Opinion
No. A06-760.
Filed February 27, 2007.
Appeal from the District Court, Ramsey County, File No. C2-05-9771.
Kay Nord Hunt, Seth M. Colton, Deborah C. Swenson, Lommen, Abdo, Cole, King Stageberg, (for appellants).
Joseph D. O'Brien, Jr., Paula Duggan Vraa, Larson King, LLP, (for respondents).
Considered and decided by Klaphake, Presiding Judge; Willis, Judge; and Shumaker, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2006).
UNPUBLISHED OPINION
Appellants challenge the district court's judgment confirming an arbitration award, arguing that the district court improperly modified the award. Appellants also argue that the district court erred by reserving claims for damages arising from the judgment. Because the district court properly construed the arbitration award in converting it into an enforceable judgment, we affirm.
FACTS
Appellants Randy Johnson and Jane Johnson and respondents Randy Newbold and Elaine Newbold jointly bought a house in Hawaii and entered into a written agreement for its "shared use, operation, upkeep, rental and sale."
The agreement provided that if either couple wished to sell their interest, the other couple would have an option to buy that interest. The option had to be exercised within one year after the notice to sell or it would become null and void and a "forced sale" would be held.
The Johnsons gave notice of their intent to sell on January 31, 2004. The Newbolds gave notice on September 7, 2004, of the exercise of their option to buy. In accordance with the agreement, an independent fee appraiser appraised the property and determined the fair market value to be $1 million, one-half of which was the value of the Johnsons' interest.
By January 2005, the parties had not closed the sale of the property because of various disagreements about personal property to be included and financing. The agreement provided that "[a]ny dispute arising under this agreement or out of the common ownership of the property shall be submitted to binding arbitration under the rules of the American Arbitration Association." Venue for any arbitration or related matter was set in Ramsey County.
On January 24, 2005, the Newbolds demanded arbitration. The arbitrator heard the dispute on June 6 and 7, 2005, made findings, and issued an "Interim Award" on July 7, 2005, which directed the Johnsons to sell and the Newbolds to buy the property "as soon as is practicable, but in no event any later than August 30, 2005." The award reflected the purchase price of one-half the $1 million value determined by the appraiser, less "assumed encumbrances," as to which no evidence was presented at the hearing. The award also set forth the method of payment to be used if the Newbolds chose to finance the purchase rather than pay the entire price in cash. Finally, the arbitrator retained jurisdiction "through only August 30, 2005 or the date on which the closing of the sale . . . takes place, whichever comes first."
The parties continued to disagree as to personal property and financing and, as of August 29, 2005, the sale had not closed. On that date, the Newbolds moved to extend the arbitrator's jurisdiction. The Johnsons objected that the extension motion did not comply with the American Arbitration Rules. On August 30, 2005, the arbitrator extended his jurisdiction "through September 30, 2005 or the date on which the closing of the sale . . . takes place, whichever comes first."
The parties' disputes continued, each couple claiming that the other was responsible for preventing the closing of the sale. The September 30 deadline passed without a closing. The Newbolds then moved for supplemental relief and a final order seeking the arbitrator's directive that the Johnsons were to execute all documents necessary to close the sale and an award of various costs.
On October 7, 2005, the Johnsons petitioned the district court to vacate, or, in the alternative, to confirm the arbitration award. On October 13, 2005, the arbitrator ordered that: "Upon the joint request of the parties, the Interim Award . . . has now become and is a Final Award." The Newbolds filed with the district court a cross-petition for the confirmation of the arbitration award.
The district court granted the respective petitions to confirm the award and ordered that the "parties shall complete the sale as soon as practicable, but no longer than 90 days from" March 24, 2006. The court also deferred for later consideration any issue of damages, expenses, or costs.
On appeal, the Johnsons argue that the district court's confirmation of the award should be affirmed but the court's grant of additional time to close the sale should be reversed, and a "forced sale" under the agreement should be ordered. The Newbolds contend that the district court should be affirmed in all respects.
DECISION
An arbitration award becomes an enforceable judgment when the district court confirms, modifies, or corrects it. Minn. Stat. §§ 572.18, .20 (2006). And the district court enjoys "the authority to construe an arbitration award to be able to enforce [it.]" Ray v. City of Maple Grove, 519 N.W.2d 466, 469 (Minn.App. 1994), review denied (Minn. Sept. 16, 1994).
