Michael C. Harris
Stanley C. Fickle
Michael J. Daley
ATTORNEYS FOR APPELLEE
Peter J. Rusthoven
Anne N. DePrez
Gregory C. Ward
Michael C. Harris
Stanley C. Fickle
Michael J. Daley
NORTHERN INDIANA COMMUTER )
TRANSPORTATION DISTRICT, )
Appellant (Plaintiff below), ) Indiana Supreme Court
) Cause No. 46S03-9703-CV-191
) Indiana Court of Appeals
CHICAGO SOUTHSHORE AND ) Cause No. 46A03-9506-CV-187
SOUTH BEND RAILROAD, )
Appellee (Defendant below). )
Arbitration presumably intended to resolve this dispute without resort to the courts has now produced lawsuits and appeals in two different states. As their contract provided, the parties submitted a dispute over its interpretation to arbitration. After an arbitration panel issued an award, both parties sued, one in Indiana to overturn the award and the other in Illinois to enforce it. We hold that because the Illinois court was the first to enter a judgment on the validity of the award, the Full Faith and Credit Clause of the United States Constitution requires Indiana courts to accord that judgment the same effect it would receive in an Illinois state court. Under Illinois law, a stay for a reasonable time pending appeal of the Illinois judgment is at least one appropriate action for a trial court to take before determining the res judicata effect of that judgment. Although under the peculiar facts of this case the Indiana court had jurisdiction over the claims presented to it, we reverse the trial court's dismissal and direct that the Indiana proceedings be stayed for a reasonable time pending the outcome of the Illinois litigation.
NICTD and SouthShore had an agreement whereby SouthShore operated its freight business
over NICTD's rails and agreed to pay a fee for the privilege. In 1992 a dispute arose
between NICTD and SouthShore over the amount of the annual fee. It is undisputed that the
Agreement initially set the fee for each year after 1990 at twelve per cent of SouthShore's
gross revenues for the prior year. However, the parties differed over whether a clause
providing for mandatory renegotiation of the fee every third year to account for inflation
applied to SouthShore itself, or only to a subsequent purchaser of SouthShore's rights. The
parties were unable to resolve their differences through mediation and in 1993 NICTD
initiated a demand for arbitration. The Agreement stipulated that Indiana law governed and
provided that (1) "all arbitration proceedings shall take place within the State of Indiana";
and (2) if either party believed an arbitration decision was based on an "error of law," the
aggrieved party could "institute an action at law within the State of Indiana to determine such
These provisions notwithstanding, the parties agreed to hold the arbitration proceedings in Chicago for the convenience of the three Chicago-based attorneys who served as arbitrators.See footnote 2 In the summer of 1994 an evidentiary hearing was held in the offices of a law
firm in Chicago. On August 11, 1994, the arbitration panel ruled in a split decision that the
inflation adjustment clause applied only to a subsequent purchaser of SouthShore, and not
to SouthShore itself. Accordingly, the award set the annual fee at twelve per cent of
SouthShore's annual gross revenues for the prior year.
On September 9, 1994, NICTD filed a declaratory judgment action in the Superior Court of LaPorte County, Indiana. Although not styled as a motion to vacate or modify the award, NICTD's complaint essentially asked for a declaration that its interpretation of the Agreement was correct and in substance challenged the arbitration decision. On October 26, 1994, SouthShore moved to dismiss the complaint for lack of subject-matter jurisdiction, citing the Uniform Arbitration Act's provision conferring jurisdiction to confirm the award on the courts of the State where the parties agreed to arbitrate.See footnote 3 On October 28, 1994, SouthShore filed an application to confirm the arbitration award in the Circuit Court of Cook County, Illinois. On December 15, 1994, NICTD filed a "motion in lieu of answer" in Illinois contesting the jurisdiction of the Illinois court over the arbitration. On February 22, 1995, the Indiana trial court granted SouthShore's motion to dismiss, agreeing with SouthShore that NICTD was attempting in effect to overturn the award and that only Illinois had jurisdiction because the arbitration took place there. On March 14, 1995, the Illinois trial court ruled that it had jurisdiction over SouthShore's application to confirm the award
and denied NICTD's motion. On April 12, 1995, NICTD moved in the Illinois case to vacate
or modify the award. SouthShore responded with a motion to strike NICTD's motion on the
ground that NICTD had not filed within ninety days of the August 11, 1994 arbitration
award, as required by the Illinois Uniform Arbitration Act.See footnote
On September 6, 1995, the
Illinois trial court granted SouthShore's motion to strike, finding that the Act did not permit
extension of the ninety day deadline. Finally, on December 20, 1995, the Illinois court
entered its judgment confirming the award. NICTD appealed that ruling in Illinois, as well
as the earlier Illinois ruling holding that Illinois had subject-matter jurisdiction over the
Meanwhile, NICTD had initiated a timely appeal of the Indiana trial court's dismissal of its suit in LaPorte County. On February 20, 1996, the Indiana Court of Appeals reversed the trial court's dismissal. The court held that (1) Indiana had subject-matter jurisdiction because the Agreement, and not the place of arbitration, controlled the location of judicial review; and (2) the arbitrators' interpretation of the contract was contrary to law. Northern Indiana Commuter Transp. Dist. v. Chicago SouthShore and South Bend R.R., 661 N.E.2d 842 (Ind. Ct. App. 1996). Even though the Indiana trial court's ruling dealt only with SouthShore's motion to dismiss on jurisdictional grounds, the Court of Appeals also ruled on the merits of NICTD's complaint. The court held that the inflation adjustment clause applied to SouthShore as well as any successor and remanded the case to arbitration for
purposes of determining the amount of the fee. The earlier ruling of the Illinois trial court,
which postdated the Indiana trial court's dismissal, had not been presented to the Indiana
Court of Appeals at that point.
