Articles have recently appeared in The Legal Intelligencer considering whether and when courts may review and vacate the awards of arbitrators. Usually, they have focused on whether review based upon a manifest disregard of the law by the arbitrator remains a viable ground in light of the decision of the U.S. Supreme Court in Hall Street Associates v. Mattel, Inc., which appeared to limit the grounds for review and vacatur to those set forth in the Federal Arbitration Act. Other articles have considered what may be considered a conflict of interest on the part of an arbitrator.

Those articles, however, have not considered a court’s right to vacate the award of an arbitrator based upon a violation of public policy. Recently, however, the Supreme Court of Wisconsin was faced with just such an issue. Indeed, the facts detailed in the court’s July 21 opinion in Sands v. Menard Inc. are of particular interest as they relate to the Rules of Professional Conduct and an arbitrator’s authority to reinstate a discharged attorney to her position as the lawyer of the employer.

The case involved Dawn Sands, an attorney with Menard Inc., who was fired from her position as executive general counsel. According to the opinion, she contended that the company had engaged in gender-based pay discrimination for several years and retaliated against her when she complained. The case was heard before a panel of three arbitrators whose qualifications set forth in the dissenting opinion reflected that they were all very experienced in the area of employment law. The majority opinion recounts in great detail the activities allegedly engaged in by the defendant company, which, if believed, clearly warranted a substantial award in favor of Sands. And, indeed, the panel entered an award for back wages, liquidated damages, disparate pay, emotional distress, punitive damages and attorney fees in the total sum of $1,778,280.96, the opinion said.

In addition, however, the arbitrators considered Sands’ entitlement with respect to her future losses. The arbitrators recognized that one of the remedies might be an award of “front pay” for loss of future earnings. The panel did not adopt such an approach, however. Rather, even though Sands had not initially requested reinstatement, it determined that she should be reinstated and further specified her salary and bonus.

Sands sought to confirm the award in the courts, including the reinstatement. Menard Inc. sought to vacate this part of the award maintaining that the attorney-client relationship had been so broken and that the attorney-client relationship — and the right of a party to choose counsel — was so vital that Sands could no longer represent the interests of the company or the brothers who owned it. Sands responded that she could represent the company and would accept reinstatement if she could be assured of her personal safety. The award was confirmed by the lower court.

Menard Inc. appealed to the Wisconsin Court of Appeals, which affirmed, concluding that reinstatement is a statutory remedy under the Equal Pay Act and Title VII, and that there is no exception for in-house attorneys. It further found that the reinstatement rested on substantial authority, the panel did not manifestly disregard the law, the reinstatement award was discretionary and, even if the arbitrators erred, courts should not review arbitration awards for erroneous exercise of discretion.

The Wisconsin Supreme Court, by a vote of 4-3, vacated the reinstatement and remanded the case to the trial court with direction that it award front pay in its place.

In its discussion, the majority considered two circumstances under which reinstatement would ordinarily be inappropriate.

First, it is not appropriate when, based upon a consideration of the facts, animosity and hostility are so extreme that a productive and amicable relationship would be impossible.

Second, it is inappropriate when the employee served in a managerial or unusually high level role as a representative to the public or where the position is a sensitive one requiring a high degree of trust and cooperation between management and the employee.

Finally, the court acknowledged that whether these circumstances are found is to be determined by the facts of the case, and that ordinarily it is for the arbitration panel to make these determinations. It added, however, that if an award violates public policy, it exceeds the powers of the arbitration panel and must be overturned.

In this case the court concluded that “an attorney’s ethical obligations, particularly an attorney’s duty of loyalty to her clients under our cases and the Rules of Professional Conduct, embody the strong public policy of the State of Wisconsin. Therefore, an arbitration panel exceeds its powers when it orders the reinstatement of an attorney where reinstatement would clearly lead to a violation of that attorney’s ethical obligations.” It further concluded that reinstatement of Sands would cause her to violate her ethical obligations as an attorney, and that requiring an attorney to violate her ethical obligations is void as a matter of strong public policy.

