Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—7th Cir.: Financial services franchisee unable to overturn arbitrators’ award of nearly $450K, (Feb 2, 2015)

By Greg Hammond, J.D.

A terminated financial advisor franchisee could not overturn an arbitration award, dismissing his counterclaim for breach of contract in violation of the Wisconsin Fair Dealership Law (WFDL) and imposing a judgment against him in the amount of $448,200. In affirming an order by the federal district court in Milwaukee, upholding the arbitrators’ decision, the U.S. Court of Appeals in Chicago determined that the district court properly reviewed the arbitrators’ award under the Federal Arbitration Act (FAA), the arbitrators did not have a manifest disregard of the law, and opposing counsel did not engage in fraud during the arbitration proceedings (Renard v. Ameriprise Financial Services, Inc., January 30, 2015, Wood, D.).

Background. In 2009, Ameriprise Financial Services, Inc.—a financial brokerage firm—entered into a franchise agreement with Paul Renard as an affiliated independent financial advisor. Between 2009 and 2011, Renard executed four promissory notes to repay Ameriprise $530,000, which was lent to him to build his practice. In May 2011, Ameriprise sent Renard a Notice of Special Regulatory Supervision, stating that a complaint was received alleging that a client was solicited to purchase Electronic Transfer Funds that were unsuitable and resulted in a financial loss. Ameriprise initiated an investigation and placed Renard under special supervision during its review. Subsequently, Ameriprise issued a Notice of Immediate Termination for Cause, stating that the investigation found a breach of the franchise agreement due to several violations, including the solicitation of purchases in leveraged and inverse ETFs and the submission of client orders marked as unsolicited when the orders were in fact solicited.

As a result of the termination, the unpaid balances of the promissory notes became immediately due to Ameriprise. When Renard failed to satisfy the notes, Ameriprise filed an arbitration claim with the Financial Industry Regulatory Authority Dispute Resolution. Renard filed counterclaims, asserting a violation of the WFDL, among other claims. An arbitration panel found Renard liable for damages and dismissed his counterclaims. The federal district court in Milwaukee affirmed the arbitration award, finding that the arbitrators did not exceed the scope of their power in denying Renard’s claim under the WFDL. Renard appealed.

FAA. First, the appellate court was faced with the question of whether the district court correctly reviewed the arbitrators’ award under the FAA. It concluded that the district court properly reviewed the award under the FAA because, although the franchise agreement is generally governed by Minnesota law, it specifically removed arbitration from that blanket statement. Despite Renard’s argument that application of the FAA instead of the Wisconsin Arbitration Act would circumvent the WFDL, the court found that the WFDL does not mention the Wisconsin Arbitration Act, and there is a long line of cases that show the FAA preempts inconsistent state law.

Manifest disregard of the law. In his first substantive argument, Renard asserted that the arbitrators manifestly disregarded the law by failing to apply the WFDL to the facts of the case. The court, however, noted that the arbitrators’ award could be set aside only if they deliberately disregarded what they knew to be the law. Consequently, even if the arbitrators erred in their application of Minnesota law or the WFDL, such an error falls short of a manifest disregard of the law. Because Renard conceded that the arbitrators analyzed the WFDL, the court concluded that it was not manifest disregard of the law to consider the WFDL and to conclude that the law does not apply in this case.

Fraud. Renard also accused Ameriprise of procuring the arbitral award by fraud, arguing that Ameriprise’s counsel stated that Renard committed fraud and violated federal securities laws, when he was not convicted of those violations, and that opposing counsel misrepresented cases during closing arguments. The court rejected both arguments, finding that opposing counsel’s closing argument remarks did not misinterpret the record, because it was a reasonable inference that Renard broke the law based on his testimony. In addition, opposing counsel did not misrepresent cases merely by not spelling out the differences between them, the court concluded. The district court’ order upholding the arbitrators’ award was therefore affirmed.

The case number is 14-1730.

Attorneys: Terry J. Gerbers (Gerbers Law SC) for Paul J. Renard. Ryan S. Stippich (Reinhart Boerner Van Deuren SC) for Ameriprise Financial Services Inc.

Companies: Ameriprise Financial Services Inc.

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