The Supreme Court of Illinois has determined that an arbitration agreement that designated an arbitral forum which no longer accepts consumer arbitrations is not valid. Carr v. Gateway, Inc., No. 109485 (Ill., decided February 3, 2011). The issue arose in a case involving allegations that a computer manufacturer misrepresented the speed of its product’s processor. The company sought to dismiss the suit and compel arbitration according to the terms of the sales contract, but a trial court and intermediate appellate court ruled that no valid arbitration agreement bound the parties. The state supreme court accepted the case to decide whether the Federal Arbitration Act applies to permit the trial court to appoint a substitute arbitrator.
The trial court refused to compel arbitration because it found that the agreement with the arbitration clause was not part of the sales contract, and if it were, the clause could not be enforced because it was unconscionable. The intermediate appellate court refused to overturn the lower court’s ruling because, while the case was pending, the designated arbitral forum stopped accepting consumer arbitrations. According to the intermediate appellate court, assuming there was a valid arbitral agreement, the designation was an integral part of the arbitration clause and the federal law could not be used to reform the arbitration provision.
The supreme court agreed. Noting that the arbitration agreement contains no provision for naming a substitute arbitral service or arbitrator, the court also observed that the courts have split over whether the federal arbitration law allows the trial court to name a replacement. Because the court found that the arbitration clause, which imposed penalties on a party filing a claim with an arbitral service other than the one designated, was “so central to the agreement to arbitrate,” that it was paramount, the unavailability of the designated arbitrator “brought the agreement to an end.” Thus, the court ruled that “section 5 of the Arbitration Act may not be utilized to select a substitute arbitrator.”