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Docket No. 89156-Agenda 18-May 2000.

NEIL SALSITZ et al., Appellants, v. FRITZ KREISS et al., Appellees.

Opinion filed September 20, 2001. - Supplemental Opinion upondenial of rehearing December 3, 2001

JUSTICE FREEMAN delivered the opinion of the court:

At issue in this case is the arbitrability of certain disputesbetween plaintiffs, Neil Salsitz, Biagio D'Ugo, and New HorizonProductions, Ltd., and defendants, Fritz Kreiss and AlternativeUtility Services of IL, Inc.

BACKGROUND

On March 9, 1994, Neil Salsitz and Biagio D'Ugo executedletters of understanding, dated November 17, 1993, whereby eachagreed to invest $6,500 in Alternative Utility Services of IL, Inc.(AUS). Fritz Kreiss executed the letters of understanding aspresident of AUS. The letters of understanding do not contain anarbitration clause. Also on March 9, 1994, Salsitz and D'Ugo eachexecuted a document denominated:

"Addendum 1, Letter of Understanding datedNovember 17, 1993

INCENTIVE STOCK OPTION PROGRAM."

These documents contained an arbitration clause providing in part:

"In the event there are any claims or disputes betweenPARTIES hereto, such claims or disputes shall besubmitted by the PARTIES for resolution and bindingarbitration within Lake County, IL, in accordance with therules of the American Arbitration Association as in effectunder IL law."

On June 17, 1994, Salsitz and D'Ugo requested the return oftheir investment and reimbursement of certain expenses they hadincurred. On July 21, 1994, Kreiss returned Salsitz's and D'Ugo'soriginal investment. However, Kreiss did not reimburse Salsitz'sand D'Ugo's expenses. Salsitz and D'Ugo then filed suit in themunicipal division of the circuit court (municipal court) for breachof contract and fraud, seeking $29,888.58 in unpaid expenses.

Kreiss and AUS moved to dismiss the municipal court actionbased upon the presence of the arbitration clauses in the stockoption agreements. Salsitz and D'Ugo filed a response denyingthat they agreed to arbitrate the claims at issue, arguing that therewas no agreement to arbitrate since the arbitration clauses were inthe stock option agreements, not the letters of understanding.Salsitz and D'Ugo also argued that the contracts had beenrescinded.

On February 15, 1995, the municipal court ordered the civilaction stayed and directed that an arbitrator determine whetherparticular matters were arbitrable. Salsitz and D'Ugo did notpursue arbitration. However, Kreiss and AUS filed their owndemand for arbitration on November 16, 1995. In their demand forarbitration, Kreiss and AUS sought an injunction preventingSalsitz, D'Ugo and New Horizon Productions, Ltd. (NewHorizon), from unfairly competing with AUS, and soughtmonetary damages for violation of the Illinois Trade Secrets Act,for tortious interference with defendants' existing contracts andwith prospective business relations, for breach of contract, and forbreach of fiduciary duty. On November 17, 1995, Salsitz andD'Ugo nonsuited the action in municipal court. At that point, allthat remained before the court was Kreiss and AUS's demand forarbitration.

Several arbitration hearings were held in 1996 and 1997. OnAugust 8, 1997, Salsitz, D'Ugo and New Horizon filed a verifiedcomplaint in chancery court for declaratory and injunctive relief,seeking to stay and permanently enjoin the arbitration proceedingson the grounds that no agreement to arbitrate existed. Plaintiffsalso sought a declaration that the arbitration clauses did not applyto any dispute under the letters of understanding, and, in particular,to the claims in the arbitration proceedings. In addition, on August13, 1997, plaintiffs filed a motion for a stay of arbitration, and, onAugust 15, 1997, plaintiffs filed a motion for a temporaryrestraining order to enjoin the continuation of the arbitrationhearings. On August 19, 1997, the chancery court deniedplaintiffs' motion for a temporary restraining order. As explainedby the court at a later hearing:

"This case first came to this Court during the pendency ofan arbitration hearing. At that time, on or about August19, 1997, then Counsel for Plaintiffs Salsitz, D'Ugo andthe New Horizon Productions asked this Court to stay anarbitration proceeding commencing between the parties.The issue addressed during the emergency motion was adetermination as to the arbitrability of the issues.Although this Court did not enter a stay of the arbitrationProceedings at that time, the Court did leave it open forparties to address the issue at a later date."

