The Franchise Memorandum

Affirming a district court decision that had in turn confirmed an arbitration award for a franchisor, the United States Court of Appeals for the Seventh Circuit last Friday ruled that an arbitrator's alleged error of law would not constitute manifest disregard of the law. Renard v. Ameriprise Fin. Servs., Inc., 2015 U.S. App. LEXIS 1558 (7th Cir. Jan. 30, 2015). Ameriprise, the franchisor in this case, had won an arbitration award against the Wisconsin-based franchisee, Renard, of more than $448,000 on promissory notes. In the arbitration hearing, Renard had argued that he did not have to repay the notes because Ameriprise had breached the franchise agreement between the parties, and that it had violated the Wisconsin Fair Dealer Law (WFDL). He lost, but the threearbitrator panel did not explain its award. Renard then sought to vacate the award, and Ameriprise sought to have it confirmed. In the federal district court, Ameriprise prevailed again.

On appeal, the Seventh Circuit first held that the Federal Arbitration Act (FAA), rather than Wisconsin state arbitration law, controlled the proceedings. Importantly, the FAA preempts certain state law, particularly any WFDL provision that could be claimed to require Wisconsin franchisees to have the benefit of the state law on arbitration. In addition, under the FAA, an arbitral award cannot be vacated by a court even if the losing party shows that the arbitrators made an error of law. In this case, even Renard conceded that the arbitrators had considered and analyzed the law that he claimed applied; they just determined that it did not apply to the fact situation at issue. For that reason, the Seventh Circuit held that the arbitrators had not "disregarded" the law at all, and the award was upheld.