Appendix — Snyder v. Smith

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. ALEXANDER L. STEVAS

In THR | CLERK

Supreme Court of the Gnited States

Octoser TERM, 1984

ELEANOR SNYDER, EXECUTRIX OF THE

ESTATE OF LEROY LILJEDAHL,

Petitioner,

BRUTON SMITH,

Respondent.

APPENDIX TO THE

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Donatp L, Moore *

Ricuarp D. Garnes

Steven C. ScuppEr

HOLMSTROM & GREEN, P.C.

800 North Church Street

P.O. Box 589

Rockford, Illinois 61105

(815) 962-7071

Attorneys for Petitioner

Of Counsel:

Micuet A. Coccta

Francois D. Morrissey * Counsel of Record

Midwest Law Printing Co., Chicago 60611, (312) 321-0220

Wwe XN 7

INDEX TO APPENDIX

DEMAND FOR ARBITRATION (July 14, 1980) .

PROCEEDINGS BEFORE THE UNITED

STATES DISTRICT COURT FOR THE NORTH-

ERN DISTRICT OF ILLINOIS.

A.

B.

a

Petition to Compel Arbitration (August 4,

a er en a eee re

Excerpt from Viking Investment Associates’

Partnership Agreement ..................

Magistrate P. Michael Mahoney’s Report and

Recommendation (Docketed 1/29/81) .......

Judge Stanley J. Roszkowski’s Order adopt-

ing Report and Recommendation (Docketed

SE than wevissschktobeses since. pi nekindire

Judge Stanley J. Roszkowski’s Order compel-

ling arbitration in Rockford, Illinois (Docketed

RE Re RRR are hone aren, ere ny e e n

Award of Arbitrators (Dated 10/82) .......

Judge Stanley J. Roszkowski’s Order confirm-

ing arbitration award (Docketed 5/4/83) ...

Judge Stanely J. Roszkowski’s Order—Judg-

ment in favor of Plaintiff (Docketed 5/20/83) .

Notice of Appeal (of Bruton Smith) (Filed

EE 6056654 KAN den nie dneskdenesenenvin

Page

1

15

ii

PROCEEDINGS BEFORE THE SEVENTH

CIRCUIT COURT OF APPEALS.

A. Order and Accompanying Opinion Reversing

the Decision of the District Court for the

Northern District of Illinois (Docketed 6/7/84)

[736 F.2d 409 (7th Cir. 1984)] ............

B. Order Denying Petition for Rehearing En

Bane (Docketed 7/3/84) ..........cc ee ee ee

ORDER OF THE UNITED STATES DISTRICT

COURT FOR THE SOUTHERN DISTRICT OF

TEXAS (Cause No. H-80-2018) (Docketed 6/19/81) .

LETTER DATED 7/28/80 FROM JOHN L.

CARTER ON BEHALF OF BRUTON SMITH

TO THE AMERICAN ARBITRATION ASSOCI-

ATION (Refusal to Arbitrate) ................

COMPLAINT FILED BY BRUTON SMITH IN

THE STATE COURT FOR THE DISTRICT OF

HARRIS COUNTY, TEXAS (Filed 7/28/80) ...

STATUTES AND RULES INVOLVED ......

30

51

52

59

In Tue

Supreme Court of the United States

Ocroser Term, 1984

ELEANOR SNYDER, EXECUTRIX OF THE

ESTATE OF LEROY LILJEDAHL,

Petitioner,

v.

BRUTON SMITH,

Respondent.

ee

APPENDIX TO THE

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

App. 1

AMERICAN ARBITRATION ASSOCIATION

COMMERCIAL ARBITRATION RULES

DEMAND FOR ARBITRATION

Date: July 14, 1980

(Name) Mr. BRuUTON SMITH

(Address) 5401 East Independence Blvd.

(City and State) Charlotte, NC (Zip Code) 28218

(Telephone) 704 536-5600

Named claimant, a party to an arbitration agree-

ment contained in a written contract, dated

September, 1971, providing for arbitration,

hereby demands arbitration thereunder.

(attach arbitration clause)

Artice VII of the Viking Associates Partnership

Agreement is attached

NATURE OF DispuTE: Leroy Liljedahl, a partner in Vik-

ing Investment Association died on December 9, 1976. On

aT 31, 1977 Bruton Smith, a surviving partner,

notified the decedent’s executor of his election, under Ar-

ticle V of the Partnership Agreement, to purchase the

decedent’s entire interest in the Partnership. Bruton

Smith then breached the Partnership Agreement by fail-

ing to ~— with the provisions in Article V with

respect to the procedures and time limits for determin-

ing the fair market value of the real estate owned by the

partnership and by failing to comply with the a,

in Article V with res to the determination of the book

value of the decedent’s entire partnership interest. Bruton

Smith also failed to dispute the adjusted book value of

ys ee interest in accordance with the procedures

0 cle V.

App. 2

CLAIM OR RELIEF SOUGHT: (amount, if any)

A determination of the adjusted book value of Mr. Leroy

Liljedahl’s “Entire Partnership Interest” in accordance

with the Viking Associates Partnership ment and

an Award directing Mr. Smith to purchase the decedent’s

entire partnership interest in accordance with the part-

nership agreement.

HEARING LOCALE REQUESTED: Rockford, Illinois

You are hereby notified that copies of our arbitration

agreement and of this demand are being filed with the

American Arbitration Association at its Chicago, Illinois

Regional Office, with the request that it commence the

administration of the arbitration. Under Section 7 of the

Commercial Arbitration Rules, you may file an answer-

p> Be mor a within seven days after notice from the

inistrator.

Signed John D. Whitcher Title Attorney for Executrix

of the Estate of Leroy

Liljedahl, deceased

Name of Claimant Mrs. Eleanor Snyder

Address (to be used in

connection with this case) 1909 Boscobel Court

City and State Rockford, IL

Zip Code 61107

Telephone 815 399-1783

Name of Attorney John D. Whitcher

Address 800 North Church

City and State Rockford, IL

Zip Code 61103

Telephone 815 962-7071

To institute proceedings, please send three copies of this

Demand with the administrative fee, as provi in Sec-

tion 47 of the Rules, to the AAA. Send original Demand

to Respondent.

App. 3

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

WESTERN DIVISION

In the matter of the Arbitration between

ELEANOR SNYDER, Executrix of the

Estate of Leroy Liljedahl,

Petitioner,

Civil Action

No. [80 C 0103) v.

BRUTON SMITH,

Respondent.

PETITION TO COMPEL ARBITRATION

To The Honorable Judge Of The United States District

— For The Northern District Of Illinois, Western

vision:

Now Comes ELEANOR SNYDER, Executor of the Estate

of Leroy E. Liljedahl, Petitioner by her attorneys, Welsh,

Holmstrom, Gaines & Lindstedt, Ltd., and for her Peti-

tion to Compel Arbitration states as follows:

1. This Petition to Arbitration is made pursuant

to Section 4 of the United States Arbitration Act 9 U.S.C.

1 et a

. ¢ 1 '

diverse citizenship P the parties, 28 U.S.C. 1332, it:

interest and costs.

3. In September 1971, Petitioner and Respondent

entered into an agreement in writing. The agreement is

App. 4

a partnership ment for Viking Investment Asso-

ciates. A copy of the rship agreement is attached

and incorporated as Exhibit A.

4. The t contains the following clause relating

at te

ARTICLE VII

Arbitration

Any controversy or claim arising out of or relati

to this agreement, or to the interpretation, breac

or enforcement thereof, shall be submitted to three

arbitrators and settled by arbitration in the City of

Houston, Texas, in accordance with the rules then

obtaining of the American Arbitration Association;

provided, however, and notwithstanding other

provisions of such rules, if the matter submitted to

arbitration shall involve a dispute as to the adjusted

book value of a deceased, disabled, incompetent, or

retixing Partner’s Entire Partnership Interest, such

arbitration shall be held before three arbitrators, one

of whom shall be a certified public accountant and

the other two of whom shall be licensed real estate

se nge maintaining offices and doing business in

arris County, Texas. The arbitrators shall be

Any a made by any majority of the Arbitrators

shall be final, binding, and conclusive on all parties

hereto for all purposes, and a judgment may be en-

—, thereon in any court having jurisdiction

5. Leroy E. Liljedahl, a partner in Viking Investment

Associates died on December 9, 1976. On = 31, 1977

Bruton Smith, a surviving partner, notified t’s

executor of his election, under Article V of the Partner-

ship t, to the decedent’s entire interest

in the ip. Smith then breached the Part-

nership Agreement by failing to comply with the provi-

sions in Article V with respect to the procedures time

limits for determining the fair market value of the real

Hal

ae

. He

‘ a

Ht

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S

“a oa controversy having arisen between the Petitioner

and the

8. The making of the agreement, including the agree-

ment to submit the dispute in controversy to Arbitration

is not in issue.

WHEREFORE, Petitioner respectfully moves the Court

for an order that Arbitration between the parties

and for such other and further relief as the

deem just and proper together with costs o

application.

‘si John D. Whitcher

Wetsx, Hotmstrom, Gaines & Linpstept, LTD.

800 North Church St.

P.O. Box 589

Rockford, IL 61105

815/962-7071

App. 6

ARTICLE VII

Arbitration

Any controversy or claim arising out of or relating to

this agreement, or to the interpretation, breach or enforce-

ment thereof, shall be submitted to three arbitrators and

settled by arbitration in the City of Houston, Texas, in

accordance with the rules then obtaining of the American

Arbitration Association; provided, however, and notwith-

standing any other provisions of such rules, if the mat-

ter submitted to arbitration shall involve a dispute as to

the adjusted book value of a deceased, disabled, incom-

petent, or retiring Partner’s Entire Partnership Interest,

such arbitration shall be held before three arbitrators, one

of whom shall be a certified public accountant and the

other two of whom shall be licensed real estate appraisers

maintaining offices and doing business in Harris County,

Texas. The arbitrators shall be selected by the American

Arbitration Association. Any award made by any majority

of the Arbitrators shall be final, binding, and conclusive

on all parties hereto for all purposes, and a judgment may

0 — thereon in any court having jurisdiction

thereof.

App. 7

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

WESTERN DIVISION

Name of Presiding Judge:

Honorable P. Michael Mahoney, Magistrate

Cause No. 80 C 0103 Date Jan. 29, 1981

Title of Cause: Eleanor Snyder v.

Bruton Smith

REPORT & RECOMMENDATION

It is the report and recommendation of the Magistrate

that the defendant’s motion to dismiss be denied. DRaFt.

Each party is given ten (10) days within receipt of this

recommendation to file any written objections with the

office of the Clerk, Room 252, Federal Bldg., Rockford,

Illinois addressed to Judge Stanley J. Roszkowski.

