U.S. Bank v. Klein

• Docket Number: 2022AP920
• Decision Date: 25 January 2024
• Parties: U.S. Bank National Association, Plaintiff-Respondent, v. Christopher J. Klein, Defendant-Appellant.
• Court: Wisconsin Court of Appeals

1

U.S. Bank National Association, Plaintiff-Respondent, v. Christopher J. Klein, Defendant-Appellant.

No. 2022AP920

Court of Appeals of Wisconsin, District IV

January 25, 2024

APPEAL from an order of the circuit court for Jefferson County: No 2021CV148, BENNETT J. BRANTMEIER, Judge. Reversed and cause remanded with directions.

Before Kloppenburg, P. J., Graham, and Nashold, JJ.

NASHOLD, J.

¶1 U.S. Bank National Association ("U.S. Bank") sued Christopher Klein to collect a debt owed pursuant to a contract that contains an arbitration provision. After litigating the case for a year in circuit court, U.S. Bank moved to compel arbitration. Klein countered that U.S. Bank waived its right to arbitrate through its litigation conduct an issue that the circuit court concluded must be decided in arbitration.

¶2 On appeal, Klein argues that the circuit court should have decided the waiver-by-litigation-conduct issue, while U.S Bank argues that the court properly referred the issue to the arbitrator. Although there is not any Wisconsin case law regarding the proper forum for deciding whether a party has waived the right to arbitrate through its litigation conduct, we find persuasive the overwhelming weight of authority from other jurisdictions, which we construe to be consistent with Wisconsin law. We thus conclude that, unless the parties' arbitration agreement clearly and unmistakably provides otherwise, the waiver-by-litigation-conduct issue is for the court to decide. In other words, there is a presumption that this issue will be resolved in court. Here, because the arbitration provision does not express an intention that an arbitrator decide the issue, we reverse and remand to the circuit court to determine whether U.S. Bank waived its right to arbitrate through its litigation conduct.

BACKGROUND

¶3 The following facts are undisputed unless otherwise noted.

¶4 In 2008, Klein purchased a boat and trailer^[1] and signed a Retail Installment Contract and Security Agreement (the "Contract"), which required him to make monthly payments. At some point, Klein stopped making those payments.

¶5 The Contract was assigned to U.S. Bank. The Contract contains an arbitration provision, which states:

Any claim, dispute or controversy ... arising from or relating to (a) the credit or services offered or provided to you, (b) the actions of you, us or third parties or (c) the validity of this arbitration provision ... must, after an election by you or us, be resolved by binding arbitration ....

¶6 The parties dispute whether U.S. Bank repossessed the boat and trailer or Klein voluntarily surrendered them, but in any event, U.S. Bank sold the boat and trailer at private sale in 2015.

¶7 In April 2021, U.S. Bank sued to recover the balance on Klein's account. U.S. Bank alleges that after the sale of the boat and trailer, there was a deficiency of $10,277.50.

¶8 Klein initially appeared pro se and submitted a letter in response to the complaint. By August 2021, he had retained counsel, and in November 2021, he moved to amend his responsive pleading. Klein's amended pleading includes affirmative defenses: that U.S. Bank's claim may be barred by its unreasonable noncommercial actions, by the statute of limitations, and by laches; that U.S. Bank opted into the Wisconsin Consumer Act; and that U.S. Bank failed to mitigate its damages. Klein's amended pleading also includes counterclaims: that U.S. Bank illegally repossessed the boat and trailer; that U.S. Bank violated WIS. STAT. § 421.108's obligation of good faith; and that U.S. Bank illegally attempted to collect the alleged debt in violation of WIS. STAT. § 427.104 (2021-22).^[2] At a hearing in January 2022, the circuit court granted Klein's motion to amend his responsive pleading.^[3]

¶9 In April 2022, a year after commencing litigation, U.S. Bank moved to compel arbitration. Klein objected and argued that, through its litigation conduct, U.S. Bank waived its right to arbitrate. The circuit court granted U.S. Bank's motion to compel arbitration and dismissed the case without prejudice. The court concluded that under First Weber Group, Inc. v. Synergy Real Estate Group, LLC, 2015 WI 34, 361 Wis.2d 496, 860 N.W.2d 498, the question of whether U.S. Bank had waived its right to arbitrate was for the arbitrator to decide.

¶10 Klein appeals.

