Opinion
Civil Action CV-15-0151
03-09-2017
JAMES D. KLEIN and MARGARET L. K. SELIAK Plaintiffs, MARK C. KLEIN Defendant, GEROLD K. V. KLEIN, JR., ELEANOR K. IYER, KATE E. KLEIN, PETER L. KLEIN, and MARGARET L. KLEIN Parties-in-Interest.
ORDER ON PLAINTIFFS' MOTION TO CONFIRM ARBITRATION AWARD AND DEFENDANT'S MOTION TO STAY ARBITRATION OR VACATE ARBITRATION AWARD.
Lance E. Walker Justice, Superior Court.
Before the court is Plaintiffs' motion to confirm an arbitration award, and Defendant's motion to stay arbitration, deny Plaintiffs' motion to confirm, and/or vacate the arbitration award.
I. Procedural History
On August 1, 2016, attorney William Robitzek conducted mediation to settle a lawsuit regarding, inter alia, the division of royalties from a burn treatment. (D.'s Opp'n and Mot. Stay 1.) The mediation resulted in a Term Sheet with provisions whereby the parties indicated their intent to draft a settlement agreement, and to submit disputes as to the terms or implementation of the Term Sheet to Robitzek for binding arbitration. (Pl/s Mot Confirm, Arbitration Award ¶¶ 2-3.) The Term Sheet was signed by Plaintiffs, Defendant, and all Parties-in-Interest except Gerold K. V. Klein, Jr. (Id. ¶ 2 n. 1.)
When disputes arose on the final language of the settlement agreement, the parties requested arbitration. (Id. ¶¶ 4-5; D.'s Opp'n and Mot. Stay 2.) By agreement, in lieu of a hearing, the parties submitted written materials to Robitzek. (D.'s Opp'n and Mot. Stay 2.) Robitzek issued his Arbitrator's Award on November 3, 2016. (Pl's Mot. Confirm Arbitration Award ¶ 19.) On November 14, 2016, after several telephonic conferences following November 3, 2016 during which he considered requested changes to his Arbitrator's Award, Robitzek announced he would issue a final Amended Award on November 15, 2016. (Id. ¶¶ 21-23.) On that morning, Defendant contacted Robitzek to object to the issuance. (D.'s Opp'n and Mot. Stay 2-3.)
Defendant states that Robitzek also issued an Amended Award on November 3, 2016, (D.'s Opp'n and Mot. Stay 2), but Plaintiffs state this is incorrect, (Pl's's Reply to D.'s Opp'n and Mot. Stay 5).
On November 17, 2016, Plaintiffs filed a motion to confirm the Arbitrator's Award. On December 7, 2016, Defendant filed his opposition and a motion to stay arbitration and/or vacate the Arbitrator's Award. On December 20, 2016, Plaintiffs filed a reply in support of their motion to confirm.
II. Discussion
Maine strongly favors arbitration. Barrett v. McDonald Invs., Inc., 2005 ME 43, ¶ 16, 870 A.2d 146. An arbitration agreement or an arbitration provision in a written contract is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for contract revocation. 14 M.R.S. § 5927. The agreement can be a single document or writings exchanged between the parties. Roosa v. Tillotson, 1997 ME 121, ¶ 4, 695 A.2d 1196. General rules of contract interpretation apply, and the contract is interpreted to effect the parties' intentions as reflected in the written instrument, construed with regard for the subject matter, motive, and purpose of the agreement, as well as the object to be accomplished. Reg'l Sch. Unit No. 5 v. Coastal Educ. Ass'n, 2015 ME 98, ¶ 15, 121 A.3d 98. Part of what is bargained for is the arbitrator's contract interpretation. City of Lewiston v. Lewiston Firefighters Ass'n, 1AG, Local #785, 629 A.2d 50, 52-53 (Me. 1993.) The court will uphold the arbitrator's interpretation if it is a rational construction of the contract. Westbrook v. Teamsters Local No. 48, 578 A.2d 716, 717 (Me. 1990.)
The Term Sheet from the August 1, 2016 mediation provides, in pertinent part: (6) Disputes as to the meaning of these terms or its implementation, the parties agree to submit them to William Robitzek for binding arbitration, who shall have discretion to award attorneys' fees to the prevailing party.
a. Stay of arbitration
1. Validity of the Term Sheet
The court may grant a stay of arbitration on a showing that there is no agreement to arbitrate. 14 M.R.S. § 5928(2). Parties are not ordered to arbitrate their dispute unless they have agreed to do so in writing. Patrick v. Moron, 2001 ME 6, ¶ 5, 764 A.2d 256. Determining substantive arbitrability, i.e., whether parties have made an arbitration agreement, is a function of the court. Westbrook Sch. Comm. v. Westbrook Teachers Asso., 404 A.2d 204, 207 (Me. 1979). However, the absence of a signature goes to the validity of an entire contract, and the validity of the whole contract is a question properly subject to arbitration. Stenzel v. Dell, Inc., 2005 ME 37, ¶ 15, 870 A.2d 133; see Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04, 87 S.Ct. 1801, 1806 (1967).
