A CEO resigned from his employment and subsequently filed a
claim for unpaid wages and other compensation with the California labor
commissioner. The commissioner awarded the CEO over $185,000, and a default judgment
on the award was entered in a California court. The CEO then registered the
court’s judgment in an Illinois circuit court to enforce it against his
employer (presumably headquartered in Illinois). But the Illinois court set the
judgment aside, citing an arbitration clause in the CEO’s employment contract.
The Illinois Court of Appeals ultimately had to resolve the matter.
What happened. A
provision in the employment contract between “Rix” and Splice, Inc.,
established that any disputes would be handled by arbitration. It also
explained that the contract would be “governed and construed in accordance with
the laws of the State of Illinois.” The Cook County circuit court granted
Splice’s motion to have the judgment set aside, concluding that the arbitration
clause removed any subject matter jurisdiction from the California
commissioner. Rix appealed.
What the court said. The
appeals court explained that the Federal Arbitration Act (FAA) provides that a
written arbitration agreement contained within a commercial contract “shall be
valid, irrevocable, and enforceable.” Meanwhile, the court noted that the U.S.
Constitution provides that the judgments of one state’s court are entitled to
“full faith and credit in every other state.” Under Illinois law, courts must
“treat the foreign judgment in the same manner as a judgment of the circuit
court for any county of this State.” But an Illinois court can set aside such a
foreign judgment, the appeals court explained, “in limited situations,
including where the rendering court lacked subject matter jurisdiction of the
The court looked to a 2008 U.S. Supreme Court case (Preston
v. Ferrer) that found that the FAA
preempted California state law vesting jurisdiction in the labor commissioner
rather than an arbitration proceeding conducted under the rules of the American
Arbitration Association, as was provided in Rix’s contract.
Rix argued that Splice had waived whatever rights it had
under the arbitration clause when it failed to appear in the labor commissioner’s
hearing on the CEO’s claim. But the court found “no reason why Splice should
have been required to engage in litigation in a forum that lacked
jurisdiction.” Ruff v. Splice, Inc., Appellate Court of Illinois, No. 1-09-2093 (2010).
Point to remember: In
the Preston case, the Supreme Court held that when parties agree
to arbitrate any dispute arising under a contract, the FAA “supersedes state
laws lodging primary jurisdiction in another forum, whether judicial or