DISCUSSION

I. Standard of review.

¶11 U.S. Bank's motion to compel arbitration involves contract interpretation, which we review de novo. See Cirilli v. Country Ins. & Fin. Servs., 2009 WI.App. 167, ¶10, 322 Wis.2d 238, 776 N.W.2d 272. Which forum-court or arbitrator-should decide the waiver-by-litigation-conduct issue is likewise a question of law that we review de novo. See Ball v. District No. 4, Area Bd. of Vocational, Tech. & Adult Educ, 117 Wis.2d 529, 537, 345 N.W.2d 389 (1984) (stating that questions of law must be reviewed independently).

II. Whether U.S. Bank waived its right to arbitrate through its litigation conduct must be decided by the circuit court.

¶12 The Wisconsin Arbitration Act reflects Wisconsin's "policy of encouraging arbitration as an alternative to litigation." Kemp v. Fisher, 89 Wis.2d 94, 100, 277 N.W.2d 859 (1979).^[4] In relevant part, the Act provides:

If any suit or proceeding be brought upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.

Wis. Stat. § 788.02.^[5] ¶13 A party may waive the right to arbitrate recognized by WIS. STAT. § 788.02. Meyer v. Classified Ins. Corp. of Wis., 179 Wis.2d 386, 392, 507 N.W.2d 149 (Ct. App. 1993). "[A]ny conduct of the parties inconsistent with the notion that they treated the arbitration provision as in effect, or any conduct which might be reasonably construed as showing that they did not intend to avail themselves of such provision, may amount to a waiver thereof." City of Madison v. Frank Lloyd Wright Found, 20 Wis.2d 361, 387, 122 N.W.2d 409 (1963) (quoting Annotation, Waiver of Arbitration Provision in Contract, 117A.L.R. 301, II.a. (1938) (emphasis omitted)).

¶14 The parties do not dispute that U.S. Bank's claims and Klein's counterclaims fall under the Contract's arbitration provision. Rather, they dispute whether U.S. Bank, through its litigation conduct, waived its right to arbitrate, and whether the waiver-by-litigation-conduct issue should be determined by the circuit court or by an arbitrator. Klein argues that the court should decide the waiver-by-litigation-conduct issue. U.S. Bank argues that the court correctly concluded that the arbitrator should decide the issue, relying primarily on First Weber, 361 Wis.2d 496, the same precedent upon which the circuit court relied.

¶15 First Weber does not specifically address which forum should decide the waiver-by-litigation-conduct issue. There, the arbitration agreement at issue imposed a 180-day time limit for filing arbitration requests. Id., ¶¶9, 18. First Weber filed a petition to compel arbitration under WIS. STAT. § 788.03, which the circuit court denied because it found that First Weber had filed its request to arbitrate outside the 180-day limit. Id., ¶18. The issue raised on appeal was "whether the timeliness of the arbitration request should be decided by a court or in arbitration." Id., ¶21.

¶16 However, First Weber does address generally which issues should presumptively be decided by circuit courts, and which should presumptively be decided by arbitrators. Id., ¶¶34-46. In addressing this issue, the First Weber court distinguished between "substantive arbitrability" and "procedural arbitrability." Id. '"Substantive arbitrability refers to whether the dispute involves a subject matter which the parties have contracted to submit to arbitration'"; in contrast, "'[procedural arbitrability concerns issues such as whether certain procedures apply to a particular dispute, whether such procedures were followed or excused, and whether unexcused failure to follow procedure avoids the duty to arbitrate.'" Id., ¶34 (quoting 1 LARRY EDMONSON, DOMKE ON Commercial Arbitration § 15:4 (3d ed. 2014)). The distinction is significant because "[i]n an action to compel arbitration, a court's role generally is limited to determining the question of substantive arbitrability, unless the parties specifically agreed otherwise." Id., ¶36. Conversely, "[i]ssues of procedural arbitrability are to be resolved during arbitration, rather than by a court, unless the parties agreed otherwise." Id., ¶ 37.

¶17 The First Weber court, quoting language from U.S. Supreme Court decisions, listed "waiver" as a matter of procedural arbitrability: "Issues of procedural arbitrability include claims of waiver, delay, or a like defense to arbitrability." Id. (internal quotation marks omitted). U.S. Bank contends that this language controls the outcome here, and this language is presumably what the circuit court relied on in referring the waiver-by-litigation-conduct issue to arbitration.

¶18 For several reasons, we conclude that this language does not refer to waiver by litigation conduct, which is an issue that should presumptively be decided by courts rather than in arbitration.

¶19 At the outset, we note that several federal courts of appeals have addressed whether the waiver-by-litigation-conduct issue should be decided by the court or by the arbitrator when the parties...