The difficulty of amending ARBITRATION CLAUSES OUT

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From the Feb 2010 issue of WI Lawyer Magazine. (Court of Appeals digest section)

Arbitration – Release
Cirilli v. Country Ins. & Fin. Servs., 2009 WI App 167 (filed 28 Oct. 2009) (ordered published 24 Nov. 2009)

Former agents of Country Insurance and Financial Services (Country) alleged that it breached their agent’s agreements by not paying them termination commissions. The agreements contained a mandatory arbitration clause, which Country invoked. The circuit court, however, ruled that the arbitration provision was inapplicable because of Country’s participation in a separate settlement agreement and release. Since that release did not contain an arbitration clause, the court ruled that it effectively superseded the provision in the agent’s agreements.

The court of appeals reversed in an opinion written by Judge Neubauer. “There is a strong presumption of arbitrability where the contract in question contains an arbitration clause…. Any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. Thus, when a court is called upon to ascertain the arbitrability of a dispute, 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” (¶ 14). The court held that the complaint by the former agents fell “squarely within the plain language of the mandatory arbitration clause of the Agent’s Agreement. The Cirilli Plaintiffs’ claim for the disputed termination commissions relate to and arise out of the relationship between the Cirilli Plaintiffs and Country, the Agent’s Agreement and the termination of the Agent’s Agreement. Further, a review of the Agent’s Agreement reveals no other contract provision that specifically excludes arbitration of a dispute over termination commissions. The dispute is therefore arbitrable” (¶ 16).

The release did not compel a different outcome. Said the court, “Any determination that the Settlement Agreement and Release releases Country’s claims or defenses is a determination on the merits. As noted above, it is well established that when determining arbitrability the court must not rule on the potential merits of the underlying claim” (¶ 17).