Midwest Neurosciences Associates, LLC v. Great Lakes Neurosurgical Associates, LLC ( 2018 )

2018 WI 112
SUPREME COURT OF WISCONSIN
CASE NO.: 2016AP601
COMPLETE TITLE: Midwest Neurosciences Associates, LLC and
Neurosurgery and Endovascular Associates, SC,
Plaintiffs-Appellants,
v.
Great Lakes Neurosurgical Associates, LLC and
Yashdip Pannu, M.D.,
Defendants-Respondents-Petitioners.
REVIEW OF DECISION OF THE COURT OF APPEALS
Reported at 379 Wis. 2d 766, 909 N.W.2d 209
(2018 – unpublished)
OPINION FILED: December 19, 2018
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: October 10, 2018
SOURCE OF APPEAL:
COURT: Circuit
COUNTY: Ozaukee
JUDGE: Paul V. Malloy
JUSTICES:
CONCURRED: ABRAHAMSON, J. concurs.
DISSENTED: R.G. BRADLEY, J. dissents.
NOT PARTICIPATING: DALLET, J. did not participate.
ATTORNEYS:
For the defendants-respondents-petitioners, there were
briefs filed by Joan M. Huffman, Paul R. Erickson, and Gutglass,
Erickson, Bonville & Larson, S.C., Milwaukee. There was an oral
argument by Joan M. Huffman.
For the plaintiffs-appellants, there was a brief filed by
Frank M. Gumina, Patrick M. Harvey, and Husch Blackwell LLP,
Milwaukee. There was an oral argument by Patrick M. Harvey.
2018 WI 112
NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2016AP601
(L.C. No. 2015CV324)
STATE OF WISCONSIN : IN SUPREME COURT
Midwest Neurosciences Associates, LLC and
Neurosurgery and Endovascular Associates, SC,
Plaintiffs-Appellants, FILED
v. DEC 19, 2018
Great Lakes Neurosurgical Associates, LLC and Sheila T. Reiff
Yashdip Pannu, M.D., Clerk of Supreme Court
Defendants-Respondents-Petitioners.
REVIEW of a decision of the Court of Appeals. Reversed and
cause remanded.
¶1 ANNETTE KINGSLAND ZIEGLER, J. This is a review of an
unpublished decision of the court of appeals, Midwest
Neurosciences Assocs., LLC v. Great Lakes Neurosurgical Assocs.,
LLC, No. 2016AP601, unpublished slip op. (Wis. Ct. App. Dec. 20,
2017), reversing the Ozaukee County circuit court's1 non-final
order. The non-final order denied Midwest Neurosciences
Associates, LLC ("Midwest") and Neurosurgery and Endovascular
1
The Honorable Paul V. Malloy presided.
No. 2016AP601
Associates S.C.'s ("NEA") motion to stay this action and compel
arbitration pursuant to the Amended and Restated Operating
Agreement ("Operating Agreement"), as well as the circuit
court's granting of Yashdip Pannu, M.D. ("Dr. Pannu") and Great
Lakes Neurosurgical Associates, LLC's ("Great Lakes") motion for
declaratory judgment seeking a declaration that the Membership
Interest Redemption Agreement ("Redemption Agreement") was a
valid contract. The court of appeals remanded to the circuit
court with instructions to grant Midwest's motion to compel
arbitration pursuant to the Operating Agreement. We reverse the
court of appeals and remand to the circuit court to determine
whether the Redemption Agreement is enforceable.
¶2 The crux of the issue before us concerns the circuit
court's role in determining the proper forum of dispute
resolution when a subsequent contract, if enforceable, does not
contain an arbitration clause as is present in an initial
contract. As a part of that analysis we consider whether a
contract which contains a merger clause and which does not
contain an arbitration clause can change the forum of dispute
resolution when a prior agreement between the parties contains
an arbitration clause.2 The parties make competing arguments
2
The parties disagree as to whether the Redemption
Agreement was validly formed. The JAMS Arbitration Rules in the
Operating Agreement, however, require that even the issue of
arbitrability be arbitrated. See infra note 7. "JAMS provides
arbitration and mediation services worldwide," including the
creation of rules that can be used to govern the arbitration of
disputes at the parties' agreement. JAMS Comprehensive
Arbitration Rules & Procedures Rule 1, at 1, 6 (July 1, 2014),
(continued)
2
No. 2016AP601
regarding a court's role in determining the applicability of
this arbitration provision. They take contrary positions
regarding whether all disputes, even arbitrability itself, must
be submitted to arbitration. The parties present conflicting
views of precedent regarding the judiciary's role in deciding
motions to compel arbitration when a subsequent contract does
not select arbitration as the forum for dispute resolution and
does contain a merger clause which states that the subsequent
agreement supersedes all prior contracts. Relatedly, the
parties dispute whether all parties here can be compelled to
arbitrate when arguably only one co-defendant is contractually
required to arbitrate pursuant to the initial contract.
¶3 The claims in the underlying lawsuit that called upon
the court to decide whether the dispute belonged in arbitration,
involve whether Great Lakes and Dr. Pannu violated restrictive
covenants in the Operating Agreement and the Ancillary
Restrictive Covenant Agreement ("Ancillary Restrictive
Covenant"). The Redemption Agreement, however, does not contain
an arbitration provision and in fact, purports to release those
restrictive covenants. Therefore, which contract controls is
seminal in the first instance as to whether arbitration should
be ordered. Ultimately, regardless of forum, the controlling
documents will also impact the underlying dispute itself.
https://www.jamsadr.com/files/Uploads/Documents/JAMS-Rules/
JAMS_comprehensive_arbitration_rules-2014.pdf.
3
No. 2016AP601
¶4 The circuit court concluded on summary judgment that
even though the initial agreement, here the Operating Agreement,
required arbitration it was superseded by a later, valid and
enforceable Redemption Agreement which did not so require the
parties to submit to arbitration. The court of appeals reversed
and remanded with instructions to grant Midwest's motion to
compel arbitration.3
¶5 We reverse the court of appeals and conclude that the
fundamental principles of freedom to contract allow parties to a
previous contract to subsequently contract for a different forum
of dispute resolution. Here, it is necessary that the circuit
court initially determine whether the parties contracted to
arbitrate. The court's authority to order arbitration is
dependent on the terms of a contract. If the Redemption
Agreement is the parties' contract, then the court lacks
authority to order arbitration. Thus, the court must first
ascertain which contract controls the forum of dispute
resolution. In sum, we conclude that it is a court's duty to
determine whether a contract calls for arbitration and when a
dispute exists as to whether a second contract without an
arbitration clause supersedes a first contract with such a
3
Presiding Judge Reilly concurred, expressing concern that
Cirilli v. Country Insurance & Financial Servs., 2009 WI App
167, 322 Wis. 2d 238, 776 N.W.2d 272, and Mortimore v. Merge
Technologies Inc., 2012 WI App 109, 344 Wis. 2d 459, 824 N.W.2d
155, erode freedom of contract and prevent parties from
subsequently contracting out of arbitration.
4
No. 2016AP601
clause, the determination of arbitrability must be decided in
the first instance by the circuit court rather than the
arbitrator.
¶6 We also conclude, however, that the cause must be
remanded to the circuit court, not to compel arbitration as was
ordered by the court of appeals, but rather, because the
parties' competing affidavits submitted in support of their
positions on summary judgment raised genuine issues of material
fact concerning whether the Redemption Agreement is a valid
contract.4 Therefore, we reverse and remand to the circuit court
for further proceedings.
I. FACTUAL BACKGROUND
¶7 Dr. Pannu was Great Lakes' president, 100 percent
owner, and sole practicing physician. Arvind Ahuja, M.D.
("Dr. Ahuja") was the sole Member of Midwest and later the sole
Member of NEA. William McCullough, M.D. ("Dr. McCullough") was
the sole Member of Metro Neurosurgical, S.C. ("Metro"). In
2015, the three Members of Midwest were NEA, Great Lakes, and
Metro. The presidents of each were also practicing
neurosurgeons and had offices adjacent to St. Luke's Medical
Center in Milwaukee, Wisconsin. The current dispute involves
4
We need not weigh in on the host of issues that might
relate to a non-signatory being bound by an arbitration
agreement, such as (1) assumption, (2) agency, (3) estoppel, (4)
veil piercing, and (5) incorporation by reference. Zurich Am.
Ins. Co. v. Watts Indus., Inc., 417 F.3d 682, 687 (7th Cir.
2005).
5
No. 2016AP601
only Drs. Pannu and Ahuja and the applicability of an
arbitration provision from a contract entered into a decade
previous.
¶8 Specifically, on August 1, 2005, the parties at issue
executed an Operating Agreement which modified a previous
operating agreement of August, 2002 so to admit, among others,
Dr. Pannu to Midwest.5 Dr. Pannu executed the Operating
Agreement as President of Great Lakes and also signed a personal
guaranty for the obligations of Great Lakes. The Operating
Agreement contains the arbitration clause at issue.
¶9 The Operating Agreement created rights, obligations,
and restrictions for the Members of Midwest and the physicians
that worked for the Members. The document includes various
other provisions. For example, the Operating Agreement controls
how Midwest was to be managed and operated. For instance,
subsection 1.2(a) dictates that Midwest shall have a registered
office and subsection 5.5(b) grants Midwest's president the
power to unilaterally terminate Members.
¶10 Section 8.5 of the Operating Agreement grants Members
the right to voluntarily withdraw from Midwest. Under Section
8.5, a Member could withdraw from Midwest by "giving written
5
Midwest's primary purpose was to assist its Members, who
employed physicians, in "the operation of their medical
practices."
6
No. 2016AP601
notice to [Midwest] at least ninety (90) days before the stated
effective date of the withdrawal."6
¶11 Section 13.3 dictates that the "Operating Agreement
shall be governed by and construed in accordance with the laws
of the State of Wisconsin without regard to its choice of law
provisions."
¶12 Section 13.1 of the Operating Agreement provides:
Amendments to Operating Agreement. No Amendment
or modification of this Operating Agreement shall be
valid unless in writing and signed by all of the
Members. Unless otherwise provided in such an
amendment or modification, this Operating Agreement
shall be considered to be amended only to the minimal
extent necessary to give effect to this Operating
Agreement, and the other terms and conditions of this
Operating Agreement shall continue to apply with full
force and effect.
¶13 Section 13.7 of the Operating Agreement is entitled
"Arbitration," and states, in pertinent part:
Arbitration. . . . [T]he parties hereto agree to
resolve any and all disputes arising with respect to
the terms and conditions of this Operating Agreement
hereby by arbitration . . . . The arbitration shall
be governed by the laws of the State of Wisconsin,
this Operating Agreement and JAMS' Arbitration Rules[7]
to the extent not inconsistent with the foregoing.
6
The provision of notice under Section 8.5 was subject to
the provisions of Section 13.8, which provided that the notice
was "valid only if in writing and upon actual receipt by the
intended recipient of the notice." This provision factors into
the arguments about the Redemption Agreement's enforceability.
7
JAMS Arbitration Rule 11, "Interpretation of Rules and
Jurisdictional Challenges," in relevant part, provides:
(b) Jurisdictional and arbitrability disputes,
including disputes over the formation, existence,
(continued)
7
No. 2016AP601
¶14 Section 8.13 contains a "Covenant Not to Compete,"
which details, among other things, a restriction that the
doctors practice in their specialty for a designated period of
time, in a specified area, and at particular facilities.8 On
March 6, 2006, Dr. Pannu personally signed the Ancillary
Restrictive Covenant containing similar terms to Section 8.13 of
the Operating Agreement. The Ancillary Restrictive Covenant,
however, did not specifically incorporate by reference Section
13.7, the arbitration section, of the Operating Agreement.
¶15 Nearly ten years later, in 2015, Great Lakes and NEA
were two of three remaining Members of Midwest. On February 13,
2015, the Members unanimously voted to dissolve Midwest as of
March 31, 2015. One doctor relocated out of state and is not
part of this lawsuit.9 Dr. Ahuja, who had no hospital privileges
in the Milwaukee area, had previously announced his intention to
vacate his practice from the offices.
validity, interpretation or scope of the agreement
under which Arbitration is sought, and who are proper
Parties to the Arbitration, shall be submitted to and
ruled on by the Arbitrator. The Arbitrator has the
authority to determine jurisdiction and arbitrability
issues as a preliminary matter.
JAMS Comprehensive Arbitration Rules & Procedures Rule 11(b),
supra note 2, at 14.
8
The underlying litigation in this case claims that Great
Lakes and Dr. Pannu violated non-compete restrictive covenants.
9
Dr. McCullough moved to Texas and vacated the offices.
