Mayer v. Soik

• Decision Date: 21 July 2021
• Docket Number: Appeal No. 2020AP199
• Citation: 2022 WI App 7,970 N.W.2d 572 (Table)
• Parties: John MAYER and Dianne Mayer, Plaintiffs-Respondents, v. Conroy SOIK and Mary Soik, Defendants, Steve Anderson, Defendant-Appellant.
• Court: Wisconsin Court of Appeals

970 N.W.2d 572 (Table)

2022 WI App 7

John MAYER and Dianne Mayer, Plaintiffs-Respondents,

v.Conroy SOIK and Mary Soik, Defendants,Steve Anderson, Defendant-Appellant.

Appeal No. 2020AP199

Court of Appeals of Wisconsin.

July 21, 2021

DAVIS, J.

¶1 Normally only parties to a contract have standing to enforce it. There are exceptions. This case requires us to address the applicability of one or more of these exceptions. Specifically, we are asked to determine if and when a nonsignatory to a franchise agreement—here, a corporate officer of the franchisor—has standing to enforce an arbitration provision.

¶2 This issue arises in the context of a dispute between franchise partners. John and Dianne Mayer and Conroy¹ and Mary Soik (collectively, the Partners) own three Culver's restaurant franchises. The Mayers initially sued the Soiks, alleging breach of the Partners’ operating agreements and various business torts. The Mayers later joined Steve Anderson, General Counsel and Vice President of Legal Affairs for Culver's Franchise Systems (CFS), the franchisor. The Mayers alleged that Anderson injected himself into this internecine partnership dispute by taking the Soiks’ side and, in the course of doing so, committed various torts. Anderson moved to compel arbitration of the claims against him pursuant to an arbitration provision in the franchise agreement² between CFS and the Partners’ corporate franchisee. The trial court denied the motion. Anderson now appeals.³

¶3 Anderson invokes various legal theories recognizing a nonsignatory's right to compel arbitration. We agree with Anderson that there are circumstances in which a nonsignatory should be able to enforce an arbitration provision—but only with respect to issues that fall within its scope. The provision here applies to disputes "between the parties ... arising under or in connection with" the franchise agreement. As discussed below, some of the Mayers’ allegations fit this description; others do not. We therefore reverse and remand for the circuit court to grant Anderson's motion to compel arbitration of those allegations that fall within the scope of the arbitration provision, as further articulated in this opinion.

BACKGROUND

¶4 The Partners, through corporate franchisees, own three Culver's franchises. A corporation operates the franchise at each location, for each of which, Conroy Soik is the president and Mary Soik is the bookkeeper. The complaint alleges that, in 2016, the Soiks told the Mayers that they would like to split up the franchises. The Mayers, before considering the proposal, requested inspection of financial and business records. The Soiks refused. The Soiks acted in other ways harmful to the Mayers and their business interests, including unilaterally paying rent on the buildings at a lesser amount, ceasing monthly distributions to shareholders, treating employees unfairly, and "[c]reating an overtly sexually harassing environment" in the stores. The Soiks took these actions, in part, so as to pressure the Mayers to dissolve their partnership.

¶5 In 2017, the Mayers sued the Soiks. In 2019, the Mayers filed an amended complaint—the operative complaint for this appeal—joining Anderson. The complaint alleges that Anderson abused his authority throughout the partnership dispute in an attempt to strong-arm the Mayers into agreeing to a split of the businesses. Specifically, Anderson tried to mediate between the Mayers and the Soiks while, unbeknownst to the Mayers, separately counseling the Soiks. Anderson also disparaged the Mayers to CFS, "silence[d]" CFS employees who spoke out on the Mayers’ behalf, and "receiv[ed] information regarding this lawsuit from the Soiks and their attorney which he used to further exert pressure on the Mayers."

¶6 Anderson, the complaint alleges, did not merely leverage his position to the Soiks’ benefit; he also attempted to "destroy[ ] the business that the Mayers ... worked tirelessly ... to build" as "payback to the Mayers for standing up to him." When the Mayers refused to allow Anderson to act as mediator, Anderson retaliated by suspending the Mayers’ Culver's expansion rights in Colorado, Wisconsin, and Michigan. The Mayers "brought their concerns" about Anderson to CFS; this prompted Anderson to retaliate further. Anderson told the Mayers that they could not acquire the Soiks’ interest in the three co-owned restaurants, which the Mayers had been attempting to do in an effort to resolve the partnership dispute. Anderson also told the Mayers that Dianne Mayer could not be an approved Culver's operator (each Culver's location requires an approved operator; Conroy Soik was the operator until his death, at which point Dianne Mayer sought to become one). Finally, Anderson had CFS send the Mayers notices of default of the franchise agreement, on the grounds that the stores lacked an approved operator.

