Opinion
No. C6-01-1751.
Filed March 26, 2002.
Appeal from the District Court, Hennepin County, File No. CT-01-5144.
Alan M. Anderson, Renee L. Jackson, Fulbright Jaworski L.L.P., (for appellant)
David P. Jendrzejek, Dawn M. Knutson, Shareen R. Luze, Moss Barnett, P.A., (for respondents)
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
Appellant Universal Cooperatives, Inc. challenges the district court's order and judgment denying its motion to vacate and/or modify an arbitration award and granting respondent Owens Lake Development Company's motion to confirm the award. Appellant contends (1) the award should be modified because the arbitrator improperly failed to award prejudgment interest and (2) the award should be vacated because the arbitrator clearly exceeded his authority by improperly disregarding the terms of the parties' contracts. Respondent has moved this court to strike portions of appellant's brief and appendix. Because arbitrators are the final judge of the law in an arbitration award, and because the arbitrator did not exceed his powers, we affirm.
DECISION
An appeal from an arbitration decision is subject to limited review and the reviewing court must exercise "[e]very reasonable presumption" in favor of the arbitration award's finality and validity. State, Office of State Auditor v. Minn. Ass'n of Prof'l Employees, 504 N.W.2d 751, 754 (Minn. 1993) (citations omitted). On appeal, we do not review the decision of the district court from which the appeal is taken but rather, we review the arbitrator's decision. See, e.g., Duluth Police Union v. City of Duluth, 360 N.W.2d 367, 370 (Minn.App. 1985) (where court reviewed arbitrator's decision on appeal rather than district court's decision).
I. Prejudgment Interest
Universal arguesthat the district court erred in denying its motion to amend the arbitrator's award to include prejudgment interest. We disagree.
A motion to modify or correct an arbitration award is governed by Minn. Stat. § 572.20 (2000), which permits modification where:
(1) There was an evident miscalculation of figures or an evident mistake in the description of any person, thing or property referred to in the award;
(2) The arbitrators have awarded upon a matter not submitted to them and the award may be corrected without affecting the merits of the decision upon the issues submitted; or
(3) The award is imperfect in a matter of form, not affecting the merits of the controversy.
This court's "power to modify an arbitration award is purely statutory." Minn. Licensed Practical Nurses Ass'n v. Bemidji Clinic, Ltd., 352 N.W.2d 65, 67 (Minn.App. 1994) (citation omitted).
Minn. Stat. § 572.20 does not permit modification of this arbitration award to include prejudgment interest. First, the exclusion of prejudgment interest was not a miscalculation of figures or an evident mistake in the description of any person, thing, or property referred to in the award; the arbitrator intended to exclude prejudgment interest. Second, the arbitrator did not award on a matter not submitted to him; the parties argued this precise issue. Third, the award is not imperfect in a matter of form, not affecting the merits of the controversy; whether to award prejudgment interest is a substantive matter and does not fall under Minn. Stat. § 572.20(3). See Adler v. Safeco Ins. Co., 413 N.W.2d 566, 568 (Minn.App. 1987) (concluding arbitration panel exceeded its powers by modifying original award to exclude prejudgment interest because mistake did not qualify under Minn. Stat. § 572.20(1) or (3) and arbitration panel cannot correct its own substantive errors). Because Universal's claim is not of the type set forth in Minn. Stat. § 572.20, this court may not modify the arbitrator's award.
The parties' agreements also provide that the arbitrator's award "shall be final and binding, and shall not be subject to appeal."
Even if we were to consider the merits of Universal's argument, Universal would not be entitled to modification to include prejudgment interest. First, Universal argues that Minn. Stat. § 572.15(a) (2000) requires that an arbitration "award must include interest." But arbitrators are the final judges of both law and fact and their "award[s] will not be reviewed or set aside for mistake of either law or fact in the absence of fraud, mistake in applying [their] own theor[ies], misconduct, or other disregard of duty." Cournoyer v. Am. Television Radio Co., 249 Minn. 577, 580, 83 N.W.2d 409, 411 (1957) (citation omitted). Under this narrow standard of review, even if the statute required prejudgment interest in this award, the award is not subject to modification.
Moreover, interest is calculated according to Minn. Stat. § 549.09, subd. 1(b) (2000), which provides:
Except as otherwise provided by contract or allowed by law, preverdict, preaward, or prereport interest on pecuniary damages shall be computed as provided in clause (c) from the time of the commencement of the action or a demand for arbitration, or the time of a written notice of claim, whichever occurs first, except as provided herein.
