therefore was not uniquely
qualified to do below. We recognize that In re Y&A Group Securities Litigation also involved a
settlement agreement, and there the Eighth Circuit concluded that the trial court should determine
the res judicata issue. Y&A Group Securities Litigation, 38 F.3d at 383. However, that case is
distinguishable because there the trial court incorporated the parties' settlement agreement into its
final judgment, whereas here the trial court merely dismissed the case because the parties had settled
their conflict, and there is no indication that the trial court even read, much less considered, the
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settlement agreement. Thus, under the circumstances present here, it is the arbitrator's role to
determine the res judicata effect of the settlement agreement, meaning that plaintiffs failed to
demonstrate a substantial likelihood of success on the merits of their declaratory judgment action
based on the trial court applying res judicata.
2. Claim Splitting
Next, we look at whose role it is to determine the potential application of the prohibition
against claim splitting. Plaintiffs maintain that they raised at least a fair question regarding their
success on their claim-splitting claim. Plaintiffs argue that defendant's arbitration demand was a
purposeful split of her claim derived to obtain multiple recoveries from the same set of operative
issues litigated, when she had already obtained complete relief on her entire cause of action in her
case against Jaguar Cars.
Plaintiffs appear to be arguing that the rule against claim splitting is an independent basis to
prevent defendant's arbitration demand, but claim splitting is simply an aspect of res judicata.
Horwitz v. Alloy Automotive Co., 992 F.2d 100, 103 (7th Cir. 1993). The "principle that res judicata
prohibits a party from seeking relief on the basis of issues that could have been resolved in a previous
action serves to prevent parties from splitting their claims into multiple actions." Hudson, 228 Ill. 2d
at 471-72; see also Dubina v. Mesirow Realty Development, Inc., 178 Ill. 2d 496, 507 (1997) (a
"plaintiff seeking to split his claims and appeal in a piecemeal manner may be barred by res judicata");
Saxon Mortgage, Inc., 312 Ill. App. 3d at 1109 ("The doctrine of res judicata also prohibits a party
from subsequently seeking relief by splitting a single cause of action into more than one proceeding").
As we have concluded that plaintiffs have not shown a substantial likelihood of showing that the trial
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court could apply res judicata, because such a question must be answered by the arbitrator, it follows
that plaintiffs' request for a preliminary injunction based on claim splitting also fails.
3. Collateral Estoppel
We now move on to collateral estoppel. Collateral estoppel is an equitable doctrine that
prevents a party from relitigating an issue that was already decided in a prior proceeding. Preferred
Personnel Services, Inc. v. Meltzer, Purtill & Stelle, LLC, 387 Ill. App. 3d 933, 944 (2009).
Collateral estoppel applies where: (1) the issue decided in the prior adjudication is identical to the
one presented in the current suit; (2) a final judgment on the merits was entered in the prior
adjudication; and (3) the party against whom estoppel is asserted was a party to or was in privity with
a party to the prior adjudication. Preferred Personnel Services, Inc., 387 Ill. App. 3d at 944.
Like res judicata in general, collateral estoppel is considered a legal defense that is related to
the merits of the case and is therefore arbitrable. See United States Fire Insurance Co. v. National
Gypsum Co., 101 F.3d 813, 817 (2d Cir. 1996); Local Union No. 370 v. Morrison-Knudsen Co., 786
F.2d 1356, 1358 (9th Cir. 1986). Again, the Howsam Court directly referenced "estoppel" as a
procedural question for the arbitrator (Howsam, 537 U.S. at 85, 154 L. Ed. 2d at 498, 123 S. Ct. at
592), and collateral estoppel is, of course, a form of estoppel. To any extent that collateral estoppel
could be considered a question of arbitrability for the court, here the parties contractually agreed that
a party could elect to have the "arbitrability of any issue" determined by the arbitrator. Furthermore,
the policy implications allowing the trial court to decide an issue of res judicata arising from a prior
court judgment are not present for an issue of collateral estoppel, because collateral estoppel usually
affects just issues related to the claim rather than the ruling on the entire claim itself. See Miller v.
Runyon, 77 F.3d 189, 194 (7th Cir. 1996) (in asserting collateral estoppel, a party is "seeking ***
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not to bar but merely to constrain the arbitrator"). Even if such policy concerns would apply equally
to res judicata and collateral estoppel, as we previously discussed, such concerns are not implicated
under the facts of this case.
4. Waiver
We next look at the potential application of waiver. Howsam admittedly refers to "waiver"
as a procedural issue for the arbitrator to decide. Howsam, 537 U.S. at 84, 154 L. Ed. 2d at 497, 123
S. Ct. at 592. However, the majority of federal appellate courts that have considered this issue have
concluded that the Howsam Court's use of the term "waiver" referred to a party's lack of compliance
with contractual conditions precedent to arbitration, rather than waiver based on prior litigation or
conduct inconsistent with the right to arbitrate, which has traditionally been ruled upon by the court.
JPD, Inc. v. Chronimed Holdings, Inc., 539 F.3d 388, 393-94 (6th Cir. 2008); Ehleiter v. Grapetree
Shores, Inc., 482 F.3d 207, 217-19 (3d Cir. 2007); Marie v. Allied Home Mortgage Corp., 402 F.3d
1, 14 (1st Cir. 2005). We agree with the reasoning of these courts. Admittedly, this case has the
added circumstance that the arbitration provision allows for a party to choose to arbitrate the issue
of arbitrability. However, like the question of the res judicata effect of prior court judgments, we
believe that this type of "catch-all" provision does not include the question of the effect of a party's
prior litigation, which the trial court is better qualified to determine than the arbitrator. Accordingly,
we agree with plaintiffs that the trial court here could properly consider the waiver issue.
