Appeals Court: Arbitration Necessary to Determine if Arbitration
By org jforward wisbar Joe Forward, Legal Writer,
State Bar of Wisconsin
Sept. 21, 2012 – In an employment contract dispute between a
company and its former chief executive officer, a state appeals court
has ruled that arbitration is necessary to determine whether an oral
contract negated a prior written contract’s arbitration
William Mortimore founded Merge Technologies Inc. in 1987 and served as
its CEO until replaced in 2000. However, Mortimore stayed on with the
company in other capacities.
Mortimore’s previous employment contracts with Merge contained an
arbitration clause, including a contract the parties signed in 2004. In
2005, the corporation delegated a compensation committee to create new
employment contracts for various executives.
In 2006, new employment contracts were not yet in place when Merge
received whistleblower letters alleging improper financial reporting by
the corporation. Upon investigation, the sitting CEO was forced to
resign, and Mortimore was appointed to serve as interim CEO.
Pursuant to Securities and Exchange Commission regulations, Merge filed
documents reporting that Mortimore’s employment with Merge was
governed by the 2004 employment contract between the parties. The 2004
contract was then amended to reflect Mortimore’s CEO status.
After filing the SEC document, the compensation committee began working
on a new employment contract for Mortimore. Before a new contract was
signed, Merge’s outside counsel alleged that Mortimore interfered
with an audit investigation of the company.
On recommendation of the board of directors, Mortimore resigned his CEO
post. Mortimore then retained his own counsel to pursue legal actions
related to the whistleblower letters. Pursuant to Merge’s bylaws
and Wis. Stat. § 180.0853,
the corporation paid his legal fees.
At some point, however, the corporation stopped paying
Mortimore’s legal fees, and Mortimore filed a complaint in
Milwaukee County Circuit Court alleging the corporation breached his
employment contract. Merge moved to dismiss, claiming the 2004 contract
required the parties to arbitrate breach of employment contract
Mortimore responded, arguing that his 2004 employment contract was
superseded by an oral agreement that did not include an arbitration
clause. A circuit court agreed, concluding that a 2006 oral contract was
effective to eliminate the 2004 contract’s arbitration
Merge appealed, and the District I Wisconsin Court of Appeals reversed
v. Merge Technologies Inc., 2011AP1039 (Sept. 18,
“The heart of Mortimore’s argument is, in essence, that the
parties agreed to execute a new written contract without an arbitration
clause,” wrote Judge Joan Kessler for a three-judge appeals panel.
“Because Mortimore contends that his alleged oral agreement is
enforceable, he argues his breach of contract claims are not subject to
arbitration. Mortimore is mistaken.”
The appeals panel noted that the 2004 contract required amendments or
modifications to be in writing, and the contract adopted the AAA
Commercial Arbitration Rules, which required arbitrators to decide if a
claim is arbitrable.
“Given Wisconsin’s strong policy promoting arbitration, we
conclude, like many other jurisdictions, that the parties’
adoption the AAA Rules in the 2004 contract required arbitration of the
question of whether an oral agreement superseded the 2004
contract,” Kessler wrote.