Four Star Beauty Supply Corp v. GIB LLC

Filing 14

ORDER granting 3 Motion to Confirm Award. Four Star's petition to vacate the award is denied. (cc: all counsel) (Griesbach, William)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN

FOUR STAR BEAUTY SUPPLY CORP.,
Plaintiff,
v.

Case No. 16-C-1351

GIB, LLC,
Defendant.

DECISION AND ORDER CONFIRMING ARBITRATION AWARD
AND DENYING PETITION TO VACATE

This is an action to vacate an arbitration award resulting from a dispute that arose when
Defendant GIB, LLC terminated a business relationship with Plaintiff Four Star Beauty Supply
Corporation. Four Star commenced a civil action against GIB in Milwaukee County Circuit Court.
GIB removed the action to federal court and subsequently filed a motion to enforce the award. This
court has jurisdiction pursuant to 28 U.S.C. § 1332. The parties have filed cross motions for relief
and the case is now fully briefed. For the reasons that follow, GIB’s motion to confirm the
arbitration award will be granted and Four Star’s petition will be denied.
BACKGROUND
GIB is a California limited liability company, and each of its members are California citizens.
GIB manufactures “Brazilian Blowout” hair care products. In July 2010, Four Star began
distributing the product in an exclusive territory that included Wisconsin, Michigan, Iowa,
Minnesota, North Dakota, and South Dakota. Although the parties discussed entering into a
distributorship agreement, GIB never signed the proposed form. The parties nevertheless continued

