April 7, 2022 – The Wisconsin Court of Appeals has affirmed a Dane County Circuit Court’s decision to vacate an arbitration award because the arbitrator fell asleep during testimony by the plaintiff’s expert witness.

In Imhoff Homebuilders, Inc. v. Taylor, 2019AP2205 (March 31, 2022), the Court of Appeals District IV held that the plaintiffs had shown by clear and convincing evidence that the award must be vacated because the arbitrator failed to perform his duty.

Homeowners Claim Arbitrator Fell Asleep

Homeowners Lisa Taylor and Luis Cuevas sued Loren Imhoff Homebuilder, Inc. (Imhoff) for breach of contract in 2019.

A mediator failed to settle the dispute, so Imhoff filed a petition to compel arbitration under the terms of the contract it had executed with Taylor and Cuevas.

An arbitrator conducted a five-day evidentiary hearing. After the hearing but before the arbitrator issued the award, Taylor and Cuevas raised objections to the arbitration and asked that he recuse himself.

Taylor and Cuevas claimed that the arbitrator had showed bias toward Imhoff. They also claimed that he fell asleep multiple times during the hearing and missed out on evidence presented by their expert witness.

The arbitrator dismissed the homeowner’s objections and awarded Imhoff $320,000 in damages and fees, without addressing the homeowner’s claim that he’d fallen asleep during the hearing.

Imhoff brought a motion in Dane County Circuit Court to confirm the award. Taylor and Cuevas moved to vacate the award, in part based on their allegation that the arbitrator had fallen asleep during the hearing.

Reversal in Court of Appeals

The circuit court found that the homeowner’s testimony about the arbitrator falling asleep during the hearing was credible.

Imhoff’s lawyer testified that he didn’t see the arbitrator sleeping during the hearing. The circuit court found that Imhoff’s lawyer’s testimony was not a denial because the lawyer did not reject the proposition that the arbitrator had fallen asleep.

The circuit court ruled that the arbitrator had imperfectly exercised his power and his award had no effect. The Wisconsin Court of Appeals reversed.

The court of appeals held that Taylor and Cuevas forfeited their right to object to the arbitrator’s falling asleep.

The Wisconsin Supreme Court reversed, holding in a unanimous (6-0) decision that the plaintiffs preserved their objection by making it before the award was issued.

But the supreme court split 3-3 on whether the arbitrator’s sleeping warranted vacating the award, so the court remanded the case to the court of appeals for consideration of that issue.

Which Standard of Review?

Writing for a three-judge panel, Presiding Judge Brian Blanchard noted that the issue of which standard of review should apply to a circuit court’s findings of fact in a challenge to an arbitration award was one of first impression in Wisconsin.

The court of appeals held that the general standard – one that reviews findings of fact for clear error – should apply.

“This rule is based on the superior position of the circuit court to assess credibility and discern factual nuances compared with appellate review, which the appellate court must base exclusively on items in the appellate record,” Judge Blanchard.

Federal appellate courts and appellate courts in Utah and Hawaii had applied the same standard to a circuit court’s findings of fact in an arbitration challenge, Judge Blanchard pointed out.

No Clear Error

In applying that standard, the court of appeals held that the circuit court’s findings of fact were not contrary to “‘the great weight and clear preponderance of the evidence,’” and that the evidence would allow a reasonable person to make the same findings as the circuit court had.

Imhoff pointed to nothing that would establish clear error in the circuit court’s ruling, Judge Blanchard explained.

Imhoff argued that the arbitrator addressed each claim of damages put forward by the plaintiff’s expert and even credited some of the claims in the award.

That evidence showed the arbitrator was aware of the expert and the expert’s claims, Judge Blanchard explained. But Imhoff “fails to explain why this evidence establishes clear error, as opposed to merely providing a basis for finding that the court could have but did not make,” Judge Blanchard wrote.

Imhoff also argued that in testifying about the arbitrator’s falling asleep, Taylor qualified her testimony or admitted to limited perception.

“As our summary above makes clear, the court had a basis to interpret the entirety of the evidence, including Taylor’s testimony, as establishing that there was sleeping that was certain, extensive, and significant to the arbitrator’s ability to render an award based on all relevant evidence and argument,” Judge Blanchard wrote.

Presumption Overcome

The court of appeals conducted a de novo review of the circuit court’s decision to vacate the arbitration award.

Judge Blanchard pointed out that under Wisconsin Supreme Court precedent, arbitration awards are presumed to be valid.

But Blanchard explained that the plaintiffs had overcome that presumption by showing by clear and convincing evidence that the arbitrator had so imperfectly executed his powers that he failed to make a final and definite award upon the subject matter of the arbitration.

In Garstka v. Russo, 37 Wis. 2d 146, 154 N.W.2d. 286 (1967), the Wisconsin Supreme Court held that an arbitration award that decided only one of two issues assigned to the arbitrators must be vacated because the arbitrators performed only half their duties.

The failure of the arbitrators in Garstka differed in kind from the failure of the arbitrator in the instant case. However, Blanchard noted, the essential interpretation of the statutory language at issue in Garstka applied in the instant case.

By falling asleep, Judge Blanchard explained, the arbitrator had failed to perform his duty.

“This was not a mere mistake of fact or law, which are generally insufficient to overcome the presumption of validity,” Blanchard wrote. “Instead, the arbitrator’s execution of the arbitral assignment was fundamentally flawed.

“The resulting award could not be considered ‘final and definite’ due to this failure to fulfill a fundamental duty.”​