March 14, 2012
– In a case of first impression, a state appeals court recently
ruled that circuit courts can’t review intermediate arbitration
rulings until a panel has made a final award.
The appeals court also clarified that arbitration panels, not circuit
courts, have exclusive authority to interpret arbitration agreements
with respect to procedural issues.
After an auto accident, plaintiffs Mary and Leslie Marlowe agreed to
arbitrate an uninsured motorist claim with their insurer, IDS Property
Casualty Insurance Company.
IDS requested discovery in the form of depositions, medical records,
and independent medical exams. But the Marlowes did not
comply with the request, arguing that discovery in arbitration is
limited to depositions under Wisconsin’s Arbitration Act,
specifically Wis. Stat. section 788.07.
The arbitration agreement stated that “local rules of law as to
procedure and evidence will apply” in arbitration. IDS argued that
this provision meant full discovery was permitted, that is, discovery to
the extent permitted by ch.
804 governing discovery in civil litigation.
On IDS’s motion, the arbitration panel decided the discovery
issue in favor of IDS, ruling the arbitration agreement allowed
discovery under the state’s civil rules of procedure.
The Marlowes then filed a declaratory action in circuit court, which
ruled that the arbitration panel’s discovery ruling was incorrect
– only depositions were discoverable.
On appeal, IDS argued that the circuit court did not have authority to
rule on that issue because the arbitration panel had not rendered a
final award. In Marlowe
v. IDS Property Casualty Ins. Co., 2011AP2067 (March
13, 2012), the District II appeals court agreed with IDS.
The court reviewed several federal cases interpreting provisions in the
Federal Arbitration Act to hold that arbitration rulings are generally
not immediately reviewable.
“If every individual decision of an arbitration panel were
separately and independently reviewable by a circuit court, the
advantages of arbitration would become meaningless, as both litigation
costs and delay would increase significantly,” wrote Judge Gregory
Peterson.
However, the appeals court left open the possibility that interlocutory
review of arbitration panel rulings may be appropriate in exceptional
circumstances to prevent manifest injustice, to preserve assets, or
where the arbitration panel’s ruling does not involve a procedural
issue.
Exclusive authority when parties agree
The appeals court also clarified that the circuit court did not have
authority to substitute its interpretation of the arbitration agreement
for that of the arbitration panel, distinguishing Borst v. Allstate
Ins. Co., 2006 WI 70, 291 Wis. 2d 361, 717 N.W.2d 42.
In that case, Allstate insurance wanted full discovery and got it.
After an arbitration panel rendered its award, appellant Borst
challenged the panel’s decision, arguing that discovery should
have been limited to depositions only under Wis. Stat. section
788.07.
Ultimately, the Wisconsin Supreme Court in Borst ruled that
the arbitration panel did not have authority to order additional
discovery beyond depositions, because the arbitration agreement was
silent regarding the scope of discovery. In Marlowe, the
agreement was not silent.
“Borst illustrates that, while an arbitrator lacks
inherent power to order additional discovery beyond the taking of
depositions, parties to an arbitration agreement are free to draft the
agreement to allow for a broader range of discovery,” Judge
Peterson explained.
In stating that the “local rules of law as to procedure and
evidence will apply” in arbitration, the parties arguably agreed
on the scope of discovery, the appeals court explained. Thus, the
arbitration panel had exclusive authority to interpret the scope of
discovery issue.