Mahoney, M.

App. 8

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLIN IS

WESTERN DIVISION

ELEANOR SNYDER, Executrix of the

Estate of Leroy Liljedahl,

Plaintiff,

Civil Action

No. 80 C 0103 Vv.

BRUTON S.muiTH,

Defendant.

REPORT AND RECOMMENDATION

Plaintiff filed this petition to compel arbitration on

August 4, 1980. Jurisdiction of this court is based upon

the United States Arbitration Act, 9 USC §1, et seq. and

diversity of citizenship in that the petitioner is a citizen

of the State of Illinois and the defendant is a citizen of

North Carolina and the matter in controversy exceeds the

sum of $10,000.

The plaintiff alleges that in September, 1971 the dece-

dent and defendant entered into a partnership agreement

for Viking Investment Associates. The agreement con-

tained an arbitration clause. Plaintiff alleges that on

December 9, 1976 Leroy Liljedahl, a partner in Viking

Investment Associates, died.

On January 31, 1977, defendant, Bruton Smith, a surviving

partner notified the decedent’s executrix of his election

to purchase the decedent’s entire interest in the partner-

ship. Plaintiff alleges that the defendant then breached

the partnership agreement by failing to comply with the

rovisions for arbitration in Article V of the agreement

or determining the fair market value of the real estate

owned by the partnership.

App. 9

Plaintiff asks this court to enter an order that arbitra-

tion between the parties proceed and for other relief as

may be just and proper. On September 3, 1980 the de-

fendant filed a motion to dismiss for lack of jurisdiction

over the person and insufficient service of process. This

motion was fully briefed on October 27, 1980 and is before

the Magistrate for report and recommendation.

In his motion to dismiss, filed pursuant to Rule 12(b)

of the Federal Rules of Civil Procedure, the defendant

states by way of affidavit that he was served with proc-

ess by personal service upon him in Charlotte, North

Carolina by a United States Marshal. It is defendant’s

contention that inasmuch as Charlotte, North Carolina is

outside the territorial limits of the State of Illinois per-

sonal service is improper under Rule 4 of the Federal

Rules of Civil Procedure and, therefore, this cause should

be dismissed for improper service of process.

Secondly, the defendant states that he is not subject

to the jurisdiction of this court because he is not a citizen

of the State of Illinois, was not served with process within

this state and does not maintain any contact with the

State of Illinois. Further, the defendant contends that the

contract upon which plaintiff bases her claim was made

in the State of Texas, to be performed in the State of

Texas and that the State of Illinois has no contact with

the parties other than that being the residence of the

plaintiff.

Opinion

There are two parts to defendant’s motion to dismiss:

(1) insufficient service of process; and (2) lack of in per-

sonam jurisdiction. Defendant argues that the personal

service of process was improper because there is no Fed-

eral statute which would permit service of process on him

outside the State of Illinois. Rule 4(dX7) of the Federal

Rules of Civil Procedure provides for service of process

“in the manner prescribed by any statute of the United

States or in the manner prescribed by the law of the state

App. 10

in which a district court is held for the service of sum-

mons or other like process upon any such defendant in

an action brought in the court’s general jurisdiction of that

state.” If the defendant was properly served under the

Illinois Revised Statute then this service would be valid

in Federal Court. Ill. Rev. Stat. ch. 110 § 17(2) provides:

“Service of process upon any person who is subject

to the jurisdiction of the courts of this State, as pro-

vided in this Section, may be made by personally ser-

ving the summons upon the defendant outside this

State, as provided in this Act, with the same force

and effect as though summons had been personally

served within this State.”

Ill. Rev. Stat. ch. 110 § 16(1) provides that:

“Personal service of summons may be made upon any

party outside the State. If upon a citizen or resident

of this State or upon a person who has submitted

to the jurisdiction of the courts of this State, it shall

have the force and effect of personal service of sum-

mons within this State; .. .”

The above cited statutes clearly provide for personal ser-

vice of process on an out of state defendant if he has sub-

mitted to the jurisdiction of the courts of this state. The

only question, therefore, that remains is whether the de-

fendant, Bruton Smith, has submitted to the jurisdiction

of the courts of the State of Illinois, therefore, making

personal service proper.

It is the plaintiff's contention that the defendant, Bruton

Smith, is subject to the personal jurisdiction of this court

pursuant to the long-arm statute of the State of Illinois.

Ill. Rev. Stat. ch. 110 § 17 provides:

“(1) Any person, whether or not a citizen or resi-

dent of this State, who in person or through an agent

does any of the acts hereinafter enumerated, thereby

submits such person, and, if an individual, his per-

sonal representative, to the jurisdiction of the courts

of this State as to any cause of action arising from

the doing of any of such acts:

App. 11

(a) The transaction of any business within this

State;

(b) The commission of a tortious act within this

State;

(c) The ownership, use, or possession of any real

estate situated in this State;

(d) Contracting to insure any person, property

or risk located within this State at the time of

contracting;

(e) With respect to actions of dissolution of mar-

riage and legal separation, the maintenance in

this State of a matrimonial domicile.

(2) Service or process upon any person who is sub-

ject to the jurisdiction of the courts of this State, as

provided in this Section, may be made by personal-

ly serving the summons upon the defendant outside

this State, as provided in this Act, with the same

force and effect as though summons had been per-

sonally served within this State.

(3) Only causes of action arising from acts enumer-

ated herein may be asserted against a defendant in

an action in which jurisdiction over him is based upon

this Section.

(4) Nothing herein contained limits or affects the

right to serve any process in any other manner now

or hereafter provided by law.”

Plaintiff contends that the defendant had transacted

business within the State of "linois and has tommitted

a tortious act within the State of Illinois out of which this

cause of action arose.

Personal jurisdiction over a non-resident defendant does

not depend solely upon the physical presence of the de-

fendant within the state. It is sufficient that the act or

transaction itself has a substantial connection with the

forum state.

App. 12

The legislative intent of the Illinois long-arm statute is

to exert jurisdiction over non-residents to the extent per-

mitted under the due process clause of the United States

Constitution. Nelson v. Miller, 11 Tll.2d. 378; 143 N.E.2d.

673 (1957). Sufficient minimum contacts must exist in the

forum state so that jurisdiction over a non-resident de-

fendant is reasonable and just according to the traditional

concepts of fair play and substantial justice. International

Shoe Co. v. Washington, 326 U.S. 310 (1945).

The relevant question is whether the defendant has

engaged in some act or conduct by which he may be said

to have invoked the benefits and protection of the law

of the forum state. Gray v. American Radiator and

Standard Sanitary Corp., 22 Ill.2d. 482, 440; 176 N.E.2d.

761, 765 (1961). Illinois courts have exercised jurisdiction

over non-resident defendants even though the contact with

the state involved only a single business transaction.

Ziegler v. Hodges, 224 N.E.2d. 12 (2nd Dist. 1967).

The plaintiff has asserted two bases for jurisdiction over

Mr. Smith under the Illinois long-arm statute. The first

being the transaction of business within the state, and

secondly the commission of a tortious act within the state.

In support of the first proposition the plaintiff has sup-

plied the court with brief affidavits and exhibits.

The first is the affidavit of David W. Knapp, President

of the American National Bank & Trust Comneny in

Rockford, Illinois. Mr. Knapp in his affidavit states that

Viking Investments Associates was a partnership which

was formed in 1971 and at the time the partnership was

formed all of the members of the partnership were IIli-

nois residents. Further, that the partnership agreement

was prepared by a Rockford attorney. The affidavit goes

on to point out that the mailing address of the partner-

ship was a Rockford address and that the American Na-

tional Bank & Trust Company of Rockford made several

loans to the partnership and that the a rgae 3 had a

checking account in Rockford, Illinois. Further, according

to the affidavit of Mr. Knapp, at the time that Mr. Smith

App. 13

exercised the option to purchase the decedent’s share of

the partnership Smith was a resident of the State of Illi-

nois and was conducting business for the partnership from

his office in Rockford, Illinois. Knapp states that on Oc-

tober 26, 1979 he himself discusse d settlement of this

dispute with Bruton Smith, in Smith’s office in Rockford,

and at that time Mr. Knapp was acting as an intermediary

between the plaintiff and the defendant.

The affidavit of John Holmstrom is also offered. Mr.

Holmstrom is an attorney in Rockford, Illinois and he is

the attorney representing the plaintiff in this cause. Ac-

cording to Mr. Holmstrom the mailing address of the part-

nership called “Viking Investment Associates” is in Rock-

ford, Illinois and as attorney for the executrix he has

mailed several letters to that address in Rockford. He fur-

ther states that he has had numerous telephone con-

ferences with Bruton Smith in Rockford concerning the

dispute which is the subject of this lawsuit. Most impor-

tantly to the Magistrate, Mr. Holmstrom had received one

letter from Bruton Smith, the defendant, dated January

31, 1977, signed by Mr. Smith, with the Rockford return

address on the letter. This letter expressed Smith’s desire

a the partnership vw aloe 4 of the decedent. (Ex-

it 2C)

There is also the affidavit of the executrix which

restates many of the previously mentioned facts. In ad-

dition, attached to that document is “Exhibit 3A” pon

is a letter from Bruton Smith to Mrs. Liljedahl, —

a return address in Rockford, that says the following:

“Per Article V of the Viking Investment Associates

Partnership Agreement, it is the desire of the —

nership to purchase the interest of Leroy E. Lilj

dahl.”

After reviewing this document it seems entirely incredi-

ble to the Magistrate that anyone would seriously con-

tend that the defendant, Bruton Smith, was not trans-

acting business within the State of Illinois within the

meaning of Section 17. In regard to this transaction and

App. 14

the controversy which is the subject of this lawsuit the

defendant’s sole defense seems to be that he is now a

resident of North Carolina, that the partnership agree-

ment was executed in the State of Texas, that it was to

be performed in the State of Texas and, therefore, it

should be up to the Texas courts to determine what law

should be applied and that is where the arbitration agree-

ment should be interpreted.

It is the opinion of the Magistrate that none of the de-

fendant’s contentions are determinative of whether or not

the defendant transacted business or committed a tort

within the State of Illinois. Further, the Magistrate

declines to comment as to the applicability of Texas law

with regards to the interpretation of the other provisions

of the contract. The only questiun before the court is the

in personam jurisdiction over the defendant and it is the

opinion of the Magistrate that the numerous jurisdictional

facts related in plaintiff's affidavits are sufficient to assert

jurisdiction over this defendant without offending tradi-

tional notions of fair play and substantial justice.

It is, therefore, the opinion of the Magistrate that the

defendant, Bruton Smith, has transacted business within

Illinois sufficiently for this court to maintain in personam

jurisdiction over him and that, therefore, the defendant’s

motion to dismiss should be denied.