their arrangement until 2013, when GIB became dissatisfied with Four Star’s sales and performance
and terminated the sales relationship.
Four Star threatened to sue GIB for breach of the distributorship agreement, and in response,
GIB filed a complaint in the Central District of California seeking a declaratory judgment that it was
entitled to terminate the parties’ at-will relationship. On April 16, 2014, the parties stipulated to
dismiss the action and submit to arbitration. The parties participated in a three-day arbitration before
the Honorable Justice John Zebrowski of ADR Services, Inc. On January 12, 2016, Justice
Zebrowski issued a preliminary award, finding in GIB’s favor on all issues. Six months later, he
awarded GIB $95,882.50 in fees and $28,777.93 in costs, for a total award of $124,660.43.
ANALYSIS
Four Star requests that the court vacate the arbitration award under the Wisconsin
Arbitration Act (WAA), Wis. Stat. § 788.10, and the Federal Arbitration Act (FAA), 9 U.S.C. § 10.
Four Star contends the award should be vacated for three reasons: (1) the arbitrator manifestly
disregarded the law when he found that the parties did not share a community of interest under the
Wisconsin Fair Dealership Law (WFDL); (2) the award violates public policy; (3) and the arbitrator
manifestly disregarded the applicable law in awarding GIB attorneys’ fees.
Both the WAA and FAA authorize a court to vacate an arbitration award in four, limited
circumstances. See 9 U.S.C. § 10(a); Wis. Stat. § 788.10. While the language of the WAA and
FAA are “virtually identical,” Flexible Mfg. Sys. Pty. Ltd. v. Super Prods. Corp., 87 F.3d 96, 99
(7th Cir. 1996), court interpretation of the statutes vary in some respects. For instance, a court may
vacate an arbitration award for “manifest disregard of the law” under the FAA only when the award
“directs the parties to violate the legal rights of third persons who did not consent to the arbitration.”
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Affymax, Inc. v. Ortho-McNeil-Janssen Pharm., Inc., 660 F.3d 281, 284 (7th Cir. 2011) (citing
George Watts & Son, Inc. v. Tiffany & Co., 248 F.3d 577 (7th Cir. 2001)). In this case, Four Star
asserts that the arbitrator manifestly disregarded the law, but it does not argue that the arbitrator’s
award directed the parties to violate the rights of any third parties. In addition, a party cannot assert
a public policy challenge under the FAA. Id. (noting that the four ways to vacate an arbitration
award enumerated in 9 U.S.C. § 10(a) are “exclusive” and “neither judges nor contracting parties
can expand” them). In short, Four Star has not asserted a viable challenge to the arbitration award
under the FAA. The court will therefore analyze Four Star’s arguments under the WAA.
Judicial review of an arbitration award is extremely limited. See Sands v. Menard, Inc., 2010
WI 96, ¶ 48, 328 Wis. 2d 647, 787 N.W.2d 384 (The court’s “task is to ensure that the parties
receive what they bargained for—the adjudication of their dispute via the arbitration process.”
(citations omitted)). The court begins with the presumption that the award is valid, and the plaintiff
must show by clear and convincing evidence that it is not. Wis. Dept. of Emp’t Relations v. Wis.
State Bld. Trades Negotiating Comm., 2003 WI App 178, ¶ 17, 266 Wis. 2d 512, 669 N.W.2d 499.
Errors of fact or law are not enough; in order for an award to be overturned, the plaintiff must
plainly establish that the arbitrator engaged in misconduct, the arbitrator manifestly disregarded the
law, or the award itself is illegal or violates strong public policy. Milwaukee Bd. of Sch. Dirs. v.
Milwaukee Teachers’ Ed. Ass’n, 93 Wis. 2d 415, 422, 287 N.W.2d 131 (1980) (citation omitted).
When a plaintiff argues that the arbitration award is a “manifest disregard of the law,” it must
establish that the arbitrator understood and correctly stated the law, but ignored it. Cirilli v. Country
Ins. & Fin. Servs., 347 Wis. 2d 481, ¶ 7, 347 Wis. 2d 481, 830 N.W.2d 234. “If these standards are
not violated, the arbitrator’s award must be confirmed, even if the reviewing court would have
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reached a different conclusion.” Id. (citing Lukowski v. Danker, 184 Wis. 2d 142, 151, 515 N.W.2d
883 (1994)). When applying the WAA, Wisconsin courts consider federal cases interpreting
identical provisions of the FAA to be persuasive authority. Marlow v. IDS Prop. Cas Ins. Co., 2012
WI App 51, ¶ 9, 340 Wis. 2d 594, 811 N.W.2d 894.
Four Star maintains that the award violates the WAA because the arbitrator “intentionally
disregarded the clear and straight-forward test” established by the Wisconsin Supreme Court in
Ziegler Co. v. Rexnord, Inc., 139 Wis. 2d 593, 407 N.W.2d 873 (1987), in concluding that Four Star
and GIB did not share a “community of interest” under the WFDL. ECF No. 10 at 1–2. It also
argues that the award violates the clear public policy established by the WFDL. The WFDL governs
“dealership” relationships, or those arrangements entered into between “grantors” and “dealers.”
Wis. Stat. § 135.025. The statute defines a “dealership” as any “contract or agreement, either
express or implied, whether oral or written, between 2 or more persons, by which a person is granted
the right to sell or distribute goods or services, . . . in which there is a ‘community of interest’ in the
business of offering, selling or distributing goods or services . . . .” Wis. Stat. § 135.02(3)(a).
While Wis. Stat. § 135.02(1) states that “community of interest” means “a continuing
financial interest between the grantor and grantee in either the operation of the dealership business
or the marketing of such goods or services,” the Wisconsin Supreme Court has attempted to provide
some guidance to understanding this “vague and unhelpful” term. Frieburg Farm Equip., Inc. v.
Van Dale, Inc., 978 F.2d 395, 398 (7th Cir. 1992). In Ziegler, the Wisconsin Supreme Court held
that a community of interest exists only when the parties’ relationship encompasses both a
“continuing financial interest” and “interdependence,” meaning “the degree to which the dealer and
grantor cooperate, coordinate their activities and share common goals in their business relationship.”
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139 Wis. 2d at 604–05. It explained that these guideposts “require a person to demonstrate a stake
in the relationship large enough to make the grantor’s power to terminate, cancel or not renew a
threat to the economic health of the person (thus giving the grantor inherently superior bargaining
power).” Id. at 605.
The court also listed a number of “facets” of the business relationship courts should consider
in determining whether a community of interests exists, such as “how long the parties have dealt with
each other; the extent and nature of the obligations imposed on the parties in the contractor
agreement between them; what percentage of time or revenue the alleged dealer devotes to the
alleged grantor’s products or services; what percentage of the gross proceeds or profits of the
alleged dealer derives from the alleged grantor’s products or services; the extent and nature of the
alleged grantor’s grant of territory to the alleged dealer; the extent and nature of the alleged dealer’s
uses of the alleged grantor’s proprietary marks (such as trademarks or logos); the extent and nature
of the alleged dealer’s financial investment in inventory, facilities, and good will of the alleged
dealership; the personnel which the alleged dealer devotes to the alleged dealership; how much the
alleged dealer spends on advertising or promotional expenditures for the alleged grantor’s products
or services; the extent and nature of any supplementary services provided by the alleged dealer to
consumers of the alleged grantor’s products or services.” Id. at 606. Although the court did not
recite every factor that may be considered by a court, it noted these considerations are useful to a
court’s “community of interest” analysis.
The Seventh Circuit has summarized the inquiry even further in an attempt to provide clarity
to a muddled area of law:

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[A] retailer is a dealer only if it has made the kind of investments that would tempt
an unscrupulous grantor to engage in opportunistic behavior-in other words, to
exploit the fear of termination that naturally attends a dealer's investment in
grantor—specific assets. . . . At root, these are two ways of saying the same thing.
A grantor can exploit a dealer's fear of termination (our words) only if termination
will have severe economic consequences (their words). Severe economic
consequences will attend termination (theirs) because the dealer will be unable to
recover its sunk costs (ours). The ten Ziegler I factors structure any inquiry into
these matters.
Frieburg Farm, 978 F.2d at 399 (internal citations omitted).
In this case, the arbitrator found that the WFDL did not apply to Four Star and GIB’s
business relationship because the parties did not have a community of interest. ECF No. 1-2 at 11.
After considering the guideposts and facets discussed in Ziegler, the arbitrator concluded that the
parties had a fundamental conflict of interest—different sales priorities—that prevented them from
falling into the typical distributorship contemplated by the WFDL. Id. at 10. Implicit in the
arbitrator’s decision is the finding that Four Star did not have the kind of “sunk costs” in its
arrangement with GIB that would have caused it to devote significant efforts to selling GIB
products. Four Star makes no argument to the contrary in its petition to vacate.
Even apart from this, however, the fact that the arbitrator did not specifically discuss every
facet or explain how he balanced each one does not equate to a “manifest disregard of the law.” See
Affymax, 660 F.3d at 285 (“No rule of law requires arbitrators to render opinions—or . . . to discuss
every issue that the parties contested. Federal courts themselves often let issues pass in silence, and
arbitration need not be as formal as litigation. Many an arbitration ends with an award saying who
won but omitting reasons.”). In short, the court cannot conclude that the arbitrator disregarded the
law when he found that the parties did not have a community of interest. Because Four Star’s public

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policy challenge hinges on the success of its argument that the arbitrator manifestly disregarded the
law as to his application of the WFDL, this argument fails as well.
Next, Four Star asserts that the award violates the WAA because the arbitrator manifestly
disregarded the applicable law in awarding GIB attorneys’ fees. In his decision, the arbitrator noted
that, after reviewing the parties’ briefing on the issue, he found GIB had established its right to an
award of attorneys’ fees and costs. ECF No. 1-2 at 11. As to the amount of fees, the arbitrator
determined that the rates were reasonable with respect to the type of work involved in the relevant
geographic areas, and in some instances were low due to the discounted rates GIB received; the time
consumed was reasonably necessary based on the amount claimed, the several theories advanced,
the complexity of the law involved, the volume of the evidentiary record, the length of the
evidentiary hearing, and other similarly relevant factors; and the costs were reasonably necessary and
were not excessive under the circumstances. Id. at 12. Though the arbitrator’s decision does not
contain an exhaustive discussion regarding the fee award, he was not required to explain his award
in greater detail. See Halim v. Great Gatsby’s Auction Gallery, Inc., 516 F.3d 557, 564 (7th Cir.
2008).
Moreover, the award is in line with the applicable law. Four Star contends that in awarding
fees and costs to GIB, the arbitrator disregarded Wis. Stat. § 135.06, which provides that only a
prevailing plaintiff may recover attorneys’ fees, not a prevailing defendant. Yet, the contract Four
Star attempted to enforce was governed by California law, and the arbitrator applied California law
to determine the contract’s validity. ECF No. 1-2 at 5. It follows that the arbitrator applied
California law in determining whether to award GIB attorneys’ fees. California law provides that
when a party attempts to enforce a contract with a fee-shifting provision, the prevailing party is
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entitled to fees, even if it successfully argues that the contract is invalid. See Cal. Civ. Code § 1717;
see also Santisas v. Goodin, 951 P.2d 399, 406 (Cal. 1998) (“Section 1717 makes an otherwise
unilateral right reciprocal, thereby ensuring mutuality of remedy, . . . when a person sued on a
contract containing a provision for attorney fees to the prevailing party defends the litigation ‘by
successfully arguing the inapplicability, invalidity, unenforceability, or nonexistence of the same
contract.’” (quoting N. Assocs. v. Bell, 184 Cal. App. 3d 860, 865 (1986))). Four Star has not
shown that the arbitrator manifestly disregarded California law in awarding attorneys’ fees to GIB.
Therefore, the award will not be overturned.
CONCLUSION
Accordingly, for the reasons set forth above, Four Star’s petition to vacate the award is
DENIED and GIB’s motion to confirm the award (ECF No. 3) is GRANTED. The Clerk is
directed to enter judgment confirming the arbitration award dismissing Four Star’s claim against GIB
and awarding GIB a total of $124,660.43 in arbitration fees and costs against Four Star, together
with statutory costs of this action.
Dated this 28th day of December, 2017.
s/ William C. Griesbach
William C. Griesbach, Chief Judge
United States District Court

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