8
No. 2016AP601
¶16 On March 16, 2015, the Members restructured the
dissolution process such that NEA would buy out the Members'
interests in Midwest. Great Lakes would vacate the premises no
later than May 15, 2015. Great Lakes, however, was subject to
the non-compete provisions of the Operating Agreement. After
discussing the logistics of how the purchases would work, the
Members unanimously voted to rescind the vote to dissolve
Midwest.10
¶17 On March 30, 2015, Midwest's attorney sent an e-mail
to Dr. Pannu, Dr. Ahuja, and Great Lakes' and Midwest's
accountants attaching a "proposed [Redemption Agreement] and
[an] Assignment Agreement" which concerned, in part, the release
of the non-compete provision with Midwest. The recipients of
the e-mail were instructed to ask any questions at their
"earliest opportunity" because "we intend to exchange funds and
sign documents tomorrow." On March 31, 2015, in response to a
suggestion from Great Lakes' accountant, Midwest's attorney
added one paragraph to the Redemption Agreement and confirmed
10
NEA's offer to buy the other Members' interests came in
response to the Members being advised that there were unforeseen
difficulties with winding down Midwest related to expenses and
lease obligations. Prior to voting, the Members had a lengthy
discussion regarding retirement plans and lease obligations.
With respect to the retirement plans, it was determined that
actuarial calculations would be done to determine how much
Dr. Pannu and Dr. McCullough would pay. In addition, it was
agreed that Midwest's accountant would calculate the projected
wind-down expense budget for Midwest and that Dr. Pannu and
Dr. McCullough would pay their projected wind-down expenses
based on that budget.
9
No. 2016AP601
that his assistant had sent the "the final agreement." The e-
mail also contained the following instructions: "Please sign and
deliver per my earlier email."11
¶18 On the same day, Dr. Pannu executed the Redemption
Agreement and the accompanying Assignment Agreement12 and
delivered them to Midwest's attorney. The Redemption Agreement
distinguishes Great Lakes from Dr. Pannu as "Pannu" and
"Y. Pannu," respectively, and also notes that it is Great Lakes,
"Pannu", that holds a one-third membership interest in Midwest.
¶19 The Redemption Agreement outlines Great Lakes and
Midwest's desire to "set forth the terms upon which [Great
Lakes] will sell and [Midwest] will redeem [Great Lakes'] entire
Membership Interest" in Midwest. For instance, the Redemption
Agreement indicates that Great Lakes "desires to voluntarily
surrender [Great Lakes'] membership in [Midwest] effective
March 31, 2015, pursuant to Section 8.5 of the Operating
11
Great Lakes and Dr. Pannu assert that Midwest's attorney
was acting as both Midwest's and NEA's attorney when he
circulated the Redemption Agreement. They allege that this does
not create a conflict of interest because Dr. Ahuja cannot
approve the transaction with respect to Midwest, while rejecting
the same transaction with respect to NEA. Midwest and NEA,
however, allege that if Midwest's attorney "was representing
Midwest, he could not also represent NEA" because Great Lakes
was still a Member of Midwest. It is not necessary for us to
answer this disagreement.
12
The Assignment Agreement states that, as of March 31,
2015, Great Lakes "transfer[red] and assign[ed] to
[Midwest] . . . all of [Great Lakes'] right, title and interest
in and to the Membership Interests."
10
No. 2016AP601
Agreement," and Section 2 of the Redemption Agreement dictates
that Great Lakes "shall sell, assign and transfer to [Midwest],
free and clear of all liens, claims, agreements and
encumbrances, and [Midwest] shall purchase and acquire from
[Great Lakes], the entire Membership Interest." The Redemption
Agreement outlines the purchase price for Great Lakes'
membership interest and specifically identified and allocated to
Great Lakes the amount that it was required to pay to Midwest
for its share of the costs associated with winding down Midwest,
as well as requiring Great Lakes to pay a set amount relating to
retirement plans. The Redemption Agreement also establishes
that Great Lakes must "fully vacate" its office suite by
April 30, 2015.
¶20 Section 6 of the Redemption Agreement is entitled,
"Mutual Release," and provides:
[Midwest] Releasees [, defined as "[Midwest] and each
of [Midwest's] Members and the Members' shareholders,
members, owners, successors, assigns, agents,
directors, officers, employees, representatives,
attorneys, heirs, executors and administrators of such
of the foregoing as are natural persons, and all
persons acting by, through, under or in concert with
any of the foregoing,] hereby jointly and severally,
irrevocably and unconditionally release, acquit and
forever discharge [Great Lakes and Dr. Pannu] and each
of [Great Lakes'] shareholders, members, owners,
successors, assigns, agents, directors, officers,
employees, representatives, attorneys, heirs,
executors and administrators of such of the foregoing
as are natural persons, and all persons acting by,
through, under or in concert with any of the foregoing
(collectively, "Pannu Releasees"), or any of them,
from any and all Claims[, defined as charges,
complaints, claims, liabilities, obligations,
promises, agreements, controversies, damages, actions,
11
No. 2016AP601
causes of action, suits, rights, demands, costs,
losses, debts and expenses (including attorneys' fees
and costs actually incurred), known and unknown, of
any nature whatsoever, including without limitation,
any and all claims under the Expense Sharing
Agreement, the Operating Agreement, and any and all
other claims, whether at common law, in contract or
tort,] which [Midwest] Releasees now have or claim to
have or which [Midwest] Releasees at any time
heretofore had or claimed to have or which [Midwest]
Releasees at any time hereafter may have or claim to
have for any claims arising or accruing to the date
hereof against each or any of the Pannu Releasees,
other than for a breach of this Agreement. (Emphases
added.)
¶21 Section 7 of the Redemption Agreement, "Release of
Non-Compete Restrictions," states: "[Great Lakes and Dr. Pannu]
are currently subject to non-compete restrictions contained in
the Operating Agreement and in the [Ancillary Restrictive
Covenant]. In consideration for the terms of this Agreement,
[Great Lakes and Dr. Pannu's] restrictions against competition
are hereby released and made void."
¶22 Section 10.3 of the Redemption Agreement, "Applicable
Law," does not reference arbitration, nor does an arbitration
clause exist elsewhere in the Redemption Agreement. Section
10.3 reads: "All questions concerning the construction, validity
and interpretation of this Agreement and the performance of the
obligations imposed by this Agreement shall be governed by the
internal law, not the law of conflicts, of the State of
Wisconsin."
¶23 According to Dr. Pannu's affidavit, he and Great Lakes
had performed all of their obligations under the Redemption
Agreement other than moving out of their office by April 8,
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No. 2016AP601
2015. For instance, Dr. Pannu said he delivered a check for
Great Lakes' share of the wind-down expenses to Midwest's
attorney and hand-delivered a check for Great Lakes' retirement
plan contributions to Midwest's accounting firm. It is
undisputed that one of Great Lakes' checks was cashed.13
¶24 On April 8, 2015, Dr. Pannu attempted to get a copy of
the Redemption Agreement as signed by Dr. Ahuja. Initially,
Dr. Pannu exchanged text messages with Dr. Ahuja:
Dr. Pannu: Hi
Can u get me a copy of the
[Redemption Agreement] signed by you
Thx
Dr. Ahuja: Will work on it when I am back
? Anything up
Dr. Pannu: No
Attorney wants it
So it is clean
Dr. Ahuja: Yea and it appears not going to
let us out of lease
But I will take care of it
Dr. Pannu: Ok
Dr. Ahuja: ? Who is your lawyer thx
Dr. Pannu: [Lawyer's name]14
13
According to Dr. Ahuja's affidavit, the check was cashed
in error by a clerical employee and a cashier's check in the
same amount was sent to Dr. Pannu once the error was discovered.
14
The attorney that Dr. Pannu named clarified on the record
at a motion hearing on December 17, 2015, that he "was not
involved in this" prior to April 8, 2015, and had not been
"copied on anything . . . prior to that."
13
No. 2016AP601
Dr. Ahuja: K great
¶25 Further, within ten minutes of sending the initial
text message, Dr. Pannu sent an e-mail to Midwest's attorney,
and carbon copied Dr. Ahuja and Midwest's and Great Lakes'
accountants, asking Midwest's attorney to "let [him] know when
you get a signed copy of the agreement from [Dr. Ahuja]."
Midwest's attorney responded that he would meet with Dr. Ahuja
to get his signature "[a]s soon as all of the documentation is
accounted for."15
¶26 According to Dr. Ahuja's affidavit, he (and thus
Midwest and NEA) never agreed to the terms of the Redemption
Agreement. Initially, Dr. Ahuja said he never instructed
Midwest's attorney to include a complete release of Great Lakes'
or Dr. Pannu's non-compete obligations in the Redemption
Agreement and that Dr. Ahuja in fact disagreed with releasing
the restrictions. Further, Dr. Ahuja stated that during an
April 20, 2015 phone call with Dr. Pannu, he told Dr. Pannu that
he was still reviewing the Redemption Agreement. Moreover,
Dr. Ahuja stated that once he had more thoroughly reviewed the
Redemption Agreement, he determined he was not willing to sign
it.
15
In the e-mail, Midwest's attorney stated that they were
waiting on retirement plan documents from Great Lakes.
According to Dr. Pannu's affidavit, Great Lakes and Dr. Pannu
had already provided the requested documents to Midwest's
accountant.
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No. 2016AP601
¶27 On April 30, 2015, Great Lakes vacated the office and
moved into different office space in the same facility that was
shared with a physician unaffiliated with Midwest.16
¶28 In May of 2015, Great Lakes and Dr. Pannu were advised
that Midwest and NEA considered the Redemption Agreement to be a
mere proposal that was subsequently rejected by Midwest and NEA.
Thus, Midwest and NEA alleged that Great Lakes and Dr. Pannu
were violating the non-compete covenants in the Operating
Agreement and the Ancillary Restrictive Covenant.
¶29 On July 1, 2015, Dr. Ahuja, on behalf of Midwest, sent
a letter to Dr. Pannu informing him that Great Lakes' membership
status in Midwest was being terminated effective immediately
pursuant to Section 5.5(b) of the Operating Agreement. The
letter also demanded that Great Lakes and Dr. Pannu comply with
the non-compete restrictions in the Operating Agreement and the
Ancillary Restrictive Covenant.
II. PROCEDURAL POSTURE
¶30 On September 2, 2015, Midwest and NEA filed a
complaint against Great Lakes and Dr. Pannu alleging that Great
Lakes and Dr. Pannu breached the non-compete covenants of the
16
Great Lakes and Dr. Pannu subsequently moved back into
their old office that was shared with Midwest from June of 2015
to January of 2016, but moved out once more in January of 2016.
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No. 2016AP601
2005 Operating Agreement and the 2006 Ancillary Restrictive
Covenant.17
¶31 Before a responsive pleading was filed, Midwest and
NEA moved to stay the proceedings and compel arbitration in
accordance with Section 13.7 of the Operating Agreement.
Midwest and NEA argued that the Operating Agreement was the
governing contract between the parties and that Section 13.7
within that agreement unambiguously required the parties to
arbitrate violations of Section 8.13 of the Operating Agreement
and the Ancillary Restrictive Covenant. Midwest and NEA argued
that the Operating Agreement governed because there was never a
meeting of the minds on the Redemption Agreement, as well as the
fact that the Redemption Agreement was never signed by all of
the parties which was required to amend the Operating Agreement
per Section 13.1. Further, Midwest and NEA argued that any
challenge to the validity of the Operating Agreement must be
decided by an arbitrator, not the circuit court.
¶32 On October 6, 2015, Great Lakes and Dr. Pannu filed an
answer containing affirmative defenses and counterclaims,18 as
17
On February 29, 2016, Midwest and NEA filed an amended
complaint, reiterating the causes of action in the initial
complaint and pleading additional causes of action against Great
Lakes and Dr. Pannu related to Great Lakes and Dr. Pannu's
payment of rent to Midwest, as well as Great Lakes and
Dr. Pannu's alleged tortious interference with Midwest and NEA's
prospective and current contractual relationships.
18
On February 29, 2016, Great Lakes and Dr. Pannu filed an
amended counterclaim. On April 15, 2016, Great Lakes and
Dr. Pannu filed an amended answer containing affirmative
defenses and counterclaims.
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No. 2016AP601
well as a motion for declaratory judgment seeking, among other
things, an order declaring that the Redemption Agreement was a
valid contract. They contended that as of March 31, 2015, the
Operating Agreement and the non-compete provisions of the
Ancillary Restrictive Covenant were invalid, unenforceable,
and/or inapplicable to Great Lakes and Dr. Pannu. Great Lakes
and Dr. Pannu argued that the Redemption Agreement is binding
and released them from the non-compete restrictions in the
Operating Agreement and the Ancillary Restrictive Covenant.
They argued that the Redemption Agreement was binding because
Midwest and NEA manifested their intention to sign the
Redemption Agreement and reaffirmed their intention by allowing
Great Lakes and Dr. Pannu to fully perform the obligations
therein. Accordingly, the motion further sought an order
declaring that Midwest and NEA are not entitled to arbitration.
In subsequent responses, Great Lakes and Dr. Pannu argued that
the circuit court must decide whether the Redemption Agreement
is enforceable and that, at best, it is premature to compel
arbitration because the merits of the case hinge entirely on the
enforceability of the Redemption Agreement, which contains no
arbitration clause and in fact, fully releases them from the
claims asserted. The parties filed briefs and affidavits in
support of their respective positions.
¶33 On December 17, 2015, the circuit court held a hearing
on both motions. Initially, the circuit court stated that the
motion for declaratory judgment was "similar to a summary
judgment motion" and that "maybe there[ are] some" factual
17
No. 2016AP601
disputes. Nonetheless, the court found that Dr. Ahuja, through
Midwest's attorney, made an offer that he intended to be bound
by when the e-mail containing the "final agreement" was sent.