JANUARY 29, 1981.

/s/ P. Michael Mahoney

United States Magistrate

App. 15

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

WESTERN DIVISION

Name of Presiding Judge:

Honorable STANLEY J. ROSZKOWSKI

Cause No. 80 C 0108 Date March 3, 1981

Title of Cause: ELEANOR SNYDER, etc., vs.

BRUTON SMITH

ORDER

This court, after carefully reviewing the January 29,

1981 report and recommendation of the Mashtuehe, hereby

adopts that recommendation.

Accordingly, it is ordered that defendant’s, Bruton

Smith, motion to dismiss be and the same is hereby

denied.

Roszkowski, J.

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

WESTERN DIVISION

Name of Presiding Judge:

Honorable STANLEY J. ROSZKOWSKI

Cause No. 80 C 0103 Date September 1, 1981

Title of Cause: ELEANOR SNYDER, etc., vs.

BRUTON SMITH

ORDER

Respondent Smith is hereby ordered to arbitrate the mat-

ters in dispute in Rockford, Illinois. (DRAFT).

Roszkowski, J.

App. 16

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

WESTERN DIVISION

In the Matter of the Arbitration between

ELEANOR SNYDER, Executrix of the

Estate of Leroy E. Liljedahl,

Petitioner,

No. 80 C 0108 v.

BRUTON SMITH,

Respondent.

ORDER

Before the court is petitioner, Eleanor Snyder’s motion

to compel the respondent, Bruten Smith, to arbitrate. For

the reasons herein stated, that motion is granted.

Petitioner is the Executrix of the estate of Leroy Lil-

jedahl.

The respondent, Smith, is a partner in the partnership,

Viking Investment Associates, that was formed between

ty ee Smith, Leroy Liljedahl, and Robert E. Hitt

in September, 1971.

On December 9, 1976, ae died. Pursuant

to Article V, Section 5.01, of er Se

respondent Smith elected to purchase the ’s in-

terest or share of the partnership. Thereafter, a dispute

arose between petitioner and respondent with respect to

the adjusted book value of the decedent’s interest."

1 A related case is now pending in the U. S. District Court for

the Southern District of Texas

App. 17

That dispute forms the underlying basis for the present

motion. Petitioner has sought to arbitrate the dispute in

Rockford, Illinois. Respondent maintains that the arbitra-

tion must proceed in Houston, Texas.

The partnership provides in relevant part

that: 1) the Uniform Partnership Act of Texas will govern

the rights and obligations of the which are not

otherwise expressly provided for (Article I, Section 1.01,

agp nd Fag Fs emennsy Bs podbeodbemnner ghee

t, management of prop-

erty, and land acquired by the i t to

the Area of Interest as defined in Section 02 (Article

2. pry tek he Re ee

claim arising out of agreement shall be submitted to

arbitration “provided, haweeer, . . . if the matter sub-

mitted to arbitration shall involve a dispute as to the ad-

justed book value of a deceased . Partner’s Entire

Interest, such arbitration shall be held before

three arbitrators, one of whom shall be a certified

accountant and the other. two of whom shall be licensed

estate appraisers main offices doing

ness in Harris County, Texas. arbitrators shall be

ode VID? the American Arbitration Association.” (Ar-

ticle

ee se are as follows: first, that peti-

tioner’s de for and initiation of arbitration in Rock-

ford, Illinois was not in accordance with the

Agreement; second, that the American Arbitration Asso-

ciation failed to comply with the Agreement

in its selection of the types of arbitrators to be appointed;

and lastly, that, since the Agreement provides that Texas

law is to govern and since Texas law provides that ar-

bitration provisions executed in 1971 that do not contain

signatures of counsel for the parties are void, the arbitra-

tion provisions in the instant case cannot be enforced.

Title 9 U.S.C. § 4 provides for redress to the federal

courts. That section states in pertinent part that,

OS ee

to arbitrate under a written agree-

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Section 2, Title 9 U.S.C., limits the ion of the

Federal Act to maritime transactions transactions in-

volving interstate commerce. “Commerce”, as employed

in § 2, is defined in § 1 as meaning “commerce the

several states.”’ Interstate commerce is a necessary basi

for application of the United States Arbitration Act, and

a contract or agreement not upon interstate

commerce must be governed 1 oe

Ra Sine get Se

106 (N.D

F.Supp. oe, ot ds oy 3 _— =

has yay 8 Hy - fren othe ne

under 9 U.S.C. § 1 et i+ —- 7

pany v. Glenwall Co., F Supp. 86, 89 (S.D. N . 1970)

affirmed 442 F.2d 1350 (2d Cir. 1971).

Second, it is clear that there is no dispute as to the

of the arbitration agreement and the failure to

comply therewith.

Consequently, it is within this court’s power to order

“that hearings and ings” to arbitrate under the in-

stant t place in this district and that they

in accordance with the arbitration agreement.

and doing business in Harris ty, Texas and that the

arbitrators shall be selected by the American Arbitrators

Dated 9-1-81

App. 20

AMERICAN ARBITRATION ASSOCIATION

COMMERCIAL

ARBITRATION TRIBUNAL

In the Matter of the Arbitration between

ELEANOR SNYDER, EXECUTRIX OF THE

ESTATE OF LEROY LILJEDAHL, DECEASED

AND

BRUTON SMITH

Case No. 51 180 0440 80 E

AWARD OF ARBITRATORS

WE, THE UNDERSIGNED ARBITRATORS, having veen

designated in accordance with the Arbitration Agreement

entered into by the above named Parties, and dated

September of 1971 and having been duly sworn and hav-

ing duly heard the proofs and allegations of the Parties,

AWARD as follows:

I. BRUTON SMITH shall pay to ELEANOR SNYDER,

EXECUTRIX OF THE ESTATE OF LEROY LILJEDHAL,

DECEASED the sum of FIVE HUNDRED FORTY

NINE THOUSAND SEVEN HUNDRED FIFTY FIVE

DOLLARS ($549,755.00), by certified check on or

before November 10, 1982.

II. A. The administrative fee of the American Arbitra-

tion Association shall be borne by BRUTON

SMITH and paid as directed by the Association.

App. 21

B. Compensation of the Arbitrators shall be borne

equally by the parties and paid as directed by

the Association.

III. This Award is in full settlement of all claims sub-

mitted to this Arbitration.

[Signatures of Arbitrators

omitted in printing.]

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

WESTERN DIVISION

Name of Presiding Judge:

Honorable STANLEY J. ROSZKOWSKI

Cause No. 80 C 0103 Date May 4, 1983

Title of Cause: ELEANOR SNYDER, etc.

vs. BRUTON SMITH

ORDER

Petitioner’s application for confirmation of an arbitra-

tion award is granted. The arbitration award of October

15, 1982 is confirmed. Respondent’s motion to vacate or

modify the award is denied. (DRAFT)

Roszkowski, J.—

App. 22

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

WESTERN DIVISION

ELEANOR SNYDER, EXECUTRIX OF THE

ESTATE OF LEROY E. LILJEDAHL,

No. 80 C 103 vs.

Petitioner,

BRUTON SMITH,

Respondent.

ORDER

Before the court is petitioner’s application for confirma-

tion of an arbitration award and Respondent’s Motion to

Vacate or modify the award. For the reasons stated here-

in, petitioner’s application is granted and respondent’s mo-

tion is denied.

Jurisdiction is invoked pursuant to the Federal Arbitra-

tion Act, 9 U.S.C. §1 et seq., and diversity of citizen-

ship. The amount in controversy exceeds $10,000.

Petitioner Eleanor Snyder is Executrix of the Estate

of Leroy E. Liljedahl, who was a partner of Viking In-

vestment Associates. Respondent Bruton Smith is a sur-

viving partner of the partnership. The partnership agree-

ment provided an option for surv‘.*ng partners to pur-

chase the partnership interest of a aeceased partner. The

agreement also provided for arbitration in the event the

parties cannot agree on the value of the partnership

interest.

On December 9, 1976 Leroy Liljedahl died, and on

January 31, 1977 respondent elected to purchase the dece-

dent’s entire partnership interest. The Executrix peti-

tioned this court to compel arbitration, alleging that

App. 23

respondent refused to submit to arbitration. On Septem-

ber 1, 1981 this court ordered the parties “to arbitrate

the matters in dispute . . . in accordance with the provi-

sions of the Arbitration Agreement.”’!

On October 15, 1982 an arbitration panel of the

American Arbitration Association awarded petitioner the

sum of $549,755 in full settlement of all claims submitted

to arbitration, to be paid by November 10, 1982. On No-

vember 19, 1982 Petitioner applied to this court for con-

firmation of the arbitration award.

Respondent moved to vacate or modify the award. He

argues that the arbitrators exceeded their authority under

the partnership agreement by awarding Petitioner

$549,755. Respondent contends the award was contrary

to the parties’ submissions at the arbitration hearing since

petitioner set the adjusted book value of decedent’s part-

nership interest at $321,145.

The Federal Arbitration Act provides that district

courts may confirm, vacate, or modify an arbitration

award. 9 U.S.C. S9-11. The court may vacate an award

“where the arbitrators exceeded their powers, or so im-

perfectly executed them that a mutual, final, and definite

award upon the subject matter was not made.” 9 U.S.C.

§ 10(d). The court may modify an award “where the ar-

bitrators have awarded upon a matter not submitted to

them.” 9 U.S.C. § 11(b).

Arbitrators are, however, given discretion in making

awards, and the scope of judicial inquiry into the propriety

of an award is narrow. The Supreme Court in United

1 This court also previously decided two ancillary issues which

the respondent “hs raised in his memorandum. Respondent —

the arbitration award be set aside on the basis of lack of in

sonam jurisdiction over the defendant and improper venue.

court decided on March 3, 1981 that respondent had transacted

business and had contacts in Illinois sufficient for the court to

maintain personam F eigen nae The court further decided on

Sunener | 1, 1981 that arbitration was tu take place in Illinois.

App. 24

States Steel v. Enterprise Wheel, 363 U.S. 593, 80 S.Ct.

1358 (1960) set out the role of arbitrators when inter-

preting parties’ agreements. The arbitrator

is to bring his informed judgment to bear in order

to reach a fair solution of a problem. This is especially

true when it comes to formulating remedies. There

the need is for flexibility in meeting a wide variety

of situations. The draftsmen may never have thought

of what specific remedy should be awarded to meet

a particular contingency.

363 U.S. at 597, 80 S.Ct. at 1861. The court further stated

that interpretation of the parties’ agreements is the role

of the arbitrator, not the court.

It is the arbitrator’s construction which was bar-

gained for; and so far as the arbitrator’s decision con-

cerns construction of the contract, the courts have

no business overruling him because their interpreta-

tion of the contracts is different from his. 363 U.S.

at 599, 80 S.Ct. at 1362.

