April 8, 2013 – In the absence of a clear agreement, Wisconsin arbitration law limits discovery in arbitration proceedings, the Wisconsin Supreme Court has clarified.
In Marlowe v. IDS Property Casualty Ins. Co., 2013 WI 29 (April 5, 2013), a supreme court majority (6-1) ruled in favor of car accident victims seeking to restrict an insurers arbitration discovery to depositions, not the broader discovery allowed under civil procedure rules.
That is, the court held that arbitration panels must follow discovery procedure set out in the Wisconsin Arbitration Act, Wis. Stat. section 788.07, absent a contrary agreement between the parties. That provision limits discovery to deposition testimony only.
“[A]n arbitration panel’s decision will be reversed when it allows for discovery different from that granted in § 788.07 unless the agreement between the parties contains an explicit, specific, and clearly drafted clause adopting or spelling out a different set of discovery guidelines,” wrote Justice Michael Gableman for a majority.
However, a majority (5-2) also ruled that judicial review of the arbitration panel’s decision on discovery was premature, an issue of first impression. The court explained that the interlocutory appeal was not permissible until the panel rendered a final award.
“As no unusual circumstances were present to justify an interlocutory appeal, the circuit court erred in deciding the Marlowes’ rights on a procedural matter before the arbitration panel satisfied its responsibilities and settled the question of compensation,” wrote Justice Gableman, who relied on the persuasive authority outside Wisconsin.
The majority noted that allowing intermediate appeals, before the arbitration process ends, “would substantially slow down the arbitration process and impose significant costs on the parties, thereby defeating the most central objectives of arbitration.”
Interlocutory appeals would still be allowed in rare circumstances, the majority explained, to accommodate urgent matters with a potential for irreparable harm.
How It Got There
In 2007, Mary Marlowe, was involved in a car accident with an underinsured driver. The Marlowes had an underinsured motorist policy with IDS. After failed settlement talks, the parties entered arbitration to determine a coverage award. The policy’s arbitration clause stated that “local rules of law as to procedure and evidence will apply.”
Prior to the arbitration proceeding, IDS submitted interrogatories, requested employment, tax, and medical records. It also sought depositions and requested that an independent medical examination be performed. IDS argued that these discovery items were allowed under chapter 804, which governs discovery in civil cases.
Marlowe refused to comply with IDS’s requests, arguing that discovery was limited to depositions under Wis. Stat. section 788.07, which governs arbitration proceedings.
The arbitration panel ruled in favor of IDS. Marlowe obtained a declaratory judgment in circuit court that discovery was limited to depositions under section 788.07.
An appeals court reversed that decision, concluding that ch. 804 applied and IDS was not restricted to deposition testimony. It also ruled that judicial review was premature.
On appeal, the supreme court ruled on both issues, although it noted that the appeals court “unnecessarily and incorrectly addressed the merits of the discovery dispute.”
“[I]f we were to limit our review to the issue of interlocutory relief, we would allow an erroneous rule to retain the force of law, not only in this case, but in all others,” the majority noted. “It would only frustrate judicial economy were we to put the question off for another day.”
Thus, the court determined that arbitration panels do not have authority to allow full discovery under ch. 804, unless an agreement between the parties allows it.
The Marlowe decision affirmed an earlier decision in Borst v. All State Insurance Co., 2006 WI 70, 291 Wis. 2d 361, 717 N.W.2d 42. The holding in Borst was not clear on the requirements necessary to obtain broader discovery, the majority noted.
Under Borst, parties can spell out discovery guidelines themselves or reference a set of established guidelines to determine the scope of discovery in arbitration agreements.
Now under Marlowe, the court clarified that the former requires parties to “express the types of discovery, explicitly, specifically, and in a clearly drafted clause.” Arbitration clauses must meet the standard of arbitration clauses that adopt established guidelines.
The IDS policy, which stated that “local rules of law as to procedure and evidence will apply,” was not explicit, specific, or drafted with clarity, the majority ruled.
Concurrence / Dissent
Chief Justice Shirley Abrahamson wrote a concurring opinion, joined by Justice Ann Walsh Bradley. They agreed that section 788.07 limits discovery in arbitration proceedings absent a contrary agreement between the parties.
They also agreed that interlocutory appeals are allowed in rare circumstances, but disagreed with the majority’s conclusion that this was not an exceptional circumstance.
“On the contrary, the Marlowes made the logical and convincing argument that the arbitration panel’s erroneous grant of broad discovery subjected them to full-blown, time-consuming and costly burdens of litigation without the benefit of a jury trial and without an adequate remedy,” the chief justice wrote.
Justice David Prosser wrote a separate opinion in which he concurred with the majority’s opinion that Marlowe’s interlocutory appeal was premature.
But he dissented on the discovery issue, concluding that the insurance policy was clear on discovery, and the arbitration panel had authority to interpret the contract.
“[T]he majority opinion undercuts the contractual authority of arbitrators and creates a serious disincentive for parties to agree to arbitration,” Justice Prosser wrote. “In sum, despite its good intentions, the majority opinion goes too far.”