March 22, 2022 – A Dane County couple did not forfeit their right to object to an arbitrator’s conduct by waiting until after the evidentiary hearing to make the objection, the Wisconsin Supreme Court has ruled.

In Loren Imhoff Homebuilders, Inc. v. Taylor, 2022 WI 12 (March 1, 2022) the supreme court unanimously (6-0) held that the couple preserved their right to object to the arbitrator’s conduct by making the objection before the arbitration award was issued. Justice Jill Karofsky did not participate in the decision.  

Homeowners Claim Arbitrator Fell Asleep

Homeowners Lisa Taylor and Luis Cuevas sued Loren Imhoff Homebuilder, Inc. (Imhoff) for breach of contract in 2019. Taylor and Cuevas were unhappy with work Imhoff performed on a remodeling project. They also cited discrepancies on invoices.  

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 as a result 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 because they 1) didn’t raise the issue during the evidentiary hearing; 2) failed to request that the arbitrator reconsider any missed evidence; and 3) failed to raise the sleeping issue until after the evidentiary hearing was closed. 

Arbitration Different From Court Hearing

In her opinion for the majority, Justice Patience Roggensack explained that arbitration is a creature of contract, and therefore arbitration proceedings are not required to follow court procedures.

For instance, Justice Roggensack wrote, “arbitrators are not required to have any legal education or background and are, instead, chosen based on ‘their integrity and impartiality as well as for their professional competence and knowledge of business affairs.’”

Wisconsin, Justice Roggensack wrote, is one of many jurisdictions that require a party to make an objection before the arbitration award is issued, in order to preserve the objection.

The court of appeals was wrong to hold Taylor and Cuevas to the standard for making an evidentiary objection in a court hearing, Roggensack wrote.

“Unlike a judicial evidentiary hearing, where case law directs a general rule that failure to contemporaneously object to an issue may result in a forfeiture of the argument on appeal, this arbitration hearing had no such rule … Arbitration often is selected in order to escape the formalities inherent in a judicial process.”

Issue of Award is Cut-off for Objections

Justice Roggensack also noted that under Wisconsin law, “an arbitration is not concluded until the arbital award is issued.”

“As long as an objection to a new issue is raised before the merits are decided, the policy goals underlying forfeiture are protected and the fairness of the proceeding is preserved,” Justice Roggensack wrote.

Before the award is issued, the arbitrator remains free to hear or rehear testimony and to fix other errors without the need for an appeal of the award, Roggensack explained.

“Furthermore, by raising an issue to the arbitrator, the danger of ‘sandbagging’ the process and claiming the unraised issues as a grounds for reversal is mitigated,” Justice Roggensack wrote.

Taylor and Cuevas did not forfeit their right to object to the arbitrator’s sleeping, Roggensack explained, because they made the objection before the arbitrator issued the award.

The court was evenly divided on the issue of whether the arbitrator’s sleeping warranted vacating the award, Justice Roggensack noted. The supreme court remanded the case to the court of appeals for consideration of that issue.