Seventh Circuit Affirms Wisconsin Federal Court’s Finding That Arbitration Panel’s Decision Was Arbitrary and Capricious Where It Was Contrary to the Evidence in the Record

This action arises out of a grievance filed by Theresa Taylor, a blind vending machine operator, with the Wisconsin Department of Workforce Development (DWD) over the DWD’s decision to award Jocelyn Belsha, another blind applicant, a bid to operate the vending machine at the Racine/Sturtevant correctional facility over Taylor. In 2007, Taylor accepted the DWD’s invitation to run the vending machines at three Wisconsin correctional facilities on an interim basis. In 2011, the DWD bid out these sites on a permanent basis, granting Belsha a bid to operate the vending machine at the Racine/Sturtevant correctional site.

In July 2015, the DWD convened a three-member arbitration panel to hear Taylor's grievance.  The arbitration took place in September 2017, and in February 2018, the arbitration panel rendered a decision finding that the DWD “acted in an arbitrary, capricious and biased manner” when it failed to award Taylor the Racine/Sturtevant site during the two selection processes and that Taylor had proved her case “by substantial evidence,” even though she would have also prevailed under a “preponderance of the evidence” test.

The DWD filed a petition for judicial review of the arbitration panel’s decision favoring Taylor. The U.S. District Court for the Western District of Wisconsin vacated the arbitration award, ruling that there were no material deficiencies in the choice of Belsha for the Racine/Sturtevant site, the arbitration panel's key factual findings were not supported by substantial evidence, and the arbitration panel's ultimate conclusion was arbitrary and capricious.

Taylor appealed to the Seventh Circuit, which affirmed the district court’s decision. The Seventh Circuit held that Taylor's appointment to Racine/Sturtevant by the arbitration panel ran afoul of administrative procedure in several ways.

First, the arbitration panel misapprehended the burden of proof — the Seventh Circuit held that preponderance of the evidence, rather than substantial evidence, was the correct burden of proof during the arbitration proceeding and that the arbitration panel fundamentally erred when it applied the substantial evidence standard.

Second, the key factual findings by the arbitration panel were not supported by substantial evidence — the Seventh Circuit held that the panel’s finding that the DWD should have evaluated Taylor based on earlier profitability data rather than more recent data in reinterviews was not supported by substantial evidence, under the Randolph-Sheppard Act, since there were only two questions in the selection criteria that assessed profitability data, and the record did not contain evidence of what operators’ scores would have been using recent data.

Third, the Seventh Circuit found that the arbitration panel’s decision for Taylor as the best operator for the Racine/Sturtevant site was contrary to the evidence and thus arbitrary and capricious.

State of Wisconsin, Dep't of Workforce Development-Division of Vocational Rehabilitation v. U.S. Dep't of Education, 980 F.3d 558 (7th Cir. 2020).