SouthShore moved for rehearing in the Indiana Court of Appeals on March 21, 1996. In the motion, SouthShore raised for the first time the December 20, 1995 Illinois trial court decision confirming the award. SouthShore contended that (1) the Full Faith and Credit Clause required Indiana courts to give that decision preclusive effect; and (2) the sua sponte ruling by the Court of Appeals on the merits of NICTD's complaint had denied SouthShore due process of law because SouthShore had never been given the opportunity to answer the complaint on the merits. In denying rehearing, the Court of Appeals first observed that full faith and credit generally requires a state "to give to a judgment at least the res judicata effect which the judgment would be accorded in the State which rendered it." Northern Indiana Commuter Transp. Dist. v. Chicago SouthShore and South Bend R.R., 666 N.E.2d 447, 448 (Ind. Ct. App. 1996) (citation omitted). However, noting that NICTD had appealed the Indiana dismissal before the Illinois court ruled that it had jurisdiction, the court held that Indiana was not required to give the Illinois judgment full faith and credit: "[B]ecause the Illinois court, as the second court, accepted jurisdiction before the issue regarding jurisdiction had been fully and fairly litigated and finally decided in the Indiana courts, we are not required to give full faith and credit to the Illinois decision to confirm the arbitration award." Id. at 449 (footnote omitted). The court also rejected the claim that SouthShore had been denied due process because the court viewed the arguments SouthShore would have
made on the merits -- had it been allowed to answer NICTD's complaint -- as efforts to
relitigate factual questions that were barred by the Agreement. Id. at 449-50.
Armed with the opinion of the Indiana Court of Appeals, NICTD moved in the Illinois trial court to vacate the Illinois judgment and argued that the Full Faith and Credit Clause required Illinois to give preclusive effect to the Indiana appellate decision. On July 24, 1996, the Illinois court denied NICTD's motion, observing that the Indiana Court of Appeals "certainly didn't give full faith and credit to the courts of the state of Illinois." SouthShore sought transfer from the Court of Appeals to this Court. We heard oral argument in this case on March 4, 1997, and granted transfer on March 11, 1997. Next, on June 18, 1997, the Appellate Court of Illinois affirmed the trial court's decision exercising jurisdiction and confirming the award. Chicago SouthShore and South Bend R.R. v. Northern Indiana Commuter Transp. Dist., 682 N.E.2d 156 (Ill. App. Ct. 1997), reh'g denied. Most recently, a "certificate of importance" was issued by the Appellate Court, which had the effect of requiring review by the Illinois Supreme Court. See Ill.S.Ct. Rule 316 and discussion infra note 10. For the reasons explained below, we order that the Indiana proceedings be stayed for a reasonable time pending the outcome of the appellate proceedings in Illinois.
In broad brush, the parties' contentions in this Court are as follows. SouthShore argues that (1) Indiana courts must give full faith and credit to the Illinois judgment confirming the arbitration award; and (2) the Illinois judgment is accorded res judicata effect in Illinois and therefore must be given the same effect here. NICTD responds that the Illinois judgment was rendered in violation of NICTD's federal constitutional right to procedural due
process. Specifically, NICTD contends that the Illinois court erred by not allowing NICTD
to respond to the merits of SouthShore's petition to confirm. According to NICTD, a
judgment rendered in violation of due process need not be recognized in Indiana. NICTD
also argues that exclusive jurisdiction has always existed in Indiana and that no deference
is required to an Illinois judgment rendered by a court without jurisdiction over the matter.
SouthShore replies that the jurisdictional issue was finally determined by the Illinois trial
court and thus cannot be relitigated in Indiana.