The arbitrator's Interim Award directed the specific enforcement of the sale provision in the parties' agreement. The parties jointly requested that the arbitrator convert the Interim Award into the Final Award. He did so. The parties then requested the district court to confirm the Final Award. The court did that, thereby converting the arbitration award into a judgment for specific performance of the sale provision of the parties' agreement.
In its memorandum, the district court noted that the "parties have repeatedly said that they were ready to complete the sale . . . [and] [n]o evidence has been presented that the sale cannot now occur." The court also indicated that the issue of personal property was not part of the appraisal or the arbitration, and that "[a]ny dispute regarding personal property must be handled separately." Construing the arbitration award to be an order for specific performance of the sale of the real estate, and the closing deadlines to be attempts to provide reasonable times for the closing, the court ordered the parties to complete the sale within yet another deadline. That did not happen; the disputes regarding personal property and financing remain unresolved; each couple continues to blame the other for the failure to close; the Johnsons contend that the deadline for closing has passed and only a "forced sale" under the agreement is permissible; and the arbitrator has divested himself of jurisdiction without addressing the issues that have hindered the closing from the outset.
The confirmed arbitration award established certain "absolutes," none of which is challenged on appeal and all of which appear to have been within the arbitrator's authority. These "absolutes" are: (1) the Johnsons must sell their interest in the real estate and the Newbolds must buy that interest; (2) the purchase price is $500,000, less "assumed encumbrances," which are not specified or defined but which, being encumbrances against the real estate, should be readily ascertainable; (3) the Newbolds are to assume the Johnsons' mortgage obligation; (4) the Newbolds must pay 10% of the purchase price balance, after the mortgage assumption, in cash at closing; (5) the Johnsons must convey their interest by warranty deed; (6) and the Newbolds must pay any balance remaining after the mortgage assumption and the 10% cash payment in quarterly installments over five years at an interest rate of 8% per annum. Alternatively, the Newbolds may pay the entire $500,000 in cash at closing.
Implicit in the confirmed arbitration award is the conclusion that the parties are ready, willing, and able to complete the sale, and the district court found no evidence that a sale on the terms of the award could not occur.
If a district court has the authority to construe an arbitration award so as to make it enforceable, it necessarily has the power to make determinations that will prevent the award from becoming a nullity. An extension of time for parties to consummate a real estate sale is just such a determination. Treating the court's extension of time for the closing as a modification of the award, and therefore impermissible, creates the possibility that a party could intentionally delay the closing beyond the deadline fixed by the arbitrator and thereby negate the award. No court order should be susceptible to such manipulation. Our conclusion is that the district court's extension of the closing date is more properly and justly to be considered a construction of the award so as to enforce it than as a modification, which renders the award a nullity. In so holding, we do not intend to suggest that one couple or the other is to blame for the failure to close, or that any manipulation of the deadline has occurred. We have no record from which to resolve that issue. But what the district court resolved, and what we intend by our affirmance to resolve, is that the sale shall take place on the terms set forth above, as "absolutes," that the district court's time deadline is tolled by this appeal, and that the district court may continue to control the timing of the closing as part of the court's authority to construe the award to make it enforceable.
Because of our holding, there can no longer be a good-faith dispute about the means and mechanism of financing. Mortgage assumptions and installment promissory notes are common means of financing real estate sales. The arbitration award fixed these methods, or, in the alternative, a lump-sum cash payment as the financing tools for this sale.
The only dispute that remains is that regarding personal property and fixtures. As is commonly done in real estate sales when some matters are still pending as of closing, the parties can close in escrow and resolve the disputed items in a separate proceeding. Their agreement calls for binding arbitration as to all disputes. Thus, the parties may resolve the issue informally, submit it to arbitration, or modify their agreement and submit it to the district court. Whatever choice they make, we have been presented with no reason why the sale cannot or should not be closed.
Finally, the district court has the authority to enforce its own orders through its contempt powers or otherwise. See Erickson v. Erickson, 385 N.W.2d 301, 304 (Minn. 1986) (stating purpose of contempt power "is to provide the [district] court with the means to enforce its orders.").