Further, the circuit court noted that Dr. Pannu accepted the
offer when he signed the Redemption Agreement and returned it
with the check that was subsequently cashed. Moreover, the
circuit court held that the "minor problems" after March 31,
2015, or Dr. Ahuja's "ambiguous" text message to Dr. Pannu on
April 8, 2015, that a reasonable person could view as saying
"I'm questioning the agreement," do not change the analysis
because the Redemption Agreement was already a "done deal" and
the "horse was kind of out of the barn and you can't put it
back." The circuit court granted Great Lakes and Dr. Pannu's
motion and concluded that the Redemption Agreement was an
enforceable contract and thus, that Great Lakes and Dr. Pannu
were not restricted by the covenants not to compete in either
the Operating Agreement or the Ancillary Restrictive Covenant.
¶34 On March 16, 2016, the circuit court issued a written
order granting Great Lakes and Dr. Pannu's motion and declaring
that the Redemption Agreement was a valid contract. The court
determined that as of March 31, 2015, the Operating Agreement
and the non-compete provisions of the Ancillary Restrictive
Covenant were invalid, unenforceable and/or inapplicable to
Great Lakes and Dr. Pannu. The order also denied Midwest and
NEA's motion to stay the action and compel arbitration.
¶35 On March 23, 2016, Midwest and NEA petitioned for
leave to appeal the circuit court's March 16 order, which the
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No. 2016AP601
court of appeals granted. On December 20, 2017, the court of
appeals issued its decision concluding that the "determinative
question is whether the circuit court erred by not ordering the
parties to submit their dispute to arbitration." Midwest
Neurosciences, No. 2016AP601, ¶8. The court of appeals held
"that the question of whether the arbitration clause was
superseded should have been submitted to arbitration." Id., ¶2.
As such, the court of appeals declined to address the multiple
other issues that Midwest and NEA raised on appeal and reversed
and remanded, instructing the circuit court to grant Midwest and
NEA's motion to compel arbitration. Id., ¶¶2, 8, 23.
¶36 On February 5, 2018, Great Lakes and Dr. Pannu
petitioned this court for review. On May 18, 2018, we granted
the petition. We now reverse and remand the cause for further
proceedings consistent with this opinion.
III. STANDARD OF REVIEW
¶37 This case comes to us on summary judgment.19 "We
review summary judgment rulings independently, applying the
19
The circuit court understood Great Lakes and Dr. Pannu's
motion for declaratory judgment to be "similar to a summary
judgment motion" and applied the summary judgment methodology.
Thus, while the motion was entitled a motion for declaratory
judgment, it was actually a motion for summary judgment. See
WEA Prop. & Cas. Ins. Co. v. Krisik, 2013 WI App 139, ¶¶1, 4
n.2, 8, 352 Wis. 2d 73, 841 N.W.2d 290 (reviewing a motion for
declaratory judgment as a summary judgment motion because the
circuit court understood the motion to "in essence [] be a
motion for summary judgment and applied the summary judgment
methodology").
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No. 2016AP601
well-established standards set forth in Wis. Stat. § 802.08
20
[(2015-16)]." Hirschhorn v. Auto-Owners Ins. Co., 2012 WI 20,
¶20, 338 Wis. 2d 761, 809 N.W.2d 2d 529. Thus, we independently
review whether the circuit court correctly granted summary
judgment to Great Lakes and Dr. Pannu. Tatera v. FMC Corp.,
2010 WI 90, ¶15, 328 Wis. 2d 320, 786 N.W.2d 810 (citing Racine
Cty. v. Oracular Milwaukee, Inc., 2010 WI 25, ¶24, 323
Wis. 2d 682, 781 N.W.2d 88). Summary judgment "shall be
rendered if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a
judgment as a matter of law." Id.; § 802.08(2).
¶38 "[A] petition to compel arbitration involves contract
interpretation, which is a question of law that we review de
novo." First Weber Grp., Inc. v. Synergy Real Estate Grp., LLC,
2015 WI 34, ¶20, 361 Wis. 2d 496, 860 N.W.2d 498. Thus,
"determination[s] of substantive arbitrability . . . [are]
questions of law we review de novo." Cirilli v. Country Ins. &
Fin. Servs., 2009 WI App 167, ¶10, 322 Wis. 2d 238, 776
N.W.2d 272. Similarly, issues of contract interpretation are
reviewed de novo. Mortimore v. Merge Technologies Inc., 2012 WI
App 109, ¶13, 344 Wis. 2d 459, 824 N.W.2d 155.
20
All subsequent references to the Wisconsin Statutes are
to the 2015-16 version unless otherwise indicated.
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IV. ANALYSIS
A. Fundamental Principles
1. Freedom to contract and laws governing arbitration
¶39 "Freedom of contract is based on the idea that
individuals should have the power to govern their own affairs
without interference." Solowicz v. Forward Geneva Nat'l, LLC,
2010 WI 20, ¶34, 323 Wis. 2d 556, 780 N.W.2d 111. As such, "if
there is one thing which more than another public policy
requires it is that [individuals] of full age and competent
understanding shall have the utmost liberty of contracting, and
that their contracts, when entered into freely and voluntarily,
shall be held sacred, and shall be enforced by courts of
justice." Merten v. Nathan, 108 Wis. 2d 205, 212 n.5, 321
N.W.2d 173 (1982) (quoting Balt. & Ohio Sw. Ry. Co. v. Voigt,
176 U.S. 498, 505 (1900)). Thus, Wisconsin courts have
generally sought "to enforce contracts deliberately made by the
parties rather than set them aside." Baierl v. McTaggart, 2001
WI 107, ¶12, 245 Wis. 2d 632, 629 N.W.2d 277.
¶40 Arbitration agreements are "a matter of contract."
Joint Sch. Dist. No. 10 v. Jefferson Educ. Ass'n, 78 Wis. 2d 94,
101, 253 N.W.2d 536 (1977) (quoting United Steelworkers v.
Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960)); First
Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 943 (1995). As
such, "[a]rbitrators derive their authority only from the
parties' advance agreement that they will submit such grievances
to arbitration" and thus, parties cannot be "required to submit
any dispute to arbitration unless [they have] agreed to do so."
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No. 2016AP601
Kimberly Area Sch. Dist. v. Zdanovec, 222 Wis. 2d 27, 39, 586
N.W.2d 41 (Ct. App. 1998) (citing AT&T Technologies, Inc. v.
Commc'ns Workers of America, 475 U.S. 643, 648-49 (1986)).
Parties may contract broadly and agree to arbitrate, even the
issue of arbitrability. Mortimore, 344 Wis. 2d 459, ¶¶15, 20.
¶41 Wisconsin law recognizes the need to defer to the
parties' agreement to arbitrate and the "policy of encouraging
arbitration as an alternative to litigation." First Weber Grp.,
361 Wis. 2d 496, ¶24. When parties agree to arbitration, a
court's role is limited because a different forum of dispute
resolution has been selected. In fact, the Wisconsin
legislature has codified the limited role of the court. See
Wis. Stat. ch. 788. In Mortimore, the court of appeals
explained that when the parties have contracted to arbitrate,
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." Mortimore,
344 Wis. 2d 459, ¶16.
¶42 Wisconsin's "policy of encouraging arbitration as an
alternative to litigation," see First Weber Grp., 361
Wis. 2d 496, ¶24, however, is not limitless. Even Midwest
acknowledges that courts typically decide the initial issue of
arbitrability. "[A]rbitrators cannot determine whether they
have the authority to decide arbitrability unless the parties
give arbitrators such authority." Kimberly Area Sch. Dist., 222
Wis. 2d at 39-40; see generally Joint Sch. Dist. No. 10, 78
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No. 2016AP601
Wis. 2d at 110 (stating that "parties may submit arbitrability
to an arbitrator"). "[T]he evidence of this grant [of
authority] must be 'clear and unmistakable,'" otherwise, "the
question of whether the parties agreed to arbitrate is to be
decided by the court, not the arbitrator." Kimberly Area Sch.
Dist., 222 Wis. 2d at 39-40; see also Kaplan, 514 U.S. at 944-45
("silence or ambiguity" affects the presumption of
arbitrability).
¶43 Consequently, only those disputes that the parties
have agreed to so submit to arbitration are relegated to proceed
in that forum. Granite Rock Co. v. Int'l Bhd. of Teamsters, 561
U.S. 287, 299 (2010). A court should order arbitration "only
where the court is satisfied that neither the formation of the
parties' arbitration agreement nor (absent a valid provision
specifically committing such disputes to an arbitrator) its
enforceability or applicability to the dispute is in issue."
Id. at 299; id. at 300 (stating all of the United States Supreme
Court's opinions compelling arbitration did so only "after the
Court was persuaded that the parties' arbitration agreement was
validly formed and that it covered the dispute in question and
was legally enforceable").
¶44 In Granite Rock Co., the Court clarified that "[t]he
test for arbitrability remains whether the parties consented to
arbitrate the dispute in question." Id. at 304 n.11. Thus, in
Granite Rock Co., the Court concluded that judicial resolution
was required "to determine whether the parties consented to
arbitrate the matters covered by the [arbitration] demand." Id.
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No. 2016AP601
at 303 n.9 & 304 (referencing Buckeye Check Cashing, Inc. v.
Cardegna, 546 U.S. 440, 444 n.1 (2006)). This rule stems from
the "principle that underscores all of our arbitration
decisions: Arbitration is strictly 'a matter of consent,' and
thus 'is a way to resolve those disputes——but only those
disputes——that the parties have agreed to submit to
arbitration.'" Id. at 299 (citation omitted).
¶45 In answering both who determines arbitrability and
what is subject to arbitration, Wisconsin courts apply state-law
contract principles and chapter 788. Kaplan, 514 U.S. at 944.
Utilization of the Wisconsin contract principles requires
"courts to place arbitration agreements 'on equal footing with
all other contracts.'" Kindred Nursing Ctrs. Ltd. P'ship v.
Clark, 581 U.S. ___, 137 S. Ct. 1421, 1424, 1426 (2017).
Accordingly, "[a] court may invalidate an arbitration agreement
based on 'generally applicable contract defenses' like fraud or
unconscionability, but not on legal rules that 'apply only to
arbitration or that derive their meaning from the fact that an
agreement to arbitrate is at issue.'" Id. at 1426.
¶46 Chapter 788 of the Wisconsin Statutes is also referred
to as the "Wisconsin Arbitration Act" and limits a court's role
with respect to issues concerning arbitration. A court,
however, must still, when called upon to do so, determine in the
first instance whether the parties agreed to arbitrate. Then it
becomes a court's duty to determine whether a contract calls for
arbitration and when a dispute exists as to whether a second
contract without an arbitration clause supersedes a first
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No. 2016AP601
contract with such a clause, the determination of arbitrability
must be decided in the first instance by the circuit court
rather than the arbitrator.
¶47 Wisconsin Stat. § 788.01, entitled "Arbitration
clauses in contracts enforceable," provides that a written
arbitration agreement "shall be valid, irrevocable and
enforceable except upon such grounds as exist at law or in
equity for the revocation of any contract" (emphasis added). As
a result, it is a court's duty to determine whether a contract
calls for arbitration. Another contract that clearly and
expressly supersedes a first contract is "grounds as exist at
law or in equity for the revocation of a contract."
¶48 Wisconsin Stat. § 788.02 informs when a court must
stay proceedings to permit arbitration, as follows:
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.
Section 788.03 directs how a court ordering arbitration is to
proceed and states in part as follows:
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. . . . The
court shall hear the parties, and upon being satisfied
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No. 2016AP601
that the making of the agreement for arbitration or
the failure to comply therewith is not in issue, the
court shall make an order directing the parties to
proceed to arbitration in accordance with the terms of
the agreement.
Wis. Stat. § 788.03.
¶49 The court may, after arbitration, vacate an
arbitrator's award or order a rehearing by the arbitrator,
pursuant to Wis. Stat. § 788.10. In addition, the court may,
after arbitration, modify an arbitrator's award pursuant to Wis.
Stat. § 788.11. Finally, pursuant to Wis. Stat. § 788.12, a
circuit court may enter judgment "[u]pon the granting of an
order confirming, modifying or correcting an award," in
conformity therewith.
¶50 Thus, when parties have contracted for arbitration as
the forum for dispute resolution, a court's role is limited. In
this case, however, the court must first ascertain whether the
controlling contract calls for arbitration. Thus, we are
presented with the question of the court's role when the parties
once contracted to arbitrate, but the court is presented with a
later written contract that does not contain an arbitration
clause. Fundamental principles clearly militate in favor of the
ability to freely contract, even if that changes the forum of
dispute resolution. Which contract controls is seminal to a
determination of whether arbitration must be ordered.
2. The contracts at issue
¶51 The contracts at issue require closer examination
because whether the parties entered into the later contract
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No. 2016AP601
controls initially the court's determination regarding the
proper forum of dispute resolution, but also later may impact
the underlying dispute. If the Redemption Agreement is
enforceable, its terms do not choose arbitration as the forum
for dispute resolution. If it is not, the matter must proceed
according to the Operating Agreement and the Ancillary
Restrictive Covenant. Thus, it is the court that must first
determine whether a valid contract requires arbitration. The
dispute regarding the Redemption Agreement presents "such
grounds as exist at law or in equity for the revocation of" the
Operating Agreement and Ancillary Restrictive Covenant. Wis.
