Opinion
No. A06-1405.
Filed June 12, 2007.
Appeal from the District Court, Hennepin County District Court, File No. 27-CV-05-012336.
Mark R. Privratsky, Lindquist Vennum, P.L.L.P., Minneapolis, MN; and Jeffrey H. Reeves, Gibson Dunn Crutcher, LLP Irvine, (for respondent).
Mark J. Briol, Vicki J. Bitner, William G. Carpenter, Briol Associates, PLLC, Minneapolis, MN; and John A. Cotter, Adam S. Huhta, Shushanie E. Aschemann, Larkin Hoffman Daly Lindgren Ltd., Minneapolis, MN (for appellants).
Considered and decided by Willis, Presiding Judge, Toussaint, Chief Judge, and Crippen, 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This opinion will be unpublished and may not be cited except as provided by Minn.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UNPUBLISHED OPINION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 MOA Entertainment Company, LLC (MOAE) and Minntertainment Company (Minntertainment) challenge two district court orders that denied appellants' motion to vacate an arbitration award, confirmed the award, and ordered appellants to pay attorney fees to respondent Cedar Fair.
Appellants argue that respondent had entered into contracts that impaired appellants' rights to bargain for use of the Camp Snoopy name and license rights, that respondent failed to disclose these contracts as part of the arbitration proceedings, and that respondent, through this nondisclosure, fraudulently procured the arbitration order. Because appellants failed to prove this alleged wrongful procurement, because the other grounds alleged by appellants for vacating the award are either unsupported by the record or fail to provide a legitimate basis to overturn the award, and because the district court did not err in awarding post-arbitration attorney fees under the terms of the parties' agreement, we affirm.
FACTS
In July 1990, appellant Minntertainment and respondent Cedar Fair's predecessor, MOA Entertainment, L.P., entered into a "Management Agreement" governing the design, development, and management of the amusement park at the Mall of America in Bloomington, Minnesota. Under the terms of this agreement, Minntertainment was "Owner" and Cedar Fair's predecessor was "Manager." The Management Agreement required the parties to participate in binding arbitration regarding any disputes and set forth detailed provisions governing termination by either party with or without cause.
Despite the similarity in names, MOA Entertainment, L.P. is a separate entity unrelated to appellants MOAE and Minntertainment.
On the same day, Minntertainment and Knott's Berry Farm (KBF), an affiliate of Cedar Fair's predecessor, executed an "Agreement re `Peanuts' Characters" (Peanuts Agreement), which allowed the use of the Camp Snoopy name and characters in the Mall and Park. The Peanuts Agreement was necessary because UFS, or United Feature Syndicate Inc., owns the intellectual property and holds the rights to the Peanuts comic strip and its characters, and because KBF had certain prior rights to utilize UFS property. In the event the Peanuts Agreement terminated, appellants had "the right, without interference by KBF, to negotiate and agree with UFS concerning the utilization of the UFS Property in connection with the Mall and Park."
In December 2004, appellants notified Cedar Fair that it was terminating the Management Agreement without cause due to "an outstanding disagreement concerning the real property taxes allocated as Permissive Deductions under the terms of the [Management] Agreement." Appellants included a termination payment of $1 (one dollar). Believing that it was owed more than $5,000,000, Cedar Fair demanded arbitration.
Following a five-day arbitration hearing, the arbitrator issued an interim award and a final award in favor of Cedar Fair. In those awards, the arbitrator determined: (1) Cedar Fair was terminated as Manager effective March 28, 2005; (2) appellants owed Cedar Fair a termination payment of $3.7 million; and (3) appellants owed Cedar Fair more than $282,500 in fees associated with the arbitration, attorney fees, and other costs.
In August 2005, appellants moved to vacate the arbitration award on a number of grounds, including their claim that the final award was procured by fraud because Cedar Fair failed to disclose contracts that KBF and its affiliates entered into beginning in 1999 that affected or allegedly breached the Peanuts Agreement. Appellants claim that KBF's actions caused a default of the Management Agreement because the Camp Snoopy name and license rights became so encumbered as to preclude UFS from negotiating with appellants upon termination of the Management Agreement.
In March 2006, the district court issued an order denying appellants' motion to vacate. The court determined that appellants had "not substantiated" their fraud claim "with evidence that clearly establishes" either a breach of contract or a showing of how Cedar Fair created a fraud in the arbitration. The court specifically concluded that information not disclosed to appellants was discoverable "prior to arbitration with reasonable due diligence" and that when appellants decided to terminate Cedar Fair under the Management Agreement, they knew they "were risking the loss of the licensing of the name Camp Snoopy and the Peanuts Characters." In June 2006, the district court issued an order confirming the arbitration award and granting Cedar Fair's motion for attorney fees and costs.
Appellants initiated a second arbitration proceeding, which has been stayed pending a determination here. See In re Arbitration between Cedar Fair v. MOA Entertainment Co., No. A05-2204 (Minn.App. Aug. 29, 2006), review denied (Minn. Nov. 14, 2006). In addition, appellants brought suit against a number of Cedar Fair affiliates in Hennepin County District Court; this suit also has been stayed pending final determination here.
DECISION 1.
Arbitration awards are highly favored in Minnesota, and our standard of review is "extremely narrow." Hunter, Keith Indus., Inc. v. Piper Capital Mgmt., Inc., 575 N.W.2d 850, 854 (Minn.App. 1998). We "must exercise every reasonable presumption in favor of the award's finality and validity." Id. (quotation omitted). It is evident in this instance that the district court honored similar standards governing its role in dealing with appellants' motion to vacate the arbitration award.