This case largely turns on settled constitutional principles governing the preclusive effect to be accorded a judgment rendered by the courts of another state. The Full Faith and Credit Clause of the United States Constitution mandates that "[f]ull faith and credit shall be given in each state to the public acts, records, and judicial proceedings of every other state." U.S. Const. art. IV, § 1. The constitutional provision is implemented by an Indiana statute making explicit that "records and judicial proceedings" from courts in other states "shall have full faith and credit given to them in any court within this state, as by law or usage they have in the courts whence taken." Ind. Code § 34-1-18-7 (1993). Full faith and credit has long meant that "the judgment of a state court should have the same credit, validity, and effect, in every other court of the United States, which it had in the state where it was pronounced." Underwriters Nat'l Assurance Co. v. North Carolina Life and Accident and Health Ins. Guar. Ass'n, 455 U.S. 691, 704, 102 S.Ct. 1357, 71 L.Ed.2d 558 (1982) (internal quotation marks omitted) (citing Hampton v. McConnel, 16 U.S. (3 Wheat.) 234,
235, 4 L.Ed. 378, 379 (1818) (Marshall, C.J.)); accord Durfee v. Duke, 375 U.S. 106, 109,
84 S.Ct. 242, 11 L.Ed.2d 186 (1963).See footnote
Nonetheless, "before a court is bound by the judgment rendered in another State, it may inquire into the jurisdictional basis of the foreign court's decree. If that court did not have jurisdiction over the subject matter or the relevant parties, full faith and credit need not be given." Underwriters Nat'l Assurance Co., 455 U.S. at 705 (citation omitted). This scope of review is a "limited" one, id. at 706, that does not entail de novo review of the jurisdictional issue by the second court. Rather, "the general rule [is] that a judgment is entitled to full faith and credit--even as to questions of jurisdiction--when the second court's inquiry discloses that those questions have been fully and fairly litigated and finally decided in the court which rendered the original judgment." Durfee, 375 U.S. at 111. Preclusive effect must be given even where the first court's conclusion as to jurisdiction was erroneous as a matter of law. Underwriters Nat'l Assurance Co., 455 U.S. at 714. In other words, if jurisdiction was "fully considered" and "finally determined" in the first state, that generally is the end of the matter. Id. at 707. A ruling is entitled to full faith and credit -- i.e., the same effect it is given in the state of issuance -- even if it is not final under the law of that
state. See Barber v. Barber, 323 U.S. 77, 86-88, 65 S.Ct. 137, 89 L.Ed. 82 (1944) (Jackson,
J., concurring).See footnote
Finally, certain dispute resolution mechanisms unquestionably do not constitute "judicial proceedings" for purposes of full faith and credit. See, e.g., McDonald v. City of West Branch, 466 U.S. 284, 104 S.Ct. 1799, 80 L.Ed.2d 302 (1984) (holding that unappealed arbitration award was not a "judicial proceeding" entitled to full faith and credit under 28 U.S.C. § 1738). However, the Illinois trial court judgment confirming the award and the intermediate appellate decision affirming that judgment are "judicial proceedings" within the meaning of the Full Faith and Credit Clause. Cf. Matsushita Elec. Indus. Co., Ltd. v. Epstein, 516 U.S. __, 116 S.Ct. 873, 878, 134 L.Ed.2d 6, 17 (1996) (judgment of Delaware trial court affirmed by Delaware Supreme Court was a "judicial proceeding" within the meaning of 28 U.S.C. § 1738).
claiming deprivation of a federal constitutional right due to a surprising and unforeseeable result on appeal. The effect of the Court of Appeals' ruling was to preclude SouthShore from making its arguments on the merits as to the construction of the Agreement, one of which is presumably based on full faith and credit. To be sure, SouthShore could have urged the Illinois judgment as an alternative ground for affirming the Indiana judgment of dismissal. However, we agree with SouthShore that the Court of Appeals' disposing of the appeal on the merits could not have been anticipated and prevented SouthShore from feeling the need to raise its federal constitutional issue at an earlier time. Where a state court acts in an unanticipated way to deprive a party of the opportunity to make an argument or present a valid defense based on the Federal Constitution, the issue is not waived for purposes of review by the Supreme Court of the United States. Herndon v. Georgia, 295 U.S. 441, 443- 44, 55 S.Ct. 794, 79 L.Ed. 1530 (1935); Brinkerhoff-Faris Trust & Sav. Co. v. Hill, 281 U.S. 673, 677-78, 50 S.Ct. 451, 74 L.Ed. 1107 (1930); Saunders v. Shaw, 244 U.S. 317, 320, 37 S.Ct. 638, 61 L.Ed. 1163 (1917). As Justice Cardozo succinctly summarized in Herndon: "The settled doctrine is that when a constitutional privilege or immunity has been denied for the first time by a ruling made upon appeal, a litigant thus surprised may challenge the unexpected ruling by a motion for rehearing, and the challenge will be timely." Herndon, 295 U.S. at 447 (Cardozo, J., dissenting). This standard is met where the trial court disposed of the case on the basis of subject-matter jurisdiction and the appellate court not only reverses on that issue, but resolves the merits of the dispute without briefing or argument by the parties. Accordingly, this Court should entertain the issue as a matter of Indiana
appellate procedure. Finding waiver here could needlessly present an incorrect decision on
a matter of federal constitutional law to the Supreme Court of the United States.
