I. Introduction
A complaint has just been filed against your client. Before answering the complaint have you inquired into whether there might be an enforceable arbitration agreement that applies to the plaintiff’s claims? This is a good first question especially if you are defending a long term care provider or other sophisticated party. Wisconsin provides distinct and specific statutory mechanisms for enforcing an arbitration agreement both before and after a lawsuit has been filed. There are also common hurdles to enforcement that, if anticipated early on and investigated into, can be overcome. If there is a potentially enforceable arbitration agreement a good second question is whether it is advantageous to pursue defense of the claims in arbitration or whether it might be more beneficial to waive arbitration and proceed to defend the case in a court of law. This article will provide an overview of: (1) the legal mechanisms for enforcing an arbitration agreement; (2) common hurdles to enforcing an arbitration agreement, along with information to gather in preparing to defend the enforceability of the agreement; and (3) practical considerations as to whether trying the case in court or through arbitration may be better for your client.
II. The Legal Mechanisms for Enforcing an Arbitration Agreement
The correct statutory mechanism for enforcing an arbitration agreement depends on whether suit has been filed or not. If suit has already been filed, the applicable statute is Wis. Stat. § 788.02, which provides:
If any suit or proceeding be brought upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.”[1]
A defendant in a pending lawsuit may file a motion to compel arbitration under Wis. Stat. § 788.02 in lieu of an answer to the complaint.[2] “In essence, in determining whether a dispute is arbitrable, the court’s ‘function is limited to a determination of whether: (1) there is a construction of the arbitration clause that would cover the grievance on its face; and (2) whether any other provision of the contract specifically excludes it.’”[3]
If a lawsuit has not already been filed, the applicable statute for enforcing an arbitration agreement is Wis. Stat. § 788.03, which provides, in part: “The party aggrieved by the alleged failure, neglect or refusal of another to perform under a written agreement for arbitration may petition any court of record having jurisdiction of the parties or of the property for an order directing that such arbitration proceed as provided for in such agreement.”[4] The Wisconsin Court of Appeals has confirmed that “when a lawsuit has been commenced, a party may not use the special procedure outlined in § 788.03 to compel arbitration.”[5] Under Wis. Stat. § 788.03, the request to compel arbitration is a matter separate from, but related to, the parties’ underlying dispute, and resolution of a petition under Wis. Stat. § 788.03 does not, and cannot, reach the merits of the matter to be arbitrated.[6]
The Wisconsin Supreme Court has recognized that “the procedure under Wis. Stat. § 788.02 is somewhat truncated in comparison to Wis. Stat. § 788.03, but the circuit court’s responsibility is essentially the same. Both statutes require the circuit court to do nothing more than determine whether the parties must arbitrate their dispute, and then ensure they do.”[7] The primary difference is whether the determination is made in the context of an existing lawsuit or not.[8]
III. Common Hurdles to Enforcing an Arbitration Agreement
Although the arbitration agreement you located might seem straightforward, plaintiff’s counsel will often look for any reason to make it unenforceable. Such arguments concern the making, execution, and conscionability of the agreement. Some common hurdles to enforcing an arbitration agreement that you may encounter, along with investigation and inquiries you should conduct to be ready to combat such arguments, are as follows:
· Who drafted the arbitration agreement? Information about the author of the contract and how the terms of the agreement were made, as well as whether the other party was given an opportunity to review and make changes to the terms, will be helpful in addressing arguments regarding the making of the contract.
· How was the arbitration agreement executed? Information about whether the arbitration agreement was fully read through, whether the terms were explained, whether a copy was given to the plaintiff, and whether the plaintiff had an opportunity to ask questions, will be important in addressing arguments regarding the execution of the contract.
· When was the arbitration agreement executed? Ensure that the arbitration agreement was entered into prior to the date of the alleged incident.