(Emphasis added.) In a scheduling order, the parties stipulated that the arbitration proceedings would be conducted "in accordance with the current Commercial Dispute Resolution Procedures of the American Arbitration Association." Rule 45 of the Commercial Dispute Resolution Procedures was in effect at the time the arbitrator rendered his decision and permitted, but did not require, the arbitrator to award interest. The arbitrator concluded that the parties adopted the Commercial Dispute Resolution Procedures and that the parties' adoption of Rule 45 "would trump any general mandatory interest provision of Minn. Stat. § 549.09." We conclude that the arbitrator's decision "draws its essence" from the arbitration agreement. See City of Minneapolis v. Police Officers' Fed'n, 566 N.W.2d 83, 87 (Minn.App. 1997) (noting that arbitrators do not exceed their powers if award draws its essence from agreement).
Universal is asking this court to review the substance of the decision. Because appellate courts exercise "[e]very reasonable presumption * * * in favor of the finality and validity of the arbitration award," State Auditor, 504 N.W.2d at 754 (citation omitted), and the arbitrator did not clearly exceed his powers, we may not modify the arbitrator's award.
II. Vacate Award
An arbitration award may be vacated only on the grounds listed in Minn. Stat. § 572.19. Hunter, Keith Indus., Inc. v. Piper Capital Mgmt., Inc., 575 N.W.2d 850, 854 (Minn.App. 1998). The court shall vacate an arbitration award when:
(1) The award was procured by corruption, fraud or other undue means;
(2) There was evident partiality by an arbitrator appointed as a neutral or corruption in any of the arbitrators or misconduct prejudicing the rights of any party;
(3) The arbitrators exceeded their powers;
* * * *
Minn. Stat. § 572.19 (2000). An arbitration award will be vacated only "upon proof of one or more of the grounds stated in Minn. Stat. § 572.19 * * * and not because the court disagrees with the decision on the merits." AFSCME Council 96 v. Arrowhead Regional Corrections Bd., 356 N.W.2d 295, 299-300 (Minn. 1984).
The fact that the relief was such that it could not or would not be granted by a court of law or equity is not ground for vacating or refusing to confirm the award.
Minn. Stat. § 572.19, subd. 1.
"Only where the arbitrators have clearly exceeded their powers must a court vacate an award." Nat'l Indem. Co. v. Farm Bureau Mut. Ins. Co., 348 N.W.2d 748, 750 (Minn. 1984) (citations omitted). The party seeking to vacate the award "has the burden of proving the invalidity of the arbitration award." Id. The district court is not bound by the arbitrator's decision that its actions were within its authority and reviews such a determination de novo. County of Hennepin v. Law Enforcement Labor Servs., 527 N.W.2d 821, 824 (Minn. 1995). In determining whether an arbitrator exceeded his authority, this court only considers whether an award draws its essence from the parties' agreement. Police Officers' Fed'n, 566 N.W.2d at 87. If an award is rationally derived from an agreement viewed in the light of the agreement's language, content, and indicia of intent, it should be upheld. Id.
The arbitration provision of the parties' agreements states:
The parties agree that the arbitrator may enter an award providing for any legal or equitable relief appropriate to the circumstance.
Although the arbitrator is not free "to dispense his own brand of industrial justice," United Steelworkers v. Enter. Wheel Car Corp., 363 U.S. 593, 597 (1960), under the plain language of this provision, the arbitrator had broad authority to award relief. Therefore, the arbitrator's decision not to rescind the contract but rather to award Universal $260,000 for Owens' breach of contract "draws its essence" from the contract.
Universal argues that it has no further payment obligations under paragraph 13 of the asset agreement, which provides:
Conditions to Buyer's obligations. Buyer's obligations under this agreement are, at its option, subject to the following conditions:
(a) Representations and warranties. There has not been any material breach of Seller's representations or warranties contained in this agreement, and such representations and warranties shall continue to be true on the closing date.
(b) Seller's performance. Seller has performed and complied with all of its agreements and conditions under this agreement.
The arbitrator, however, noted that he "repeatedly disagreed with [Universal's] interpretation" of the paragraph and concluded that the paragraph contemplated a due diligence period after signing and until closing.
Paragraph 13(a) states that "such representations and warranties shall continue to be true on the closing date." The language indicates a time span beginning with the document's execution and ending at closing. Paragraph 13(b) does not contain a time limitation, but the majority of subparagraphs contained in paragraph 13 indicate they apply until or at closing. For example, paragraphs 13(c) and (d) state that those paragraphs apply "from the date hereof to the closing date." Paragraph 13(i) states that the board of directors has approved the transaction, presumably a prerequisite to the document's execution. Paragraph 13(j) conditions the transaction on execution of the parties' three purchase agreements, and this condition was presumably to be satisfied at closing. We conclude that the arbitrator's decision that paragraph 13 was ambiguous and that it contemplated a due diligence period between execution of the agreements and closing "draws its essence" from the agreement.