The proper inquiry for the court is whether the arbitra-

tion award draws its essence from the parties’ -

ments. United States Steel v. Enterprise Wheel, 363 U.S.

at 597, 80 S. Ct. at 1361.

The Seventh Circuit has considered the United States

Steel standard. In Amoco Oil Co. v. Oil, Chemical, and

Atomic Workers, 548 F.2d 1288 (7th Cir., 1977), cert.

denied, 431 U.S. 905, 97 S.Ct. 1697 (1977), the court held

that an arbitration award draws its essence from the par-

ties’ agreements “so long as the interpretation can in

some rational manner be derived from the agreement

‘viewed in the light of its language, its context, and any

other indicia of the parties’ intention’.” 548 F.2d at 1294.

And in National Railroad Passengers Corp. v. Chesa-

peake and Ohio Railway, 551 F.2d 136 (7th Cir., 1977)

the court held that “arbitrators do not exceed their

powers by misconstruing a contract.” If “irrationality of

an award is a ground for reversing, its application will

ar or ok for truly extraordinary circumstances.” 551

2d at 142.

App. 25

This court’s inquiry is whether the award draws its

essence from the partnership agreement and whether

there was evidence submitted at arbitration to support

the award.

The partnership agreement provides that all controver-

sies arising out of the ment and all disputes per-

to the purchase of decedent’s partnership interest

be submitted to arbitration. (Art. VII; Art. V, § 5.01). It

also provides for the payment of interest. (Art. V, § 5.01

(f)). It contemplates that arbitrators may depart from the

amount designated by the accountant as the adjusted book

value of the deceased partner’s interest, and increase the

purchase price. (Art. V, § 5.01(h)). The agreement allows

the seller to accelerate payment if all or part of the prin-

cipal or interest remains unpaid. (Art. a § 5.01(f).

At the hearing the arbitrators heard evidence that

Respondent elected to purchase the decedent’s entire part-

nership agreement, and that Respondent breached the

partnership agreement in several respects. And on the

issue of damages, the arbitrators heard the testimony of

Rolland Emerson, a Certified Public Accountant, who

testified that the entire amount of damages borne by the

estate due to Respondent’s breach totalled $535,000. (Ar-

bitration Hearing Transcript, September 28, 1982 at 143).

This amount represented the adjusted book value of dece-

dent’s partnership interest if paid according to the

schedule set out in the agreement, plus interest and in-

come lost due to Respondent’s non payment. Petitioner

further alleged damages to the estate in appraisal and ar-

bitration costs, taxes, and attorney’s fees.

In assessing the propriety of the arbitrator’s award, it

is clear that the arbitrators possessed the authority to

resolve the parties’ entire dispute. Article VII of the

Agreement provided that “[aIny controversy or claim aris-

ing out of or relating to this agreement, or to the inter-

pretation, breach or enforcement thereof, shall be submit-

ted to three arbitrators.” Such broad language has been

held to “cover contract-generated or contract-related dis-

putes between the parties however labeled.” Acevedo

App. 26

Maldonado v. PPG Industries, Inc., 514 F.2d 614 (ist Cir.

1975). Cf. Kurt Orban Co. v. Angel Metal Systems, 573

F.2d 739, 740 (2d Cir. 1978) (“Any doubts about the scope

of the submission agreement should be resolved in favor

of coverage.”) Consequently, the arbitrators were em-

— to decide all aspects of the parties’ contractual

ispute.

Employing the Seventh Circuit test of Amoco Oil Co.

v. Oil, Chemical and Atomic Workers, su the arbitra-

tion award is “in some rational manner derived from the

agreement.” 548 F.2d at 1294. The arbitrators were

authorized to consider all the disputes of the parties and

to establish a purchase price including but not limited to

the accountant’s adjusted book value of the decedent’s

partnership interest. The agreement called for interest and

an option of accelerating all payments when a payment

is overdue. It is within the arbitrator’s discretion to use

their judgment in formulating remedies and to view the

parties’ agreement in light of the circumstances of the

case. Therefore it was within the arbitrator’s discretion

to look beyond the adjusted book value to the totality of

damage suffered by petitioner in making its award. The

totality of the loss, set by the arbitrators at $549,755, was

rationally supported by the record. Mr. Emerson’s testi-

mony, alone, established a loss of $535,000, excluding

costs, taxes and legal fees. After accounting for these ad-

ditional factors, it cannot be said that the $549,755 award

was _ Consequently, the award will not be over-

turned.

Respondent also argues the arbitration award should be

vacated because it is in “manifest disregard”’ of applicable

law. Respondent argues that the partnership agreement

is silent on the payment of interest for past due amounts.

The agreement provides that when it is silent as to a

term, Texas law governs the term. Texas law provides

that interest be paid at 6%. Tex.Rev.Civ.Stat.Ann. § 5069-

1.03. The argument continues that the arbitrators

disregarded Texas law in awarding an amount which ex-

ceeds $321,145 plus @% interest.

App. 27

The “manifest disregard’’ of law test has been derived

from dicta in Wiiko v. Swain, 346 U.S. 427, 74 S. Ct. 182

(1953). The Seventh Circuit er on the standard

in National Railroad Pass ae v. Chesapeake and

Ohio Railway, 551 F.2d 136 (7th Cir. 1977).

We share the reservations recently expressed by the

Second Circuit as to whether the Wilko dictum was

actually intended to add “manifest disregard” of the

law to the statutory grounds for vacating an award

in 9 U.S.C. §10 . . . How courts are to distinguish

in the Supreme Court’s phrase between ‘erroneous

interpretation’ of a statute . .. and ‘manifest

disregard’ of it, we do not know; one man’s ‘inter-

pretation’ may be another’s ‘disregard’. Moreover,

since arbitrators have no obligation to state the ra-

tionale underlying their award, there may be no basis

whatsoever for a court to determine whether they

have manifestly disregarded the law or simply

misinterpreted it.

551 F.2d at 143 n.9 (Citations omitted).

Notwithstanding the questionable viability of the stand-

ard, the arbitrator’s award does not evidence a manifest

disregard of Texas law. The partnership agreement pro-

vides that interest is to be paid at the prevailing prime

rate. Art. V, §5.01(f). The arbitrators were entitled to

interpret this provision and rely on the prime rate, as

well as all other provisions of the agreement in settling

the parties’ dispute.

This court therefore finds that the arbitrator’s award

was proper. The arbitration award of October 15, 1982

is confirmed. Respondent’s motion to vacate or modify the

award is denied.

ENTER:

/s/ Stanley J. Roszkowski

Judge

United States District Court

Dated May 4, !983

App. 28

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

WESTERN DIVISION

Name of Presiding Judge:

Honorable STANLEY J. ROSZKOWSKI

Cause No. 80 C 01038 Date May 20, 1983

Title of Cause: ELEANOR SNYDER, etc.

vs. BRUTON SMITH

JUDGMENT

* * *

Judgment is entered in this cause in favor of the Peti-

tioner, ELEANOR SNYDER, as Executrix of the estate of

Leroy E. Liljedahl against Respondent, BRUTON SMITH,

the Respondent to pay immediately the total

sum of $576,041.59 to the Petitioner in exchange for Leroy

E. Liljedahl’s Entire Partnership Interest. upon payment

of $576,041.59 together with costs to be taxed by the clerk

and interest from the date of entry of the judgment to

the date of payment the Petitioner shall deliver to the

Respondent the appropriate duly executed instruments

assi and transferring good and marketable title to

Leroy E. Liljedahl’s Entire Partnership Interest.

Roszkowski, J.—

App. 29

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

WESTERN DIVISION

ELEANOR SNYDER EXECUTRIX of the

Estate of Leroy E. Liljedahl,

Petitioner-Appellee,

No. 80-C-00103 vs.

BRUTON SMITH,

Respondent-Appellant.

NOTICE OF APPEAL

(Docketed June 21, 1983)

Notice is hereby given that Bruton Smith, Respondent

above named, hereby appeals to the United States Court

of Appeals for the Seventh Circuit from the Judgment

(directing Respondent to pay FIvE HUNDRED SEVENTY-

Six THOUSAND ForTy-ONE AND 59/100THS DOLLARS

($576,041.59) to Petitioner in exchange for Leroy E. Lil-

jedahl’s entire partnership interest) entered in this action

on the 20th day of May, 1983.

Counsel responsible for briefs and oral argument will

be designated at a later date.

/s/ Edward J. Fahy

Fahy & Cheney, Ltd.

Suite 202

303 North Main Street

Of Counsel: Rockford, Illinois 61101

John L. Carter Telephone: (815) 962-5534

Vinson & Elkins Local Attorney for

3007 First City Tower Respondent-Appellant

Houston, Texas 77002

Telephone: (713) 652-2124

App. 30

Opinion by Judge Flaum

Judge Bauer dissenting in part

JUDGMENT—ORAL ARGUMENT

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

June 7, 1984.

Before

Hon. WILLIAM J. BAUER, Circuit Judge

Hon. JOEL M. FLaum, Circuit Judge

Hon. LUTHER M. SwyGeErt, Senior Circuit Judge

ELEANOR SNYDER, Executrix of the

Estate of Leroy Liljedahl,

Plaintiff-Appellee,

No. 83-2151 vs.

BRUTON SMITH,

Defendant-Appellant.

Appeal from the United States District Court for the |

Northern District of Illinois, Western Division. |

No. 80 C 00108—Judge Stanley Revekowski.

This cause was heard on the record from the United

States District Court for the Northern District of Illinois,

Western Division, and was argued by counsel.

On consideration whereof, Ir Is ORDERED AND Ap.

JUDGED by this Court that the judgment of the said Dis-

trict Court in this cause from be, and the same is

hereby REVERSED with ions, with costs, in accord-

ance with the opinion of this Court filed this date.

ee

App. 31

(736 F.2d 409 (1984))

IN THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

ELEANOR SNYDER, EXECUTRIX OF THE

EsTaTE OF LEROY LILJEDAHL,

Plaintiff-Appellee,

No. 83-2151 v.

BRUTON SMITH,

Defendant-A ppellant.

Appeal from the United States District Court for the

Northern District of Illinois, Western Division.

No. 80 C 00108—Stanley J. Roszkowski, /udge.

ARGUED JANUARY 18, 1984—DECIDED JUNE 7, 1984

Before BAUER and FLAuUM, Circuit Judges, and

SwyGERT, Senior Circuit Judge.