· When and who signed the arbitration agreement? If the answer is anyone other than the plaintiff, then information about any activated power of attorney or legal guardian, and documents to support such authority, will be necessary to establish that the contract was legally entered into on behalf of the plaintiff. If the plaintiff had more than one guardian, check the guardianship documents and statutes to confirm whether one could sign or if both needed to sign.
· What claims are covered by the arbitration agreement? Read the arbitration agreement carefully and ensure that the language is adequate and broad enough to cover the specific claims made by the plaintiff. Look for possible exclusions such as intentional acts and wrongful death.
· Who is covered by the arbitration agreement? If the lawsuit or claim is being brought by the plaintiff’s family members or guardians for claims such as loss of consortium or loss of society and companionship, read the arbitration agreement to ensure that coverage extends to the heirs, relatives, guardians, etc., and their derivative claims.
IV. Practical Considerations as to Whether Trying the Case in Court or Through Arbitration is Better for Your Client
When a case proceeds through the court, the rules of the proceeding are governed by statutes, local rules, and the judge’s scheduling order. When a case proceeds through arbitration, the rules of the proceeding are governed by the parties’ contract (or a set of arbitration rules, such as JAMS or the FAA, that the parties’ arbitration agreement specifies will apply). Each arbitration agreement is different and should be carefully reviewed prior to enforcement.
In court, the venue in civil actions is generally: (a) in the county where the claim arose; (b) in the county where the real or tangible personal property, or some part thereof, which is the subject of the claim, is situated; (c) in the county where a defendant resides or does substantial business; or (d) if the provisions under (a) to (c) do not apply, then in any county designated by the plaintiff.[9] With arbitration, the venue will likely be specified in the agreement. In some arbitration agreements, the location of the proceeding will be dependent on the location of the defendant’s facility—perhaps even limited to a certain distance away. The agreement may also specify the maximum number of days the arbitration proceeding can last and the timeframe for each of those days. You will want to know where the arbitration proceeding is going to be held and how long it will last. Also, be sure you know who is paying for the arbitrators’ fees and costs and whether they will be split equally between the parties. The Wisconsin Supreme Court has noted: “The whole purpose of arbitration is to substitute a less-expensive and less-formal method of settling differences between parties for normal court litigation.”[10]
In Wisconsin courts, a jury verdict in a civil action must be agreed to by five-sixths of the jurors.[11] If more than one question must be answered to arrive at a verdict on the same claim, the same five jurors must agree on all questions.[12] However, when a case goes through arbitration, the agreement controls whether the arbitration award must be unanimous or whether it may be decided by a majority of arbitrators. This can be a crucial distinction based on the arbitrators selected. The arbitration agreement may also control the number of arbitrators. A common number of arbitrators for an arbitration proceeding is three—with one being selected by the plaintiff, one being selected by the defense, and the third being a selected “neutral” arbitrator, chosen either by the arbitrators or by the parties. This is a stark difference from a case being tried to a six- or twelve-person jury.[13]
Perhaps the single most important consideration in whether to arbitrate a case rather than try it in court is the decisionmaker involved in each process. To qualify as a juror, the requirements are that you are a resident of the area served by a circuit court who is at least 18 years of age, a U.S. citizen, able to understand the English language, and have not been convicted of a felony with unrestored civil rights.[14] The only way to control a randomly selected jury is through limited voir dire. Contrast that with an arbitration proceeding in which each side usually has the opportunity to carefully and thoughtfully select an arbitrator of their choosing, whether it be a fellow attorney or retired judge. An arbitration panel can feel akin to a mediator—where your case is being heard by someone who understands the law and can apply a neutral, non-biased version of the facts to the applicable legal standards.