¶7 Based on these allegations, the Mayers sought compensatory and punitive damages against: (1) the Soiks for breach of fiduciary duty, breach of contract, tortious interference with contract, and civil conspiracy; (2) Mary Soik for civil theft under WIS. STAT. § 895.446 (2019-20)⁴ and conversion; (3) Anderson for aiding and abetting the Soiks’ breach of fiduciary duty and tortious interference with the Mayer/Soik contractual relationship; and (4) Anderson and Mary Soik for injury to business in violation of WIS. STAT. § 134.01 and civil conspiracy.

¶8 Anderson brought a motion to dismiss and compel arbitration. The motion is based on an identical arbitration provision in franchise agreements between CFS and three respective corporations, of which each partner owns an equal share (we refer to the franchise agreement, in the singular, as between CFS and "the Partners’ corporation"). As relevant here, that provision requires that

all disputes, claims and controversies between the parties arising under or in connection with this Agreement or the making, performance or interpretation of this Agreement (including claims of fraud in the inducement and other claims of fraud and the arbitrability of any matter) which have not been settled through negotiation or mediation will be submitted to binding arbitration pursuant to the Federal Arbitration Act .

(Emphasis added.) As part of motion practice, the parties also submitted evidence showing that many of Anderson's so-called retaliatory actions either were carried out in the scope of his employment, on CFS’ behest and authorization, or were not done by Anderson at all. We will discuss below whether and how this evidence is relevant to analyzing Anderson's motion.

¶9 In his motion, Anderson acknowledged that he was not a signatory to the franchise agreement, but he invoked various doctrines—agency, equitable estoppel, and third-party beneficiary—permitting a nonsignatory to enforce an arbitration provision against a signatory (he further argued that the Mayers personally, and not just the Partners’ corporation, were signatories; we will address that nuance below). The trial court ruled that, nonetheless, Anderson was not a "party" to the agreement and thus could not demand arbitration of his dispute with the Mayers. The court based its conclusion on the plain language of the franchise agreement, which, in its view, precluded nonsignatories from invoking arbitration. For that reason, the court did not determine whether any nonsignatory principles might permit Anderson to compel arbitration of the claims against him. Anderson appeals from that ruling.

DISCUSSION

Principles of Law and Standard of Review

¶10 This arbitration provision falls within the scope of the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., which governs written arbitration agreements in contracts involving interstate commerce.⁵ See 9 U.S.C. § 2 ; Allied-Bruce Terminix Cos. v. Dobson , 513 U.S. 265, 273-81 (1995). The purpose of the FAA is "to ensure judicial enforcement of privately made agreements to arbitrate," Dean Witter Reynolds, Inc. v. Byrd , 470 U.S. 213, 219 (1985), by requiring arbitration of "those disputes—but only those disputes—that the parties have agreed to submit to arbitration," First Options of Chicago, Inc. v. Kaplan , 514 U.S. 938, 943 (1995). To that end, Section 2 of the Act provides that agreements to arbitrate "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2 ; Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24 (1983). The effect of Section 2 "is to create a body of federal substantive law of arbitrability" applicable in both federal and state courts "to any arbitration agreement within the coverage of the Act." Moses H. Cone , 460 U.S. at 24.

¶11 A party may move to stay litigation and compel arbitration pursuant to 9 U.S.C. § 3 ; the court "shall ... stay the trial of the action" "upon being satisfied that the issue ... is referable to arbitration." Where there is an arbitration agreement between the parties, then, the court's role is limited: it does not consider the merits of the claim but only whether the claim is properly before it. AT&T Techs., Inc. v. Communications Workers of Am. , 475 U.S. 643, 648-50 (1986). The court's inquiry is often described as one into arbitrability: whether the parties agreed to submit that particular dispute to arbitration. See, e.g. , Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. , 473 U.S. 614, 625-26 (1985). The wrinkle is that some broad arbitration provisions, such as the one at issue here, "clearly and unmistakably" delegate the arbitrability question itself to the arbitrator.⁶ See AT&T Techs. , 475 U.S. at 649. In that case, the court's role is even more circumscribed and is limited to determining the existence of a valid arbitration agreement between the parties. Henry Schein, Inc. v. Archer & White Sales, Inc. , 139 S. Ct. 524, 530 (2019) ; Lipton-U. City, LLC v. Shurgard Storage Ctrs., Inc. , 454 F.3d 934, 937 (8th Cir. 2006)....