Defendant argues there was no valid arbitration agreement because the Term Sheet was not signed by Gerold who was listed as one of the "Parties" on the Term Sheet, and that a November 16, 2016 email from Robitzek saying "whether there was ever a valid agreement to arbitrate" was "a matter that needed to be litigated" implied the arbitration provision may not be valid. (D.'s Opp'n and Mot. Stay 9-10.)
Here, Robitzek's interpretation that the Term Sheet was a valid contract, implied by his performance of the arbitration despite the absence of Gerold's signature, was reasonable where the Term Sheet, including the arbitration provision, was negotiated during a long day of mediation, see Barrett, 2005 ME 43, ¶ 22, 870 A.2d 146, and did not explicitly require all parties to sign to establish its validity. All parties, including Defendant, were aware Gerold did not sign, and yet they voluntarily invoked and participated in the subsequent arbitration, when they exchanged emails to establish a non-testimonial arbitration process and then submitted written materials as directed by Robitzek's September 30, 2016 arbitration order, evidencing their agreement to arbitrate their disputes as described in the Term Sheet. (Pl's Mot. Confirm Arbitration Award ¶¶ 2, 6, 8; D.'s Opp'n and Mot. Stay 2); Roosa, 1997 ME 121, ¶ 3, 695 A.2d 1196. Defendant did not object to the arbitration process until November 15, 2016, after teleconferencing several times with Robitzek following the November 3, 2016 issuance of the Arbitrator's Award to press for amendments. (D.'s Opp'n and Mot. Stay 2.) Robitzek's email that the arbitration agreement's validity must be litigated is only a restatement of law which says the courts decide substantive arbitrability via either a motion to compel or stay, or a motion to vacate. 14 M.R.S. §§ 5928(2), 5938(1)(E); Anderson v. Banks, 2012 ME 6, ¶ 13, 37 A.3d 915. The language of the arbitration provision itself is not so broad as to imply Robitzek's authority to evaluate Defendant's defenses to its enforcement. Cf. Anderson v. Constance Banks, No. CV-10-19, 2011 Me. Super. LEXIS 28, at *11 (Feb. 23, 2011.) But, the court defers to Robitzek's decision that the Term Sheet, including the arbitration provision, was a valid contract. See Bennett v. Prawer, 2001 ME 172, ¶ 8, 786 A.2d 605.
2. Validity of the arbitration provision
In the alternative, if this court is to decide the validity of the arbitration provision, the question arises as to whether Defendant preserved the issue. See Pelletier & Flanagan v. Me. Court Facilities Auth., 673 A.2d 213, 216 (Me. 1996). A party is not required to file a motion to stay to preserve this issue. Anderson, 2012 ME 6, ¶ 13, 37 A.3d 915. However, Maine Rule of Civil Procedtire 8(c) implies the failure to plead an avoidance defense generally results in a waiver. See R.C. Moore, Inc. v. Les-Care Kitchens, Inc., 2007 ME 138, ¶ 24, 931 A.2d 1081. Defendant made no filings or objections to arbitration prior to November 15, 2016. (D.'s Opp'n and Mot. Stay 2); Cf Anderson, 2011 Me. Super. LEXIS 28, at *4-5. The arbitration provision was sufficiently definite on what promisors undertook in participating which was to be bound by Robitzek's award. Stenzel, 2005 ME 37, ¶ 10, 870 A.2d 133. Defendant manifested his acceptance to the arbitration provision with his voluntary participation, which is inconsistent with saying the agreement was invalid. Id. ¶ 12; Saga Communs. of New England, Inc. v. Voornas, 2000 ME 156, ¶ 12, 756 A.2d 954; (D.'s Opp'n and Mot. Stay 2); Cf. Anderson, 2012 ME 6, ¶ 5, 37 A.3d 915. Defendant is estopped from asserting invalidity, based on his unpreserved affirmative defense, when he did not object until after he received an adverse result. Leete & Lemieux, P.A. v. Horowitz, 2012 ME 71, ¶ 15, 53 A.3d 1106.
