James R. Epstein
A state appeals panel ruled Wednesday that the city must pay a $58 million arbitration award to the operators of the garages beneath Millennium Park and Grant Park for a breach of their lease and concession deal.
In a 31-page opinion written by 1st District Appellate Justice James R. Epstein, the panel found there is no remedy in the courts available to the city to vacate or modify an arbitration award when the city willingly entered into arbitration.
“Arbitration is a choice, not something compelled,” Epstein wrote. “With the perceived benefits of reduced costs, relaxed evidentiary rules and procedures, and finality, this contractual agreement strictly limits a party’s recourse after an arbitration award is entered with which the party disagrees.”
The city signed a 99-year, $563 million contract with Chicago Loop Parking LLC — now operating as LMG2 LLC — in November 2006, under then-Mayor Richard M. Daley’s administration.
The agreement contained a non-compete provision which entitled Chicago Loop Parking to compensation if the city allowed new public parking facilities to open in the vicinity of Millennium or Grant parks.
In May 2009, the city issued a public garage license to Standard Parking Corp. for a 1,273-space garage in the Aqua Tower at 225 N. Columbus Drive, one block north of a Chicago Loop Parking garage.
In August 2009, Chicago Loop Parking submitted a claim to the city for compensation after noticing a decline in parking.
Eight days after receiving the claim, the city realized its error. It rescinded Standard Parking’s public garage license in Aqua and offered to replace it with an accessory garage license, making the spaces available to Aqua residents, tenants and guests.
Standard contested the rescission of the license in administrative proceedings. In February 2010, the city settled its dispute by making good on its offer for the accessory license.
However, Aqua continued to accept parkers from the general public, and Chicago Loop Parking maintained its dispute.
Chicago Loop Parking filed a claim with the American Arbitration Association seeking more than $200 million in past and projected losses caused by the competing garage through the end of the contract in the year 2105.
It lowered that demand to $137 million, but the city contended damages were closer to $13 million.
The city argued the second license given to Standard Parking cured the competing parking action and that Chicago Loop Parking was only entitled to compensation while the original license was in effect.
Eventually, the city admitted liability, conceding both the public and accessory garage licenses violated terms of the agreement. Rather than fighting over liability, Chicago Loop Parking was required to prove its losses at arbitration.
Over eight days in October and November 2012, a three-member AAA arbitration panel heard evidence, creating a transcript 1,784 pages long.
In January 2013, the panel issued a binding, 22-page unanimous award to Chicago Loop Parking for nearly $58 million, including $7.3 million in prejudgment interest.
The award was almost more than double what it would have cost the city to buy out the license it issued for the Aqua garage, the city told the court.
After the arbitration was complete, the city entered a contingent agreement in May 2013 to end the Aqua license.
Under the contingent agreement, the city would pay Aqua’s owner between $23 million and $28.5 million if Aqua agreed to stop taking public parking customers. The agreement would only kick in if the Cook County Circuit Court cut the city’s liability under the arbitration by $40 million or more.
“Had this ‘fifth’ choice by the [c]ity been made prior to the arbitration proceedings, the outcome in the case may have been far different,” Epstein wrote. “Then, the arbitrators could have considered the impact of this agreement on the issue of future damages to CLP.”
Later in May 2013, the city filed a petition in Cook County court to confirm and enter judgment on the award, then stay the judgment and vacate or modify it.
The city argued that as a result of the new agreement with Aqua, Chicago Loop would incur no future harm, and future damages would be eliminated.
In September 2013, Circuit Judge Sophia H. Hall granted Chicago Loop Parking’s motion to dismiss the city’s petition, finding that the Federal Arbitration Act doesn’t allow the court to enter and immediately modify an otherwise compliant arbitration award.
Hall also found that even if she had authority to modify the award, the court could only consider facts in existence at the time of the arbitration proceedings — not ones that arose after the decision.
On appeal, the justices wrote that the city made a conscious decision to limit access to the courts when it agreed to an arbitration clause in its contract and agreed that the Federal Arbitration Act would govern any arbitration.
The city had no grounds to oppose entry of the judgment and did not oppose confirmation, Epstein wrote. Rather, the city was using post-judgment as a means to vacate or modify the award.
“We realize the effect the [a]rbitration [a]ward will have on blameless taxpayers and regret the impact that the [c]ity’s mistakes caused,” Epstein wrote.
The city agreed to arbitrate disputes under the agreement, gambled it would succeed at arbitration and then lost the gamble, he wrote.
“That the procedures chosen by the [c]ity created this unfortunate result does not mean it was an unfair result,” Epstein wrote. “There is nothing ‘fair’ about reversing the outcome of a years-long arbitration process selected by the parties because one party does not like the result, even where significant public funds are at stake.”
The opinion issued today affirmed the trial court’s ruling. Justices James Fitzgerald Smith and Bill Taylor concurred.
The city was represented by Myriam Zreczny Kasper, chief assistant corporation counsel.
Law Department spokesman John Holden said in a statement that despite the city’s $58 million liability, the final amount remains far less than Chicago Loop Parking’s initial demand for $200 million or more.
“Through its dogged litigation of this dispute over the past 3½ years, the city succeeded in drastically lowering an inherited liability, saving taxpayers roughly $150 million,” Holden said. “While we are disappointed that today’s ruling rejected our attempt to even further reduce that liability, we are pleased that we were able to reduce this inherited liability to the extent that we were.”
Chicago Loop Parking was represented by Sidley, Austin LLP partners David A. Gordon and Melanie E. Walker. They could not be reached for comment.
The case is City of Chicago v. Chicago Loop Parking LLC, 2014 IL App (1st) 133020.