The arbitration continued. On September 23, 1997, plaintiffsfiled an amended motion for a stay of arbitration, asserting that noagreement to arbitrate existed. On October 9, 1997, the chancerycourt denied plaintiffs' amended motion for a stay. Thereafter, thearbitrator notified the parties that the final arbitration hearingswould be held on December 10, 1997. Plaintiffs did not appear forthose hearings. The arbitrator heard evidence from defendantsregarding damages that they sustained. On December 11, 1997, thearbitrator declared the hearings closed, and issued a notice toplaintiffs on December 24, 1997. The notice informed plaintiffsthat the arbitrator would issue an award within 30 days. Plaintiffsdid not file a motion to reopen the hearings. On January 10, 1998,the arbitrator awarded defendants $3,761,174.40 in actualdamages, and $2.5 million in punitive damages.

On January 21, 1998, defendants filed an application forconfirmation of the arbitration award and for entry of judgment onthe award. Plaintiffs opposed confirmation of the arbitrationaward; asked that the chancery court review the arbitrator'sdetermination of arbitrability; asked that the court vacate thearbitration award; and asked for leave to file an amendedcomplaint, requesting that the court vacate the arbitration award.Subsequently, on June 12, 1998, Salsitz and New Horizonamended their complaint to add a count seeking to vacate thearbitration award. D'Ugo also amended his complaint to add acount seeking to vacate the arbitration award. In the amendedverified complaints, plaintiffs alleged, inter alia, that thearbitration award was obtained through undue means, citingmisleading communications between the arbitrator and plaintiffs.Plaintiffs complained that the arbitrator should not have conductedthe hearing on December 10, 1997, in plaintiffs' absence, andshould not have closed the hearings without giving plaintiffs anopportunity to present evidence. Plaintiffs alleged that they did notknow the law firm, which had represented plaintiffs at the earlierhearings, had decided to cease representing plaintiffs and,consequently, did not appear on plaintiffs' behalf at the hearing onDecember 10.

Thereafter, defendants filed a motion to dismiss plaintiffs'amended verified complaints. At a hearing on January 27, 1999,the chancery court noted that the issue of arbitrability anddefendants' motion to dismiss plaintiffs' amended complaintswere intertwined. The court stated that it would first "addresswhether or not there could be arbitration of the agreement oragreements involved in the business relationship that was enteredinto by the parties." The court believed, however, that it could notupset or invalidate the arbitrator's ruling as to the arbitrability ofthe issues because the arbitrator's ruling was entitled to deference.The court reasoned:

"[T]he Court finds that it cannot upset or invalidate thearbitrator's rulings as to the arbitrability of the issues ***.The Court and the parties are both aware that-this is inparenthesis. Now I am quoting a case 'Judicial review ofarbitration award is restricted. Courts encouragesettlement of disputes by arbitration; and accordingly,judicial review of an arbitration award is more limitedthan Appellate review of a Circuit Court's decision.Courts must construe an arbitration award wheneverpossible to uphold their validity. Limited judicial reviewfosters the long accepted and encouraged principles thatarbitration awards should be the end and not thebeginning of litigation.' "

The court dismissed plaintiffs' amended verified complaints,affirmed the arbitrator's award of actual damages, and vacated theaward of punitive damages.

Within 30 days of this final ruling, plaintiffs appealed fromthe order dismissing their amended verified complaints.Defendants moved to dismiss the appeals as untimely underSupreme Court Rule 307(a)(1) (188 Ill. 2d R. 307(a)(1)).Defendants argued, inter alia, that plaintiffs should have filed aninterlocutory appeal from the denial of plaintiffs' motion to staythe arbitration proceedings. Since plaintiffs failed to file aninterlocutory appeal, they forfeited their right to contest thearbitrability of the letters of understanding. The appellate courtgranted the motion to dismiss as to the issue of arbitrability, butdenied the motion as to the remaining issues. Having consideredthose issues on the merits, the appellate court affirmed thechancery court's order. 311 Ill. App. 3d 590. We allowedplaintiffs' petition for leave to appeal.