FLauM, Circuit Judge. This appeal from the district

court’s order confirming an arbitration award challe

that order on a number of grounds. The district court

ordered the parties to arbitration in Rockford, Illinois. In

that order, the court held that it had personal juris-

diction over appellant Bruton Smith. The court further

held that the arbitration clause was contained in a “‘con-

tract evidencing a transaction involving commerce”’ and

thus the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-14

(1982), was applicable to the dispute. Finally, the court

held that it could compel arbitration to take place in the

pe

t we senden the court’s holding that it poe

compel arbitration in the Northern District of Illinois.

I

Appellee Eleanor Snyder is the executrix of the estate

of Leroy Liljedahl. 5 Sees Case, Sater

with a third indivi named Robert Hitt, were

in Viking Investment Associates (Viking). The Viking

is limited to the ownership of certain property

ocated in Harris County, Texas, and to any pur-

chased by the partnership within one mile of that prop-

erty.

The partnership agreement was executed in September

1971. At that time, all three partners were [Illinois

residents. The partnership mailing address was in

Rockford, Illinois. For a period of time, Smith conducted

the partnership’s business from an office in Rockford.? The

partnership borrowed mo from and maintained a

checking account with a bok in Rockford.

The partnership agreement pee one the death of

a partner does not terminate the hee ey

the surviving partners with the t on

terest of the deceased partner. The 0 purchase father

provides that if the surviving partners or partner exer-

cisé the option to purchase, the parties are to attempt

ob canes dh b pundaks alin ke oie OG eae

: BE con 0 machines of tit Cetin ond eon ened Wh

process by a federal marshal in North Carolina.

2 The office, however, was Smith's, not the partnership's. Magis-

trate’s Report and Recommendation at 7.

App. 33

on a price, the price shall be determined by arbitration.

The partnership agreement states in pertinent part:

Any controversy or claim arising out wd or

to this agreement, or to the in

or enforcement thereof, shall be ined te thane

arbitrators and settled by arbitration in the City of

Houston, Texas, . . . provided, however, . . . if the

matter submitted to Y esdeaaiien shall involve a

whom shall be a certified public accountant and the

other two of whom shall be licensed real estate ap-

Ffarris Coun maintaining offices and doing business in

, Texas. . award made by any

of the Arbitrators be final, binding, and

conclusive on all parties hereto for all purposes, and

a judgment may be enforced thereon in any court

having jurisdiction thereof.

Viking Partnership Agreement, Article VII.

Liljedahl died on December 9, 1976. On January 31,

1977, Smith notified by letter a byte

dress in Rockford, Illinois. At some time after January

1977, Smith became a resident of North Carolina.

The parties were unable to agree on a purchase price.

Smith returned to Tiincis severel times to negotiate the

price. On July 15, 1980, Snyder served Smith with

ten demand for arbitration. On On July 28, Smith notified

American Arbitration Association that he refused to

ticipate in the arbitration. On that date, Smith also

ep he ay dy Pep.

to

lish a purchase price for the partnership interest and

* The other partner, Hitt, elected not to exercise his option to

purchase.

App. 34

alleging a cause of action for breach of contract. Snyder

removed the case to federal district court in Texas. On

August 4, 1980, Snyder filed a petition to compel arbi-

tration in the district court for the Northern District of

Illinois under section 4 of the FAA, 9 U.S.C. § 4 (1982).

Smith moved to dismiss the Illinois action for improper

service of process and lack of personal jurisdiction. The

matter was referred to a magistrate, who recommended

that the court deny the motion to dismiss. On March 3,

1981, the court denied the motion. Smith subsequently

submitted to the court a memorandum arguing that ar-

bitration under the agreement could not take place in

Illinois.

The district court in Texas, pursuant to agreement of

the parties, entered an order staying its proceedings pend-

ing resolution of the Illinois action. On September 1, 1981,

the district court in Illinois ordered the parties to arbi-

pe a in Rockford, Illinois. Smith did not appeal that

order.

On October 15, 1982, the arbitration panel awarded

Snyder the sum of $549,755.00 plus administrative fees.

Snyder applied to the district court in Illinois for an order

confirming the arbitration award; Smith moved to vacate

or modify the award. The court confirmed the arbitration

award and entered judgment against Smith. Smith

appealed.

On appeal, Smith raises four issues. First, Smith argues

that the district court lacked personal jurisdiction over

him. He contends that his casual and sporadic activities

in Illinois are insufficient to meet the “transaction of

business test” of the Illinois long-arm statute and that

the cause of action did not “arise from” any transaction

of business of his in Illinois. Second, he argues that the

FAA is not applicable because the partnership agreement

was not a “contract evidencing a transaction involving

commerce” as required by 9 U.S.C. § 2 (1982). Smith

maintains that the agreement itself must evidence in-

terstate commerce, that “involving commerce” is a much

narrower test than “affecting commerce,” and that any

App. 35

casual and sporadic interstate activities in which the part-

nership engaged are not sufficient to meet the statutory

standard for application of the FAA. Third, Smith argues

that the district court lacked the power to compel arbi-

tration in the Northern District of Illinois because the ar-

bitration agreement provided that arbitration was to take

place in Houston, Texas; Section 4 of the FAA provides

that the court shall order the parties to arbitrate “in ac-

cordance with the terms of the agreement.” Finally, Smith

argues that the order of confirmation and judgment

violates article III of the Constitution.

Snyder argues that the district court correctly compelled

arbitration and confirmed the award. First, Snyder con-

tends that the district court’s exercise of personal juris-

diction over Smith satisfies both the requirements of due

process and the standards of the Illinois long-arm statute.

She argues that the “arising from” requirement is broadly

construed, and as such, this cause of action arises from

Smith’s transaction of business in Illinois. Second, she

argues that the FAA is applicable because the “involv-

ing commerce” requirement must be construed broadly and

that the facts support a finding that interstate commerce

is involved. Third, Snyder asserts that the district court

could compel arbitration in the Northern District of IIli-

nois because the only statutory requirement is that the

district court have subject matter jurisdiction over the

controversy, which it had here. According to Snyder, any

valid objection Smith could have would be as to venue,

and Smith has waived any venue objection through failure

to comply with rule 12(g) & (h) of the Federal Rules of

Civil Procedure. Finally, Snyder argues that Smith did

not raise his constitutional objections below and that in

* A ae the district court’s order did not violate arti-

cle III.

II

We first must determine whether we have jurisdiction

to examine the merits of the issues raised. At oral argu-

ment, counsel for Snyder requested this court to dismiss

App. 36

the appeal on the basis of the decision in University Life

Insurance Co. of America v. Unimarc Ltd., 699 F.2d 846

(7th Cir. 1983), which held that an order compelling arbi-

tration is final and appealable under section 1291 even

though the district court retains jurisdiction solely for the

purposes of resolving further disputes over arbitrability

and enforcing any arbitration award. Jd. at 849. Smith

did not appeal from the order compelling arbitration.

Snyder argues that the time for appeal from that order

has expired, see Fed. R. App. P. 4(a), and thus this court

lacks jurisdiction to review any issues decided in that

order. See Northcross v. Board of Education, 611 F.2d

624, 635 (6th Cir. 1979), cert. denied, 447 U.S. 911 (1980).

In this case, the district court compelled arbitration, in

a proceeding where the only judicial remedy sought was

an order to arbitrate, and it retained jurisdiction to enforce

any arbitration award. Thus, it is clear that the order com-

pelling arbitration was final and appealable when entered

according to this court’s decision in University Life In-

surance. That case, however, was decided in January

1983; the order to compel arbitration in this case was

issued in September 1981. We conclude, for the reasons

below, that we will not apply the decision in University

Life Insurance retroactively.

Whether to apply a decision retroactively depends on

a number of factors: the prior history of the rule in ques-

tion, that is, whether the new rule overrules past prece-

dent or decides an issue of first impression; whether

retroactivity will further or retard the rule’s operation;

and the inequity imposed by retroactive application.

Chevron Oil Co. v. Huson, 404 U.S. 97, 106-07 (1971); cf

Salem v. Stumes, 104 S. Ct. 1338 (1984). Prior to Univer-

sity Life Insurance, this court had not squarely held that

such an order was final and appealable. Indeed, this court

had stressed a strong policy against encouraging such

piecemeal appeals. See, e.g., Whyte v. THinc Consulting

Group International, 659 F.2d 817, 818 n.2 (7th Cir. 1981).

When the district court ordered arbitration, in Septem-

ber 1981, responsible counsel would have believed that

App. 37

the order was interlocutory. The area of appealability of

arbitration orders is one of ‘medieval if not Byzantine

pecularities,”” New England Power Co. v. Asiatic

Petroleum Corp., 456 F.2d 183, 189 (ist Cir. 1972), and

a “source of understandable confusion to the bar,”

Timberlake v. Oppenheimer & Co., 729 F.2d 515, 517 (7th

Cir. 1984), where the law is constantly changing.* In such

an area of law, counsel cannot be expected to anticipate

the twists and turns that the law may take. The effect

of applying the decision in University Life Insurance

retrozctively here would be to deprive the appellant of

any opportunity to present his claims to this court for

review. This obviously unfair result leads us to conclude

that we will not dismiss the appeal for lack of jurisdic-

tion. See de Mouy v. Ingvoldstad, 664 F.2d 21, 23 n.2 (2d

Cir. 1981) (Adams, J., concurring) (‘‘{iJn such a situation,

it would be inequitable for an appellate court to decline

to hear the appeal’’). See also West v. Keve, 721 F.2d 91

(3d Cir. 1983).

The Supreme Court, in Firestone Tire & Rubber Co.

v. Risjord, 449 U.S. 368, 379 (1981), held, “A court lacks

discretion to consider the merits of a case over which it

is without jurisdiction, and thus, by definition, a jurisdic-

tional ruling may never be made prospective only.” In

that case, the court of appeals held that an order denying

a motion to disqualify counsel was not appealable prior

to final judgment but, because its holding was contrary

to precedent, it determined the merits of the order. The

Supreme Court held that when an appellate court finds

an order interlocutory and nonappealable, the court must

dismiss the appeal. The Court did not address the issue

of whether an appellate court must dismiss the appeal

4 Compare, e.g., Timberlake v. Oppenheimer & Co., 729 F.2d 515

(7th Cir. 1984) (order refusing stay of arbitration not appealable

under § 1292(aX1)) with Whyte v. THinc Consulting Group Intern.,

659 F.2d 817 (7th Cir. 1981) (order granting stay of arbitration

appealable) with Dickinson v. Heinold Securities, Inc., 661 F.2d

(7th Cir. 1981) (denial of stay pending arbitration appealable

under § 1292(aX1)).

App. 38

where a party who relies on a jurisdictional ruling is,

under a subsequent decision, foreclosed from ever rais-

ing his issues in the appellate court. Thus, Firestone does

not require this court to dismiss this appeal.

