Midwest Neurosciences Assocs., LLC v. Great Lakes Neurosurgical Assocs., LLC, 2016AP601

Decision Date19 December 2018
Docket NumberNo. 2016AP601,2016AP601
Citation2018 WI 112,384 Wis.2d 669,920 N.W.2d 767
Parties MIDWEST NEUROSCIENCES ASSOCIATES, LLC and Neurosurgery and Endovascular Associates, SC, Plaintiffs-Appellants, v. GREAT LAKES NEUROSURGICAL ASSOCIATES, LLC and Yashdip Pannu, M.D., Defendants-Respondents-Petitioners.
CourtWisconsin Supreme Court

For the defendants-respondents-petitioners, there were briefs filed by Joan M. Huffman, Paul R. Erickson, and Gutglass, Erickson, Bonville & Larson, S.C., Milwaukee. There was an oral argument by Joan M. Huffman.

For the plaintiffs-appellants, there was a brief filed by Frank M. Gumina, Patrick M. Harvey, and Husch Blackwell LLP, Milwaukee. There was an oral argument by Patrick M. Harvey.

ANNETTE KINGSLAND ZIEGLER, J.

¶1 This is a review of an unpublished decision of the court of appeals, Midwest Neurosciences Assocs., LLC v. Great Lakes Neurosurgical Assocs., LLC, No. 2016AP601, unpublished slip op. (Wis. Ct. App. Dec. 20, 2017), reversing the Ozaukee County circuit court's1 non-final order. The non-final order denied Midwest Neurosciences Associates, LLC ("Midwest") and Neurosurgery and Endovascular Associates S.C.'s ("NEA") motion to stay this action and compel arbitration pursuant to the Amended and Restated Operating Agreement ("Operating Agreement"), as well as the circuit court's granting of Yashdip Pannu, M.D. ("Dr. Pannu") and Great Lakes Neurosurgical Associates, LLC's ("Great Lakes") motion for declaratory judgment seeking a declaration that the Membership Interest Redemption Agreement ("Redemption Agreement") was a valid contract. The court of appeals remanded to the circuit court with instructions to grant Midwest's motion to compel arbitration pursuant to the Operating Agreement. We reverse the court of appeals and remand to the circuit court to determine whether the Redemption Agreement is enforceable.

¶2 The crux of the issue before us concerns the circuit court's role in determining the proper forum of dispute resolution when a subsequent contract, if enforceable, does not contain an arbitration clause as is present in an initial contract. As a part of that analysis we consider whether a contract which contains a merger clause and which does not contain an arbitration clause can change the forum of dispute resolution when a prior agreement between the parties contains an arbitration clause.2 The parties make competing arguments regarding a court's role in determining the applicability of this arbitration provision. They take contrary positions regarding whether all disputes, even arbitrability itself, must be submitted to arbitration. The parties present conflicting views of precedent regarding the judiciary's role in deciding motions to compel arbitration when a subsequent contract does not select arbitration as the forum for dispute resolution and does contain a merger clause which states that the subsequent agreement supersedes all prior contracts. Relatedly, the parties dispute whether all parties here can be compelled to arbitrate when arguably only one co-defendant is contractually required to arbitrate pursuant to the initial contract.

¶3 The claims in the underlying lawsuit that called upon the court to decide whether the dispute belonged in arbitration, involve whether Great Lakes and Dr. Pannu violated restrictive covenants in the Operating Agreement and the Ancillary Restrictive Covenant Agreement ("Ancillary Restrictive Covenant"). The Redemption Agreement, however, does not contain an arbitration provision and in fact, purports to release those restrictive covenants.

Therefore, which contract controls is seminal in the first instance as to whether arbitration should be ordered. Ultimately, regardless of forum, the controlling documents will also impact the underlying dispute itself.

¶4 The circuit court concluded on summary judgment that even though the initial agreement, here the Operating Agreement, required arbitration it was superseded by a later, valid and enforceable Redemption Agreement which did not so require the parties to submit to arbitration. The court of appeals reversed and remanded with instructions to grant Midwest's motion to compel arbitration.3

¶5 We reverse the court of appeals and conclude that the fundamental principles of freedom to contract allow parties to a previous contract to subsequently contract for a different forum of dispute resolution. Here, it is necessary that the circuit court initially determine whether the parties contracted to arbitrate. The court's authority to order arbitration is dependent on the terms of a contract. If the Redemption Agreement is the parties' contract, then the court lacks authority to order arbitration. Thus, the court must first ascertain which contract controls the forum of dispute resolution. In sum, we conclude that it is a court's duty to determine whether a contract calls for arbitration and when a dispute exists as to whether a second contract without an arbitration clause supersedes a first contract with such a clause, the determination of arbitrability must be decided in the first instance by the circuit court rather than the arbitrator.