Stat. § 788.01. Before an action can be stayed to permit
arbitration, the court must be "satisfied that the issue
involved in such suit or proceeding is referable to arbitration
under such an agreement." Wis. Stat. § 788.02. Before the
court can order arbitration, the court must be "satisfied that
the making of the agreement for arbitration or the failure to
comply therewith is not in issue." Wis. Stat. § 788.03.
¶52 Initially in 2005, the parties entered into an
Operating Agreement which "memorialize[d] certain amendments and
modifications to the Operating Agreement of [Midwest] dated
August 1, 2002." This Operating Agreement changed the 2002
contract to admit new Members but it clearly provided for
arbitration in Section 13.7. The Operating Agreement contained
a restrictive covenant between Great Lakes and Midwest in
Section 8.13. Dr. Pannu and Midwest separately entered into an
Ancillary Restrictive Covenant a year later. Then about ten
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No. 2016AP601
years later, in 2015, the dynamic and composition of the group
changed and the parties purportedly entered into a Redemption
Agreement, which contains a mutual release and indemnification
as a part of winding down the business, provides for the
surrender of Great Lakes and Dr. Pannu's membership in Midwest,
and releases Great Lakes and Dr. Pannu from the 2005 and 2006
restrictive covenants. The Redemption Agreement specifically
supersedes "all prior agreements, promises, covenants,
arrangements, communications, representations or warranties,
whether oral or written" in its merger clause.
¶53 A determination as to whether the issue of
arbitrability is to be submitted to the arbitrator is examined
in light of the pertinent contract. In order to determine
whether the parties have always and forever agreed to arbitrate
arbitrability by virtue of the JAMS Arbitration Rules in the
Operating Agreement from 2005, as the court of appeals
concluded, we must further examine the language of the
contracts. "[N]o party can be compelled to arbitrate a matter
which he or she has not agreed to submit to arbitration."
Mortimore, 344 Wis. 2d 459, ¶15 (citing Cirilli, 322
Wis. 2d 238, ¶12); see also Wis. Stat. ch. 788.
¶54 While a court's role is limited, courts are indeed
called upon to determine whether a contract calls for
arbitration. Wis. Stat. §§ 788.01, 788.02, 788.03. Only then,
if the forum chosen by the contract is arbitration, will the
presumption of arbitrability control the dispute. Granite Rock
Co., 561 U.S. at 301. Here, serious questions exist as to
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No. 2016AP601
whether the Operating Agreement still controls the issue of
arbitrability, whether the Redemption Agreement supersedes that
agreement, and to what extent, if any, one co-defendant,
Dr. Pannu individually, ever agreed to arbitrate.
¶55 We now turn to the relevant contracts at issue.
Dr. Pannu signed the 2005 Operating Agreement as President of
Great Lakes, not individually. While the Operating Agreement
contains a guaranty signed by Dr. Pannu, it is separate from the
signature page of the Operating Agreement where he signed as
President. The guaranty and acknowledgement serve to guaranty
the obligations of the signator to the contract, Great Lakes.
If the parties were only contesting the requirement to arbitrate
under the Operating Agreement alone, the court's role would
perhaps be different. See Wis. Stats. ch. 788. That, however,
is not the question with which we are presented.
¶56 The parties demonstrated a willingness to later
contract in 2006 concerning the individual restrictive covenant,
outlined in the Ancillary Restrictive Covenant, which Dr. Pannu
signed individually as a physician. The Ancillary Restrictive
Covenant does not specifically contain an arbitration clause.
Why a subsequent restrictive agreement was necessary in 2006
might be an additional consideration for the court if these were
the only two agreements at issue. This is not critical to our
analysis, however, because the circuit court must first
determine whether the Redemption Agreement is the parties'
contract. The Redemption Agreement from a decade later is the
only of the three documents at issue that sets forth by its
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No. 2016AP601
terms the distinct contractual obligations of Great Lakes the
entity, and Dr. Pannu individually. The Redemption Agreement
does not contain an arbitration provision and by its terms
supersedes prior contracts and releases Great Lakes and
Dr. Pannu from the non-compete restrictions. These conflicting
written contractual provisions militate against the presumption
of arbitrating arbitrability. The court is required by chapter
788 of the Wisconsin Statutes to determine whether the contract
calls for arbitration. In order to do so, it must determine
which is the controlling contract.
¶57 A closer examination of the terms of the contracts
further explains why it cannot be assumed that the Operating
Agreement alone ends the analysis as to arbitration. Most
typically, a challenge might be made to a contractual clause,
but the court nonetheless orders even that issue to arbitration
because the pertinent contract calls for arbitration. Here, the
language of the relevant documents call into question which of
the contracts controls.
¶58 The combination of the merger clause in Section 10.2
of the Redemption Agreement, the explicit reference to the
Operating Agreement in the "Mutual Release" in Section 6, the
"Applicable Law" provision in Section 10.3, and the non-
existence of an arbitration provision in the Redemption
Agreement, make evident that, if enforceable, the parties did
not consent to arbitration in the Redemption Agreement. If the
Redemption Agreement revokes the Operating Agreement, the court
would not order arbitration pursuant to the Operating Agreement.
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No. 2016AP601
¶59 Section 10.2 utilizes different capitalization to
denote "this Agreement" (referring to the Redemption Agreement)
and "the entire agreement," calling into question whether
Midwest, Great Lakes, and Dr. Pannu intended the Redemption
Agreement to revoke the Operating Agreement. The Redemption
Agreement, unlike the Operating Agreement or the Ancillary
Restrictive Covenant, addresses the relationship between all
three.
¶60 For example, the merger clause in Section 10.2 states
that "[t]his Agreement" (meaning the Redemption Agreement)
constitutes the "entire agreement" between the "parties"
(meaning Great Lakes, Dr. Pannu, and Midwest)21 "pertaining to
its subject matter" and that it "supersedes all prior
agreements, promises, covenants, arrangements, communications,
representations, or warranties, whether oral or written, by
[Great Lakes] or [Midwest]." It "expressly negatives
collateral or antecedent understandings." See Town Bank v. City
Real Estate Dev., LLC, 2010 WI 134, ¶39, 330 Wis. 2d 340, 793
N.W.2d 476 (defining a merger clause as a "written provision
which expressly negatives collateral or antecedent
understandings"). No reference is made to the Arbitration
section of the Operating Agreement.
21
Dr. Ahuja was only designated as a party "for purposes of
the Mutual Releases and Indemnification set forth in Sections 6
and 8," not Section 10.2.
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No. 2016AP601
¶61 Furthermore, Section 6 of the Redemption Agreement by
its terms is to "release, acquit and forever discharge" Great
Lakes and Dr. Pannu from "any and all" "charges, complaints,
claims, liabilities, obligations, promises, agreements,
controversies, damages, actions, causes of action, suits,
rights, demands, costs, losses, debts and expenses" of "any
nature whatsoever" under "the Operating Agreement." The
obligation or promise to "resolve any and all disputes arising
with respect to the terms and conditions of this Operating
Agreement . . . by arbitration" seemingly fits within this
release. See Town Bank, 330 Wis. 2d 340, ¶46 (refusing to
require contract drafters to "expressly identify and exclude in
their contracts any prior oral or written communication between
the parties that may rise to the level of an agreement").
¶62 In addition, the "Applicable Law" provisions in each
of the agreements are different. The Operating Agreement's
"Applicable Law" provision provides that the "Operating
Agreement shall be governed by and construed in accordance with
the laws of the State of Wisconsin without regard to its choice
of law provisions." The arbitration clause in the Operating
Agreement specifically incorporates the JAMS Arbitration Rules
which state that "disputes over the formation, existence,
validity, interpretation or scope of the agreement under which
Arbitration is sought, and who are proper Parties to the
Arbitration, shall be submitted to and ruled on by the
Arbitrator" (emphases added). JAMS Comprehensive Arbitration
Rules & Procedures, Rule 11(b), 14 (July 1, 2014),
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No. 2016AP601
https://www.jamsadr.com/files/Uploads/Documents/JAMS-Rules/JAMS_
comprehensive_arbitration_rules-2014.pdf.
¶63 The Applicable Law section in the Redemption
Agreement, on the other hand, is quite different. It contains
no arbitration clause and states that "[a]ll questions
concerning the construction, validity and interpretation of this
Agreement and the performance of the obligations imposed by this
Agreement shall be governed by the internal law, not the law of
conflicts, of the State of Wisconsin" (emphases added). Simply
stated, the applicable law and forum selection in one contract
is very different from the other.
¶64 Therefore, the Redemption Agreement, if enforceable,
supersedes by its very language the Operating Agreement's mode
of adjudication, including its incorporation of JAMS Arbitration
Rules that granted the authority to the arbitrator to determine
arbitrability. See Thomas W. Ward & Assoc., Inc. v. Spinks, 574
So. 2d 169, 170 (Fla. Dist. Ct. App. 1990) (per curiam) (holding
"the trial court cannot leave it to the arbitrators themselves
to determine which claims are subject to arbitration when it has
not established which agreement applies").
¶65 Due to the foregoing, Midwest and NEA failed to
demonstrate "clear and unmistakable" intent to arbitrate. Riley
Mfg. Co. v. Anchor Glass Container Corp., 157 F.3d 775, 780-81
(10th Cir. 1998). Thus, the question of whether the parties
agreed to arbitrate must, in this instance, be decided by the
circuit court. See Wis. Stat. ch. 788; see also Riley Mfg. Co.,
157 F.3d at 780-81 (holding "the existence of the merger clause
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No. 2016AP601
in the Settlement Agreement [in combination with the lack of
arbitration clause] raises at least an ambiguity on the question
of the intent of the parties to allow an arbitrator to decide
the validity of the 1991 arbitration clause" because it "raises
legitimate questions as to the continuing existence and scope of
the arbitration clause in the Manufacturing Agreement" and thus,
"the question of whether an agreement to arbitrate continues to
exist . . . is a question for the courts").
¶66 Consequently, this matter requires a judicial
determination of "whether the parties consented to arbitrate the
matters covered by the [arbitration] demand." Granite Rock Co.,
561 U.S. at 303 n.9 & 304 (referencing Buckeye Check Cashing,
546 U.S. at 444 n.1). As will later be discussed, it is for the
circuit court to further explore the validity and enforceability
of the Redemption Agreement.
3. Clarifying precedents
¶67 No Wisconsin or federal case establishes that once
arbitration is contracted as the forum for dispute resolution,
parties can never later contract for an alternative forum for
dispute resolution. To the extent Cirilli, 322 Wis. 2d 238, and
Mortimore, 344 Wis. 2d 459, are read as concluding that a
contract to arbitrate is irrevocable, that interpretation is
inconsistent with the law. Clearly, section 788.01 of the
Wisconsin Arbitration Act contemplates that a court will enforce
"[a] provision in any written contract to settle by arbitration
a controversy thereafter arising out of the contract" and that
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No. 2016AP601
such contractual provision to arbitrate "shall be valid,
irrevocable and enforceable except upon such grounds as exist at
law or in equity for the revocation of a contract." Wis. Stat.
§ 788.01 (emphasis added). Another contract that clearly and
expressly supersedes a first contract is "grounds as exist at
law or in equity for the revocation of a contract." Thus,
Cirilli and Mortimore must not stand for the proposition that
once parties contract for arbitration, that decision is always
irrevocable.
¶68 Midwest and NEA rely on Cirilli for the proposition
that whether a subsequent agreement revokes the consent to
arbitrate found in an earlier agreement is for an arbitrator to
decide because it goes to the merits of the dispute. This,
however, construes Cirilli too broadly.
¶69 Cirilli, unlike this case, did not involve the same
parties entering into a subsequent contract. 322 Wis. 2d 238,
¶¶5, 8 n.2, 8-9, 15 n.6. Instead, in Cirilli, the plaintiffs
claimed that a subsequent settlement the defendants reached with
different parties released them from their duty to arbitrate
under their original contract. Id., ¶¶1-2. Cirilli says
nothing about whether parties can enter into a subsequent,
superseding contract and agree to remove their disputes from
arbitration. Moreover, Cirilli neither addresses nor concludes
that there can never be "grounds as exist at law or in equity
for the revocation of a contract." In the case at issue, unlike
Cirilli, there is a dispute as to whether a second contract
without an arbitration clause supersedes the first contract with
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No. 2016AP601
such a clause. As a result, unlike Cirilli, the determination
of arbitrability, whether the Operating Agreement is an
unrevoked contract, must be decided, in the first instance, by
the circuit court rather than the arbitrator.
¶70 Midwest and NEA also assert that Mortimore, a case
where the court of appeals remanded the matter for arbitration,
lends further support for their cause. See 344 Wis. 2d 459, ¶1.
Midwest and NEA claim that there is no fundamental difference
between the oral agreement in Mortimore and the Redemption
Agreement here, because neither was fully executed. At a
minimum, Midwest and NEA seemingly acknowledge, however, that
there is a material factual dispute in both cases upon whether
there was a binding subsequent agreement.
