• The National Arbitration Forum is Gone: Where Do You Go? Illinois Supreme Court Decides
  • March 7, 2011
  • Law Firm: Hinshaw & Culbertson LLP - Chicago Office
  • Plaintiff buyer purchased a computer from defendant seller. Subsequently, the buyer filed suit, alleging that the seller misrepresented the speed of the computer’s processor. The seller sought to dismiss the suit and compel arbitration in accordance with the terms of the sales contract. The Circuit Court denied the motion, holding that there was no valid arbitration agreement between the parties. The seller appealed. While the case was on appeal, the arbitration forum designated in the arbitration agreement, the National Arbitration Forum (NAF), stopped accepting arbitrations. Thereafter, the Appellate Court affirmed the Circuit Court’s decision, holding that the arbitration agreement failed due to the unavailability of the arbitral forum.

    The seller then appealed to the Illinois Supreme Court. It argued that Section 5 of the Federal Arbitration Act allows for the substitution of an arbitration forum where the parties’ designated arbitration forum is unavailable. The Court noted that this section applies unless the designation of a specific arbitrator was “integral” to the agreement. The Court held that, “the mere fact that parties name an arbitral service to handle arbitrations and specify rules to be applied, does not, standing alone, make that designation integral to the agreement.” However, the Court held that because the arbitration clause, drafted by the seller, contained a penalty for bringing claims in any other forum, the use of NAF was integral to the agreement, and the substitution of the arbitrator under Section 5 was not proper. The Court further held that because NAF was unavailable to hear the claim, the seller’s motion to compel arbitration failed.

    Parties drafting arbitration agreements should reflect on language used to select an arbitral forum. If the arbitration clause contains a specified arbitration service, parties should consider adding specific language noting that the use of a designated arbitration service is not integral to the agreement, and specifically allowing for use of alternate services if the designated arbitration service is unavailable.