ANALYSIS

A. Res Judicata

Defendants maintain that, in its order of February 15, 1995,the municipal court determined the issue of arbitrability indefendants' favor. Salsitz and D'Ugo did not appeal that order.Defendants note that the amended verified complaints plaintiffssubsequently filed in chancery court sought to stay andpermanently enjoin the arbitration proceedings on the grounds thatno agreement to arbitrate existed, and sought a declaration that thearbitration clauses were invalid or nonbinding. Defendantsconclude the chancery court was correct in dismissing plaintiffs'amended verified complaints because the doctrine of res judicatabarred relitigation of the issue of arbitrability. We disagree.

In Donaldson, Lufkin & Jenrette Futures, Inc. v. Barr, 124 Ill.2d 435 (1988), this court explained when it is appropriate for thecircuit court to determine the issue of arbitrability in the firstinstance:

"Where the language of the arbitration agreement is clear,and it is apparent that the dispute sought to be arbitratedfalls within the scope of the arbitration clause, the courtshould decide the arbitrability issue and compelarbitration. [Citations.] Similarly, if it is apparent that theissue sought to be arbitrated is not within the ambit of thearbitration clause, the court should decide the arbitrabilityissue in favor of the opposing party, because there is noagreement to arbitrate. [Citations.] 'Thus, the arbitrabilityissue emerges as essentially one of giving effect to theparties' expressed intention about the use of arbitration.'[Citation.] The paramount factor in determining theparties' intention is the scope of the arbitration clause inthe contract." Donaldson, 124 Ill. 2d at 445.

This court noted, however, that a problem arises when the partiesbroadly agree to arbitrate and it is still unclear whether the subjectmatter of the dispute falls within the scope of the arbitrationagreement. When the issue of contractual intention is reasonablydebatable, should the determination of arbitrability be made by thecourt or by the arbitrator in the first instance? Having examinedcases from other jurisdictions and reviewed the intent of thedrafters of the Uniform Arbitration Act (see 710 ILCS 5/1 et seq.(West 1996)), this court held that:

"when the language of an arbitration clause is broad andit is unclear whether the subject matter of the dispute fallswithin the scope of arbitration agreement, the question ofsubstantive arbitrability should initially be decided by thearbitrator." Donaldson, 124 Ill. 2d at 447-48.

See also Comdisco, Inc. v. Dun & Bradstreet Corp., 306 Ill. App.3d 197, 203-04 (1999). However, the arbitrator's decision issubject to an "ultimate determination of arbitrability by the court."Donaldson, 124 Ill. 2d at 451. A court may vacate an arbitrationaward if it determines there was no arbitration agreement. See 710ILCS 5/12(a)(5) (West 1996).

In the present case, each stock option agreement contained abroad arbitration clause. Nonetheless, the parties disagreed as tothe scope of the clause. Defendants argued that Salsitz's andD'Ugo's claims for breach of contract and fraud were subject toarbitration and moved to dismiss the complaint. Salsitz and D'Ugoargued their claims for breach of contract were based on an oralagreement between the parties terminating their relationship andproviding for the return of Salsitz's and D'Ugo's investments inAUS and were not subject to arbitration pursuant to the arbitrationclauses in the stock option agreements. Salsitz and D'Ugo alsoargued their claims for fraud, although related to the parties'original agreement to invest in AUS, fell outside the scope of theagreement and were not subject to arbitration.

The municipal court did not decide the issue of arbitrability.Rather, the municipal court stayed Salsitz's and D'Ugo's action,and directed that an arbitrator determine whether their claims werearbitrable. Salsitz and D'Ugo did not pursue arbitration. Instead,on November 17, 1995, Salsitz and D'Ugo nonsuited the action inmunicipal court. Meanwhile, on November 16, 1995, defendantsfiled their demand for arbitration, seeking monetary damages forviolation of the Illinois Trade Secrets Act, for tortious interferencewith defendants' existing contracts and with prospective businessrelations, for breach of contract, and for breach of fiduciary duty.The arbitrator determined that defendants' claims were arbitrableand entered the arbitration award from which plaintiffs seek relief.Under these circumstances, we reject defendants' contentions thatthe municipal court determined the issue of arbitrability in theirfavor, and that plaintiffs' amended verified complaints were aneffort to relitigate that issue.

