The recent case of The City of Chicago v. Chicago Loop Parking LLC warns government about the danger of giving up the right to go to court to settle disputes. The City entered into an agreement with Chicago Loop Parking LLC, (“CLP”), to lease and grant a concession to operate four underground parking garages in Grant and Millennium Parks for a 99-year period. CLP paid the City $563,000,000. As a result of a series of mistakes and unsuccessful strategy choices made by the City, the contract turned out to be a very bad deal. One of the terms of the contract prevented the City from litigating in court and limited dispute resolution to a binding arbitration process. A dispute arose and a 3-member arbitration panel found that the City owed CLP nearly $58,000,000 in damages. Five months after the arbitration award was entered, the City filed a lawsuit in the circuit court seeking to stay the judgment and to modify it.
The reason for the judgment against the City was that, contrary to a promise made in the Agreement with CLP, the City allowed the owners of a new building called “Aqua” the right to include a 1,273-space parking garage in an area where it had agreed to give exclusive parking lot privileges to CLP. After the Court made the award, the City and the owner of the newly-granted garage entered into an agreement to somewhat limit those who could park in the new garage.
At the trial court, the City attempted to overturn the perfectly rational decision of the arbitrators based upon a whole series of arguments. Both the trial and appellate courts were confronted with the very established rules and concepts which attempt to make arbitration decisions, generally between commercial disputants, almost impossible to overturn. Although there are cases where arbitration awards are overturned or modified based upon clear errors or mistakes by the arbitrators, in this situation, the errors, mistakes and poor judgment all related to the actions of the City. There are very limited instances in which an arbitration award can be overturned to “do justice.” Nonetheless, the arbitration process is adversarial and entities that become involved in contract disputes must be prepared to suffer the financial penalties of agreeing to bad contracts and making matters worse through other mistakes.
The appellate court concluded that “special rules do not apply to the City simply because its actions have significant consequences for taxpayers.” The Court also wrote: “There is nothing ‘fair’ about reversing the outcome of a year’s-long arbitration process selected by the parties because one party does not like the result, even where significant public funds are at stake.” The City was either not able to or did not raise the argument that a governmental body, which requires large-scale residential and commercial buildings to include public parking could not or did not intend to give a concession holder an absolute monopoly on parking in the area. Unfortunately, even the modified agreement for the new parking garage did not limit parking to tenants, customers and visitors, but allowed public parkers. While such an argument might have been made if the original dispute was heard by a court, it would likely be ignored in arbitration. Governmental bodies must evaluate the lost benefits of turning their disputes over to arbitrators who have a limited scope of analysis and inquiry.
It is not often that the first few sentences in an appellate court opinion tell us all we need to know. This opinion begins, as follows:
This case involves two sophisticated parties that willingly chose arbitration as their preferred method of resolving their disputes, thereby restricting the reach of the courts. Now, unhappy with the result of that choice – a final and binding arbitration award it wishes to avoid – one of the parties turns to the court for relief. This court finds, as did the trial court, that it has no authority to overturn the valid arbitration award.Post Authored by Stewart Diamond, Ancel Glink