Even if Defendant preserved the issue, the arbitration provision is valid where Defendant participated in the mediation that produced the Term Sheet and had opportunity to review before signing. Stenzel, 2005 ME 37, ¶ 12, 870 A.2d 133. Plaintiffs produced several writings evidencing an arbitration agreement between them and Defendant, including the Term Sheet and emails establishing the arbitration procedure. Cf Patrick, 2001 ME 6, ¶ 9, 764 A.2d 256. The court declines to consider the absence of Gerold's signature in its evaluation of substantive arbitrability as it goes to the validity of the Term Sheet as a whole. See Stenzel, 2005 ME 37, ¶ 15, 870 A.2d 133. The provision, itself, has no language requiring all parties to sign or potential legal consequences if a party were not to sign, and it is a generally accepted principle that any ambiguity in that language will be interpreted against the drafter. Barrett, 2005 ME 43, ¶ 15, 870 A.2d 146. Furthermore, Defendant manifested his acceptance to the arbitration provision and his intent to be bound with the purpose of putting the terms into effect with his voluntary participation. Stenzel, 2005 ME 37, ¶¶ 12, 14, 870 A.2d 133. b. Motion to confirm
A motion for confirmation of an arbitrator's award shall be granted unless a party asks to vacate, modify, or correct the award. 14 M.R.S. § 5937. The burden of proof is on the party seeking to deny confirmation. NCO Portfolio Mgmt. v. Folsom, 2007 ME 152, ¶ 5, 938 A.2d 24. If the application to vacate is denied, the court shall confirm the award. 14 M.R.S. § 5938(4).
1. Procedural issues with arbitration
Defendant argues even if the arbitration provision was valid, the arbitration was invalid because there was no hearing and notice. (D.'s Opp'n and Mot. Stay 2, 4.)
Unless otherwise provided by the agreement, an arbitrator must provide notice and conduct a hearing where the parties are entitled to be heard, present evidence, and cross-examine witnesses. 14 M.R.S. § 5931; NCO Portfolio Mgmt, 2007 ME 152, ¶ 3, 938 A.2d 24. A court will uphold an arbitrator's interpretation of procedure if it is a rational construction of the contract, where general principles of contract interpretation apply. Westbrook Sch. Comm., 404 A.2d at 208; Barrett, 2005 ME 43, ¶ 17, 870 A.2d 146.
Here, Robitzek's interpretation that the arbitration agreement did not require a hearing was reasonable. In an email to Robitzek on September 30, 2016, Defendant explicitly stated his agreement with Plaintiffs to have a non-testimonial hearing, thereby effectively consenting to a deviation from the statutory default, and manifesting his intent to comply with new terms. (Pl's Mot. Confirm Arbitration Award ¶ 6 Ex. 2); see Westbrook, 578 A.2d at 719; see Stenzel, 2005 ME 37, ¶¶ 12, 14, 870 A.2d 133. Once Defendant manifested agreement to the procedure, he could not alter it without formal written agreement. Id. ¶ 20.
2. Validity of Arbitrator's Award
Defendant argues there was no valid award ever issued that could now be confirmed because the November 3, 2016 Arbitrator's Award never took effect. (D.'s Opp'n and Mot. Stay 3.) He argues Robitzek's intent that the Arbitrator's Award was not final was evidenced by: (1) an amended award Defendant claims was issued the same day, (2) the continuing discussions after November 3, 2016, (3) Robitzek's announcement to issue a final award on November 15, 2016, and (4) Robitzek's November 16, 2016 email stating if the parties do not litigate the validity of the arbitration agreement, then he would "consider a renewed request to arbitrate." (Id. 2-3.)
There is no language in the Arbitrator's Award.to indicate it was not a valid, confirmable award, Plaintiffs dispute whether an amended award on November 3, 2016, and Robitzek's willingness to listen to grievances over the Arbitrator's Award were no guarantee it would be amended. There is no prohibition on amending an otherwise valid, confirmable award. To the contrary, the Uniform Arbitration Act (UAA), 14 M.R.S. §§ 5927-5949, includes a provision for changing an award after it has been modified or corrected by the arbitrator. 14 M.R.S. § 5935. Robitzek's November 16, 2016 email only stated he would consider serving as an arbitrator in the future and not that the Arbitrator's Award was not effective. (D.'s Opp'n and Mot. Stay 3.) Finally, in the Arbitration Award, Robitzek expressly stated his continuing jurisdiction to arbitrate disputes as to the meaning of the Award's terms or implementation, indicating his contemplation that he might amend the Award at some future time but not implying that the Award was not effective. (Pl's Mot. Confirm Arbitration Award ¶ 19 Ex. 4.) c. Motion to vacate
Even if the Arbitrator's Award was valid, Defendant asks this court to vacate the award because his rights were prejudiced and Robitzek exceeded his powers as an arbitrator where: (1) the mediator and arbitrator were the same person, (2) there was no hearing where he could have, inter alia, presented evidence and cross-examined parties as to the meaning of the terms "royalties" and "implementation", and (3) Robitzek did not follow the statutory notice and hearing procedure. (D.'s Opp'n and Mot. Stay 5, 6, 8.)