Ill

We turn to the issue of whether the district court had

personal jurisdiction over Smith. A federal district court

has personal jurisdiction over a party in a diversity suit

only if a court of the state in which the district court sits

would have such jurisdiction. Deluxe Ice Cream Co. v.

R.C.H. Tool Corp., 726 F.2d 1209, 1212 (7th Cir. 1984).

In Illinois, a nonresident party can be sued if it performs

one of the acts enumerated in the Illinois long-arm stat-

ute or if it is doing business in Illinois, as long as the

due process “minimum contacts” requirement is met. /d.;

see International Shoe Co. v. Washington, 326 U.S. 310,

316 (1945). There is no claim that Smith is doing business

in Illinois, and thus we limit our inquiry to the long-arm

statute.

The constitutional due process requirement is satisfied

by “some act by which the defendant purposefully avails

itself of the privilege of conducting activities within the

forum State, thus invoking the benefits and protection of

its laws.””’ Hanson v. Denckla, 357 U.S. 235, 253 (1958).

In cases such as this, where the claim is that a controver-

sy “arises from” the defendant’s contacts with the forum,

the “ ‘relationship among the defendant, the forum and

the litigation’ is the essential foundation” of personal jur-

isdiction. Helicopteros Nacionales de Columbia, S.A. v.

Hall, 52 U.S.L.W. 4491, 4492 (U.S. April 24, 1984)

(quoting Shaffer v. Heitner, 433 U.S. 186, 204 (1977)).5 Re-

5 In Helicopteros Nacionales de Columbia, S.A. v. Hall, 52

U.S.L.W. 4491 (U.S. April 24, 1984), the Supreme Court addressed

the minimum contacts necessary for personal jurisdiction in suits

not “arising out of” or “related to” the defendant’s contacts with

the forum. Court did not discuss the minimum contacts neces-

sary where, as here, the suit “arises out of’ the defendant’s con-

tacts with the forum.

App. 39

cent cases have emphasized the reasonableness of subject-

ing a defendant to suit. Deluxe Ice Cream Co. v. R.C.H.

Tool Corp., 726 F.2d at 1213; Honeywell, Inc. v. Metz Ap-

paratewerk, 509 F.2d 11387 (7th Cir. 1975). Several factors

are relevant to an assessment of reasonableness: the de-

fendant’s physical presence in the forum state while trans-

acting business, Deluxe Ice Cream Co. v. R.C.H. Tool

Corp., 726 F.2d at 1214; and the foreseeability that the

defendant would be subject to suit in the forum, id. at .

1212 n.4; see World-Wide Volkswagen Corp. v. Woodsen,

444 U.S. 286, 297 (1980).

Illinois has imposed additional personal jurisdiction re-

quirements through its long-arm statute. This statute pro-

vides that a person submits itself to the jurisdiction of

Illinois courts if it “engages in the transaction of any

business” within Illinois and if the cause of action “arises

from” this transaction. The question of personal juris-

diction under the Illinois statute is separate from the

uestion of the requirements of due process. Deluxe Ice

ream Co. v. R.C.H. Tool Corp., 726 F.2d at 1213; Cook

Associates, Inc. v. Lexington United Corp., 87 Ill. 2d 190,

197, 429 N.E.2d 847, 850 (1981) (boundaries of Illinois

6 The statute provides in pertinent part:

Acts submitting to jurisdiction—Process.

(a) Any person, whether or not a citizen or resident of this

State, who in person or through an agent does any of the acts

hereinafter enumerated, thereby submits such person, and, if

an individual, his or her personal representative, to the juris-

diction of the courts of this State as to any cause of action

arising from the doing of any such acts:

(1) The transaction of any business within this State;

*x* * * *

(c) Only causes of action arising from acts enumerated herein

may be asserted against a defendant in an action in which jur-

isdiction over him is based upon this Section.

Ill. Rev. Stat. ch. 110, § 2-209a)(1), (c) (1983) (formerly codified at

Ill. Rev. Stat. ch. 110, § 17).

App. 40

statute are not to be equated with the test under the due

process clause). Illinois cases establish that, to qualify as

a transaction of business that establishes jurisdiction under

the long-arm statute, an act by the nonresident defendant

must give rise to the plaintiff’s cause of action; in other

words, the plaintiff's claim must “‘lie[ ] in the wake of the

commercial activities by which [the] defendant submitted

to the jurisdiction of Illinois courts.”’ Loggans v. Jewish

Community Center, 113 Ill. App. 3d 549, 557, 447 N.E.2d

919, 925 (1983); see also Deluxe Ice Cream Co. v. R.C.H.

Tool Corp., 726 F.2d at 1215; Cook Associates, Inc. v.

Lexington United Corp., 87 Ill. 2d at 198-99, 429 N.E.2d

at 851. The “‘transaction of business” standard does not

require that the nonresident defendant conduct business

within Illinois regularly or systematically; a single act may

be sufficient, as long as the cause of action arises from

that act. Johnson v. United Presbyterian Church, 103 Il.

App. 3d 869, 874, 481 N.E.2d 1275, 1279 (1981).

Turning to the facts of this case, we hold that Smith’s

activities in Illinois are sufficient to qualify as a transac-

tion of business that establishes jurisdiction under the

long-arm statute. While he was an Illinois resident, Smith

mailed a letter to Snyder, notifying her that he was ex-

ercising his option to purchase Liljedahl’s share of the

partnership. Smith also came to Illinois and negotiated

with Snyder over the purchase price for the partnership

interest. These activities constitute the transaction of

business. Snyder’s claim for arbitration over the purchase

price arises from the letter and the failed negotiations;

the claim “lies in the wake” of Smith’s actions while in

Illinois. Thus, we hold that the district court had juris-

diction over Smith under the Illinois long-arm statute.

We further hold that the exercise of jurisdiction here

comports with the “minimum contacts” requirement of the

due process clause. Smith’s sending a letter, while a resi-

dent of Illinois, to another Illinois resident, exercising an

option to purchase, and returning to Illinois to negotiate

the price, makes it reasonable for an Illinois court to ex-

ercise jurisdiction. By taking these actions in Illinois,

App. 41

Smith chose to invoke the benefits and protections of IIli-

nois law. His connections with Illinois, particularly trans-

ret | business while present within the state, are such

that he should have anticipated that he could be sued

there. His physical presence in Illinois while taking these

actions gives Illinois an interest in adjudicating this

— Any inconvenience to Smith in conducting the suit

in Illinois, although perhaps not minimal, is not seriously

ater than it a be if the suit were conducted in

exas. Thus, the relationship between this defendant, this

forum, and this litigation is such that the requirements

of the due process clause are met.

IV

We turn next to the question of whether the Federal

Arbitration Act, 9 U.S.C. §§ 1-14 (1982), is applicable to

this dispute. The FAA makes enforceable only those arbi-

tration agreements “in any maritime transaction or a con-

tract evidencing a transaction involving commerce.” 9 U.S.C.

§ 2 (1982). There is no maritime transaction involved here,

and thus we must decide whether the partnership agree-

ment evidences a transaction involving commerce. The re-

quirement that transactions involving interstate commerce

be “evidenced by” the contract does not limit a court to

considering only those transactions expressly authorized

on the face of the contract in determining whether the

FAA applies. In Prima Paint Corp. v. Flood & Coughlin

Manufacturing Co., 388 U.S. 395, 401 n.6 (1967), the Su-

preme Court relied on an affidavit submitted to the district

court in concluding that interstate commerce was involved.

Thus, in this case, we may look to the partnership agree-

ment and affidavits to determine whether there is a trans-

action involving interstate commerce.

The Supreme Court has stated that “([slection 2 is a con-

gressional declaration of a liberal federal policy favoring

arbitration agreements.” Moses H. Cone Memorial Hos-

pital v. Mercury Construction Corp., 103 S. Ct. 927, 941

(1983). For that reason, courts have declared a strong

App. 42

policy favoring the arbitration of contract disputes. See,

e.g., id.; Societe Generale de Surveillance, S.A. v.

Raytheon European Management and Systems Co., 643

F.2d 863, 867 (1st Cir. 1981). For example, any questions

as to whether an issue is arbitrable are to be resolved

in favor of arbitration. Moses H. Cone Memorial Hospi

v. Mercury Construction Corp., 103 S. Ct. at 941; Dickin-

son v. Heinold Securities, Inc., 661 F.2d 638, 643 (7th Cir.

1981). Similarly, because of the strong policy favoring ar-

bitration, the requirement of “evidencing a transaction in-

volving commerce” must be construed broadly. See Societe

Generale de Surveillance, S.A. v. Raytheon European

Management and Systems Co., 643 F.2d at 867.

A broad interpretation of the “involving commerce”’ re-

quirement ” supported by several decisions. In Prima

Paint Corp lood & Coughlin Manufacturing Co., 388

U.S. 305, 4 401 n.7 (1967), the Court refused to limit. the

applicability of the FAA to contracts for the interstate

shipment of goods. The Court quoted from the House

Report accompanying the FAA: “ {tJhe control over inter-

state commerce [one of the bases for the. legislation]

reaches not only the actual physical interstate shipment

of goods but also contracts relating to interstate com-

merce.’ ” Jd. (quoting H.R. Rep. No. 96, 68th Cong., Ist

Sess. 1 (1924) (emphasis supplied)). In Bernhardt v. Poly-

phic Co., 350 U.S. 198, 200-01 (1956), the Court stated

that the contract did not involve commerce because there

was no showing that the petitioner was working in com-

merce, producing goods for commerce, or e ing in ac-

tivity that affected commerce. See also Grand Bahama

Petroleum Co. v. Asiatic Petroleum, 550 F.2d 1320, 1824

(2d Cir. 1977).

The Supreme Court has recently discussed the purpo

of the “involving commerce’’ requirement in ding

whether the FAA applies in state courts. The Court

stated:

We would expect that if Congress, in enacting the

Arbitration Act, was creating what it thought to be

App. 48

a procedural rule applicable only in federal courts, it

would not so limit the Act to transactions involving

commerce. On the other hand, Congress would need

to call on the Commerce Clause if it intended the Act

to apply in state courts. Yet at the same time, its

would be limited to transactions involving inter-

state commerce. We therefore view the “involving

commerce” requirement in § 2, not as an inexplicable

limitation on the power of federal courts, but as a

necessary qualification on a statute intended to apply

in state and federal courts.

Southland Corp. v. Keating, 104 S. Ct. 852, 860 (1984).

Thus, the Court equated the breadth of “involving com-

merce”’ with the extent of Congress’s power to regulate

under the commerce clause. Under the commerce clause,

Congress may reach activities “affecting” interstate com-

merce. See, e.g., Hodel v. Virginia Surface Mining &

Reclamation Ass’n, 452 U.S. 264, 276-77 (1981). That the

requirement that an arbitration agreement involve com-

merce is not a limitation but a qualification suggests that

Congress intended the FAA to apply to all contracts that

it constitutionally could regulate.

