Seventh Circuit Speaks Again on How the Wisconsin Fair Dealership Law Applies in Arbitration

05 February 2015 Wisconsin Appellate Law Blog

A few months ago, we commented on an aspect of the interaction between the Wisconsin Fair Dealership Law (WFDL), Wis. Stat. ch. 135, and arbitration, as discussed by the Seventh Circuit in Everett v. Paul Davis Restoration, Inc., No. 12-3407 (7th Cir. Nov. 3, 2014). That case dealt with the doctrine of direct benefits estoppel, under which a nonsignatory to an arbitration clause was nonetheless held bound to arbitrate. The second issue in the case was whether the WFDL barred the use of arbitration clauses in dealership agreements, and the court made clear that it did not.

The Everett dealership was located in Wisconsin, and the dealership agreement provided for application of the WFDL, which would have been the default rule anyway (§ 135.02(1) defines a dealer under the law as “a person who is the grantee of a dealership situated in this state,” and § 135.025(3) invalidates any contractual provision that seeks to vary the effect of the WFDL). Similarly, the dealership in Reynard v. Ameriprise Financial Services, Inc., No. 14-1730 (7th Cir. Jan. 30. 2015), was located in Wisconsin, so that it, too, was presumptively subject to the WFDL’s terms, one of which requires notice and an opportunity to cure before a dealership may be terminated. § 135.04. But the arbitrators upheld a termination that didn’t meet these terms, so the terminated dealer sought to have the arbitration award vacated on the ground that they had acted in “manifest disregard of the law.” This non-statutory ground for vacating arbitral awards is still recognized by the Seventh Circuit, even though it is far from clear that it survived the Supreme Court’s decision in Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008)

But even if “manifest disregard of the law” remains a ground to attack an award, it doesn’t mean that the arbitrators merely made a mistake in applying the law. The arbitrators in Reynard didn’t explain their decision, and the Seventh Circuit, in an opinion by Chief Judge Wood, accepted the possibility that they had erroneously bought the defendant’s argument that federal securities law pre-empted the WFDL. But, the court said, “the arbitrators analyzed the WFDL, and that is enough to doom [the dealer’s] claim.” Slip op. at 9. Even a serious error by arbitrators does not undercut the validity—and finality—of their award. The bottom line for the court was: “We cannot substitute our interpretation of the law for that of the arbitrators. . . .” Id. at 14

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