Rexnord Industries, LLC v. Rhi Holdings, Inc.

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State: Illinois

Court: 1st District Appellate

Docket No: 1-08-0562 Rel

Case Date: 03/31/2009

Preview:THIRD DIVISION MARCH 31, 2009

No. 1-08-0562 REXNORD INDUSTRIES, LLC, Plaintiff-Appellee, v. RHI HOLDINGS, INC., and THE FAIRCHILD CORPORATION, Defendants-Appellants. ) ) ) ) ) ) ) ) ) ) Appeal from the Circuit Court of Cook County. No. 07 CH 26396 Honorable William O. Maki, Judge Presiding

JUSTICE COLEMAN delivered the opinion of the court: Codefendants RHI Holdings, Inc., and the Fairchild Corporation appeal an order confirming an arbitration award of approximately $1 million to plaintiff Rexnord Industries, LLC. They contend that the circuit court's confirmation of the award was improper because the arbitrator exceeded his authority under their arbitration agreement with Rexnord by granting relief to a nonparty. They also contend that because the arbitration confirmation proceeding raised contested issues of fact, the court erred in entering judgment for Rexnord on the pleadings. We affirm. The facts underlying this appeal are largely undisputed. RHI Holdings, Inc. and the Fairchild Corporation (collectively RHI) owned property in the Ellsworth Industrial Park in Downers Grove until 1988. In August 1988, RHI transferred the property, along with one of its business divisions, to a subsidiary, Rexnord Industries, LLC. RHI sold Rexnord and the Ellsworth property to BTR Dunlop Holdings, Inc. in 1993. In a 1999 merger, Invensys plc, the British parent of the Invensys group of companies, acquired ownership of BTR through an American subsidiary, Invensys, Inc.

1-08-0562 A 2004 class action, Muniz v. Rexnord, No. 04 C 4205 (N.D. Ill., September 3, 2004), sought damages from Rexnord and other Ellsworth Park property owners for contamination of the area surrounding the park. RHI and Rexnord joined the other Ellsworth Park defendants in settling the Muniz litigation for approximately $15.75 million. The defendants agreed that $1.8 million of the settlement total was attributable to the RHI/Rexnord property, and RHI and Rexnord agreed to allow an arbitrator to decide each company's share of that amount. The parties presented evidence and argument to arbitrator Joseph Manko over a three-day period in June 2007. Invensys sought to intervene in the proceeding, but Manko rejected its request, ruling that it was not a party to the RHI/Rexnord agreement to arbitrate their dispute. In September 2007, Manko made extensive written findings regarding the amount and timing of the contamination found in the RHI/Rexnord property and determined that 90% of the contamination at issue occurred before RHI's August 1988 spinoff of Rexnord . The parties agreed that RHI's 1993 agreement for the sale of Rexnord to BTR obliged it to indemnify BTR, its affiliates, subsidiaries, successors and assigns from "any and all losses, liabilities, claims, damages, *** costs, etc." relating to RHI's ownership and operation of the property before the spinoff date, "so long as these `Losses' arise out of or are in any way related or connected to any Environmental Law; result from any claim by any governmental or private party arising out of or in any way related or connected to any Environmental Law; or result from the generation, use, handling, storage, transport, disposal, release or threatened release of any Materials of Environmental Concern." The indemnity obligation created by the agreement applied "only to the excess of (x) Losses over (y) the sum of amounts collected by Purchaser or Rexnord from third parties." RHI asserted that approximately $1.9 million of Rexnord's claimed losses were paid directly by Invensys. RHI argued that these sums were amounts collected "from third parties" under the 1993 agreement, and therefore not subject to the agreement's indemnity obligation. Manko rejected this assertion. He found that Invensys was entitled to indemnification under the

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1-08-0562 1993 agreement, that it was both an "affiliate" and "successor" or the purchaser under the agreement, and that it was therefore not a "third party" whose payments were deductible from the category of "losses." After accounting for credits resulting from prior payments, Manko directed RHI to pay Rexnord $872,545.67 in losses, including the Muniz settlement share and related costs, plus $145,000 in prejudgment interest. Manko also determined that RHI was obliged to reimburse Rexnord for 90% of any amounts drawn against a $306,500 letter of credit issued by Rexnord. The terms governing the letter of credit and defining its possible beneficiaries are not apparent from Manko's disposition or the appellate record. Rexnord filed a complaint in the circuit court of Cook County for confirmation of the arbitration award. RHI filed a counterclaim which sought vacation of the award. The circuit court entered judgment for Rexnord on the pleadings. This appeal followed. RHI contends that the Uniform Arbitration Act required the circuit court to vacate the arbitrator's award. The Act provides that "[u]pon application of a party, the court shall confirm an award, unless within the time limits hereinafter imposed grounds are urged for vacating or modifying or correcting the award, in which case the court shall proceed as provided in Sections 12 and 13." 710 ILCS 5/11 (West 2004). The Act further provides that "[u]pon application of a party, the court shall vacate an award where: *** (3) the arbitrators exceeded their powers." 710 ILCS 5/12(a)(3) (West 2004). Since the Uniform Act's terms and origins parallel those of the Federal Arbitration Act, 9 U.S.C.

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