Failure to contest arbitration properly, can waive access to courts!

Plaintiff was acquired by a new company and sued the defendant on a breach of contract theory in an American Arbitration Association (“AAA”) Complaint.  The AAA Complaint alleged breach of a written agreement; however, Defendant counterclaimed requesting reformation or rescission of the contract from the arbitrator.  The Defendant asserted a mutual mistake of fact as the basis for seeking a reformation remedy, and alternatively sought rescission of the contract.

In the arbitration proceeding, the Plaintiff asserted that reformation was not necessary as there was no mutual mistake of fact and no scrivener’s error.  However, Plaintiff did not argue that an arbitrator could not reform a contract.  Subsequently, Plaintiff filed a motion with the trial court to vacate the arbitration award asserting that the arbitrator lacked the authority to reform the 2004 written contract. 

The trial court held that Plaintiff’s failure to assert at arbitration that the Arbitrator lacked the authority to reform the contract was a waiver of the argument.  The trial court held that to object to arbitration, a party must object to the arbitration proceeding in a timely manner.  The appellate court affirmed and stated that there is a mandate by the Illinois Supreme Court that arbitration awards should be construed as to uphold their validity whenever possible. 

The presumption is that an arbitrator did not exceed his or her authority, and will grant a petition to vacate an arbitration award only in extraordinary circumstances.  Judicial review of an arbitration award is extremely limited.  Consequently, litigators must be more cognizant and advise their clients of the need to assert all claims and arguments in arbitration proceedings.    

See: First Health Group v. Ruddick, N0 1-083236; 2009 WL 1940702 (1st Dist). First Health Group Corp_Arbitration.

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