¶6 We also conclude, however, that the cause must be remanded to the circuit court, not to compel arbitration as was ordered by the court of appeals, but rather, because the parties' competing affidavits submitted in support of their positions on summary judgment raised genuine issues of material fact concerning whether the Redemption Agreement is a valid contract. 4

Therefore, we reverse and remand to the circuit court for further proceedings.

I. FACTUAL BACKGROUND

¶7 Dr. Pannu was Great Lakes' president, 100 percent owner, and sole practicing physician. Arvind Ahuja, M.D. ("Dr. Ahuja") was the sole Member of Midwest and later the sole Member of NEA. William McCullough, M.D. ("Dr. McCullough") was the sole Member of Metro Neurosurgical, S.C. ("Metro"). In 2015, the three Members of Midwest were NEA, Great Lakes, and Metro. The presidents of each were also practicing neurosurgeons and had offices adjacent to St. Luke's Medical Center in Milwaukee, Wisconsin. The current dispute involves only Drs. Pannu and Ahuja and the applicability of an arbitration provision from a contract entered into a decade previous.

¶8 Specifically, on August 1, 2005, the parties at issue executed an Operating Agreement which modified a previous operating agreement of August, 2002 so to admit, among others, Dr. Pannu to Midwest.5 Dr. Pannu executed the Operating Agreement as President of Great Lakes and also signed a personal guaranty for the obligations of Great Lakes. The Operating Agreement contains the arbitration clause at issue.

¶9 The Operating Agreement created rights, obligations, and restrictions for the Members of Midwest and the physicians that worked for the Members. The document includes various other provisions. For example, the Operating Agreement controls how Midwest was to be managed and operated. For instance, subsection 1.2(a) dictates that Midwest shall have a registered office and subsection 5.5(b) grants Midwest's president the power to unilaterally terminate Members.

¶10 Section 8.5 of the Operating Agreement grants Members the right to voluntarily withdraw from Midwest. Under Section 8.5, a Member could withdraw from Midwest by "giving written notice to [Midwest] at least ninety (90) days before the stated effective date of the withdrawal."6

¶11 Section 13.3 dictates that the "Operating Agreement shall be governed by and construed in accordance with the laws of the State of Wisconsin without regard to its choice of law provisions."

¶12 Section 13.1 of the Operating Agreement provides:

Amendments to Operating Agreement. No Amendment or modification of this Operating Agreement shall be valid unless in writing and signed by all of the Members. Unless otherwise provided in such an amendment or modification, this Operating Agreement shall be considered to be amended only to the minimal extent necessary to give effect to this Operating Agreement, and the other terms and conditions of this Operating Agreement shall continue to apply with full force and effect.

¶13 Section 13.7 of the Operating Agreement is entitled "Arbitration," and states, in pertinent part:

Arbitration.... [T]he parties hereto agree to resolve any and all disputes arising with respect to the terms and conditions of this Operating Agreement hereby by arbitration .... The arbitration shall be governed by the laws of the State of Wisconsin, this Operating Agreement and JAMS' Arbitration Rules[7 ] to the extent not inconsistent with the foregoing.

¶14 Section 8.13 contains a "Covenant Not to Compete," which details, among other things, a restriction that the doctors practice in their specialty for a designated period of time, in a specified area, and at particular facilities.8 On March 6, 2006, Dr. Pannu personally signed the Ancillary Restrictive Covenant containing similar terms to Section 8.13 of the Operating Agreement. The Ancillary Restrictive Covenant, however, did not specifically incorporate by reference Section 13.7, the arbitration section, of the Operating Agreement.

¶15 Nearly ten years later, in 2015, Great Lakes and NEA were two of three remaining Members of Midwest. On February 13, 2015, the Members voted unanimously to dissolve Midwest as of March 31, 2015. One doctor relocated out of state and is not part of this lawsuit.9 Dr. Ahuja, who had no hospital privileges in the Milwaukee area, had previously announced his intention to vacate his practice from the offices.

¶16 On March 16, 2015, the Members restructured the dissolution process such that NEA would buy out the Members' interests in Midwest. Great Lakes would vacate the premises no later than May 15, 2015. Great Lakes, however, was subject to the non-compete provisions of the Operating Agreement. After discussing the logistics of how the purchases would work, the Members voted unanimously to rescind the...

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