We are also mindful of the deference to the courts of a sister state that comity suggests even if the Full Faith and Credit Clause does not require it. To the extent SouthShore is responsible for not raising the issue sooner, the Illinois courts are not at fault. The Illinois trial court was the first to enter a judgment enforcing the arbitration award. If we held that SouthShore's full faith and credit argument was waived and ruled in NICTD's favor on the merits, the possibility of inconsistent judgments would arise. Under these circumstances, we decline to find waiver here.
Under the relevant provisions of the Illinois Uniform Arbitration Act, which are
substantively the same in this respect as Indiana's, jurisdiction to enforce the award is
conferred on the courts of the state specified in a written arbitration agreement between the
parties. Compare 710 Ill. Comp. Stat. Ann. 5/1 & 5/16 (West 1992) with Ind. Code §§
34-4-2-1 & 34-4-2-17 (1993). Although the Illinois trial court acknowledged that the Illinois
Uniform Arbitration Act generally required a written agreement to confer jurisdiction on
Illinois courts, the court concluded that in Illinois "the legal effect of a parol submission and
award is the same as those in writing." The court therefore squarely addressed one of
NICTD's principal arguments against subject-matter jurisdiction in Illinois -- the lack of a
written agreement so providing. According to the court, "NICTD clearly submitted to
arbitration in Illinois" and, because of the explicit waiver, "the provision that arbitration
proceedings shall occur in Indiana no longer exists."See footnote
We might agree with NICTD that the Illinois court's construction places excessive weight on the physical presence of the arbitrators and ignores the apparent intent of the parties as expressed in the Agreement. We might also agree that the statutes of both states seem to emphasize a written agreement to confer jurisdiction and that none appears to be present in this record conferring jurisdiction on Illinois courts. However, the question of jurisdiction in Illinois was fully litigated and, as explained below, we are not free to second-
guess an Illinois trial court as we may those of Indiana. Moreover, the subject-matter jurisdiction of the Illinois courts is a matter of Illinois law. The December 20, 1995 judgment confirming the award eliminates any doubt as to the decision of the Illinois trial court to exercise jurisdiction. Stoll v. Gottlieb, 305 U.S. 165, 171-72, 59 S.Ct. 134, 83 L.Ed. 104 (1938) ("Every court in rendering a judgment tacitly, if not expressly, determines its jurisdiction over the parties and the subject matter.") (footnote omitted). Both rulings -- on jurisdiction and on the merits of SouthShore's application -- were issued before the Indiana Court of Appeals held in 1996 that Indiana courts had jurisdiction over the arbitration. In sum, the Illinois court was the first to render a judgment on the ultimate issue of the validity of the award.
therewith and be enforced as any other judgment." 710 Ill. Comp. Stat. Ann. 5/14 (West
1992); Monmouth Public Schools v. Pullen, 489 N.E.2d 1100, 1106 (Ill. App. Ct. 1985) ("If
the arbitration award is binding on the parties, any inquiry into the matters originally
controverted is forever closed.") (citation omitted); In re McNabola, 43 B.R. 362 (Bankr.
N.D. Ill. 1984) (giving preclusive effect to order confirming an arbitration award under the
Act). The parties and cause of action are the same in this case as in the Illinois action. And,
as noted, the jurisdiction of the Illinois court was also adjudicated in Illinois.
The only troublesome question is whether Illinois regards the judgment as "final"See footnote 8 and binding. There are no Illinois decisions elaborating the res judicata effect to be given a judgment confirming an arbitration award that is on appeal.See footnote 9 However, the preclusive effect of such a ruling appears to be the same as any other judgment. The Illinois Uniform Arbitration Act provides that "[a]ppeals may be taken in the same manner, upon the same
terms, and with like effect as in civil cases." 710 Ill. Comp. Stat. Ann. 5/18 (West 1992). A judgment that is not appealed is clearly final and binding on the parties for res judicata purposes. Debowski v. Shred Pax Corp., 359 N.E.2d 204, 209 (Ill. App. Ct. 1977). An appellate court judgment is also entitled to preclusive effect. People v. Mitchell, 420 N.E.2d 415, 424 (Ill. App. Ct. 1981). However, NICTD's appeal is still pending in the Illinois courts.See footnote 10 A judgment in a civil case that is reversed on appeal is not entitled to preclusive effect. Meeker v. Payne, 428 N.E.2d 614, 615-16 (Ill. App. Ct. 1981). Illinois law appears unsettled (or at least unclear) on the effect of a pending appeal on the finality of a judgment for purposes of res judicata. SouthShore relies on authority suggesting that a judgment is given res judicata effect even while it is being appealed. State Life Ins. Co. v. Board of Educ., 81 N.E.2d 877, 880 (Ill. 1948); Village of Rosemont v. Lentin Lumber Co., 494 N.E.2d 592, 602 (Ill. App. Ct. 1986); Sixty-Third & Halsted Realty Co. v. Goldblatt Bros., 96 N.E.2d 838, 843 (Ill. App. Ct. 1951), aff'd, 102 N.E.2d 749 (Ill. 1951). NICTD offers no precedent to the contrary, but we have identified at least three intermediate appellate decisions holding that a trial court must upon request stay the second trial for a reasonable
time pending the outcome of the appeal in the first case. Illinois Founders Ins. Co. v.