In its opinion, the court mentions that in her case Sands had characterized the actions of John Menard as “‘so monstrous and reprehensible that it shocks the conscience,’” that his honesty and integrity are “‘completely illusory’” and that his “‘dishonesty is serious and overwhelming.’” She “unequivocally testified against reinstatement even going so far as to state that ‘no reasonable person would entertain reinstatement as a possibility,’” the opinion said. The court further noted that the mutual animosity and distrust between Sands and Menard continued throughout the arbitration hearing and subsequent court proceedings.

The court concluded that in light of the unusually high-level sensitive position held by Sands, and the hostility, strained relations and bitter litigation, “we see no way Sands could return to Menard and serve the company in conformity with her ethical obligations.”

In reaching this conclusion, the court relied upon one section of the Rules of Professional Conduct that would prohibit continued representation where there is “a significant risk that the representation … will be materially limited by … a personal interest of the lawyer.” (See SCR 20:1.7(a) (2)).

The court did not suggest that reinstatement is always inappropriate for in-house counsel or general counsel and recognized that the circumstances of each case must be considered. The court felt, however, that the arbitration panel “never examined whether Sands could ethically perform her role if awarded reinstatement.” It concluded, therefore, “that the panel’s reinstatement order would have the practical effect of forcing Sands to violate her ethical obligations” and that in the circumstances, front pay was a proper substitute for reinstatement.

As earlier noted, however, three of the seven justices dissented from the majority. In a lengthy dissent, they contended that the majority itself was exceeding its powers by vacating the arbitration award. It noted that the majority’s holding “recognizes for the first time a ‘clear strong public policy’ and concludes as the panel did not, that the arbitration award would clearly lead to a violation of Sands’ ethical obligations as an attorney and thereby violate public policy.”

The author of the dissent, Chief Justice Shirley S. Abrahamson, was particularly concerned because “as nearly as I can tell, this touches on a question of first impression whether in some circumstances, employment reinstatement ordered under the federal employment law may violate a state’s attorney-client law and, if so, how to resolve the two.”

She then continues that “the place to resolve novel and emerging questions of law is not in a court’s review of a private arbitration award.” This is particularly true where “parties submit disputes to arbitration to reach swift resolution and specifically to avoid the lengthy appeals in which courts can definitively resolve every question of law and in the process create precedent.”

The dissent is particularly critical of and rejects the majority’s assumption that the panel did not consider the applicability of Sands’ ethical obligations as an attorney.

But perhaps most interesting are the dissent’s questions as to whether the provision of the rules referring to a conflict with the attorney’s “personal interest” refers only to a “material” conflict of interest or may also include the “subjective” and “amorphous” “personal interest” including Sands’ feelings toward Menard; and, even if it does, is there enough in the record to support the majority’s conclusion that these feelings could not be put aside; and, finally, do not the majority’s conclusions reflect speculation as to the facts, which should be beyond its authority?

In short, the dissent concludes that the arbitration panel was thorough in reaching its conclusion, did not manifestly disregard the law, and was entitled to select reinstatement, which is often referred to as the “preferred remedy.” Even if the panel’s interpretation and application of the law was reasonably debatable and even if the arbitrators erred in interpreting the law, vacating the award is not justified.

The disagreement within the two opinions leaves room for substantial future discussion. How do the requirements of federal laws interact with the ethical obligations of an attorney who is an aggrieved party? To what extent should courts intervene in arbitration awards when decisions without clear precedent must be made? And, how and when may issues of “strong public policy” involving individuals warrant a court’s intervention and vacation of an arbitration award?

Undoubtedly, we shall be hearing much about each of these issues in the future. •

ABRAHAM J. GAFNI is a mediator/arbitrator with ADR Options and a professor at Villanova University School of Law.