In a recent decision of the U.S. District Court for the Eastern District of Wisconsin, the court held that an arbitration panel’s finding that federal securities laws preempt the application of the Wisconsin Fair Dealership Law (WFDL) could be made by the panel “without [panel members] taking leave of their senses.” The ruling provides an example of another potential avenue for grantors to challenge the application of WFDL when federal law supports termination of the parties’ relationship.
The petitioner, Renard, was an independent financial advisor who had entered a franchise agreement with Ameriprise Financial Services, Inc. (“Ameriprise”). Ameriprise alleged that it terminated its agreement with Renard in June, 2011, shortly after determining that Renard had engaged in practices that violated federal securities laws. Ameriprise then sought to collect the unpaid balance on promissory notes due from Renard; when payment was not forthcoming, Ameriprise filed for arbitration with Financial Industry Regulatory Authority (“FINRA”) Dispute Resolution. The arbitration panel found Renard liable for damages of approximately $450,000, and dismissed his claims that Ameriprise violated the WFDL by failing to provide notice and an opportunity to cure as required by the WFDL.
Renard filed suit seeking to vacate the panel’s award, to the extent that it dismissed petitioner’s counterclaims in the arbitration. The scope of the court’s review of the panel’s award, however, was limited. Under both federal and state law, an arbitration award can be vacated only in specified, limited circumstances. Among the arguments made by Renard was that the arbitrators exceeded their powers by disregarding Wisconsin law in dismissing petitioner’s WFDL claims.
Ameriprise responded that it had the right to immediately terminate Renard based on his alleged violations of federal securities laws, because federal law preempts any notice requirements of the WFDL and Ameriprise could be liable for Renard’s violations of federal securities laws. Renard’s expert testified that Ameriprise was required to comply with WFDL notice requirements “unless … doing so would be in violation of federal statute.” The court found that based on the evidence and arguments presented, the arbitrators could have agreed with Ameriprise’s interpretation of the WFDL, and thus did not exceed their authority in dismissing the WFDL claims.
(Paul J. Renard v. Ameriprise Financial Services, Case No. 13-CV-555-JPS (E.D. Wis., 3/6/14).)