Loeb & Herman, S.C. ::: Articles | Case Spotlight: Franke v. Franke

Case Spotlight: Franke v. Franke

By Matthew J. Price

The exponential growth over the last ten years in the employment, in all areas of law, of binding arbitration as an alternative dispute resolution technique can be attributed to the achievement of its primary objectives of expeditious, affordable, and, in many cases, private settlement. Fundamental to this process is the overarching goal of finality, for what would be the purpose of participating in a binding process if it was not, in fact, binding? Some lawyers argue that a recent supreme court decision may cast a deep pall of uncertainty as to the future of binding arbitration.

In early February, 2004, on certification from the District II Court of Appeals, the Supreme Court of Wisconsin issued their opinion in Franke v. Franke, 2004 WI 8, which, as is pertinent here, addressed the applicability of WIS. STAT. § 806.07, the civil procedure judgment reopening statute, to a divorce judgment which contained a confirmed arbitration award.

Following is a summary of the relevant facts:

After less than four years of marriage, Kathryn Franke commenced a divorce action against Martin Franke in July, 1993. For nearly three years, the parties attempted settlement discussions and mediation, which were unsuccessful. In April, 1996, the parties agreed to have all outstanding disputes - property division, child support, liability for prior taxes and a contribution toward Kathryn's attorney fees - resolved by binding arbitration.

From July through October, 1996, the parties arbitrated. After the final arbitration hearing in October, 1996, the arbitrator requested additional documentation. In the summer of 1997, Martin filed an updated financial disclosure statement which appeared to reflect the value of his assets as of the last arbitration hearing in October, 1996.

Inexplicably, it was not until April 16, 1998, that the arbitrator issued his final award. On June 9, 1998, on Kathryn’s motion, the arbitration award was confirmed and ordered incorporated into the divorce judgment. The divorce judgment was entered July 13, 1998.

On April 15, 1999, Martin filed a contempt motion for Kathryn’s failure to sign and return the joint income tax return as required by the arbitration award and judgment. In response, on May 26, 1999, Kathryn filed a motion to reopen the divorce judgment, alleging, in part, that Martin failed to disclose certain assets and provided erroneous valuations of other assets. As a result, she requested that the court: a) revise the property division and child support award to reflect the actual value of the assets, b) reconsider her share of a prior tax liability, and c) award her additional attorney fees.

In a July 27, 2000, order, the trial court: a) reopened the divorce judgment, b) increased child support, c) awarded additional fees to Kathryn for post-judgment proceedings, d) declined to adjust the prior tax liability, e) awarded Kathryn an additional $53,500 in property division and f) based upon Martin's lack of candor about his assets, ordered additional discovery of Martin’s financial records for the period from the close of the arbitration to the entry of the divorce judgment.

In 2001, the court entered a subsequent order holding that the appropriate valuation date was the close of the arbitration record, that it would not award Kathryn additional attorney fees for post- judgment proceedings and that it would not revisit the earlier orders of the court.

The parties appealed and cross appealed. The District II Court of Appeals certified the case to the Supreme Court of Wisconsin.

In a 4-3 decision, which consumed eighty-two pages including two dissents by justices Wilcox, Prosser and Sykes, , the majority held that, "A circuit court may relieve a party from property division provisions of a divorce judgment under WIS. STAT. § 806.07 even though the divorce judgment incorporates a confirmed arbitral award."

The majority rejected Martin’s argument that trial courts are constrained to the vacation and modification provisions of WIS. STAT. CH. § 788 (Arbitration), when attacking arbitration awards. Pointing out that judgments in an arbitration award have the same force and effect as judgments rendered in an action, WIS. STAT. § 788.14(3), the supreme court equated a confirmed arbitration awards with a court-approved property division settlement. After significant plowing of the equity fields, in part by way of the trial court’s oversight function set forth in WIS. STAT. § 767.255(3)(L) (written agreement of parties binding if equitable), the court concluded that WIS. STAT. § 806.07 remains a feather in the trial court’s quiver. The majority then proceeded to limit application of this holding to confirmed property division arbitration awards.

A lengthy dissent by Justice Prosser, in which Justices Wilcox and Sykes joined, argued that the majority’s supporting the availability of WIS. STAT. § 806.07 to attack confirmed arbitration awards could have drastic implications. After identifying the comprehensive nature of the written arbitration agreement entered into by the parties before arbitrating, Justice Prosser wrote:

This [arbitration] agreement is not good enough for the majority. In its sweeping assertion of judicial power to review certain binding arbitration awards and the judgments confirming them, the majority opinion eviscerates binding arbitration in actions affecting the family and jeopardizes the finality of binding arbitration in other areas of law. The opinion is thus a setback to ADR in Wisconsin.... (Prosser, J., dissent at ¶ 101.)

Does this decision signal the death knell for binding arbitration? It is far too early to tell. A compelling argument can be made that the adoption of WIS. STAT. § 806.07 into the attack arsenal, as a practical matter, eviscerates the far more restrictive measures found in WIS. STAT. CH. 788 for vacating and modifying arbitrations awards, which is an important finality component for those considering whether to enter into binding arbitration. Conversely, one could also argue that permitting broader relief serves to discourage bad faith conduct in arbitration proceeds, just the same as if the matter was tried before a court or jury. On balance, although the finality component diminishes via Franke, it would be reasonable to predict that the other benefits inherent to binding arbitration will continue to present an attractive alternative to litigants.

Matthew J. Price, senior associate at Loeb & Herman, S.C., Milwaukee, primarily concentrates his practice in the area of trial and appellate family law.

Back to Price Article Archive

© 2008, Loeb & Herman, S.C.
Suite 1725 - Chase Tower
111 East Wisconsin Avenue
Milwaukee, WI 53202-4868
414.272.5632 | Fax 414.272.7918