B. Interlocutory Appeal

Next, defendants renew their argument that in order topreserve the issue of arbitrability, plaintiffs had to file aninterlocutory appeal from the chancery court's order of August 19,1997, denying plaintiffs' motion to stay the arbitrationproceedings. Since plaintiffs failed to file an interlocutory appeal,they forfeited their right to contest the arbitrability of disputesarising under the letters of understanding. We reject this argumentfor two reasons.

First, a party who decides not to file an appeal from aninterlocutory order of the circuit court denying a stay of arbitrationdoes not lose the opportunity to contest the arbitrability of thedispute in a subsequent appeal from a final judgment of the courtconfirming the arbitration award. Supreme Court Rule 307regulates appeals from interlocutory orders of the circuit court. 188Ill. 2d R. 307. The rule confers on parties the right to appealcertain interlocutory orders before entry of final judgment by thecircuit court. An order of the circuit court to compel or stayarbitration is injunctive in nature and subject to interlocutoryappeal under paragraph (a)(1) of the rule. Notaro v. Nor-EvanCorp., 98 Ill. 2d 268, 271 (1983). The rule, however, does notrequire that a party appeal from an interlocutory order of thecircuit court denying a stay of arbitration. Under the rule, the partyhas the option of waiting until after final judgment has beenentered to seek review of the circuit court's interlocutory order.See Anderson v. Financial Matters, Inc., 285 Ill. App. 3d 123, 135(1996); Alpine Bank v. Yancy, 274 Ill. App. 3d 766, 768 (1995);Davis v. Bughdadi, 120 Ill. App. 3d 236, 241 (1983).

The optional nature of Rule 307 is manifest from the languageit employs. Rule 307 plainly states that an appeal "may" be takento the appellate court from an interlocutory order of the circuitcourt. Use of the word "may" is generally regarded as indicatingthat action is permissive rather than mandatory. See People v.Reed, 177 Ill. 2d 389, 393 (1997). There is no basis for construingthe term differently here.

In the present case, plaintiffs could have filed an appeal fromthe interlocutory order of the chancery court, denying their motionfor a stay of arbitration. They did not do so. However, it was notmandatory that they appeal from the interlocutory order. Plaintiffscould await the final judgment of the chancery court to seekreview of the interlocutory order. Thus, plaintiffs' failure to file anappeal from the interlocutory order did not result in a forfeiture oftheir right to contest the arbitrability of disputes arising under theletters of understanding.

Second, in its order of August 19, 1997, the chancery courtdid not determine the issue of arbitrability. Rather, the chancerycourt denied plaintiffs' motion for a temporary restraining orderand deferred its ruling on the issue of arbitrability. As noted above,a court may determine that an arbitrator should decide the issue ofarbitrability in the first instance. However, the arbitrator's decisionis subject to an "ultimate determination of arbitrability by thecourt." Donaldson, 124 Ill. 2d at 451.

As late as January 1999, the chancery court believed that theissue of arbitrability was subject to review. Indeed, the chancerycourt ruled on the issue, and, because the court believed that thearbitrator's ruling on arbitrability was subject to deference, thecourt determined not to upset that ruling. In light of the fact thatthe chancery court did not rule on the issue of arbitrability untilJanuary 1999, it would seem anomalous to rule that plaintiffs wererequired to file an appeal on September 19, 1997, the cutoff datefor an interlocutory appeal from the August 19 order, and, havingfailed to file such an appeal, plaintiffs forfeited their right tocontest the arbitrability of claims arising under the letters ofunderstanding. We refuse to so hold.

C. Arbitration Agreement

The Illinois Uniform Arbitration Act embodies a legislativepolicy favoring enforcement of agreements to arbitrate futuredisputes. Donaldson, 124 Ill. 2d at 443; Flood v. Country MutualInsurance Co., 41 Ill. 2d 91, 93 (1968). Accordingly, the Actempowers the circuit court, upon application of a party to adispute, to compel or stay arbitration, or to stay court actionpending arbitration. United Cable Television Corp. v. NorthwestIllinois Cable Corp., 128 Ill. 2d 301, 306 (1989); Donaldson, 124Ill. 2d at 443.

The courts of this state favor arbitration as well. Arbitrationis regarded as an effective, expeditious, and cost-efficient methodof dispute resolution. United Cable, 128 Ill. 2d at 306; Johnson v.Baumgardt, 216 Ill. App. 3d 550, 555-56 (1991). Thus, whereverpossible, the courts construe arbitration awards so as to upholdtheir validity. Rauh v. Rockford Products Corp., 143 Ill. 2d 377,386 (1991); Christian Dior, Inc. v. Hart Schaffner & Marx, 265Ill. App. 3d 427, 431 (1994).