Guidish, 618 N.E.2d 436, 439-40 (Ill. App. Ct. 1993); Shaw v. Citizens State Bank, 540
N.E.2d 1132 (Ill. App. Ct. 1989); Wiseman v. Law Research Serv., Inc., 270 N.E.2d 77 (Ill.
App. Ct. 1971). At least one other case has held that a stay was within the trial court's
discretion due to "the potential for inconsistent judgments once the appeal [in the first case]
was final . . . ." Golden Rule Ins. Co. v. Robeza, 551 N.E.2d 693, 696 (Ill. App. Ct. 1990).
At one time the Illinois Supreme Court painted with a broad brush in emphasizing the
importance of finality: "The rule has been settled that where a judgment in one case has
successfully been made the basis for the judgment in a second case, the second judgment will
stand as res judicata, although the first judgment be subsequently reversed." State Life Ins.
Co., 81 N.E.2d at 880 (citations omitted). Illinois Supreme Court cases of even older vintage
appear to be in accord. See, e.g., People ex rel. Arns v. Rickert, 42 N.E. 884, 886 (Ill. 1896)
("The appeal merely suspends the execution of the judgment or decree, and leaves it in full
force as a bar to further prosecution for the same matters determined by it.") (citation
omitted). However, the Illinois Supreme Court has not made a definitive statement on the
point since State Life.
The more recent intermediate appellate decisions holding that a stay should issue pending the outcome of the appeal in the first case were decided several decades after the State Life litigation. Illinois Founders (1993), Shaw (1989), and Wiseman (1971) all reasoned that a stay was required because the second judgment, once rendered, would be
final even if the first judgment upon which it was based was subsequently reversed.See footnote
situation, the aggrieved party in the second case would be without a remedy even if it
obtained appellate relief in the first case -- the State Life scenario. Wiseman quoted the
above language from State Life and purported to acknowledge the validity of its general rule,
but held that a stay was required pending the outcome of the appeal in the first case.
Wiseman, 270 N.E.2d at 79-80. Village of Rosemont attempted to narrow Wiseman's scope,
concluding that Wiseman "actually held that one should not be able to avoid the use of a
judgment merely by taking an appeal." Village of Rosemont, 494 N.E.2d at 602. This effort
to confine Wiseman (if it was that) was short lived. The more recent cases of Illinois
Founders and Shaw relied explicitly on Wiseman and appear to have revived the requirement
of a stay. Without citing Village of Rosemont, the more recent cases also acknowledged the
Illinois Supreme Court's directive in State Life, but held that a stay should be granted for a
reasonable time pending the outcome of the appeal in the first case. Illinois Founders, 618
N.E.2d at 440; Shaw, 540 N.E.2d at 1135.
We have used the term "res judicata" in this opinion to refer to "claim preclusion" and not in a generic sense. A further complication is introduced because Illinois appears to distinguish claim preclusion from issue preclusion, or "collateral estoppel," in determining
the effect of a pending appeal. For collateral estoppel purposes a judgment is not final in Illinois until "the potential for appellate review [has] been exhausted." Ballweg v. City of Springfield, 499 N.E.2d 1373, 1375 (Ill. 1986) (citation omitted). Despite laying down a clear rule, Ballweg has been met with some criticism. See Rogers v. Desiderio, 58 F.3d 299, 302 (7th Cir. 1995) (opining that Ballweg contradicted "long-settled law"); Southeastern Ill. Elec. Co-op., Inc. v. Illinois Human Rights Com'n, 516 N.E.2d 825, 828-30 (Ill. App. Ct. 1987) (Karns, P.J., dissenting) (arguing that Ballweg was wrongly decided), appeal denied, 522 N.E.2d 1257 (Ill. 1988). In the decade following Ballweg, at least three decisions involving claim preclusion, some citing Ballweg and some not, have allowed a second suit to proceed on the merits despite a prior judgment under pending appeal. West Suburban Bank v. Lattemann, 674 N.E.2d 149, 150 (Ill. App. Ct. 1996) (noting that complaint in second action had been reinstated and allowed to proceed in Illinois trial court where appeal from Illinois trial court decision in first action was still pending); Pelon v. Wall, 634 N.E.2d 385, 388 (Ill. App. Ct. 1994) (complaint in second action reinstated and case remanded for further proceedings consistent with the opinion); Luckett v. Human Rights Com'n, 569 N.E.2d 6, 10 (Ill. App. Ct. 1989) (offering as an alternative holding that because decision of federal district court involving same issues and parties was on appeal, Illinois Appellate Court was free to reach own result on merits of same issues), appeal denied, 580 N.E.2d 117 (Ill. 1991), cert. denied, 502 U.S. 1113, 112 S.Ct. 1220, 117 L.Ed.2d 456 (1992). Pelon and Luckett relied on Ballweg without discussing the potential distinction between issue and claim preclusion. Thus, some Illinois authority would arguably support allowing NICTD's
Indiana suit to go forward despite NICTD's appeal in Illinois.