Thus, it is clear that the “involving commerce”

must be construed very broadly. We need not decide to-

day whether Congress intended the FAA to apply to all

contracts affecting interstate commerce, for it is clear that

the partnership agreement presented in this case falls well

within the constitutional limits. The real estate at issue

was located in Texas; the partners lived in, and the part-

nership was managed from, Illinois. The ——- bor-

rowed money from and maintained a c

with a bank in Illinois. Thus, the partnership agreement

involved interstate commerce and the ‘AA is applicable.

V

We turn finally to the question of whether, under sec-

tion 4 of the FAA, the district court for the Northern

District of Iilinois could compel arbitration to take place

App. 44

in that district when the gevong ays rong provides

that arbitration is to take place in Houston, Texas. Sec-

tion 4 provides in pertinent part:

A party ieved by the alleged failure, neglect,

or refusal of another to arbitrate under a ieee

agreement for arbitration may petition any United

States district court which, save for such agreement,

would have jurisdiction under Title 28, in a civil ac-

tion or in admiralty of the my we matter of a suit

arising out of the controversy between the parties,

for an order directing that such arbitration proceed

in the manner provided for in such agreement... .

(Tjhe court shall make an order directing the parties

to proceed to arbitration in accordance with terms

of the ment. The hearing and proceedings,

under such agreement, shall be within the district in

which the petition for an order directing such arbi-

tration is filed.

Under the statute, a district court has no power to order

arbitration to take place outside of its own district. Econo-

Car International, Inc. v. Antilles Car Rentals, Inc., 499

F.2d 1391 (3d Cir. 1974); see also Couleur International

Ltd. v. Saint-Tropez West, 547 F. Supp. 176 (S.D.N.Y.

1982). Yet under the statute, the court must order the

parties to arbitrate “in accordance with the terms of the

agreement”; one term of the agreement is the parties’

forum selection clause.’

7 Several other circuits have considered this dilemma, although

none has considered it in the procedural posture that is presented

here. In Continental Grain Co. v. Dant & Russell, 118 F.2d 967

(9th Cir. 1941), the court held that a district court in Oregon could

compe! arbitration in its district despite the fact that the arbitra-

tion agreement provided that arbitration was to take place in New

York. However, in that case, the party challenging the district

court’s order had itself b t the action to 1 arbitration

in Oregon. In Hilti, Inc. v. , 392 F.2d 368 (ist Cir. 1968),

the court held that the district court in Puerto Rico could stay

its proceedings pending arbitration in Connecticut that was pur-

(Footnote continued on following page)

App. 45

We first must determine whether Smith’s failure speci-

fically to raise the forvym selection clause as improper

venue in his rule 12(b) motion to dismiss means that he

waived the defense. Rule 12(g) provides that if a party

makes a motion under rule 12(b) and fails to raise im-

proper venue, he waives the defense. Some courts have

considered forum selection clauses to be a type of venue

provision. See, e.g., Bense v. Interstate Battery System,

683 F.2d 718, 72022 (2d Cir. 1982); In re Fireman’s Fund

Insurance Co., 588 F.2d 98 (oth Cir. 1979); Aacon Auto

Transport v. State Farm Mutual Automobile Insurance

Co., 587 F.2d 648 (2d Cir. 1976), cert. denied, 429 U.S.

1042 (1977); Plum Tree, Inc. v. Stockment, 488 F.2d 754,

757 (8d Cir. 1973). We need not decide whether a forum

selection clause constitutes “venue’’ within the meaning

of rule 12, for we find that Smith sufficiently raised his

defense based on the clause in his rule 12 motion. In that

motion, Smith labelled his grounds to dismiss as lack of

proper service of process hae lack of personal jurisdic-

tion. ey at ee pee ty jurisdiction, Smith clear-

ly laid out his argument that any arbitration could only

take place in Texas because of the forum selection clause.

This was sufficient to alert the district court that Smith

was arguing that a district court in the Northern District

of Illinois could not enter an order to compel arbitration.

7 continued

suant to the parties’ ment. However, that case involved a

motion to stay arbitration and not a petition to compel arbitra-

tion. In Econo-Car International, Inc. v. Antilles Car Rentals,

Inc., 499 F.2d 1391 (rd Cir. 1974), the court held that the district

court in the Virgin Islands could not compel arbitration in New

York Any even though the — ment provided for ar-

bitration in New York City. court not decide whether the

district court could order aritration in the Vi Islands. In

tea Fd inves Ob Gees Agency v. Ambassador Insurance Co

Cir. SOtaL the court babd that whore the

sabia to. coal ecliiedien taaae oad suit in a forum other than

the one provided for in the contract, the other party had to file its

motion to compel in that forum and that district court could com-

pel arbitration.

bitrate disputes is purely a matter of con

mnt between te part. Ts one hs the

“volun commercial arbitration. Merit Jn-

surance gy ee ~~ 714 F.2d 673,

678 (7th Cir.), cert. denied, 104 S. Ct. 529 (1983). An ar.

bitration agreement, including its forum selection clause,

is a freely-negotiated contract between the parties.

Courts must give effect to such freely-negotiated forum

selection clauses. M/S Bremen v. Off-Shore Co.,

407 U.S. 1, 15-19 (1972). “The choice |] Serum was made

cetisainiinie weaen ib dood ies eae og Be

and enforced by the courts.” Jd. at 12. See also Scherk

v. Alberto-Culver Co., 417 U.S. 506, 519-20 (1974) (holding

enforceable forum selection clauses in arbitration

ments); Sam Rei t & Son I Co. v. S. A.

530 F.2d 679, 1 (th Cir. 1

Snyder has not argued that ting is any “compelling

or counterv ’ reason that the forum selection clause

compel arbitration only in its own district. We do not find

this reason to be sufficient to override the parties’ freely-

ted agreement. Moreover, if Snyder were to pre-

here, any party to an arbitration agreement could

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order compelling arbitration and the

firming the award with directio

vacate its orders and judgment

App. 48

BAvUER, Circuit Judge, dissenting in part. Although I

agree with most of the majority’s well-written opinion,

I am convinced that the district court properly compelled

arbitration in the Northern District of Illinois. Section 4

extends the power to compel arbitration to ‘‘any United

States district court which, save for such agreement,

would have jurisdiction under Title 28.” 9 U.S.C. §4

(1982) (emphasis added). The phrase “save for such agree-

ment” apparently means “in the absence of the arbitra-

tion agreement.” See Couleur International Ltd. v. Saint-

Tropez West, 547 F. Supp. 176, 177 (S.D.N.Y. 1982);

Warren Brothers Co. v. Community Building Corp. of

Atlanta, Inc., 386 F. Supp. 656, 665 (M.D.N.C. 1974).

Here, the diversity of citizenship between the parties and

the amount in controversy would vest the district court

with subject matter jurisdiction in the absence of the par-

ties’ agreement to arbitrate. Because the district court

also had personal jurisdiction over the defendant, Section

4 seems to give the court the power to compel arbitra-

tion here. The majority, however, finds a conflict between

Section 4’s requirement that the district court compel ar-

bitration only in its own district, and the Section’s man-

date that the parties arbitrate according to “the terms

of the agreement.’’ Because the agreement here specified

that the arbitration must occur in Houston, Texas, the

majority holds that the district court could compel arbitra-

tion neither in its own district nor in any other district.

The provisions of Section 4 are inconsistent only if the

parties’ forum selection clause is a “term of the agree-

ment.’’ Under the majority’s interpretation, the broad

power conferred on the district courts in Section 4 is com-

pletely negated whenever an arbitration agreement in-

eludes such a forum selection clause. The frustrating

results of this interpretation are apparent in the instant

case, where the majority concludes that the district court

is powerless to compel arbitration, even though the court

meets the Section 4 jurisdictional requirement. Courts

generally give effect to forum selection clauses, but such

provisions need not be honored in the face of ‘“‘some com-

App. 49

pelling and countervailing reason.” M/S Bremen v. Zapata *

Off-Shore Co., 407 U.S. 1, 12 (1972). The interest in honor-

ing the choice of forum here is outweighed by the need

to give full effect both to the jurisdiction conferred under

Section 4 and to the policy favoring arbitration that under-

lies the Federal Arbitration Act. Although I appreciate

the majority’s concern that this interpretation might lead

to forum shopping, it is important to remember that a

district court may act under Section 4 only if it would

have jurisdiction in the absence of the arbitration agree-

ment and venue would be proper. Accordingly, I would

affirm the district court’s order in its entirety.

A true Copy:

Teste:

Clerk of the United States Court of

Appeals for the Seventh Circuit

App. 50

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

July 3, 1984.

Before

Hon. WILLIAM J. BAUER, Circuit Judge

Hon. JOEL M. FLauM, Circuit Judge

Hon. LUTHER M. SwyGeErT, Senior Circuit Judge

ELEANOR SNYDER, EXECUTRIX of the

ESTATE of LEROY LILJEPAHL,

Plaintiff-Appellee,

No. 83-2151 Vs.

BRUTON SMITH,

Defendant-Appellant.

Appeal from the United States District Court for the

Northern District of Illinois, Western Division.

No. 80 C 00103—Stanley Roszkowski, Judge.

ORDER

On consideration of the petition for rehearing and sug-

gestion for rehearing in banc filed in the above-entitled

cause by Plaintiff-Appellee, no judge in active service has

requested a vote thereon, and all of the judges on the

— panel having voted to deny a rehearing. Accord-

ingly,

IT Is ORDERED that the aforesaid petition for rehear-

ing be, and the same is hereby, DENIED.

App. 51

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

BRUTON SMITH,

| Plaintiff,

No. H-80-2018 Vs.

ELEANOR SNYDER, Executrix of the

Estate of Leroy Liljedahl,

Defendant.

ORDER

On the 19th day of June, 1981, came on to be heard

Agreed Motion for Temporary Stay of Proceedings, and

the Court having considered the same is of the opinion

that it is good and should be granted, therefore, it is,

ORDERED, ADJUDGED AND DECREED that this cause of

action and all proceedings herein are STAYED pending

final action by the Federal District Court for the Northern

District of Illinois, Western Division on the Defendant

Eleanor Snyder’s Petition to Compel Arbitration.

SIGNED and ENTERED this 19th day of June, 1981.

