Wisconsin Court of Appeals Confirms Courts May Issue Temporary Injunctions Pending Arbitration
The Wisconsin Court of Appeals recently addressed a question of first impression concerning the scope of a circuit court’s authority when a dispute is subject to mandatory arbitration. In Herbal Aspect LLC v. Gish, the court held that a circuit court retains authority to consider and grant a temporary injunction to preserve the status quo, even after determining that the merits of the dispute must be resolved through arbitration.
The underlying dispute arose out of competing claims over ownership and control of Herbal Aspect LLC. The Plaintiffs sought a temporary injunction to restrain certain management actions while the case was pending. The Defendants moved to stay the action under Wis. Stat. § 788.02 based on an arbitration clause in the company’s operating agreement. After the circuit court agreed that all claims were subject to arbitration, it declined to rule on the injunction motion, concluding that it lacked authority to grant injunctive relief once the case was stayed for arbitration.
On appeal, the court of appeals reversed that determination. The court explained that Wisconsin law draws an important distinction between a court’s limited “gatekeeping” role in deciding whether a dispute is arbitrable and the court’s separate equitable authority to preserve the status quo pending resolution of the merits. While courts may not consider the merits of a dispute when deciding arbitrability, that limitation does not categorically bar courts from weighing the factors necessary to decide a temporary injunction motion.
The court emphasized that Wis. Stat. § 788.02, which regulates arbitration in court proceedings, requires a stay of “the trial of the action,” but does not strip courts of their traditional equitable powers or expressly prohibit pre-arbitration injunctive relief. In reaching that conclusion, the court relied heavily on persuasive federal authority interpreting the Federal Arbitration Act, under which most federal courts permit temporary injunctive relief when necessary to prevent irreparable harm or to avoid rendering arbitration a “hollow formality.”
The court also examined the arbitration agreement itself, which incorporated the American Arbitration Association’s Commercial Arbitration Rules. Those rules expressly contemplate court-ordered interim relief and provide that a request for judicial injunctive relief is not incompatible with arbitration or a waiver of the right to arbitrate. Based on that language, the court concluded that the parties’ agreement did not foreclose court-ordered temporary injunctions.
Although the court held that the circuit court had authority to consider the injunction motion, it declined to decide whether an injunction should have been granted. Instead, it remanded the case for the circuit court to exercise its discretion under the traditional temporary injunction factors, while leaving the stay pending arbitration in place.
This decision provides important guidance for parties to arbitration agreements and their counsel. Even when arbitration is mandatory, Wisconsin courts may play a limited but critical role in preserving the status quo and preventing irreparable harm before arbitrators are able to act. Parties drafting arbitration provisions should carefully consider whether and how temporary injunctive relief may be sought, as the absence of clear contractual guidance can invite costly procedural disputes before arbitration ever has a chance to begin.
