Construction & Public Contract Law Section Blog: Don't Sleep on the Arbitration Forfeiture Standard:

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  • Construction & Public Contract Law Section Blog
    December
    22
    2020

    Don't Sleep on the Arbitration Forfeiture Standard

    Kevin M. Long

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    A recent Court of Appeals decision confirms the high standard for reversing an arbitration decision. Kevin Long discusses the decision’s takeaway – it is important to provide an arbitrator the opportunity to cure.

    In Loren Imhoff Homebuilder, Inc. v. Taylor and Cuevas,1 the Dist. IV Court of Appeals reversed the circuit court's vacatur of an arbitration award, based on the circuit court's conclusion that the arbitrator fell asleep at some point or points during the evidentiary hearing and that, as a result, he "so imperfectly executed his powers that a mutual, final and definite award upon the subject matter submitted was not made."

    The appeals court concluded that the homeowner seeking vacatur of the award forfeited the claim, because it failed to ask the arbitrator to resolve any problems by the alleged momentary drowsiness or sleeping.

    The standard for setting aside arbitration awards is very high. Under Wisconsin case law, the court's role is essentially supervisory in nature – to ensure that the parties receive what they bargained for when they agreed to resolve disputes through final and binding arbitration.2 Courts may not overturn an arbitrator's decision for "mere errors of fact or law, but only when the perverse misconstruction or positive misconduct is plainly established, or if there is a manifest disregard of the law."3

    The homeowners, who were challenging the arbitration ruling, contended that the courts should apply Wis. Stat. section 788.10(1)(d), which holds,

    In either of the following cases the court in and for the county wherein the award was made must make an order vacating the award upon the application of any party to the arbitration: … (d) Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made.

    The homeowners contended that the court could take evidence to determine whether the alleged inattention provided a ground to vacate the award under section 788.10(1)(d).

    The appeals court never reached a determination of under what circumstances a request to vacate under section 788.10(1)(d) may be resolved based on circuit court fact-finding, because it concluded that the homeowners forfeited their objection by not timely raising it during the arbitration proceedings.

    The Facts and Procedure: A Remodeling Project Bogged Down in Disputes, and an Arbitration Award to the Builder

    The homeowners entered into a remodeling contract with Loren Imhoff Homebuilder, Inc., and the ensuing project lead to multiple disputes. The parties first conducted mediation and, when that was unsuccessful, the matter proceeded to arbitration before a single arbitrator. The parties participated in an evidentiary hearing before the arbitrator, and the arbitrator's decision resulted in an award in favor of the builder, though the homeowners prevailed on some issues.

    Kevin Long com kevin.long quarles Kevin Long, Marquette 1992, is a partner with Quarles & Brady LLP in Milwaukee, where he practices in commercial litigation with a focus on construction, real estate, and transportation litigation.

    The homeowners moved the circuit court to vacate the award on multiple grounds. All were rejected, except for the homeowner’s argument that the arbitrator fell asleep during the hearing and, therefore, so imperfectly executed his powers that a mutual, final, and definite award upon the subject matter submitted was not made.

    The circuit court vacated the award on that basis. The builder appealed, and the appeals court reversed the circuit court, reinstating the arbitration award.

    Forfeiture

    The appeals court looked to two different legal concepts in which a party may forfeit an argument by failing to raise it earlier in a different forum.

    It noted first the familiar rule that appellate courts generally ignore arguments that were not first presented in the circuit court, in order to give circuit courts fair opportunities to address the arguments and discourage parties from "sandbagging" circuit courts. This also encourages parties to give courts and each other adequate notice of the nature of arguments.4

    The appeals court also noted that courts reviewing administrative agency decisions generally cannot address issues that were not raised by the agency.5

    In the arbitration context, the appeals court framed the issue as "should a party that has contracted to abide by the results of binding arbitration be allowed to seek to have a circuit court vacate the results, based on an issue that the party could have, but did not, bring to the attention of the arbitrator in a clear manner?"

    The appeals court concluded that, under Wisconsin law, the answer is no. It based its decision on prior Wisconsin case law, federal courts interpreting the Federal Arbitration Act, and decisions from other states.

    Application of Forfeiture Rules to this Arbitration

    The homeowners acknowledged that, in the arbitration, they noticed the arbitrator dozing off, but decided against raising those issues with the arbitrator. In post-hearing briefing, the homeowners made generalized reference to the issue within the context of a broader request for recusal of the arbitrator based primarily on allegations of bias.

    The appeals court found probative the fact that the only relief requested by the homeowners was recusal. The appeals court ruled that, in order to preserve a claim that the court should vacate the award based on momentary drowsiness or sleeping, the homeowners needed to have asked the arbitrator to resolve any problems cause by the alleged momentary drowsiness or sleeping.6

    Both the arbitrator and the appeals court noted that mere allegations of momentary sleeping is not sufficient, but rather must be paired with evidence that the arbitrator missed critical evidence and that the episode was prejudicial.

    The homeowners made reference to a transcript provided by them to the arbitrator, whose response indicated that he was unaware that the hearing had been recorded. The appeals court found this insufficient. The court noted that the homeowners did not allege that they were precluded from presenting any evidence they desired to present.

    Important Takeaways

    First and foremost, the decision underscores that within the arbitration context, the case will almost always be won or lost at the arbitration hearing. It is rare for any arbitration award to be vacated. Preparation, analysis, and evaluation should be informed by that longstanding rule, which is only strengthened by this decision.

    Like all advocacy, arbitrating a dispute in front an arbitrator or panel that you believe has erred in some way takes great skill and judgment. Winning or preserving your record on a smaller point may not be worth the price it may cost to the overall effectiveness of the practitioner's communication with the arbitrator on the larger issues. Knowing when to fight and when to move on will always be a difficult task.

    In some ways, the harshness of this decision – harsh from the perspective of the homeowner who was found to have forfeited their rights – may give practitioners some cover when they do need to make a record with an arbitrator that they believe has erred. (For example: "While we have great respect for your abilities and the efforts you have made in this case, Wisconsin law requires that, for us to preserve our record, we need to point out some errors we believe have been made, and give the panel the opportunity to correct them.)

    Make sure your objection is actionable. Don't just complain. Give the arbitrator a solution that is reasonable and practical. Rather than just saying, "You were wrong, so change your mind," try saying, "Your decision was likely error, but that error could be cured if you allow us to call a particularly rebuttal witness, or as applied to the fact pattern above, retake the testimony of a prior witness."

    Note that the publication decision on this decision is still pending.

    This article was originally published on the State Bar of Wisconsin’s Construction and Public Contract Law Section Blog. Visit the State Bar sections or the Construction and Public Contract Law Section web pages to learn more about the benefits of section membership.

    Endnotes

    1 Loren Imhoff Homebuilder, Inc. v. Taylor and Cuevas, No. 2019AP2205, 2020 WL 6495102 (Wis. Ct. App. Nov. 5, 2020) (recommended for publication).

    2 Loren Imhoff Homebuilder, 2020 WL 6495102 at *4 (citing Madison Teachers Inc. v. Madison Metro. Sch. Dist., 2004 WI App 54, ¶ 9, 271 Wis.2d 697, 678 N.W.2d 311).

    3 Id.

    4 Id. at ¶ 21 (citing State v. Counihan, 2020 WI 12, ¶¶ 25-27, 390 Wis.2d 172, 938 N.W.2d 530).

    5 Id. at ¶ 22 (citing Laberee v. LIRC, 2010 WI App 148, ¶ 33, 330 Wis.2d 101, 793 N.W.2d 77).

    6 Id. at ¶ 3.​





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