While arbitration is a favored method of dispute resolution,this court has consistently cautioned that an agreement to arbitrateis a matter of contract. United Cable, 128 Ill. 2d at 306; Flood, 41Ill. 2d at 93. The parties to an agreement are bound to arbitrateonly those issues they have agreed to arbitrate, as shown by theclear language of the agreement and their intentions expressed inthat language. Rauh, 143 Ill. 2d at 387; Flood, 41 Ill. 2d at 94. Anarbitration agreement will not be extended by construction orimplication. Flood, 41 Ill. 2d at 94.

It follows that, where the arbitrator decides the question ofarbitrability in the first instance, the circuit court must review thearbitrator's decision de novo. Donaldson, 124 Ill. 2d at 451;Amgen, Inc. v. Ortho Pharmaceutical Corp., 303 Ill. App. 3d 370,378 (1999). See also Woonsocket Teachers' Guild, Local 951 v.Woonsocket School Committee, 770 A.2d 834, 837 (R.I. 2001);DMS Properties-First, Inc. v. P.W. Scott Associates, Inc., 748A.2d 389, 392 (Del. 2000) (and cases cited therein); Ex parteStamey v. Easter, 776 So. 2d 85, 88 (Ala. 2000); In re ArbitrationBetween: Independent School District No. 88, New Ulm,Minnesota v. School Service Employees Union Local 284, 503N.W.2d 104, 105 (Minn. 1993); Grad v. Wetherholt Galleries, 660A.2d 903, 908 (D.C. App. 1995); Oil, Chemical & AtomicWorkers International Union v. Lone Star Producing Co., 332S.W.2d 151, 154 (Tex. Civ. App. 1959). Were it not so, a partywould be bound by the arbitration of disputes he has not agreed toarbitrate and would be left with only a court's deferential reviewof the arbitrator's decision on the question of arbitrability. FirstOptions of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942, 131 L. Ed.2d 985, 992, 115 S. Ct. 1920, 1923 (1995). We agree with thecourt's observation in Grad:

"To require any degree of judicial deference to anarbitrator's decision regarding arbitrability where a properobjection to the arbitrator's authority has been lodgedwould vitiate the consent basis of statutory arbitration bypermitting an arbitrator to clothe herself with actualauthority, based on the agreement of the one partyasserting the claim. *** [A]ny judicial determination ofarbitrability is necessarily de novo." Grad, 660 A.2d at908.

There are, of course, instances where the parties agree tosubmit the question of arbitrability itself to arbitration. In thoseinstances, the circuit court should review the question ofarbitrability deferentially, that is, the court's standard forreviewing the arbitrator's decision on arbitrability should be thesame standard courts apply when they review any other matter thatthe parties have agreed to arbitrate. First Options, 514 U.S. at 943,131 L. Ed. 2d at 993, 115 S. Ct. at 1923; AT&T Technologies, Inc.v. Communications Workers of America, 475 U.S. 643, 649, 89 L.Ed. 2d 648, 656, 106 S. Ct. 1415, 1418 (1986). But, as the Courtcautioned in First Options:

"Courts should not assume that the parties agreed toarbitrate arbitrability unless there is 'clea[r] andunmistakabl[e]' evidence that they did so. [Citations.] Inthis manner the law treats silence or ambiguity about thequestion 'who (primarily) should decide arbitrability'differently from the way it treats silence or ambiguityabout the question 'whether a particular merits-relateddispute is arbitrable because it is within the scope of avalid arbitration agreement'-for in respect to this latterquestion the law reverses the presumption. [Citations.]

*** [G]iven the principle that a party can be forced toarbitrate only those issues it specifically has agreed tosubmit to arbitration, one can understand why courtsmight hesitate to interpret silence or ambiguity on the'who should decide arbitrability' point as giving thearbitrators that power, for doing so might too often forceunwilling parties to arbitrate a matter they reasonablywould have thought a judge, not an arbitrator, woulddecide." (Emphases in original.) First Options, 514 U.S.at 944-45, 131 L. Ed. 2d at 994, 115 S. Ct. at 1924-25.