¶71 In Mortimore, Mortimore's written employment contract
(entered in 2004) contained an arbitration clause and prohibited
oral modifications of the contract. Id., ¶3. Specifically, the
contract stated that "[n]o amendment or modification of this
Agreement shall be: valid or binding upon [Merge Technologies]
unless made in writing and signed by an officer of [Merge
Technologies] . . . or upon the Executive unless made in writing
and signed by him." Id. In 2006 Merge Technologies and
Mortimore began working towards drafting a new written contract
for Mortimore. Id., ¶7. As of June 19, 2016, "two
substantively different contract drafts were being edited by two
different people——one draft was a new contract, the other
amended Mortimore's 2004 contract." Id. A cover letter was
prepared by the head of the compensation committee for one of
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No. 2016AP601
the contracts——which contained no arbitration clause——but the
cover letter and the contract were never sent nor signed. Id.
The following day Merge Technologies decided to not offer
Mortimore a new contract for a period and eventually decided to
seek his resignation instead. Id., ¶8.
¶72 Based on these facts, the court of appeals held that
Merge Technologies and Mortimore had, through "a process of
negotiation," agreed to an amendment or modification to
Mortimore's 2004 employment contract. Id., ¶19. The court of
appeals relied on the adoption of the Commercial Arbitration
Rules of the American Arbitration Association as a "clear and
unmistakable expression of the parties' intent to reserve the
question of arbitrability for the arbitrator and not the court."
Id., ¶20. This conclusion of the court of appeals however was
based upon the fact that the "2004 contract contemplated that
amendments or modifications, such as those negotiated between
Mortimore and Merge [Technologies], would be enforceable and
binding only if made in writing." Id., ¶19. Notably, despite
this provision, "the record show[ed] that no such modifications
or changes eliminating an arbitration requirement were ever made
in writing." Id. The court of appeals concluded that
Mortimore's "conten[tions] that this alleged oral agreement is
enforceable . . . [and] his breach of contract claims are not
subject to arbitration . . . is mistaken." Id., ¶18. Thus,
Mortimore neither addresses nor concludes that once contracted
for, there can never be "grounds as exist at law or in equity
for the revocation of a contract." In the case at issue, unlike
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No. 2016AP601
Mortimore, there is a material factual dispute as to whether a
second written contract, which does not have an arbitration
clause, supersedes the first written contract which does, such
that the determination of arbitrability here must first be
decided by the circuit court rather than the arbitrator.
¶73 In sum, Cirilli and Mortimore do not stand for the
proposition that once parties contract for arbitration, that
decision is always irrevocable. Even in Mortimore, the circuit
court was called upon to determine whether the initial contract
had been revoked. See Mortimore, 344 Wis. 2d 459, ¶19.
Clearly, section 788.01 of the Wisconsin Arbitration Act
contemplates that a court will enforce "[a] provision in any
written contract to settle by arbitration a controversy
thereafter arising out of the contract" and that such
contractual provision to arbitrate "shall be valid, irrevocable
and enforceable except upon such grounds as exist at law or in
equity for the revocation of a contract." Wis. Stat. § 788.01.
Another contract that clearly and expressly supersedes a first
contract is "grounds as exist at law or in equity for the
revocation of a contract." To the extent that language in
Mortimore or Cirilli suggests that contracts to arbitrate are
forever irrevocable, that language is limited by the facts of
those cases.
¶74 Midwest and NEA also argue that Great Lakes and
Dr. Pannu's challenge to the Operating Agreement is governed by
Buckeye Check Cashing, 546 U.S. 440, and Prima Paint Corp. v.
Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), and that those
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No. 2016AP601
cases require the enforcement of the Operating Agreement.22
Midwest and NEA argue that this is so because the challenge is
not itself to the arbitration provision, but instead hinges on
whether the Redemption Agreement superseded the Operating
Agreement. See Buckeye Check Cashing, 546 U.S. at 445-46
("[U]nless the challenge is to the arbitration clause itself,
the issue of the contract's validity is considered by the
arbitrator in the first instance."); Prima Paint, 388 U.S. at
404 ("But the statutory language does not permit the federal
court to consider claims of fraud in the inducement of the
contract generally.").
¶75 The challenges in Buckeye Check Cashing and Prima
Paint, however, are also distinguishable from the challenge in
22
Midwest and NEA also allege that Buckeye Check Cashing,
Inc. v. Cardegna, 546 U.S. 440 (2006), explained that "before
formation" and "after formation" challenges (words that Midwest
and NEA used, not the Supreme Court) should be treated
differently because not to do so would "permit[] a court to deny
effect to an arbitration provision in a contract that the court
later finds to be perfectly enforceable." See Buckeye Check
Cashing, 546 U.S. at 448–49. Midwest and NEA's argument
completely lacks merit. Buckeye Check Cashing's explanation was
in reference to why "a challenge to the validity of the contract
as a whole, and not specifically to the arbitration clause, must
go to the arbitrator." Id. at 449. It is unsurprising that
Buckeye Check Cashing did not make a distinction between labels
"before formation" and "after formation" as "it is not the mere
labeling of a dispute . . . that determines whether an issue is
arbitrable"; it is "whether the parties consented to arbitrate
the dispute in question." Granite Rock Co. v. Int'l Bhd. of
Teamsters, 561 U.S. 287, 304 n.11 (2010). Tellingly, if a court
found a superseding agreement revoked the parties' consent to
arbitrate, the court could not later find that the arbitration
provision was enforceable.
39
No. 2016AP601
this case. In both Buckeye Check Cashing and Prima Paint there
was only one contract. Neither of the parties' challenges went
to the subsequent contracting out of arbitration. In Buckeye
Check Cashing, the parties resisting arbitration alleged that
"the contract as a whole (including its arbitration provision)
[was] rendered invalid by [a] usurious finance charge" that was
in violation of various laws. 546 U.S. at 443-44. The parties,
however, acknowledged that they "concluded" an agreement to
arbitrate and never alleged that the finance charge impacted or
revoked their consent to arbitrate. See id. at 444 n.1; Granite
Rock Co., 561 U.S. at 300-01.
¶76 Similarly, in Prima Paint, the parties resisting
arbitration alleged that the entire contract should be rescinded
because they were fraudulently induced into entering the
contract as whole, but "no claim [was] advanced by [the
resisting party] that [the other party] fraudulently induced it
to enter into the agreement to arbitrate." 388 U.S. at 398-99,
406. Here, however, Great Lakes and Dr. Pannu argue that the
Redemption Agreement superseded the Operating Agreement. In
fact, it is because of this genuine issue of material fact that
we send this matter back for further determination. See, e.g.,
Joint Sch. Dist. No. 10, 78 Wis. 2d at 101 ("For arbitration is
a matter of contract and a party cannot be required to submit to
arbitration any dispute which he has not agreed so to submit."
(quoting United Steelworkers, 363 U.S. at 582)). Thus, neither
Buckeye Check Cashing nor Prima Paint address nor prohibit
40
No. 2016AP601
parties from subsequently contracting out of arbitration as the
forum of dispute resolution.
¶77 Finally, fundamental principles of freedom to contract
support the proposition that parties can subsequently contract
to modify the terms of a previous contract. In fact, here,
various parties in various capacities did contract in 2005 and
2006. Contracts can involve mutual agreement to change certain
obligations, including a duty to arbitrate. Wisconsin law,
including Wis. Stat. ch. 788, does not limit such freedom to
contract, but rather chapter 788 reinforces the freedom of
contract by enforcing parties' contractual agreements. In fact,
this view comports with the Federal Arbitration Act if "grounds
exist at law or in equity for the revocation of any contract"
and places "arbitration agreements 'on equal footing with all
other contracts.'" Kindred Nursing Ctrs., 137 S. Ct. at 1424;
Wis. Stat. § 788.01; see, e.g., Sipple v. Zimmerman, 39
Wis. 2d 481, 492, 159 N.W.2d 706 (1968) ("The contract was
legally binding unless mutually rescinded by the parties to
it."); Town Bank, 330 Wis. 2d 340, ¶39 (describing the fact that
"when [a] contract contains an unambiguous merger or integration
clause, the court is barred from considering evidence of any
prior or contemporaneous understandings or agreements between
the parties" as a "principle [that] stems from basic contract
law"). Courts should remain mindful of the limited role endowed
to them under chapter 788 and not endeavor into the province of
the parties' contractual choice to arbitrate.
41
No. 2016AP601
¶78 The notion that no parties can ever contract out of
arbitration is antithetical to these values and principles than
the idea of a prohibition on contracting out of arbitration
through mutual agreement and thus, a
"limitless . . . contractual obligation to arbitrate." Litton
Fin. Printing Div. v. NLRB, 501 U.S. 190, 209 (1991); see id.
("[The United States Supreme Court] refuse[d] to apply [the]
presumption [of arbitrability] wholesale in the context of an
expired bargaining agreement, for to do so would make limitless
the contractual obligation to arbitrate" and "determine[d]
whether the parties agreed to arbitrate this dispute" because a
court "cannot avoid that duty because it requires us to
interpret a provision of a bargaining agreement."). Neither
Cirilli, Mortimore, Buckeye Check Cashing, nor Prima Paint
require a competing result under these facts. Therefore, this
court's conclusion that a party can subsequently contract out of
the obligation to arbitrate is not only consistent with federal
and Wisconsin law, it is also necessitated by the fundamental
principles underlying freedom to contract.
B. Summary Judgment
¶79 Finally, we briefly address why we remand this case to
the circuit court. The principles of summary judgment are well-
defined. Summary judgment is granted if "the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party
42
No. 2016AP601
is entitled to a judgment as a matter of law." Wis. Stat.
§ 802.08(2); Hirschhorn, 338 Wis. 2d 761, ¶20. Stated
differently, summary judgment should not be granted "unless the
facts presented conclusively show that the plaintiff's action
has no merit and cannot be maintained." Mrozek v. Intra Fin.
Corp., 2005 WI 73, ¶14, 281 Wis. 2d 448, 699 N.W.2d 54.
¶80 In determining whether to grant summary judgment, "the
court decides whether there is a genuine issue of material fact;
the court does not decide the fact." Racine Cty., 323
Wis. 2d 682, ¶25. The moving party bears the burden of
establishing the absence of a genuine, that is, disputed, issue
of material fact. AccuWeb, Inc. v. Foley & Lardner, 2008 WI 24,
¶21, 308 Wis. 2d 258, 746 N.W.2d 447; Grams v. Boss, 97
Wis. 2d 332, 338, 294 N.W.2d 473 (1980). Moreover, we view
summary judgment materials in the light most favorable to the
non-moving party. AccuWeb, 308 Wis. 2d 258, ¶21. A factual
issue is "genuine" if the evidence is such that a reasonable
jury could return a verdict in favor of the non-moving party.
Baxter v. DNR, 165 Wis. 2d 298, 312, 477 N.W.2d 648 (Ct. App.
1991). A "material fact" is one that is "of consequence to the
merits of the litigation." Michael R.B. v. State, 175
Wis. 2d 713, 724, 499 N.W.2d 641 (1993). "Any reasonable doubt
as to the existence of a genuine issue of material fact must be
resolved against the moving party" for summary judgment. Heck &
Paetow Claim Serv., Inc. v. Heck, 93 Wis. 2d 349, 356, 286
N.W.2d 831 (1980).
43
No. 2016AP601
¶81 The question that was before the circuit court on
summary judgment was whether the Redemption Agreement was a
valid and enforceable contract. Competing affidavits were
submitted which presented genuine issues of material fact.
¶82 Nonetheless, the circuit court granted summary
judgment in favor of Great Lakes and Dr. Pannu concluding that
the Redemption Agreement was validly formed. The circuit court
found that Dr. Ahuja, through Midwest's attorney, made an offer
that he intended to be bound by when the e-mail containing the
"final agreement" was sent, and that Dr. Pannu accepted the
offer when he signed the Redemption Agreement and returned it
with the check that was subsequently cashed. Prior to granting
summary judgment, however, the circuit court acknowledged that
"maybe there[ are] some" factual disputes.
¶83 In this case, we conclude that the circuit court
improperly granted summary judgment to Great Lakes and
Dr. Pannu. In support of their competing motions, the parties
presented affidavits attempting to demonstrate their mutual
assent, or lack thereof, to forming the Redemption Agreement.
See Wis. Stat. § 802.08(2) (precluding summary judgment if there
is a "genuine issue as to any material fact" (emphasis added)).
¶84 In support of the position that the Redemption
Agreement was validly formed and is enforceable, Dr. Pannu
submitted an affidavit representing that Great Lakes and
Dr. Pannu had performed all of their obligations under the
Redemption Agreement other than moving out of their office by
April 8, 2015, including delivering a check that was
44
No. 2016AP601
subsequently cashed. That evidence, however, was refuted by
Dr. Ahuja's affidavit. Dr. Ahuja asserted that the check was
cashed in error by a clerical employee, and that a cashier's
check in the same amount was sent to Dr. Pannu once the error
was discovered. Further, Dr. Ahuja asserted that he had never
agreed to the terms of the Redemption Agreement; had never
instructed Midwest's attorney to include a complete release of
Great Lakes' or Dr. Pannu's non-compete obligations in the
Redemption Agreement, and in fact disagreed with releasing the
restrictions; and that in April he told Dr. Pannu in a phone
conversation about signing the Redemption Agreement that he was
still reviewing it and shortly after the phone call determined
that he was not willing to sign it. He noted that the agreement
does not contain his signature.