In the face of all of this, the U.S. Court of Appeals for the Seventh Circuit recently observed: "To be blunt, we have no idea what the law of Illinois is on the question whether a pending appeal destroys the claim preclusive effect of a judgment." Rogers, 58 F.3d at 302.See footnote 12 In holding that a stay was the most "prudent course" for a federal court faced with a parallel state case, Rogers concluded that a
federal judge confronted with duplicative litigation need not barge ahead on the off- chance of beating the state court to a conclusion. It is sensible to stay proceedings until an earlier-filed state case has reached a conclusion, and then (but only then) to dismiss the suit outright on grounds of claim preclusion.
Id. (citing Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817-21, 96 S.Ct. 1236, 1246-48, 47 L.Ed.2d 483 (1976) and other cases). We reach a similar result here and conclude that full faith and credit under these circumstances requires a stay of the Indiana proceedings for a reasonable time to permit resolution of appellate proceedings in Illinois. To the extent current Illinois law of res judicata, which we are bound to follow under the Full Faith and Credit Clause, Underwriters Nat'l Assurance Co., 455 U.S. at 704, does not require this result, we reach the same conclusion on grounds of comity in light of our uncertainty as to the applicable Illinois law. A stay prevents the inequity that would arise if NICTD were to obtain a reversal or other relief in Illinois after conclusion of proceedings in Indiana predicated upon the Illinois trial court's (overturned) judgment. This is at least
consistent with, if not required by, several Illinois decisions that have recognized and sought
to avoid this possible injustice as well as the possibility of inconsistent judgments.
independently or in response to a motion to confirm, must be made within ninety days of the issuing of the award. 710 Ill. Comp. Stat. Ann. 5/12-13 (West 1992); Johnson v. Baumgardt, 576 N.E.2d 515, 519-20 (Ill. App. Ct. 1991). The Appellate Court of Illinois recently reaffirmed this proposition in NICTD's appeal in the Illinois proceedings. Chicago SouthShore and South Bend R.R., 682 N.E.2d at 162. Therefore, NICTD had until approximately November 11, 1994 to bring a motion to vacate or modify. It did not do so. According to NICTD, the dismissal of its motion to vacate or modify violated its due process right to be heard on the merits of SouthShore's application to confirm. The extent to which conformity to due process is a prerequisite for a judgment to be given full faith and credit was dealt with tangentially in Kremer v. Chemical Constr. Corp., 456 U.S. 461, 102 S.Ct. 1883, 72 L.Ed.2d 262 (1982), a case decided shortly after Underwriters Nat'l Assurance Co. Kremer involved whether a federal court was required to give preclusive effect under 28 U.S.C. § 1738 to a New York judgment dealing with the same issues and parties. That statute, which parallels the Full Faith and Credit Clause, mandates that the acts, records, and judicial proceedings of a state be given the same credit in federal courts that they would receive in the courts of the issuing state. A federal litigant contended that a New York state court decision was not entitled to full faith and credit because New York's procedures for adjudicating his claim allegedly failed to provide him a full and fair opportunity to litigate the merits. The Court held that 28 U.S.C. § 1738 required federal courts to accord a state judgment the same credit it would be given in its own courts so long as the state, in adjudicating to judgment, satisfied the "applicable requirements" of the Due
Process Clause of the Fourteenth Amendment. Id. at 482.
Noting that this was a relatively undeveloped area of the law, Kremer drew on Full Faith and Credit Clause jurisprudence: "[T]he Court's decisions enforcing the Full Faith and Credit Clause . . . suggest that what a full and fair opportunity to litigate entails is the procedural requirements of due process." Id. at 483 n. 24 (collecting cases). Although the Court explained that "no single model of procedural fairness" was required by the Due Process Clause, id. at 483, it is plain from its discussion that all that is required is an opportunity to fairly litigate the merits -- a word used no fewer than four times. Id. at 482- 84. No case has squarely held that Kremer applies to claims under the Full Faith and Credit Clause but, because Kremer drew on full faith and credit doctrine, we conclude it applies to interstate as well as federal-state issues.