In the present case, nothing in the stock option agreementsindicates that the parties intended to submit the question ofarbitrability to arbitration. It follows that the chancery court shouldhave reviewed the question of arbitrability de novo. Further, sincethe question of arbitrability is one of contract law, it also followsthat our review of the chancery court's order confirming thearbitration award and dismissing the amended verified complaintsis de novo. First Options, 514 U.S. at 948, 131 L. Ed. 2d at 996,115 S. Ct. at 1926.

The stock option agreements provided that defendants wouldissue a stock option incentive bonus, consisting of an option topurchase 35 shares of common stock, to the individual participantfor every kilowatt of wholesale electric contracted for and sold bythe participant, or for every kilowatt of wholesale electric projectsfor which the participant provided or secured nonrecourse funding.Each stock option agreement contained an arbitration clausebinding the individual participant and defendants to arbitratedisputes arising under the stock option agreement. The stockoption agreements, however, were separate agreements from theletters of understanding. And while each stock option agreementcontained an arbitration clause, the letters of understanding didnot.

In their demand for arbitration, defendants sought aninjunction preventing plaintiffs from unfairly competing withAUS, and sought monetary damages for violation of the IllinoisTrade Secrets Act, for tortious interference with defendants'existing contracts and with prospective business relations, forbreach of contract, and for breach of fiduciary duty. Thus, thedisputes between the parties, as framed by the demand forarbitration, arose from the letters of understanding, that is to say,from plaintiffs' agreement to invest in AUS; plaintiffs'participation in AUS management; plaintiffs' termination of theirrelationship with AUS; and various actions detrimental to AUSthat plaintiffs took once the relationship ended. The disputesbetween the parties did not arise from the stock option incentivebonus defendants committed to give plaintiffs based uponplaintiffs' performance with AUS. As such, the disputes betweenthe parties did not fall within the scope of the arbitration clausesand were not subject to arbitration.

The chancery court erred in confirming the award of thearbitrator and dismissing plaintiffs' amended verified complaints.

D. Waiver

Citing Tri-City Jewish Center v. Blass Riddick Chilcote, 159Ill. App. 3d 436 (1987), defendants maintain that plaintiffs waivedany objections to arbitrability by participating in the arbitrationhearings. We disagree.

In Tri-City, the defendant made a demand for arbitration inDecember of 1983, and the arbitration hearings were held inNovember of 1985. By letter dated April 24, 1984, the plaintiffadvised the American Arbitration Association that the disputemight not be arbitrable and it might seek a court-ordered stay ofthe proceedings. However, the plaintiff did not challenge thejurisdiction of the arbitration panel prior to the hearings. InFebruary of 1986, the arbitrators rendered an award granting$65,000 to the defendant in payment of its fees and $40,000 to theplaintiff for damages. The plaintiff subsequently filed suit seekingto vacate the arbitration award. The circuit court found that theplaintiff had waived its objections to the arbitration byparticipating in the proceedings, and dismissed the complaint.

The appellate court affirmed the dismissal of the complaint.The court noted that any issue regarding the arbitrability of adispute is waived by participation in the arbitration proceedings.Although the plaintiff had notified the American ArbitrationAssociation that it might seek a court-ordered stay of theproceedings, the plaintiff had not done so. The court deemed theissue of arbitrability waived inasmuch as it was raised by theplaintiff subsequent to the rendition of the arbitration award. Tri-City, 159 Ill. App. 3d at 439.

Tri-City is inapposite. In the present case, plaintiffs objectedto the arbitration proceedings in a timely manner. At theintroductory hearing with the arbitrator, Salsitz and D'Ugoobjected that no agreement to arbitrate existed. Thereafter, onAugust 8, 1997, plaintiffs filed a verified complaint in chancerycourt for declaratory and injunctive relief, seeking to stay andpermanently enjoin the arbitration proceedings on the grounds thatno agreement to arbitrate existed. Plaintiffs also sought adeclaration that the arbitration clauses did not apply to any disputeunder the letters of understanding and, in particular, to the claimsin the arbitration proceedings. In addition, on August 13, 1997,plaintiffs filed a motion for a stay of arbitration, and, on August15, 1997, plaintiffs filed a motion for a temporary restraining orderto enjoin the continuation of the arbitration hearings. Thearbitrator rendered the award on January 18, 1998. A timelyobjection preserves the right to challenge an award, even wherethe parties participate in the arbitration proceedings. Ure v.Wangler Construction Co., 232 Ill. App. 3d 492, 499 (1992);Bisluk v. Town Realty, Inc., 90 Ill. App. 3d 1039 (1980); 710 ILCS5/12(a)(5) (West 1996).