¶85 At a minimum, these competing affidavits raise genuine
issues of material fact rendering summary judgment improper.
Hence, we reverse and remand the cause to the circuit court.
V. CONCLUSION
¶86 The crux of the issue before us concerns the circuit
court's role in determining the proper forum of dispute
resolution when a subsequent contract, if enforceable, does not
contain an arbitration clause as is present in an initial
contract. As a part of that analysis we consider whether a
contract which contains a merger clause and which does not
contain an arbitration clause can change the forum of dispute
resolution when a prior agreement between the parties contains
45
No. 2016AP601
an arbitration clause. The parties make competing arguments
regarding a court's role in determining the applicability of
this arbitration provision. They take contrary positions
regarding whether all disputes, even arbitrability itself, must
be submitted to arbitration. The parties present conflicting
views of precedent regarding the judiciary's role in deciding
motions to compel arbitration when a subsequent contract does
not select arbitration as the forum for dispute resolution and
does contain a merger clause which states that the subsequent
agreement supersedes all prior contracts. Relatedly, the
parties dispute whether all parties here can be compelled to
arbitrate when arguably only one co-defendant is contractually
required to arbitrate pursuant to the initial contract.
¶87 The claims in the underlying lawsuit that called upon
the court to decide whether the dispute belonged in arbitration,
involve whether Great Lakes and Dr. Pannu violated restrictive
covenants in the Operating Agreement and the Ancillary
Restrictive Covenant. The Redemption Agreement, however, does
not contain an arbitration provision and in fact, purports to
release those restrictive covenants. Therefore, which contract
controls is seminal in the first instance as to whether
arbitration should be ordered. Ultimately, regardless of forum,
the controlling documents will also impact the underlying
dispute itself.
¶88 The circuit court concluded on summary judgment that
even though the initial agreement, here the Operating Agreement,
required arbitration it was superseded by a later, valid and
46
No. 2016AP601
enforceable Redemption Agreement which did not so require the
parties to submit to arbitration. The court of appeals reversed
and remanded with instructions to grant Midwest's motion to
compel arbitration.
¶89 We reverse the court of appeals and conclude that the
fundamental principles of freedom to contract allow parties to a
previous contract to subsequently contract for a different forum
of dispute resolution. Here, it is necessary that the circuit
court initially determine whether the parties contracted to
arbitrate. The court's authority to order arbitration is
dependent on the terms of a contract. If the Redemption
Agreement is the parties' contract, then the court lacks
authority to order arbitration. Thus, the court must first
ascertain which contract controls the forum of dispute
resolution. In sum, we conclude that it is a court's duty to
determine whether a contract calls for arbitration and when a
dispute exists as to whether a second contract without an
arbitration clause supersedes a first contract with such a
clause, the determination of arbitrability must be decided in
the first instance by the circuit court rather than the
arbitrator.
¶90 We also conclude, however, that the cause must be
remanded to the circuit court, not to compel arbitration as was
ordered by the court of appeals, but rather, because the
parties' competing affidavits submitted in support of their
positions on summary judgment raised genuine issues of material
fact concerning whether the Redemption Agreement is a valid
47
No. 2016AP601
contract. Therefore, we reverse and remand to the circuit court
for further proceedings.
By the Court.—The decision of the court of appeals is
reversed, and the cause is remanded to the circuit court for
further proceedings consistent with this opinion.
¶91 REBECCA FRANK DALLET, J., withdrew from participation.
48
No. 2016AP601.ssa
¶92 SHIRLEY S. ABRAHAMSON, J. (concurring). There are
two primary agreements in the instant case. The Operating
Agreement says that all disputes will be submitted to
arbitration and issues of substantive arbitrability will also be
decided by the arbitrator. The Redemption Agreement purports to
release Great Lakes and Pannu from any and all obligations
imposed upon them by the Operating Agreement, including any
agreement to arbitrate disputes.
¶93 The legal issues about which the parties disagree are
the effect of the Redemption Agreement on the Operating
Agreement and whether the Redemption Agreement is a valid
contract.
¶94 I agree with the majority that, if valid, the
Redemption Agreement releases Great Lakes and Pannu from the
agreement to arbitrate contained in the Operating Agreement, and
that the cause should be remanded to the circuit court to
determine whether the Redemption Agreement is a valid contract.
¶95 However, I write separately because the majority fails
to set forth a clear analytical framework through which the
legal issues presented in the instant case should be resolved
and mishandles federal case law in the process. Additionally,
the majority stumbles in its application of the law to the facts
in such a way that warrants both clarification and correction.
I
¶96 Although they are not binding on this court, several
decisions by the federal circuit courts of appeals have
1
No. 2016AP601.ssa
addressed the issue presented by the instant case.1 Of these
cases, Dasher v. RBC Bank (USA), 745 F.3d 1111 (11th Cir. 2014),
is the most helpful and worthy of special consideration.
¶97 In Dasher, Dasher sued the bank for allegedly charging
excessive overdraft fees in breach of his 2008 account
agreement. The 2008 Agreement contained an arbitration clause.
In 2012, a new account agreement was issued and Dasher accepted
that agreement. The 2012 Agreement did not contain an
arbitration clause. When the bank moved to compel arbitration
per the 2008 Agreement's arbitration clause, an issue arose as
to whether that clause was effective, given that the 2012
Agreement had superseded the 2008 Agreement.
¶98 The Dasher court rejected the bank's argument that an
arbitration clause in an entirely superseded agreement remains
effective unless specifically eliminated in the superseding
agreement. The Dasher court explained that "[d]espite [the
language in the cases cited by RBC], which certainly appears to
support RBC's contention, closer examination reveals a critical
distinction: in each case cited by RBC, the prior agreement
remained effective to some extent for various reasons, whereas
1
See, e.g., Dasher v. RBC Bank (USA), 745 F.3d 1111 (11th
Cir. 2014); Dottore v. Huntington Nat'l Bank, No. 1:09-cv-2636,
2010 WL 3861010 (N.D. Ohio Sept. 28, 2010), aff'd, 480 Fed.
Appx. 351 (6th Cir. 2012); Applied Energetics, Inc. v. NewOak
Capital Mkts., LLC, 645 F.3d 522 (2d Cir. 2011); Bank Julius
Baer & Co., Ltd. v. Waxfield Ltd., 424 F.3d 278 (2d Cir. 2005);
Riley Mfg. Co., Inc. v. Anchor Glass Container Corp, 157
F.3d 775 (10th Cir. 1998); Patten Sec. Corp., Inc. v. Diamond
Greyhound & Genetics, Inc., 819 F.2d 400 (3d Cir. 1987);
Matterhorn, Inc. v. NCR Corp., 763 F.2d 866 (7th Cir. 1985).
2
No. 2016AP601.ssa
here, the prior agreement is entirely superseded."2 The cases
cited by the bank could not stand for the proposition that
arbitration clauses in entirely superseded agreements remain
effective unless specifically eliminated because none of those
cases dealt with an entirely superseded agreement.3
¶99 In my view, the Dasher case persuasively articulates
the correct analytical framework.
¶100 Whether, and to what extent, a second contract
supersedes a prior contract containing an arbitration clause
such that the prior contract's arbitration clause is rendered
ineffective is an issue that must be decided by the court rather
than an arbitrator. The assertion that the prior contract's
arbitration clause was superseded calls into question the
enforceability of the arbitration clause specifically, including
the agreement to arbitrate issues of substantive arbitrability.4
¶101 In determining whether, and to what extent, a
subsequent contract supersedes a prior contract, the court
"should apply ordinary state-law principles that govern the
2
Dasher, 745 F.3d at 1120.
3
Id.
4
Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444
& n.1 (2006) (stating that a party resisting arbitration may
dispute that an agreement to arbitrate "ever concluded" or
"challenge[] specifically the validity of the agreement to
arbitrate"); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388
U.S. 395, 402-04 (1967); see also Granite Rock Co. v. Int'l Bhd.
of Teamsters, 561 U.S. 287, 297-300 (2010).
3
No. 2016AP601.ssa
formation of contracts."5 "If the subsequent agreement only
partially supersedes the prior agreement, amends it, or waives
some but not all of its provisions, the second question is
whether the arbitration provision was among the superseded,
amended, or waived provisions."6 If, however, the subsequent
agreement entirely supersedes the prior agreement, the court
should determine "whether the subsequent agreement alone
supports a motion to compel arbitration."7
II
¶102 I now apply the relevant state-law principles that
govern the formation of contracts.
¶103 The Wisconsin Arbitration Act provides, in pertinent
part, that arbitration clauses "shall be valid, irrevocable and
enforceable except upon such grounds as exist at law or in
equity for the revocation of any contract."8 A subsequent
contract that supersedes a prior contract constitutes "grounds
as exist at law or in equity for the revocation of any
contract."9 The question, then, is whether, and to what extent,
the Redemption Agreement, the second contract, supersedes the
Operating Agreement, the first contract.
5
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938,
944 (1995)
6
Dasher, 745 F.3d at 1122.
7
Id. at 1123.
8
Wis. Stat. § 788.01.
9
Majority op., ¶47.
4
No. 2016AP601.ssa
¶104 A subsequent agreement's supersession of a prior
agreement is typically accomplished by including a merger clause
in the subsequent agreement. In Wisconsin, this court stated
the following with respect to merger clauses:
[The appellant] argues . . . that an exception exists
to the general rule that parol evidence is admissible
with respect to the issue of integration; that
evidence of contemporaneous or prior agreements,
written or oral, which relate to the same subject
matter as the agreement in question is not admissible
when the written agreement embodies written terms
excluding additional understandings or agreements not
contained in the writing, i.e., 'merger' clauses.
With this much we can agree. Absent claims of duress,
fraud, or mutual mistake, a written provision which
expressly negatives collateral or antecedent
understandings makes the document a complete
10
integration.
¶105 A recent decision concerning merger clauses and
supersession of contracts, Town Bank v. City Real Estate
Development, LLC, 2010 WI 134, 330 Wis. 2d 340, 793 N.W.2d 476,
is instructive in resolving the dispute in the instant case.
¶106 Town Bank involved a two-phase financing agreement
between a bank and a developer for the purchase and
redevelopment of a building in downtown Milwaukee. A Commitment
Letter pledged financing for both phases of the project, but a
subsequent Term Credit Agreement (TCA) executed by the parties
provided financing for only the first phase. The TCA contained
the following clause:
10
Dairyland Equip. Leasing, Inc. v. Bohen, 94 Wis. 2d 600,
855-56, 288 N.W.2d 852 (1980); see also Matthew v. Am. Family
Mut. Ins. Co., 54 Wis. 2d 336, 341-42, 195 N.W.2d 611 (1972).
5
No. 2016AP601.ssa
This Agreement, including the Exhibits attached or
referring to it, the Note and the Security Documents,
are intended by Customer and Lender as a final
expression of their agreement and as a complete and
exclusive statement of its terms, there being no
conditions to the full effectiveness of their
agreement except as set forth in this Agreement, the
Note and the Security Documents.11
¶107 The bank provided the first phase of financing as
provided by the TCA, but refused to finance the second phase as
referenced in the Commitment Letter. The bank sued the
developer seeking a declaratory judgment that the bank was not
obligated to provide additional funding to the developer.
¶108 The Town Bank court concluded that because the TCA
contained an unambiguous merger clause, quoted above, the
developer was precluded from introducing any evidence of prior
understandings or agreements that may have existed between the
parties, including the Commitment Letter.12
¶109 Implicit in the court's holding was the conclusion
that the TCA and Commitment Letter related to the same subject
matter. That is, the Town Bank court (incorrectly, in my view)
must have concluded that the TCA was the final expression of the
parties' financing agreement altogether, as opposed to being the
final expression of only the first phase of financing. Were
this not the case, Town Bank would stand for the absurd
proposition that a fully integrated contract with respect to one
subject can extinguish contracts between the same parties with
11
Town Bank v. City Real Estate Dev., LLC, 2010 WI 134,
¶14, 330 Wis. 2d 340, 793 N.W.2d 476.
12
Id., ¶¶40-41.
6
 No. 2016AP601.ssa
respect to entirely unrelated subjects.13 This is not, and has
never been, how merger clauses operate in Wisconsin or
elsewhere.14
¶110 Thus, with these state-law principles in mind, I turn
to whether, and to what extent, the Redemption Agreement, if
valid, supersedes the Operating Agreement.
III
¶111 The majority suggests that, if valid, the Redemption
Agreement supersedes the Operating Agreement in its entirety.15
The Redemption Agreement does no such thing.
¶112 The merger clause in the Redemption Agreement states
that the Redemption Agreement "constitutes the entire agreement
between the parties pertaining to its subject matter and
supersedes all prior agreements, promises, covenants,
arrangements, communications, representations or warranties,
whether oral or written, by [Great Lakes] or [Midwest]."
(Emphasis added.)
¶113 Is the "subject matter" of the Redemption Agreement
identical to the "subject matter" of the Operating Agreement
such that the former entirely supersedes the latter? The answer
is clearly, "No."
13
Id., ¶¶68-72 & nn.10-13 (A.W. Bradley, J., dissenting).