Justice Ruth Bader Ginsburg's concurring and dissenting opinion in Matsushita Elec. Indus. Co., Ltd. v. Epstein, 516 U.S. __, 116 S.Ct. 873, 884-90, 134 L.Ed.2d 6, 26-33 (1996) further supports the conclusion that procedural due process may be a prerequisite for according a state-court judgment full faith and credit. This usually arises in the form of a challenge to the first court's jurisdiction over the person of the defendant sought to be bound. Matsushita involved a variant on that theme -- the preclusive effect that a federal court must give to a settlement of a class-action lawsuit in a Delaware state court. Justice Ginsburg focused on whether absent members of the class had been adequately represented by the named plaintiffs and therefore could be bound by the settlement. In stressing the "centrality of the procedural due process protection of adequate representation in class action lawsuits,"
116 S.Ct. at 890, 134 L.Ed.2d at 33, Justice Ginsburg cited Kremer for the proposition that, for purposes of conforming to 28 U.S.C. § 1738, "a state-court judgment generally is not entitled to full faith and credit unless it satisfies the requirements of the Fourteenth Amendment's Due Process Clause." Id. at 884-85, 134 L.Ed.2d at 26. Parity of reasoning would suggest the same applies to full faith and credit analysis by a sister state as a matter of constitutional doctrine. Cf. Kremer, 456 U.S. at 483 n. 24 ("Section 1738 was enacted to implement the Full Faith and Credit Clause . . . . It is therefore reasonable that § 1738 be subject to no more restriction than the Full Faith and Credit Clause.") (citations omitted). Assuming that a due process violation could strip the Illinois decision of its status under the Full Faith and Credit Clause, we see no due process violation in the Illinois proceedings. Procedural due process in this context requires only notice and a reasonable opportunity to be heard, not that the opportunity necessarily be seized or successful. NICTD does not contend that it was denied the opportunity to challenge the arbitration award within ninety days, as required by the Illinois Uniform Arbitration Act. Nor does NICTD assert that ninety days was constitutionally insufficient time to act to protect its rights in Illinois. Distilled to its essence, NICTD's claim is that Illinois courts denied NICTD the opportunity to file an untimely response. This does not provide a basis for disregarding the Illinois judgment: "A party cannot escape the requirements of full faith and credit and res judicata by asserting its own failure to raise matters clearly within the scope of a prior proceeding." Underwriters Nat'l Assurance Co., 455 U.S. at 710 (citation omitted). Finally, NICTD attempts to avoid the consequences of this delay in the Illinois action by pointing to the
timeliness of its appeal in the Indiana case dealing with the same subject matter. That is no
answer because, as already elaborated, the effect of the Illinois proceeding is the controlling
concern here.See footnote
Stoll, 305 U.S. at 172 (construing res judicata effect of bankruptcy court's ruling on jurisdiction on subsequent case in Illinois state court).See footnote 14 And any challenge to the merits of the Illinois decision here is equally unavailing: "[T]he fact that the rendering court may have made an error of law with respect to a particular question does not deprive its decision of the
right to full faith and credit, so long as that court fully and fairly considered its jurisdiction
to adjudicate the issue." Underwriters Nat'l Assurance Co., 455 U.S. at 709 n. 16 (citation
omitted). These claims of error too must be challenged in the rendering state.See footnote
Illinois might have concluded that as a matter of comity it should have stayed (or was required by the terms of the Agreement to stay) its consideration of SouthShore's application to confirm until Indiana courts resolved the question of governing Indiana law.See footnote 16 However, the decision to decline the exercise of jurisdiction, where it has already been found to exist, is a matter of grace and not of constitutional mandate. Chicago, Rock Island & Pacific Ry. Co. v. Schendel, 270 U.S. 611, 616, 46 S.Ct. 420, 70 L.Ed. 757 (1926) ("Each court is free to proceed in its own way and in its own time, without reference to the proceedings in the other court.") (citation and internal quotation marks omitted). Concisely stated, the constitutionally dispositive factor here is not who sued first, but who won the race to judgment. Id. at 616-17.
On this crucial point, the Court of Appeals erroneously relied on the absence of a full and fair hearing in Indiana. Northern Indiana Commuter Transp. Dist., 666 N.E.2d at 448-
49. Controlling precedent makes abundantly clear that the preclusive effect of the judgment
of the first state (Illinois) does not hinge on whether NICTD had a full and fair opportunity
to litigate the jurisdictional question in the second state (Indiana). Rather, the issue is
whether the first court to render a judgment on the merits, in this case the Illinois trial court,
afforded this opportunity. Indeed, this case illustrates what can happen when the established
rules on full faith and credit are not respected. If the opinion of the Court of Appeals were
allowed to stand, the result, as in Underwriters Nat'l Assurance Co., would be "two state
courts reaching mutually inconsistent judgments on the same issue. This is precisely the
situation the Full Faith and Credit Clause was designed to prevent." Underwriters Nat'l
Assurance Co., 455 U.S. at 715.
