Wednesday, July 21, 2010

Arbitration Decision To Reinstate Fired Executive General Counsel Overturned

The Wisconsin Supreme Court (with its typical 4-3 split) has held that an arbitration panel exceeded its authority by ordering the reinstatement of the dismissed general counsel of a corporation:

We agree with Menard [the corporation] that the panel exceeded its authority.  An arbitration panel exceeds its authority when its award violates strong public policy.  An attorney owes a fiduciary duty of loyalty to her clients, a duty so replete in our cases and in the Rules of Professional Conduct as to be axiomatic.  Such a duty is deeply rooted in our laws and embodies the strong public policy of the State of Wisconsin.  In this case, we conclude that by accepting reinstatement, Sands [the attorney] would be forced to violate her ethical obligations as an attorney.  Thus, we vacate the panel's award of reinstatement on the grounds that it is void as a violation of strong public policy.  Under the applicable employment discrimination laws, front pay is a substitute for reinstatement.  Accordingly, we vacate the panel's award of reinstatement and remand to the circuit court to determine an appropriate award of front pay.

The court majority explains:

Sands also made clear her views of Menard's leadership——her clients if reinstatement were upheld.  In her briefing before the arbitration panel, Sands stated that John Menard's conduct was "so monstrous and reprehensible that it shocks the conscience"; that he is a "reckless, callous actor who care[s] nothing about anyone else's rights or reputation"; that he "is a man with no parameters, no limits, no respect for the law and obviously, no self-discipline to control or limit his own behavior——nor does he see any need to"; that his honesty and integrity are "completely illusory"; and that his "dishonesty is serious and overwhelming."

Let there be no mistake——the mutual animosity and distrust between Sands and the executive leadership of Menard, the very people to whom her absolute loyalty would be owed, continued throughout the arbitration hearing and shows no signs of abating today.  Sands was right.  No reasonable person would consider reinstatement a possibility in this situation.  No one could have assessed this situation and determined that reinstatement could lead to a productive setting where both Sands and Menard would benefit.  Trust has been completely broken; nothing good could possibly come from reinstatement.  In view of this especially bitter litigation marked by personal and professional animosity, we see no way Sands could now return to Menard and serve the company in conformity with her ethical obligations.

If the level of hostility alone was not enough, Sands performed an unusually high-level and sensitive role at Menard.  She was the Executive General Counsel, heading up the in-house legal operations and supervising the legal work for all of Menard.  She also served as Menard's spokesperson and was a public representative to the community.  More than most attorneys, her position required a high degree of confidence and trust and a close relationship with Menard's executive leadership.  In order to perform her role, Sands had to represent the company's best interests with outside partners, attorneys, and the media.  Sands' unique and significant role at Menard required the highest level of good faith, loyalty, and mutual trust.

The facts recounted in the majority opinion tell a real horror story of the clients abusing their in-house attorney. The attorney met John Menard when he dated her sister. She had about five years experience when she was asked to serve as a corporate attorney and other functions. She was hired at an hourly rate and required to punch a time clock.

She later assumed the duties of the departing general counsel and was paid a fraction of his salary. She put up with it for a couple of years. When she pressed for a raise, she was threatened, humiliated, and fired. The panel described the termination, which came in the wake of her suggestion that she just might have claims against the corporation:

...on the evening of Tuesday, March 14, 2006, Sands was preparing for a meeting in her office when John Menard stepped in.  "This isn't working, is it," he said.  "I'm sick to death of your not getting back to Charlie and you don't respond and your threats."  John Menard then instructed Sands to work out an agreement with Charlie Menard by the end of business the next day or she would be "all done."  Then he left her office.

Moments later, John Menard returned and declared, "[Y]ou know what, you're all done right now.  Pick your shit up; I want your ass out of here.  You've got five minutes."  Sands asked if he was firing her.  John Menard stated that he was placing her on administrative leave.  Sands asked for a clarification and stated that Menard did not have an administrative leave policy.  John Menard repeated that Sands was on administrative leave, that she had better get moving, and that she now had only four minutes.  "[D]o you understand what you're doing right now is unlawful?"  Sands asked.  "I don't care," John Menard replied.  "I want your ass out of here."

At some point during this encounter, Sands turned to her computer in an attempt to log off.  John Menard saw this, approached her from the other side of her desk with his hand in a fist, and ordered her to get away from the computer.  He then continued to tell Sands to get "[her] ass out of there" and that he wanted "[her] ass gone."  Sands collected a few personal items, and left with John Menard following her out of the building.

John Menard threatened the attorney's sister to discourage her from testifying in the arbitration, saying that he would "hate to see her obituary anytime soon."

 The arbitration panel awarded damages of nearly $1.8 million that were not affected by the decision here. The panel had ordered reinstatement notwithstanding the attorney's decision not to seek that remedy.

The dissent would give deference to the arbitration panel's conclusions and result:

Although the majority's conclusions about a public policy are indeterminate, there is no doubt that attorneys have fiduciary and ethical duties and obligations of professional conduct.  Other employees also have fiduciary and ethical obligations to their employers.

The problem is that the majority is unable to pin down a particular rule, duty, or obligation or offer more than its own repeated assertions that if the award stands, a violation of ethical obligations would be the necessary result.  The majority claims that because the panel did not affirmatively discuss Sands' ethical duties as an attorney, this necessarily implies that the panel "never examined whether Sands could ethically perform her role if it awarded reinstatement." ...

The majority parlays this supposition into the conclusion that the award of reinstatement "would have the practical effect of forcing Sands to violate her ethical obligations."  Majority op., ¶65.  Both the claim and the observation are at best speculative and moreover are belied by the record

There is no reason to believe, much less to affirmatively conclude as the majority has done, that the arbitration panel did not consider the applicability of Sands' ethical obligations as an attorney.  It is no secret that Sands is an attorney.  Through its 49-page factual review, legal analysis, and ultimate findings, the panel was amply aware of Sands' professional role and her responsibilities toward the Menard corporation, its officers, and the individuals representing the corporation.  The panel explicitly acknowledged the "difficult[y]" of the "hostile" relationship between the parties.  In doing so they necessarily assessed the dynamic between attorney and client and the issues inherent therein.  Even if there were uncertainty as to what law the panel did or did not consider, the majority oversteps its bounds in review of an arbitration award when it construes ambivalence or silence in the record to justify overturning a result it disfavors.   As the majority recognizes, the party seeking to overturn the panel award bears the burden of proof.

Significantly, Sands and Menard explicitly stipulated that each member of the panel would be an attorney.  Each of the arbitrators was an experienced and successful attorney, themselves bound by the Rules of Professional Conduct and bound to be versed in those rules, which the majority opinion invokes to justify its result in the present case.

The opinion of the Wisconsin Court of Appeals is linked here. The company owns a large chain of home improvement store located throughout the Midwest. Forbes reports that John Menard is worth $7.3 billion and is the richest person in Wisconsin. (Mike Frisch)

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