Plaintiffs argue that by choosing to litigate her claim by initiating an action in which the
purchase contract and financing were directly at issue and, after two years, settling those claims and
dismissing the matter with prejudice, defendant waived her right to elect arbitration for those same
claims. A contractual right to compel arbitration may be waived like other contractual rights.
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La Hood v. Central Illinois Construction, Inc., 335 Ill. App. 3d 363, 364 (2002). "Waiver of the right
to arbitration occurs when a party's conduct is so inconsistent with the arbitration clause as to
demonstrate abandonment of that right or when the party submits arbitrable issues to the court for
decision." Bahuriak, 337 Ill. App. 3d at 721.
In this case, the arbitration provision was in the RIC. That contract was signed by Jaguar of
Tinley Park and defendant, and it stated that it would be assigned to Ford Credit; the contract did not
apply to Jaguar Cars. The arbitration provision was also elective and stated that a party could choose
to arbitrate at any time, even after the filing of a lawsuit. Thus, the Cornfields' action against Jaguar
Cars was not inconsistent with the arbitration clause and did not indicate defendant's intent to
abandon her arbitration rights against plaintiffs. Arbitration agreements will be enforced even if there
are claims by third parties or pending multiparty litigation (Atkins v. Rustic Woods Partners, 171 Ill.
App. 3d 373, 380 (1988)) because the public policy favoring arbitration outweighs concerns about
judicial economy, duplication of effort, or inconsistent results (La Hood, 335 Ill. App. 3d at 365).
Thus, plaintiffs were not entitled to a preliminary injunction on the ground of waiver, because they
did not show a substantial likelihood that they could succeed in obtaining a declaratory judgment on
this basis.
5. Continuing Existence of Contract to Arbitrate
Somewhat related to the waiver issue is plaintiffs' assertion that there is no longer a contract
to arbitrate between the parties. Specifically, in describing the effect of the Cornfields' prior litigation
and settlement with Jaguar Cars, plaintiffs say that the RIC has been "satisfied and cancelled," that
the arbitration provision is "ineffective and cancelled," and that the contract and the provision are
"expir[ed]/terminat[ed]" and "resci[nded] and revo[ked]."
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Plaintiffs cite Nissan North America, Inc. v. Jim M'Lady Oldsmobile, Inc., 307 F.3d 601 (7th
Cir. 2002) (Nissan I), and Nissan North America, Inc. v. Jim M'Lady Oldsmobile, Inc., 486 F.3d 989
(7th Cir. 2007) (Nissan II). In Nissan I, the district court compelled arbitration even though the
dispute arose after the parties' agreement to arbitrate, as amended, had already expired by its own
terms. Nissan I, 307 F.3d at 604. The Seventh Circuit vacated the district court's decision and
remanded the case, holding that the plaintiff had failed to present sufficient evidence that the
defendant had waived the expiration date or that the arbitration provision was otherwise enforceable.
Nissan I, 307 F.3d at 604-05. The district court subsequently ruled that the plaintiff failed to
demonstrate that it was entitled to arbitration. Nissan II, 486 F.3d at 990. The Seventh Circuit
affirmed, holding that the plaintiff failed to provide sufficient evidence of: a written agreement to
arbitrate that survived the expiration of the prior agreement, as amended; estoppel based on the
defendant's alleged waiver of the expiration date; or the existence of an implied contract to extend
the expiration date. Nissan II, 486 F.3d at 995-96.
We conclude that whether the RIC survives defendant's settlement is a question for the
arbitrator. Unlike in Nissan I and Nissan II, there is no provision in the RIC that it expires or
otherwise terminates on a certain date or upon the happening of a specific event. Also, although
plaintiffs assert that defendant "sought and later obtained rescission and revocation of the contracts
as a result of Defendant's affirmative conduct that brought about the Underlying Action," plaintiffs
contradictorily state that "cancellation and revocation of the Purchase Contract and the RIC ***
could not be obtained from Jaguar Cars," the party in the underlying action. Furthermore, we
reiterate and emphasize that even though the question of whether the parties are bound by contract
to arbitrate is typically a question of arbitrability for the trial court (see Howsam, 537 U.S. at 84, 154
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L. Ed. 2d at 498, 123 S. Ct. at 592), the parties may contractually agree to submit the question of
arbitrability itself to arbitration (First Options of Chicago, Inc., 514 U.S. at 943, 131 L. Ed. 2d at 993,
115 S. Ct. at 1923; Bahuriak, 337 Ill. App. 3d at 719). Defendant elected to proceed under such a
clause in the RIC, which further distinguishes this case from Nissan I and Nissan II. We therefore
conclude that plaintiffs have failed to show a substantial likelihood of succeeding on the merits in the
trial court based on the argument that the RIC has been satisfied, cancelled, expired, terminated,
rescinded, and/or revoked, because such an issue is for the arbitrator to decide.
Finally, we note that although plaintiffs have appealed the trial court's grant of defendant's
motion to stay the proceedings and compel arbitration in addition to its denial of their request for a
preliminary injunction, they offer no distinct argument pertaining to the trial court's grant of defendant
motion. Therefore, we do not address that issue separately.
III. CONCLUSION
For the foregoing reasons, we affirm the judgment of the Du Page County circuit court.
Affirmed.
McLAREN and O'MALLEY, JJ., concur.
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