The burden of proof to vacate an arbitration award is on the moving party to prove one of the specific statutory grounds requiring the court to vacate. Macomber v. Macquinn-Tweedie, 2003 ME 121, ¶ 16, 834 A.2d 131.
1. Vacate when arbitrator exceeded their powers
The court shall vacate an award if the arbitrator exceeded their powers. 14 M.R.S. § 5938(1)(C). The burden of proving the arbitrator exceeded their authority rests on the party attacking the award. City of Lezuiston, 629 A.2d at 53. The standard for determining whether an award exceeds an arbitrator's power is extremely narrow. Id. at 52. It is the arbitrator's construction of a contract that is bargained for, and only when there is a manifest disregard of the contract or the award contravenes public policy will a court disturb the award. Id. at 52-53; Bennett, 2001 ME 172, ¶ 8, 786 A.2d 605. An arbitrator does not exceed their powers merely because of error or law or fact. Macomber, 2003 ME 121, ¶ 16, 834 A.2d 131; HL 1 LLC v. Riveriualk, LLC, 2011 ME 29, ¶ 18, 15 A.3d 725. Instead, an evaluation as to whether the arbitrator exceeded their powers is about the way the arbitrator decides the merits. Westbrook Sch. Coram., 404 A.2d at 208. Once consenting to the arbitration, a party is bound by the arbitrator's determination of legal issues. Bennett, 2001 ME 172, ¶ 10, 786 A.2d 605.
Here, the arbitration provision contemplated questions over definitions, was expressly written to address them, and specifically gave Robitzek the power to determine the meaning of the words in the Term Sheet. See V.I.P., Inc. v. First Tree Dev., 2001 ME 73, ¶ 6, 770 A.2d 95. By his submission of disputes to arbitration under the Term Sheet, Defendant made Robitzel's arbitration the proper forum to interpret the Term Sheet's language in a way consistent with the entire agreement. See Westbrook, 578 A.2d at 721. "Royalties" and "implementation" are both terms in the Term Sheet, and therefore the parties did agree they possibly would be subject to arbitration. See Caribou Bd. of Educ. v. Caribou Teachers Asso., 402 A.2d 1287, 1291 (Me. 1979). Robitzek was correct in his determination that he had the power to decide what they meant. Id. at 1292.
Defendant argues Robitzek improperly based his definition of "royalties" entirely on information gained during the mediation. (D.'s Opp'n and Mot. Stay 7-8.) Indeed, Robitzek acknowledges the mediation as a source for his definition. (Pl's Mot. Confirm Arbitration Award ¶ 19 Ex. 4.) However, basing his definition on such information would not rise to a manifest disregard of the Term Sheet or contravene public policy. Defendant had the opportunity to advocate for his definition of the terms during the mediation, through the writings he submitted to Robitzek prior to the arbitration, and during the teleconferences after the Arbitrator's Award was issued when he saw the definition chosen by Robitzek. See Stenzel, 2005 ME 37, ¶ 12, 870 A.2d 133.
2. Vacate when the arbitration hearing was conducted contrary to the UAA
The court shall vacate an award when the arbitrator conducted the arbitration hearing contrary to the UAA as to prejudice substantially the rights of a party, where prejudice refers to inherent unfairness in terms of delay, expense, or damage to a party's legal position. 14 M.R.S. § 5938(1)(D); Saga Communs. of Neiu England, Inc., 2000 ME 156, ¶ 17, 756 A.2d 954.
Defendant argues his rights were prejudiced when he had no opportunity to cross-examine Plaintiffs as to their definition of "royalties." (D.'s Opp'n and Mot. Stay 7-8.)
Here, Defendant knew of Robitzek's intention of not holding a hearing, when it was he and Plaintiffs who informed Robitzek via emails of their agreement to a non-testimonial hearing, thereby, in effect concurring with waiving the statutory hearing and notice provisions. (Pl's Mot. Confirm Arbitration Award ¶ 6 Ex. 2); See Westbrook, 578 A.2d at 719. To effectively preserve his objection, Defendant had the obligation just as soon as the hearing issue arose to inform the other parties that he would object to any upcoming arbitration. See Westbrook, 578 A.2d at 719; see Pelletier & Flanagan, 673 A.2d at 216. Furthermore, despite the absence of a hearing before the issuance of the Arbitrator's Award, Defendant had opportunity to present his definition of "royalties" during the conferences that occurred subsequent to the issuance of the Award when he learned of Robitzek's definition and prior to the intended issuance of an amended award.
III. Conclusion
Based on the foregoing, Plaintiffs' motion to confirm the November 3, 2016 arbitration award is GRANTED, and Defendant's motion to stay arbitration, deny Plaintiffs' motion to confirm, and/or vacate the arbitration award is DENIED.
The Clerk is directed to enter this Order on the civil docket by reference pursuant to Maine Rule of Civil Procedure 79(a).