14
Dairyland, 94 Wis. 2d at 608-09; Matthew, 54 Wis. 2d at
341-42; 11 Richard A. Lord, Williston on Contracts § 33:14 (4th
ed. 2002); Restatement (Second) of Contracts § 213.
15
See majority op., ¶¶47, 56, 64, 67, 75.
7
No. 2016AP601.ssa
¶114 The Operating Agreement's purpose is to provide "the
rights, obligations, and restrictions" that will apply to
Midwest and its Members. Within its scope are the subjects of
capital contributions, tax distributions, allocations of profits
and losses, the authority and powers of Midwest's officers and
Members, etc. It is a document that governs the internal
operations of Midwest. On the other hand, the Redemption
Agreement's purpose is to "set forth the terms upon which [Great
Lakes] will sell and [Midwest] will redeem [Great Lakes'] entire
Membership Interest[.]" It does not purport in any way to alter
or address the internal operations of Midwest and how those
operations are to be governed.
¶115 Although there is some overlap in subject matter
between the Operating Agreement and Redemption Agreement (e.g.,
how Great Lakes' Membership Interest is calculated and paid
out), the subject matter of the agreements is not identical.
¶116 The Redemption Agreement, if valid, would not entirely
revoke the Operating Agreement as the majority suggests.16 Even
if the Redemption Agreement is valid, the Operating Agreement
will still have binding effect on Midwest and all of its Members
even if it will no longer have any binding effect on Great Lakes
or Pannu. Would Midwest lack a written agreement as to its
16
At ¶¶59-60, the majority appears to read the merger
clause in a way that is untethered to the subject matter of the
Redemption Agreement. This suggestion gives further support to
the absurd proposition that merger clauses have the effect of
extinguishing prior agreements between the parties unrelated to
the subject matter of the contract in which the merger clause is
contained. See supra ¶108 and notes 13-14.
8
No. 2016AP601.ssa
internal operations simply because it agreed to allow the
voluntary dissociation of a Member and release that Member from
obligations imposed by the Operating Agreement? I think not.
¶117 Indeed, we have an example of an entirely superseded
contract in the instant case, namely, the 2002 Original
Operating Agreement. Section 1.4 of the 2005 Operating
Agreement states: "This Operating Agreement and the terms
hereof supersede and replace the Original Agreement and its
terms." There is no ambiguity——the 2005 Operating Agreement
completely and entirely extinguished the terms of the 2002
Original Operating Agreement. If Midwest had intended the
Redemption Agreement to entirely supersede the Operating
Agreement, one would expect to see language similar to what
Midwest used to entirely supersede the 2002 Original Operating
Agreement.
¶118 Thus, if valid, the Redemption Agreement does not
entirely supersede the Operating Agreement. However, that does
not end the inquiry. The court must also determine if the
Redemption Agreement supersedes the Operating Agreement at all,
and if so, whether the Operating Agreement's arbitration clause
is one of the superseded provisions.
¶119 The majority asserts that the Applicable Law provision
of the Redemption Agreement expressly supersedes "the Operating
Agreement's mode of adjudication, including its incorporation of
JAMS Arbitration Rules that granted the authority to the
arbitrator to determine arbitrability."17
17
Majority op., ¶64.
9
No. 2016AP601.ssa
¶120 The majority's assertion incorrectly conflates choice-
of-law provisions and arbitration clauses. Providing that
questions concerning the construction of a contract shall be
governed by Wisconsin law says nothing about the forum in which
those questions will be decided.
¶121 The majority finally finds its footing when it reaches
the Mutual Release provision of the Redemption Agreement. I
agree with the majority that "[t]he obligation or promise to
'resolve any and all disputes arising with respect to the terms
and conditions of this Operating Agreement . . . by arbitration'
seemingly fits within this release."18
¶122 Asserting that a subsequent contract released the
resisting party from its obligation to submit disputes to
arbitration is exactly the type of specific challenge to the
enforceability of a validly formed arbitration clause that the
United States Supreme Court requires.19 Great Lakes and Pannu do
not argue that the arbitration clause in the Operating Agreement
was invalidly formed. Rather, they argue that the arbitration
clause in the Operating Agreement cannot be enforced because the
18
Id., ¶61.
19
Buckeye, 546 U.S. at 444 & n.1; Prima Paint, 388 U.S. at
402-04; see also Granite Rock, 561 U.S. at 297-300.
10
No. 2016AP601.ssa
Mutual Release provision specifically revokes any obligation on
their part to submit to arbitration.20
IV
¶123 The majority's focus on the principles undergirding
freedom of contract is not misplaced or inappropriate——those
principles support the majority's conclusion that parties that
agreed to arbitrate disputes may undo that agreement if they so
choose. However, these principles alone do not provide a clear
analytical framework through which the legal issue presented in
the instant case should be resolved
¶124 I would articulate that framework as follows.
¶125 Whether, and to what extent, a second contract
supersedes a prior contract containing an arbitration clause
such that the prior contract's arbitration clause is rendered
ineffective is an issue that must be decided by the court rather
than an arbitrator. The assertion that the prior contract's
arbitration clause was superseded calls into question the
enforceability of the arbitration clause specifically, including
the agreement to arbitrate issues of substantive arbitrability.
¶126 In determining whether, and to what extent, a
subsequent contract supersedes a prior contract, the court
20
Puzzlingly, the majority calls into question this
framework. See majority op., ¶74 n.22. To be clear, Supreme
Court precedent establishes two ways in which arbitration
clauses may be challenged in and resolved by a court. The
resisting party may dispute that an agreement to arbitrate "ever
concluded," Buckeye, 546 U.S. at 444 n.1, or "challenge[]
specifically the validity of the agreement to arbitrate" as
Great Lakes and Pannu do in the instant case, Buckeye, 546 U.S.
at 444-45.
11
No. 2016AP601.ssa
should apply ordinary state-law principles that govern the
formation of contracts. If the subsequent contract only
partially supersedes the prior contract, amends it, or waives
some but not all of its provisions, the second question is
whether the arbitration provision was among the superseded,
amended, or waived provisions. If, however, the subsequent
contract entirely supersedes the prior contract, the court
should determine whether the subsequent contract alone supports
a motion to compel arbitration.
¶127 In the instant case, it appears that the purpose of
the Redemption Agreement was not to nullify or extinguish the
Operating Agreement in its entirety. Rather, the Redemption
Agreement sets forth the terms upon which Great Lakes will cease
to be a Member of Midwest and release Great Lakes and Pannu from
any and all obligations that the Operating Agreement might have
imposed upon them, including the obligation to submit disputes
arising out of the Operating Agreement to arbitration and to
allow the arbitrators to decide issues of substantive
arbitrability.
¶128 However, there is a genuine issue of material fact
with regard to whether the Redemption Agreement is a valid
contract. Thus, the cause should be remanded to the circuit
court for the determination of this issue.
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¶129 REBECCA GRASSL BRADLEY, J. (dissenting). The
majority nullifies the parties' arbitration agreement by
creating a new rule bestowing on the judiciary the power to
decide arbitrability even though the parties agreed an
arbitrator would resolve this issue. Ironically, the majority
invokes "fundamental principles of freedom to contract"1 but
nonetheless infringes on the contracting rights of private
parties and expands the statutorily limited role of the courts
when parties contract for arbitration. I would honor the
parties' contractual agreement to let the arbitrator decide
what, if any, impact the partially-executed Redemption Agreement
had on the existence and validity of the Operating Agreement.
¶130 Because the parties dispute the formation of the
Redemption Agreement as well as its effect on the continued
existence of the Operating Agreement, this court must apply the
rules the parties agreed to follow under their existing
contract, for "any and all disputes arising with respect to the
terms and conditions of this Operating Agreement." See
Operating Agreement, § 13.7. The dispute here is whether the
Redemption Agreement supersedes the Operating Agreement as to
Great Lakes and Dr. Pannu, thereby eliminating the arbitration
provision. This presents an issue of substantive arbitrability,
which the parties contractually agreed to have the arbitrator
decide. The majority acknowledges (albeit in a footnote) that
"[t]he JAMS Arbitration Rules in the Operating
1
Majority op., ¶5.
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Agreement . . . require that even the issue of arbitrability be
arbitrated"2 but overrides the parties' chosen method of dispute
resolution anyway.3 I would instead respect the parties'
contract, affirm the court of appeals, and remand the matter to
the circuit court with directions to send the case to the
arbitrator for resolution of this preliminary dispute.4 I
respectfully dissent.
2
Majority op., ¶2 n.2. "JAMS" is an acronym for Judicial
Arbitration and Mediation Services, Inc.
3
While the foundation of the majority's preference for
court resolution of arbitrability disputes is unclear, its
disdain for arbitration as a method of dispute resolution is
transparent in its declaration that "only those disputes that
the parties have agreed to so submit to arbitration are
relegated to proceed in that forum." Majority op., ¶43
(emphasis added). The majority misunderstands that the choice
of method for dispute resolution belongs to the parties, not the
court.
4
The arbitrator would first decide arbitrability, which
involves two inquiries: (1) "whether 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." Joint Sch. Dist. No. 10 v. Jefferson
Educ. Ass'n, 78 Wis. 2d 94, 111, 253 N.W.2d 536 (1977). In this
case, no party challenges the applicability of the arbitration
clause in and of itself; rather, Great Lakes and Dr. Pannu
dispute its enforceability, alleging that a second contract
eliminated the arbitration provision. If the arbitrator
determines that the arbitration clause in the Operating
Agreement no longer exists or is invalidated by the Redemption
Agreement, this case returns to court for ultimate disposition
of the underlying issue. If the arbitrator determines the
Redemption Agreement was never formed, the non-compete issue
would be resolved in an arbitration of the merits.
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No. 2016AP601.rgb
I
¶131 Principles governing arbitration disputes are rather
straightforward and should have controlled the disposition of
this case. First, Wis. Stat. § 788.01 (2015-16) recognizes
that:
A provision in any written contract to settle by
arbitration a controversy thereafter arising out of
the contract, or out of the refusal to perform the
whole or any part of the contract . . . shall be
valid, irrevocable and enforceable except upon such
grounds as exist at law or in equity for the
revocation of any contract.
Wisconsin has a longstanding "policy of encouraging arbitration
as an alternative to litigation," First Weber Grp., Inc. v.
Synergy Real Estate Grp., LLC, 2015 WI 34, ¶24, 361 Wis. 2d 496,
860 N.W.2d 498 (quoted source omitted), and "[t]here is a strong
presumption of arbitrability where the contract in question
contains an arbitration clause," Cirilli v. Country Ins. & Fin.
Servs., 2009 WI App 167, ¶14, 322 Wis. 2d 238, 776 N.W.2d 272.
¶132 Second, the circuit court generally decides
arbitrability unless the parties contract to have the arbitrator
decide it, as they have done here. See First Weber Grp., Inc.,
361 Wis. 2d 496, ¶36. The arbitrability issue addresses whether
the parties agreed to submit a dispute to arbitration. See
Kimberly Area Sch. Dist. v. Zdanovec, 222 Wis. 2d 27, 37, 586
N.W.2d 41 (Ct. App. 1998). When parties "clearly and
unmistakably" contract to have arbitrability decided by the
arbitrator, the circuit court must honor the parties' choice.
See AT&T Techs., Inc. v. Commc'ns. Workers of Am., 475 U.S. 643,
649 (1986). When the parties specifically incorporate the JAMS'
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Arbitration Rules in their contract, the court views their
inclusion as a clear and unmistakable agreement to remove the
arbitrability determination from the circuit court and place it
with the arbitrator. Mortimore v. Merge Techs., 2012 WI App
109, ¶20, 344 Wis. 2d 459, 824 N.W.2d 155; Oracle Am., Inc. v.
Myriad Grp. A.G., 724 F.3d 1069, 1074 (9th Cir. 2013)
("Virtually every circuit to have considered the issue has
determined that incorporation of [formal] arbitration rules
constitutes clear and unmistakable evidence that the parties
agreed to arbitrate arbitrability.").
¶133 Finally, as the majority recognizes,5 Chapter 788
prescribes a limited role for the courts over arbitration
proceedings, enumerating specific judicial powers. Notably
absent from this narrow conferral of judicial authority is the
power to remove decisions over arbitrability from the arbitrator
when the parties contractually assigned that issue to the
arbitrator alone.
II
¶134 Applying these rules, the answer is obvious: whether
these parties will arbitrate their underlying dispute must be
decided by the arbitrator. The Operating Agreement upon which
Midwest bases its non-compete claim against Great Lakes and Dr.
Pannu contains an arbitration clause, which plainly incorporates
JAMS Arbitration Rules:
5
Majority op., ¶46.
4
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Section 13.7. Arbitration. With the exception of
any decision made by Midwest pursuant to the terms of
Section 5.5 hereof ["Appointment of and Powers of the
Company President."] (which shall be deemed final),
the parties hereto agree to resolve any and all
disputes arising with respect to the terms and
conditions of this Operating Agreement hereby by
arbitration conducted by a single arbitrator selected
from a slate of potential arbitrators residing in the
Milwaukee, Madison or Chicago metropolitan areas, from
a slate of five, proposed by JAMS. The party
requesting arbitration shall strike the first name
from the slate and the other party shall strike the
next, alternating until a final individual remains,
who shall serve as arbitrator and conduct an
arbitration proceeding in accordance with the
Arbitration Rules of JAMS. The arbitrator shall have
the power to order temporary and permanent injunctive
relief, on an expedited basis if deemed necessary.