We hold that plaintiffs did not waive their objections to thearbitrability of the disputes.

CONCLUSION

We conclude that plaintiffs did not agree to arbitrate thedisputes defendants submitted for arbitration. The chancery courtshould have vacated the arbitration award entered in defendants'favor. In light of this holding, we need not address the other issuesraised on appeal.

We reverse the judgments of the appellate court and circuitcourt, and we vacate the arbitration award.

Appellate court judgment reversed;

circuit court judgment reversed;

award vacated.

Supplemental Opinion Upon Denial of Rehearing

Upon denial of defendants' petition for rehearing, we find itappropriate to comment briefly upon one of the arguments raisedby defendants in the petition.

This court filed an opinion in this matter on December 1,2000. In that opinion, we noted that plaintiffs had failed to file aninterlocutory appeal from the chancery court's order denying theirmotion to stay arbitration. We held, inter alia, that plaintiffs couldno longer contend that their dispute with defendants was notsubject to arbitration. On December 22, 2000, plaintiffs filed apetition for rehearing in which they maintained that the languageof Supreme Court Rule 307(a)(1) is permissive and, consequently,this court was mistaken in requiring plaintiffs to have filed aninterlocutory appeal from the chancery court's order denying theirmotion for a stay of arbitration. We granted plaintiffs' petition forrehearing and ordered additional briefing on the matter to considerthe propriety of our construction of Rule 307.

In their petition for rehearing, defendants maintain that, inreversing the holding of our December 1, 2000, opinion, this courthas violated the principle of stare decisis. We disagree.

In our view, defendants' argument overlooks the role ofrehearing in appellate practice and its effect on the application ofstare decisis. As observed by the special concurrence in Berg v.Allied Security, Inc., 193 Ill. 2d 186, 191-92 (2000) (Freeman, J.,specially concurring):

"Once this court issues an opinion, our rules ofappellate procedure provide the nonprevailing party withthe opportunity for rehearing in order to apprise the courtof points the party believes were 'overlooked ormisapprehended.' 134 Ill. 2d R. 367(b). 'The right toapply for a rehearing is not given by the statute, but is amatter of grace or favor, growing largely out of thewillingness of the court to correct any inadvertent error.'Vickers v. Tyndall, 168 Ill. 616, 617 (1897). This ruleexists so that the court can correct errors 'into which thecourt may have inadvertently fallen in deciding the caseas originally presented.' Matthews v. Granger, 196 Ill.164, 170 (1902). This court has previously noted that thefiling of a petition for rehearing does not alter theeffective date of the judgment unless the court allows thepetition, in which case the effective date of judgment isthe date that judgment is entered on rehearing. See PSLRealty Co. v. Granite Investment Co., 86 Ill. 2d 291(1981); Glasser v. Essaness Theatres Corp., 346 Ill. App.72 (1952) (noting that when a petition for rehearing isfiled, the judgment of the reviewing court does notbecome final until the petition is denied)."

In the present case, once plaintiffs filed their petition forrehearing and this court determined that the petition should beallowed, the original December 1, 2000, decision could not beconsidered a final opinion. Given the importance of stare decisis,we believe that it was better to reconsider the matters raised byplaintiffs on the petition for rehearing before our opinion becamefinal, rather than using a later case to limit or overrule ourdecision, particularly since this case concerned the application ofone of the rules of this court. Granting plaintiffs' petition forrehearing was not an affront to the principle of stare decisis.

Defendants have not cited any opinions in support of theproposition that the principle of stare decisis applies to decisionswhich are not yet final. We note that defendants' argument ignoresthis court's admonishment that opinions which are not yet finalmay not be cited as legal precedent. Further, we note that applyingthe principle of stare decisis to opinions which are not yet finalmeans that a court could never grant a petition for rehearing,correct errors in the opinion, and perhaps reconsider thedisposition of the case. Defendants' argument is untenable.