We hold that the constitutional obligation to give full faith and credit to another state's judicial decisions requires that Indiana give the same effect to the Illinois decision as would an Illinois court. We conclude, although without conviction, that a second Illinois trial court would stay rather than dismiss NICTD's complaint. Accordingly, that is the appropriate action for the Indiana trial court to take. We note that because the Full Faith and Credit Clause makes no reference to finality, some commentators have observed that a stay pending the outcome of an appeal might be the most appropriate disposition irrespective of the law of the issuing state: "If the appeal in the rendering forum does not operate to vacate the judgment under that forum's law, the recognizing court may entertain an action on the judgment or, more usually, stay its recognition and enforcement proceedings pending the determination of the appeal." Eugene F. Scoles & Peter Hay, Conflict of Laws, § 24.28
at 991 n. 2 (2d ed. 1992); cf. Griffin v. Griffin, 327 U.S. 220, 247 n. 12, 66 S.Ct. 556, 90 L.Ed. 635 (1946) (Rutledge, J., dissenting) ("Even if the judgment were not sufficiently final for full faith and credit purposes, it nevertheless would be within the discretion of the [court] to give it effect on grounds of comity."). Because Illinois recognizes the wisdom of this course, it presents no issue in this case.
whether an Indiana court may review an action to enforce or set aside the award.See footnote
original written agreement therefore effectively provided the basis for jurisdiction to be
vested in Indiana courts.
Although in most situations there will be only one state that qualifies for jurisdiction over the award under its version of the Uniform Act, the Indiana version does not purport to confer exclusive jurisdiction on Indiana if more than one state has jurisdiction pursuant to its own laws. In this case, SouthShore argues that the award is reviewable only in Illinois, irrespective of what the Agreement might have originally provided, because the arbitration took place there. NICTD responds that the physical location was purely for the convenience of the arbitrators and that the parties contemplated no reformation of the written agreement, which specified Indiana governing law and agreed to arbitration in Indiana. NICTD concedes that it waived the Agreement's original stipulation that "all" arbitration proceedings take place in Indiana, but contends that this did not rise to the level of a waiver of the contract's provision for arbitration in Indiana so as to confer jurisdiction on Indiana courts. Arbitration provisions can be waived and the existence of waiver depends upon the circumstances of each case. Kendrick Mem'l Hosp., Inc. v. Totten, 408 N.E.2d 130, 134-35 (Ind. Ct. App. 1980). Neither party directs us to any Indiana cases addressing the effect of
a parol decision to arbitrate outside Indiana for apparent logistical convenience when the
written agreement specifically provides for arbitration in Indiana. However, we agree with
NICTD that these facts are too murky to constitute a basis for finding waiver of the original
agreement to arbitrate in Indiana. Waiver of a contractual right requires an intentional
relinquishment of a known right. Jackson v. DeFabis, 553 N.E.2d 1212, 1218 (Ind. Ct. App.
1990). At best there is a parol agreement here memorialized by the arbitrator that was found
to be sufficient basis for jurisdiction in Illinois as a matter of Illinois law. Although NICTD
waived the requirement that "all" arbitration proceedings occur in Indiana, the written
agreement, indicating governing Indiana law and a right to sue in Indiana, remained intact.
This is not sufficient, as a matter of Indiana law, to constitute a waiver of the explicit
contractual right to seek judicial review in a court in Indiana. Nor is this an explicit written
revision of the Agreement.See footnote
It is of course true that conduct inconsistent with an arbitration agreement -- notably filing a lawsuit in a court of competent jurisdiction -- can effect a waiver of the right to arbitrate. See, e.g., McNall v. Farmers Ins. Group, 181 Ind. App. 501, 506, 392 N.E.2d 520, 523 (1979) (amendment to right to arbitration may be implied by acts, omissions, or conduct); Shahan v. Brinegar, 181 Ind. App. 39, 44-45, 390 N.E.2d 1036, 1041 (1979) (Court of Appeals would not order arbitration where parties had already litigated disputed
issues in trial court). In that circumstance, however, the party filing suit has acted
inconsistently with the arbitration agreement and has in effect abandoned it. There is nothing
inherently inconsistent in agreeing to conduct arbitration in Chicago for convenience, but
treating all other provisions of the Agreement as unaffected. Indeed, because Indiana law
is specified as controlling, that is at least facially a wholly sensible approach. Accordingly,
we conclude that the Indiana trial court had jurisdiction over the subject matter, even if it
may be bound by full faith and credit to enter a judgment of dismissal upon final resolution
of this matter in Illinois. Chicago, Rock Island & Pacific Ry. Co., 270 U.S. at 616-17 (where
two states had concurrent jurisdiction over the same claim, the first judgment reached had
to be given full faith and credit in the second state, regardless of which lawsuit was filed
SHEPARD, C.J., and DICKSON, SULLIVAN and SELBY, JJ., concur.
from the bankrupt estate. NICTD acquired the passenger business and A & P took over freight operations. The two entered into a Memorandum Agreement ("Agreement") providing, among other things, that A & P would pay NICTD a maintenance-of-way fee for the use of NICTD's rail lines. The "new" SouthShore, the party to this case, acquired all of A & P's rights and liabilities under the Agreement later that year.
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