The Cirilli plaintiffs, also former Country agents later affiliated with Couri (see “2 Previous Lawsuits”, filed suit in Waukesha County against Country, alleging that they were entitled to termination commissions and that Country, under the settlement agreement, had released all defenses against their claims. Country moved to compel arbitration, arguing that the dispute fell within the arbitration clause of the agent's agreement.

The circuit court ruled that the Cirilli plaintiffs were substantially the same as those in the Minnesota litigation and that the settlement agreement governed, as it superseded the agent's agreement and the settlement agreement did not contain an arbitration clause.

The circuit court denied Country's motion to compel arbitration and granted summary judgment in favor of the Cirilli plaintiffs. Country appealed, and the court of appeal reversed, holding that the Cirilli plaintiffs' complaint seeking payment of termination commissions due under the agent's agreement fell squarely within the plain language of the arbitration clause of that agreement.

Arbitrator decision

The arbitrator held an evidentiary hearing and issued a final decision after the parties submitted supplemental briefs. According to the arbitrator's decision, the Cirilli plaintiffs again argued that Country had released all defenses against claims from Country agents later associated with Couri and that the Reis arbitrator's decision precluded relitigation of the issues. The arbitrator concluded that the evidence did not support the Cirilli plaintiffs' theory that the settlement agreement was meant to apply to the claims for termination commissions of unnamed agents not involved in the Minnesota litigation.

Further, the Cirilli plaintiffs had not identified any errors in or addressed why she should revisit her previous decision not to apply claim and issue preclusion. Ultimately, the arbitrator found that the Cirilli plaintiffs' claims were time barred under the limitations period in the agent's agreement.

Court of Appeals review

The Court of Appeals reviewed only the arbitrator's decision recognizing that such a review begins with a presumption that the award is valid. An appellate court will only set aside an arbitration award if its invalidity is demonstrated by clear and convincing evidence. Manifest disregard of the law exists when an arbitrator understands and correctly states the law, but ignores it.

Related: Read “Worst of the Best“

The use of the legal defense of issue preclusion prevents the relitigation of issues that have actually been litigated in a prior proceeding. Identity of the parties is not required. Issue preclusion is grounded in fundamental fairness, and whether to apply issue preclusion depends on an array of factors:

• Could the party against whom preclusion is sought, as a matter of law, have obtained review of the judgment?
• Is the question one of law that involves two distinct claims or intervening contextual shifts in the law?
• Do significant differences in the quality or extensiveness of proceedings between the two courts warrant relitigation of the issue?
• Have the burdens of persuasion shifted such that the party seeking ­preclusion had a lower burden of persuasion in the first trial than in the second?
• Are matters of public policy and individual circumstances involved that would render the application of collateral estoppel to be fundamentally unfair, including inadequate opportunity or incentive to obtain a full and fair adjudication in the initial action?

The arbitrator accurately cited the law and specifically identified several factors that she considered relevant to her conclusion that application of issue preclusion was inequitable. The arbitrator spent several pages of her decision explaining why she thought the Reis arbitrator was wrong in finding that the settlement agreement was binding on the Reis dispute.

Specifically, she reviewed the Reis arbitrator's decision that the issues in the Minnesota litigation “were similar, if not identical” to the issues in the Reis arbitration. Country had offered evidence to the Cirilli arbitrator that there was no commonality of claims between the Minnesota and Reis proceedings. According to Country's arbitration submission, Country sought injunctive relief against the Minnesota defendant agents, while the plaintiff agents in the Reis proceeding sought termination commissions.

Termination commissions were not referenced in the Minnesota pleadings. Based on this information, the Cirilli arbitrator concluded that the Reis decision was incorrect, and thus, the Cirilli arbitrator declined to give it preclusive effect in the Cirilli arbitration. Furthermore, the arbitrator concluded that Country's “inability to obtain meaningful review” of the Reis decision supported her conclusion not to apply issue preclusion.

The Wisconsin Court of Appeals reasoned that an arbitrator's decision must be upheld, even if it represents an error of fact or law. This means that the arbitrator in this case must have entered an award with a manifest disregard of the law or perverse misconstruction, as the Cirilli plaintiffs assert. The arbitrator here set forth the relevant law and applied it in a reasoned and thorough manner.

Related: Read “NY Court: No Duty to Read“

The arbitrator decided that claim preclusion did not apply because the Cirilli plaintiffs had not shown privity with the Reis plaintiffs. At arbitration, the Cirilli plaintiffs' sole argument on privity was that both they and the Reis plaintiffs were within the class of former Country agents who later affiliated with Couri. Claimants' membership in a group of former agents does not establish privity between them and the Reis plaintiffs. Because claimants are not the same parties as the Reis plaintiffs, and have not shown privity between them, this element was not met.

The parties bargained for the judgment of the arbitrator—correctly or incorrectly—whether that judgment is one of fact or law. The Court of Appeals is no more empowered to review the second arbitrator's decision as to whether the underlying decision on the scope of the settlement agreement was legally or factually correct in this case as it would have been on appeal in the first. It would be against the strong public policy in favor of honoring arbitration agreements for the court to apply a more stringent review just because it involves claim and issue preclusion.

Insurance agents and brokers enter into contracts that are written and enforceable. Almost all contain arbitration agreements to resolve disputes. They are bound to the award of the arbitrator unless it is a manifest disregard of the law.

In this case the arbitrator applied the law as it existed and refused to allow the agents to use a settlement agreement in one case as a weapon against the defendant when the reason for the settlement agreement had nothing to do with the agents' claims.

The lesson taught by this case is that there is no easy way to get termination pay when it is not allowed by the contract. Tricks and claims based on other cases will not work. Rather, use the facts applicable to your case.

2 Previous Lawsuits

Prior to the present case, there were two lawsuits between Country and two other groups of former agents. The Wisconsin Court of Appeals first considered the Minnesota litigation, in which Country sued seven former agents who had left its employ and had begun working for Couri Insurance Associates LLC. Country sued the agents and Couri, alleging that the agents had breached the covenant not to compete in their agent's agreement with Country. The Minnesota litigation ended in settlement, with Couri paying Country $75,000 and Country releasing all claims, causes of action, defenses, offsets or counterclaims, whether known or unknown.

A different group of former Country agents, the Reis plaintiffs, successfully used the settlement agreement offensively to recover termination commissions in a Waukesha county action against Country. The five Reis plaintiffs also were former Country agents who had become affiliated with Couri.

The Reis plaintiffs filed suit against Country, alleging that Country owed them termination commissions due under the agent's agreement. Country moved to compel arbitration pursuant to the arbitration clause in the agent's agreement, and the Reis plaintiffs submitted the settlement agreement to the arbitrator, arguing that it barred Country's asserted defenses to their action.

The arbitrator found that Country had released any defenses it was asserting for refusing to pay the termination commissions. Country moved for reconsideration, but the arbitrator determined that he did not have the required jurisdiction to consider the motion. Country moved for remand so that the ­arbitrator could consider the motion to ­reconsider, which the circuit court denied and entered judgment confirming the arbitrator's award in favor of the Reis plaintiffs.