Monday, December 08, 2014 Julie Tappendorf
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