/s/ Ross N. Sterling

Judge Presiding

App. 52

(letterhead of)

VINSON & ELKINS

Attorneys at Law

First City National Bank Building

Houston, Texas 77002

July 28, 1980

Mr. James P. Hill

Tribunal Administrator

American Arbitration Association

Chicago Regional Office

230 W. Monroe Street

Chicago, Illinois 60606

RE: Demand for Arbitration of Mrs. Eleanor Snyder,

Executrix of the Estate of Leroy Liljedahl

Dear Mr. Hill:

This letter is to notify you that Mr. Bruton Smith, upon

whom a demand for arbitration has been served by the

attorney representing Mrs. Eleanor Snyder, Executrix of

the Estate of Leroy Liljedahl, declines to arbitrate the

dispute made the subject of that demand for arbitration

for the following reasons:

1. The demand for arbitration is not in accordance

with the Viking Investment Associates partnership

agreement;

2. Arbitration was not initiated by Mrs. Snyder in

accordance with the Viking Investment Associates

partnership agreement;

3. The American Arbitration Association has not

complied with the provisions of the Viking Invest-

ment Associates partnership agreement concerning

the types of arbitrators to be appointed;

App. 53

4. The Viking Investment Associates partnership

a provides that it is governed by the laws

of the State of Texas. Under Texas law, arbitration

provisions such as those contained in the Viking In-

vestment Associates partnership agreement are void,

because the arbitration agreement does not contain

the signature of counsel for the parties.

Consistent with his position, as stated above, Mr.

Bruton Smith objects to all of the potential arbitrators

whose names are contained on the list that you recently

forwarded to him.

Upon receipt of this formal notice of refusal to par-

ticipate in the commercial arbitration initiated by Mrs.

Snyder, please cease all further proceedings in this mat-

tl 4 further direction of the appropriate judicial

tribunal.

Please acknowledge receipt of this letter by placing your

file mark in the lower portion of the enclosed carbon copy

of this letter and returning it to me in the enclosed, self-

addressed, stamped envelope.

Thank you for your cooperation.

Very truly yours,

VINSON & ELKINS

By: /s/ John L. Carter

Attorneys for Mr. Bruton Smith

ec: Mr. John D. Whitcher

Attorney at Law

800 North Church

Rockford, Illinois 61103

App. 54

IN THE DISTRICT COURT OF

HARRIS COUNTY, TEXAS

133RD JUDICIAL DISTRICT

BRUTON SMITH,

Plaintiff,

No. 80-34288 vs.

ELEANOR SNYDER, Executrix of the

Estate of Leroy Liljedahl,

Defendant.

PLAINTIFF’S ORIGLJAL PETITION

To The Honorable Judge Of This Court:

Comes Now, Bruton Smith, plaintiff, complaining of

Mrs. Eleanor Snyder, Executrix of the Estate of Leroy

Liljedahl, defendant, and as his cause of action would

show as follows:

I.

Bruton Smith is a resident of the State of North Caro-

lina and is doing business in Houston, Harris County,

Texas.

Il.

Mrs. Eleanor Snyder, Executrix of the Estate of Leroy

Liljedahl, resides at 1909 Boscedel Court, Rockford, Illi-

nois. Mrs. Eleanor Snyder, Executrix of the Estate of

Leroy Liljedahl, does not maintain a regular place of busi-

ness within this state and has no designated agent for

service of process within the State of Texas. Eleanor

App. 55

Snyder, Executrix of the Estate of Leroy Liljedahl, is a

y to a contract to be performed in whole or in part

in the State of Texas and claims to be the owner of a

twenty-five percent (25%) partnership interest in Viking

Investment Associates, a partnership which is doing busi-

ness and owns real estate within the State of Texas, as

more fully set forth below. Accordingly, Mrs. Eleanor

Snyder, Executrix of the Estate of Leroy Liljedahl, is do-

ing business within the State of Texas and may be served

with process, pursuant to Art. 2031b, Tex. Rev. Civ. Stat.

Ann., by service of 4 ~ icate original citations upon the

Secretary of State of Texas.

BACKGROUND

ITI.

Bruton Smith and Leroy Liljedahl were partners in Vik-

ing Investment Associates. A copy of the Viking Invest-

ment Associates partnership agreement is attached as Ex-

hibit “A” and here incorporated by reference. Pursuant

to that partnership agreement provision was made for the

purchase by a surviving partner of a deceased partner’s

interest in the partnership for its fair market value.

IV.

Leroy Liljedahl died on December 9, 1976.

¥.

Pursuant to the Viking Investment Associates partner-

ship agreement, Bruton Smith gave timely notice of his

intention to purchase the interest of Leroy Liljedahl. Ar-

ticle V(c) of the partnership agreement provides that the

purchase price shall be book value thereof, as of the close

of business on the date of such decedent’s death, adjusted,

however, by substituting in place of book value, the fair

market value as of such date of any real estate owned

by the partnership.

App. 56

VI.

The fair market value of the real estate owned by the

gg on December 9, 1976, was less than One

illion Five Hundred Thousand Dollars ($1,500,000.00).

VII.

Based upon the fair market value of the real estate

owned by the partnership as of December 9, 1976, Bruton

Smith offered to pay more than the fair market value for

the interest of Leroy Liljedahl in Viking Investment Asso-

ciates partnership.

VIII.

Mrs. Eleanor Snyder, as the Executrix of the Estate

of Leroy Liljedahl, has refused to convey the partnership

interest of Leroy Liljedahl to Bruton Smith in exchange

for its fair market value.

IX.

Further, the certified public accountants employed by

the partnership failed to procure an independent analysis

of the fair market value.of the property as of December

9, 1976. Finally, Mrs. Eleanor Snyder, the Executrix of

the Estate of Leroy Liljedahl, has attempted to institute

arbitration proceedings in violation of the partnership

agreement. (Such arbitration provision, even if it were

properly followed, is void and unenforceable in this State.)

X.

Due to the failure of Mrs. Eleanor Snyder, as Executrix

of the Estate of Leroy Liljedahl, to convey the interest

of Leroy Liljedahl in Viking Investment Associates part-

nership to Bruton Smith on time as agreed, Bruton Smith

has incurred damages in the form of increased expenses

in an amount of approximately One Hundred Thousand

Dollars ($100,000.00).

App. 57

XI.

Pursuant to the partnership agreement, the parties

have, in Article 8.06 agreed that the “respective rights

and obligations of the partners under the partnership

agreement shall be enforceable by specific performance,

injunction, or other equitable remedy, but nothing herein

contained is intended to, nor shali it, limit or affect any

rights or rights at law or statute or otherwise if any party

aggrieved as against the other for a breach or sboveiened

breach of any provision hereof. . . .”

CAUSE OF ACTION

XII.

Mrs. Eleanor Snyder, the Executrix of the Estate of

Leroy Liljedahl, has breached her obligations under the

Viking Investment Associates ——t agreement.

Specifically, she has refused to convey to Bruton Smith

the interest of the Estate of Leroy Liljedahl in that

nership in accordance with the provisions of Article 5.

RELIEF

XIII.

Bruton Smith seeks an order of specific performance

from this Court decreeing that Eleanor Snyder, as Ex-

ecutrix of the Estate of Leroy Liljedahl, shall convey to

him all right, title, and interest in and to the Viking In-

vestment Associates partnership owned by the Estate of

Leroy Liljedahl in exchange for its fair market value.

XIV.

Bruton Smith seeks to recover the done to him

as a result of the failure of Mrs. Eleanor Snyder to per-

form the obligations of the Estate of Leroy Liljedahl in

accordance with the terms of the Viking Investment Asso-

ciates partnership.

App. 58

XV.

Pursuant to Article 2226, Tex. Rev. Civ. Stat. Ann.,

Bruton Smith seeks to recover his reasonable attorney’s

fees incurred in the prosecution of this action for breach

of contract which he alleges to be in the amount of

Twenty-Five Thousand Dollars ($25,000.00).

WHEREFORE, PREMISES CONSIDERED, Bruton Smith re-

spectfully prays that Eleanor Snyder, the Executrix of

the Estate of Leroy Liljedahl, be served with process in

this cause and directed to appear and answer herein, and,

after trial, that he be awarded a _ oy of specific

performance of the provisions of the Viking Investment

Associates partnership requiring Eleanor Snyder to con-

vey the interest of Leroy Liljedahl to him in exchange

for its fair market value, that he recover the a a

to him in the amount of One Hundred Thousand Dollars

($100,000.00), that he recover his attorney’s fees incurred

in connection with the prosecution of this action, and that

he have such other and further relief, both at law and

in equity, to which he may show himself to be entitled.

Respectfully submitted,

VINSON & ELKINS

By /s/ John L. Carter

2100 First City National Bank Bldg.

Houston, Texas 77002

State Bar No. 03920700

(713) 651-2124

ATTORNEYS FOR PLAINTIFF

BRUTON SMITH

App. 59

STATUTES AND RULES INVOLVED

Federal Arbitration Act

§ 2. Validity, irrevocability and enforcement of agreements

to arbitrate

A written provision in any maritime transaction or a

contract evidencing a transaction involving commerce to

settle by arbitration a controversy the r arising out

of such contract or transaction, or the refusal to perform

the whole or pn Fe thereof, or an agreement in writing

to submit to arbitration an existing controversy arising

out of such a contract, transaction, or refusal, shall be

valid, irrevocable, and enforceable, save upon such

grounds as exist at law or in equity for the revocation

of any contract.

§ 3. Stay of proceedings where issue therein referable to

arbitration

If Se ee ee 2 oa Son ae

of the United States upon any issue referable to arbitra-

tion under an agreement in writing for such arbitration,

the court in which such suit is pending, upon being satis-

fied that the issue involved in such suit or as

referable to arbitration under such an ment,

on application of one of the ies stay the trial of the

action until such arbitration been had in accordance

with the terms of the agreement, providing the icant

for the stay is not in default in p with such

arbitration.

App. 60

§ 4. Failure to arbitrate under agreement; petition to United

States court having jurisdiction for order to compel

arbitration; notice and service thereof; hearing and

determination

A ye | ateerieved by the failure, neglect, or

refusal to arbitrate a written agreement

for arbitration petition any United States district

the subject matter of a suit arising out of the controver-

arbitration proceed in the manner provided for in such

agreement. Five ’ notice in writing of such ica-

tion shall be served upon the part” in default. Service

thereof shall be made in the manne: provided by the

Federal Rules of Civil Procedure. The court shali hear

the parties, and upon being satisfied that the making of

the agreement for arbitration or the failure to ly

therewith is not in issue, the court shall make an order

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App. 61

that an agreement for arbitration was

§ 1291. Final decisions of district courts

The courts of appeals shall have jurisdiction of

from all final decisions of the district courts of the nited

Federal Rules of Appellate Procedure

Rule 4. Appeal as of Right—When Taken

(a) Appeals in Civil Cases.

(1) In a civil case in which an appeal is permitted by

ae ae Se See © Ce Sees °e 0 Caen ape

the notice og be pale foe AE dn —

date of entry of the judgment or order appealed from;

a en yoy

on the date so noted.