Any decision made by such an arbitrator within the
scope of his or her authority shall be binding upon
the parties. Unless agreed otherwise by the parties
and arbitrator, the arbitration shall take place in
Milwaukee County. The arbitration shall be governed
by the laws of the State of Wisconsin, this Operating
Agreement and the JAMS' Arbitration Rules[.]
(Emphasis added.) JAMS Rule 11(b) provides:
Jurisdictional and arbitrability disputes, including
disputes over the formation, existence, validity,
interpretation or scope of the agreement under which
Arbitration is sought, and who are proper Parties to
the Arbitration, shall be submitted to and ruled on by
the Arbitrator. The Arbitrator has the authority to
determine jurisdiction and arbitrability issues as a
preliminary matter.
(Emphasis added.) Accordingly, the arbitration provision of the
Operating Agreement evinces the parties' contractual agreement
to have the arbitrator, rather than the circuit court, decide
issues of arbitrability. The arbitration provision also
requires "any and all disputes arising with respect to the terms
and conditions of this Operating Agreement" be resolved in
arbitration under JAMS rules.
5
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¶135 Application of these rules under Wisconsin law easily
resolves this preliminary issue. The parties entered into a
contract with an arbitration clause, which incorporates JAMS
Arbitration Rules. Those Rules confer exclusive authority on
the arbitrator to decide issues of arbitrability. Controlling
law holds that by doing so, the arbitrability question must be
decided by the arbitrator——not the circuit court. The dispute
about whether the Redemption Agreement was formed challenges the
existence and validity of the Operating Agreement. JAMS Rule
11(b) controls and assigns authority to resolve this preliminary
dispute to the arbitrator alone. Allegations that a partially-
executed Redemption Agreement superseded the Operating Agreement
do not alter the analysis.
¶136 The majority expresses concern that "serious questions
exist as to whether the Operating Agreement still controls the
issue of arbitrability, whether the Redemption Agreement
supersedes that agreement, and to what extent, if any, one co-
defendant, Dr. Pannu individually, ever agreed to arbitrate."6 I
agree. But the parties' contract specifies that the arbitrator,
not a court, must answer these questions. The contract could
not be clearer: "arbitrability disputes, including disputes
over the . . . existence, [and] validity . . . of the agreement
under which Arbitration is sought, and who are proper Parties to
the Arbitration, shall be submitted to and ruled on by the
Arbitrator." Great Lakes and Dr. Pannu challenge the existence
6
Majority op., ¶54.
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and validity of the Operating Agreement in light of the
Redemption Agreement. The parties agreed the arbitrator would
decide this issue. Dr. Pannu disputes being a proper party to
the arbitration. The parties agreed the arbitrator would decide
this issue too. Contrary to the majority's minimization of the
arbitrator's authority to decide arbitrability as a mere
"presumption,"7 it is the parties' contract that requires
arbitrability to be decided by the arbitrator. The court errs
in interpreting Chapter 788 to require stripping the arbitrator
of his contractual authority; nothing in Chapter 788 empowers
the judiciary to override the parties' contracted method for
resolving this precursory issue.
¶137 Contrary to the majority's misconstruction of the
issue presented, this case is not about precluding parties from
entering into subsequent agreements or altering the parties'
preexisting choice of forum for dispute resolution. Certainly
parties are free to change their minds and revoke, cancel, or
otherwise invalidate the original agreement to arbitrate. But
any decision to undo a contractual agreement to arbitrate must
be mutual. If the parties did not dispute the formation of the
Redemption Agreement or its applicability to each of them, the
court may not be considering arbitration at all, given the
unchallenged and fully executed Redemption Agreement with a
merger clause. See Town Bank v. City Real Estate Dev., LLC,
2010 WI 134, 330 Wis. 2d 340, 793 N.W.2d 476. A merger clause
7
Majority op., ¶54.
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in a contract executed only by the party seeking to enforce that
merger clause in order to evade a prior agreement to arbitrate
does not have the same superseding effect when another party
disputes its formation and application to all parties.8
¶138 This court has repeatedly protected parties' freedom
to contract. Id., ¶33 (collecting cases). Our goal when
interpreting contracts freely entered into by the parties "is to
ascertain the true intentions of the parties as expressed by the
contractual language." Id. (quoted source omitted). "[T]he
best indication of the parties' intent is the language of the
contract itself" and unless the contract is ambiguous, we stick
to "the four corners of the contract, without consideration of
extrinsic evidence." Id. (quoted source omitted). The only
undisputed, freely-made contract before the court is the
Operating Agreement and its plain language says the parties want
"any and all" disputes about its existence or validity to be
resolved by the arbitrator. I would honor the parties' contract
by enforcing the arbitration provision in the Operating
Agreement.
¶139 The majority opinion quotes "fundamental principles of
freedom to contract" and acknowledges the "utmost liberty of
contracting" and holds these rights "sacred,"9 but then proceeds
8
Not only do Midwest and NEA challenge the formation of the
Redemption Agreement, they also dispute the applicability of its
merger clause to NEA based on language restricting its scope to
Dr. Pannu and Midwest.
9
Majority op., ¶5, ¶39.
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to disregard the plain text of the parties' Operating Agreement
and to ignore well-established arbitration principles supporting
freedom of contract rights. The majority invents a new
procedure for circuit courts to follow when a party to an
existing contract requiring arbitration contends the fully-
executed first contract is void due to the parties' negotiations
over a second contract, which one party signed but the other
party refused to sign. This unprecedented judicial intrusion
directs courts to ignore the contractual conferral of authority
on the arbitrator to decide arbitrability, and instead conduct a
full-blown court trial over the existence and validity of the
fully-executed contract containing the arbitration clause. As a
result, the parties who previously decided to resolve disputes
out-of-court will be subjected to a circuit court calendar
delaying any hope of resolving the merits of the non-compete
allegations until a factfinder resolves this preliminary dispute
in a forum the parties previously rejected in favor of private
arbitration.
¶140 In reaching this result, the majority erroneously
distinguishes and "clarifies," but does not overrule, the only
two Wisconsin cases addressing similar factual scenarios:
Cirilli, 322 Wis. 2d 238, and Mortimore, 344 Wis. 2d 459.
¶141 Cirilli involved a dispute between insurance agents
and their former employer, Country Insurance. 322 Wis. 2d 238,
¶2. The Agents' written agreements with Country required
binding arbitration for "any claim or controversy relating to or
arising out of the relationship between the Agent and the
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Companies." Id., ¶3. The Agents sued Country in circuit court
claiming Country owed them termination commissions under the
written agreements. Id., ¶2. Country filed a motion to compel
arbitration of the Agents' claims. Id., ¶3. The Agents argued
that a settlement agreement and release Country executed with
different former agents making similar claims superseded the
arbitration provision. Id., ¶5, ¶9. The Agents supported their
argument with the decision of an arbitrator, in a prior case
brought by different former agents, who determined the release
voided the arbitration requirement. Id., ¶¶6-7. The circuit
court agreed with the Agents' position and refused to order
arbitration. Id., ¶8. The court of appeals reversed and
ordered the matter sent to the arbitrator for determination.
Id., ¶19. The court of appeals held the Agents' claims for
termination commissions fell squarely within the agreement
requiring arbitration and the fact that another arbitrator
decided the release voided similarly situated agents' agreements
with Country cannot be the basis for avoiding the Cirilli
Agents' contractual language. Id., ¶¶15-18. The court of
appeals ruled that by concluding the release controlled, the
circuit court erroneously determined the merits of the Cirilli
Agents' claims——a task assigned to the arbitrator, not the
circuit court. Id.
¶142 Cirilli prohibits circuit courts from deciding the
merits when the parties have agreed to arbitrate disputes, even
when the answer is obvious and even when another arbitrator has
already ruled on the merits of an identical claim involving
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different claimants. Transferring a decision on the merits to
the circuit court usurps the freedom of contract and the mutual
decision two parties made to have disputes resolved by
arbitration.
¶143 What constitutes the "merits" of a case can be unclear
when one party argues a subsequent contract voided the
obligations under the original contract. Typically, the merits
will be the substantive allegation——here, Midwest's claim that
Dr. Pannu violated his non-compete obligation goes to the
"merits" of the dispute. However, the "merits" in this case
also include a determination that a subsequent contract voids
the existing contract because such a determination altogether
eliminates the non-compete claim. By having the circuit court
hold a trial whenever parties dispute the formation of a second
contract (despite the existing contract's requirement that
arbitrability be decided by the arbitrator), the majority
disregards both the parties' contract and longstanding
arbitration rules applied by both this court and the United
States Supreme Court.10
10
"[A] court is not to rule on the potential merits of the
underlying claims" even if the claims appear frivolous. AT&T
Tech., Inc. v. Commc'ns. Workers of Am., 475 U.S. 643, 649-50
(1986). Courts "have no business weighing the merits of the
grievance, considering whether there is equity in a particular
claim, or determining whether there is particular language in
the written instrument which will support the claim." Id. Any
doubts as to whether a claim should be arbitrated should be
resolved in favor of arbitration. Id. at 650. "[A] challenge
to the validity of the contract as a whole, and not specifically
to the arbitration clause, must go to the arbitrator." Buckeye
Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 449 (2006).
11
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¶144 In attempting to distinguish Cirilli, the majority
ignores the fact that the Cirilli Agents argued the release——
which did not contain an arbitration clause——superseded the
underlying agreement between the parties, including its
arbitration clause. This is the very issue presented in this
case and the majority is simply wrong to state otherwise.
Whether a subsequent agreement supersedes an earlier agreement
containing an arbitration clause is a "question[] not properly
before the court[.]" Cirilli, 322 Wis. 2d at 253, ¶18. In this
case, whether the Redemption Agreement supersedes the Operating
Agreement inquires into the existence and validity of the
Operating Agreement, an issue the parties agreed the arbitrator
must decide. The majority's interference with the arbitrator's
exclusive province threatens the freedom to contract; it does
not advance it.
¶145 In Mortimore, the court of appeals ordered arbitration
in a factual scenario almost identical to Midwest's. Mortimore
and his employer, Merge, had a written employment contract,
which contained an arbitration clause for claims "'arising out
of or relating to this Agreement.'" Mortimore, 344 Wis. 2d 459,
¶3. The arbitration clause incorporated American Arbitration
Association ("AAA") rules, and required any amendments to the
contract be "in writing and signed" by Merge. Id. Merge's
Compensation Committee and Mortimore were working on a new
contract for Mortimore and ostensibly reached an oral agreement
on a contract that did not contain an arbitration clause. Id.,
¶7. The new contract was never signed, however, because Merge
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learned Mortimore had interfered with Merge's audit, and
Mortimore subsequently resigned at Merge's request. Id., ¶8.
Mortimore sued Merge in court for breach of contract and Merge
requested the circuit court send the matter to arbitration.
Id., ¶¶9-10. The circuit court held an evidentiary hearing and
concluded the oral contract superseded the contract requiring
arbitration. Id., ¶10.
¶146 The court of appeals reversed, ruling that the
question of whether the unsigned second contract superseded the
arbitration-requiring contract was a question for the
arbitrator. Id., ¶21. The court of appeals held: (1) deciding
the oral agreement trumped the existing employment contract is a
determination on the merits that courts "do not make," id., ¶19
(citing AT&T Tech., 475 U.S. at 648-50); and (2) the parties
unmistakably indicated they wanted the arbitrator to decide
arbitrability as evidenced by the existing employment contract's
adoption of AAA arbitration rules, including Rule 7(a): "[t]he
arbitrator shall have the power to rule on his or her own
jurisdiction, including any objection with respect to the
existence, scope or validity of the arbitration agreement."
Id., ¶20 (brackets in Mortimore).
¶147 Mortimore is on all fours with the facts in the
current case. When parties have an existing contract with an
arbitration clause indicating the parties want the arbitrator to
decide arbitrability, whether a subsequent oral or partially
executed agreement supersedes the existing contract is an issue
the arbitrator must decide.
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¶148 By favoring judicial resolution of the preliminary
issue of arbitrability due to the mere possibility that a second
contract might be valid, the majority ignores both the language
of the Operating Agreement as well as longstanding arbitration
principles. Because the parties dispute whether a second
contract superseded the first, the plain text of the first
contract, requiring that arbitrability be decided by the
arbitrator, governs. The parties, who agreed to resolve "any
and all disputes" by arbitration, should get the benefit of
their bargain. Instead of honoring the parties' contract to
arbitrate, the majority sets it aside.
¶149 The majority hollowly recites the pivotal precept that
"[f]reedom of contract is based on the idea that individuals
should have the power to govern their own affairs without
interference,"11 but nevertheless unseats the contractually-
chosen arbitrator in favor of a judicially-imposed circuit court
to resolve a dispute between parties who expressly rejected the
court system as a forum for dispute resolution. Because I would
enforce the parties' contractual expectations, I respectfully
dissent.
11
Majority op., ¶39 (quoting Solowicz v. Forward Geneva
Nat'l, LLC, 2010 WI 20, ¶34, 323 Wis. 2d 556, 780 N.W.2d 111).
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1