We also note that paragraph 5 of the asset agreement, which sets the purchase price and terms for payment, expressly lists contingencies that would affect the annual installment payments, and the seller's breach is not included among the contingencies. Moreover, in the event a listed contingency occurred, the remedy is not rescission but instead "payment shall thereby continue to the extent of any recovery less reasonable and necessary expenses."
Universal asserts that the parties agreed to the meaning of these paragraphs and that the arbitrator "conjured up" the idea that the language contemplated a due-diligence period. But the record does not support this interpretation. In an interim award, the arbitrator recognized the potential ambiguity. And Owens asserts the language was subject to "vigorous disputes and differing interpretation throughout the proceeding." Thus, we conclude Universal's argument that the arbitrator "conjured up" his interpretation is without merit.
Universal also asserts that the arbitrator's interpretation is contrary to paragraph 9 of both the asset agreement and the companion fixed-asset agreement, which provides:
Paragraph 8 of the fixed asset agreement provides that "the warranties and representations * * * shall survive for a period of two years after the closing date or for so long as Seller continues its corporate existence, whichever is longer."
The warranties and representations as set forth in this agreement made by the parties shall survive for a period of five years after the closing date, or until all payments are completed, whichever is longer.
Universal asserts that the arbitrator's interpretation reads paragraph 9 out of existence. But the arbitrator did not conclude that Owens was no longer subject to the obligations set forth in the agreement. Instead, the arbitrator found that Owens breached the agreement provision requiring that its representations not be misleading and awarded damages for the breach. Paragraph 9 is not "read out of existence" because the arbitrator established a remedy permitted by the contract's broad remedy provision.
Universal cites several cases to support its position that the arbitrator exceeded his authority, but those cases are inapposite to this case. Most significantly, the parties' contracts do not expressly provide for specific remedies. Cf. Missouri River Svc., Inc., v. Omaha Tribe of Neb., 267 F.3d 848 (8th Cir. 2001) (finding award failed to draw its essence from agreement because agreement expressly provided for specific kinds of remedies and arbitrator ignored remedy provision and rewrote agreement). And as discussed above, nor did this arbitrator base his decision on a thought, feeling, policy, or law that is outside the contract; the arbitrator's interpretation draws its essence from the contract. Cf. Boise Cascade Corp. v. Paper Allied-Indus. Chem. Energy Workers, Local 7-0159, 2001 WL 1618004 (D.Minn. Apr. 6, 2001) (arbitrator exceeded his authority by requiring that compliance with employer rule meant only "published" employer rule). Finally, the contract was ambiguous; the contract required interpretation. Cf. Inter-City Gas Corp. v. Boise Cascade Corp., 845 F.2d 184, 187 (8th Cir. 1998) (concluding arbitrator exceeded authority by interpreting unambiguous language in way different from its plain meaning).
Because the standard of review and the arbitration act prevent this court from substituting its own judgment for that of the arbitrators, and because the arbitrator's award draws its essence from the contract, the arbitrator did not exceed his authority. Accordingly, we conclude that this court must deny Universal's motion to vacate the award.
III. Motion to Strike
Owens moves to strike portions of Universal's brief and appendix as outside the record on appeal, including various documents, exhibits, and deposition testimony.
"The papers filed in the trial court * * * shall constitute the record on appeal in all cases." Minn.R.Civ.App.P. 110.01. Trial court "means the court or agency whose decision is sought to be reviewed." Minn.R.Civ.App.P. 101.02, subd. 4. This court "may not base its decision on matters outside the record on appeal." Plowman v. Copeland, Buhl Co., Ltd., 261 N.W.2d 581, 583 (Minn. 1977). Thus, this court will strike materials that are not part of the appellate record. Fabio v. Bellomo, 489 N.W.2d 241, 246 (Minn.App. 1992), aff'd 504 N.W.2d 758 (Minn. 1993).
Universal asserts that the decision being reviewed is the arbitrator's decision. But as the comment to rule 101.02 states, trial court "is used to describe the district court, municipal court, or any other court or agency from which appeals * * * may be authorized." Minn.R.Civ.App.P. 101.02 1967 advisory comm. note (emphasis added). Appeals from arbitrators' decisions are not authorized. See Minn. Stat. § 572.26 (2000) (setting forth various district court orders that may be appealed). An appellant may only request review of an arbitrator's award by appealing a district court's order and judgment. Id. Therefore, the record on appeal is the record made in the district court proceedings. See Koranda v. Austin Mut. Ins. Co., 397 N.W.2d 357, 360 n. 1 (Minn.App. 1986) (concluding that underinsurance policy not introduced at arbitration was properly part of record on appeal because it was attached as an exhibit to motion in district court).
A review of the district court file confirms that each item that Owens requested this court to strike is not included in the district court file. Accordingly, we have not considered the portions of Universal's brief and appendix that are outside the record on appeal in reaching our decision, and we grant Owens' motion to strike those items from the record.