Consider whether your case would be better defended in front of a panel of legal professionals or by a jury of lay persons. For example, in cases involving significant and compelling pictorial evidence (think serious pressure wounds or extensive vehicle damage) where causation is disputed, an arbitration panel may be able to better separate the emotional impact of such evidence from the legal impact of it. If your case requires an understanding of extremely technical issues, arbitration might be a better bet. “In arbitration greater use may be made of persons who have a particular expertise that may permit them to adjudicate and settle differences that may exist on highly technical matters.”[15] On the other hand, if your case comes down to a shaky credibility contrast, you might want a jury. Further consider the extra time and cost it takes to enforce an arbitration agreement, potentially argue about its validity, and then proceed to the merits. If your client is hoping for quick resolution by way of settlement, or if the claimed damages are relatively low, it may make more sense to proceed in court.
It is also important to remember that the arbitration panel acts as both judge and jury. In a court of law, the jury is the finder of fact.[16] The judge acts as a gatekeeper to resolve preliminary questions concerning the qualification of a person to be a witness, the existence of a privilege, or the admissibility of evidence.[17] In arbitration, the arbitration panel acts as both fact finder and gatekeeper. That means that if there is a motion in limine to exclude certain evidence, the same persons (the arbitration panel) that will decide the merits of the case will hear the evidence anyway in deciding whether it may or may not be admissible. They will also be aware of any other pre-arbitration pleadings, such as motions to dismiss and motions for summary judgment.
V. Conclusion
An arbitration agreement, if applicable and enforceable, can be a powerful defense mechanism depending on the type of lawsuit filed and the claims alleged therein. Having a case decided by a panel of sophisticated arbitrators rather than a jury could make the difference for your case, especially when there are aspects of the case that would not be well received by a jury, even if they are not causative of the outcome. However, there may be instances where it makes more sense to proceed with the regularly scheduled program and try the case, waiving the contractual agreement to arbitrate. The method, hurdles, and practicalities for enforcing an arbitration agreement and proceeding through arbitration should be carefully considered and discussed so that you and your client can make an informed recommendation and decision whether to try the case in court or try to arbitrate.
Author Biography:
Myranda Stencil is an associate attorney at Coyne, Schultz, Becker & Bauer, S.C. in Madison. She practices in civil litigation with a focus on insurance defense. She received her B.A. in 2014 from the University of Wisconsin-Madison and her J.D. in 2017 from the University of Wisconsin Law School, where she graduated cum laude. Myranda is admitted to practice in Wisconsin and is a member of the Wisconsin Defense Counsel.
[1] Wis. Stat. § 788.02.
[2] See Payday Loan Store of Wis., Inc. v. Krueger, 2013 WI App 25, ¶¶ 9-11, n.3, 346 Wis. 2d 237, 828 N.W.2d 587 (citing 2A Jay E. Grenig and Nathan A. Fishbach, Wis. Practice Series: Methods of Practice § 86.49 (5th ed. 2012)).
[3] Mortimore v. Merge Techs., 2012 WI App 109, ¶ 16, 344 Wis. 2d 459, 824 N.W.2d 155 (quoting Cirilli v. Country Ins. & Fin. Servs., 2009 WI App. 167, ¶ 14, 322 Wis. 2d 238, 776 N.W.2d 272).
[4] Wis. Stat. § 788.03.
[5] Krueger, 346 Wis. 2d 237, ¶ 10.
[6] L.G. v. Aurora Residential Alts., Inc., 2019 WI 79, ¶ 15, 387 Wis. 2d 724, 929 N.W.2d 590.
[7] Id. ¶ 16.
[8] Id.
[9] Wis. Stat. § 801.50.
[10] Madison v. Frank Lloyd Wright Foundation, 20 Wis. 2d 361, 383, 122 N.W.2d 409 (1963).
[11] Wis. Stat. § 805.09.
[12] Id.
[13] Wis. Stat. § 756.06(2)(b).
[14] Wis. Stat. § 756.02.
[15] Madison, 20 Wis. 2d 361 at 383.
[16] McGowan v. Story, 70 Wis. 2d 189, 198, 234 N.W.2d 325 (1975).
[17] Wis. Stat. § 901.04(1).