The arbitrator is the "final judge of both law and fact." Cournoyer v. Am. Television Radio Co., 249 Minn. 577, 580, 83 N.W.2d 409, 411 (1957) (stating that "award will not be reviewed or set aside for mistake of either law or fact in the absence of fraud, mistake in applying [the arbitrator's] own theor[ies], misconduct, or other disregard of duty"). Even when an arbitrator commits an error of law, that error does not provide a basis to vacate the arbitration award. EEC Prop. Co. v. Kaplan, 578 N.W.2d 381, 387 (Minn.App. 1998), review denied (Minn. Aug. 31, 1998).
The party seeking to vacate an arbitration award has the burden of proving that the award is invalid. Nat'l Indem. Co. v. Farm Bureau Mut. Ins. Co., 348 N.W.2d 748, 750 (Minn. 1984). An arbitration award "will be vacated only upon proof of one or more of the grounds stated in Minn. Stat. § 572.19." AFSCME Council 96 v. Arrowhead Reg'l Corr. Bd., 356 N.W.2d 295, 299 (Minn. 1984) (footnote omitted).
Appellants claim that the following grounds support their motion to vacate the arbitration award:
(1) The award was procured by corruption, fraud, or other undue means;
. . . .
(3) The arbitrators exceeded their powers;
(4) The arbitrators . . . refused to hear evidence material to the controversy or otherwise so conducted the hearing, contrary to the provisions of section 572.12, as to prejudice substantially the rights of a party[.]
Minn. Stat. § 572.19, subd. 1 (2006).
Award Procured by Fraud or Undue Means
The district court rejected appellants' claim of fraud, which was based on the Peanuts Agreement termination provision entitling appellants to negotiate for continued rights to use the Camp Snoopy name and related advertising rights. Appellants claimed that this agreement was breached by KBF and thus by Cedar Fair, and that Cedar Fair's failure to inform appellants of this breach clearly constituted a fraud in obtaining the arbitration award. The district court did not err in determining that appellants failed to prove that respondents' conduct constituted a breach of the Management Agreement or the Peanuts Agreement. The contracts merely allowed appellants to negotiate independently with UFS following termination of the Management Agreement and did not affect the ongoing rights of KBF to enter into other contracts regarding its licensing rights in other geographic areas.
Appellants insist that KBF, and thus Cedar Fair, breached section 6.5(b) of the Peanuts Agreement, which provides that following termination of the Management Agreement, KBF would "relinquish" its license rights insofar as they were used at the Mall and appellants would "have the right, without interference by KBF, to negotiate and agree with UFS concerning the utilization of the UFS Property" at the Mall. Clarifying this language, the agreement goes on to recite that KBF agrees to forego and "is not purporting to transfer any License Rights to Owner." Thus,
[o]wner must negotiate independently with UFS concerning use of the UFS Property. Owner acknowledges that there can be no assurance that Owner would, in such a case, secure from UFS rights related to the Park comparable to the License Rights, and it is possible that UFS would not permit Owner to utilize the UFS Property at all.
This section, as well as numerous others sprinkled throughout the Peanuts Agreement, makes it evident that "Owner" (appellants) acquired no interest or property rights in UFS property and that KBF was not restricted in its use or exercise of License Rights outside the Mall and Park. See Section 3.6 ("Owner acknowledges and agrees that there is great value to [UFS Property]; that UFS has licensed other parties to use the same in connection with a wide variety of goods and services throughout the world; and that nothing contained in this Agreement gives Owner any interest or property rights in the UFS Property."); Section 2.4 ("[T]his Agreement does not, and shall not be construed to, impose any limitation or constraint upon or otherwise affect KBF's use or enjoyment of the License Rights, other than as specifically set forth herein with respect to the exercise of such License Rights in connection with the Park and Mall.").
Appellants evidently had some control over the use of the Camp Snoopy name as long as Cedar Fair served as Manager under the terms of the Management Agreement. Once appellants decided to terminate Cedar Fair as Manager, for whatever reason, KBF, and thus Cedar Fair, merely had the obligation to "relinquish" their use of the name Camp Snoopy at the Mall and Park, and to not "interfere" with any negotiations appellants might attempt with UFS. Because nothing in the Management Agreement or Peanuts Agreement prohibited KBF from entering into other licensing agreements with UFS involving parks in other areas of the country, and because it is not evident that agreements on uses elsewhere constituted interference with appellants' right to negotiate with UFS, appellants have failed to show that there has been any breach.
There is also merit in the district court's conclusion that even if appellants had shown that some breach occurred, they failed to show that any fraud on Cedar Fair's part procured the arbitration award. In order to vacate an arbitration award, the fraud must be established by "clear allegations and proof." Beebout v. St. Paul Fire Marine Ins. Co., 365 N.W.2d 271, 273 (Minn.App. 1985), review denied (Minn. May 31, 1985).
As the district court's order and the record, particularly the language of the contracts, suggest, appellants either knew or should have known that KBF and other Cedar Fair affiliates were not limited in their ability to enter into contracts with UFS regarding the use of Camp Snoopy and Peanuts characters at other malls and parks around the country. And although appellants claim that Cedar Fair failed to disclose information about these other contracts, the district court properly concluded that this evidence could have been discovered before arbitration with due diligence. In addition to knowledge that appellants should have had, the plain language of their agreements with Cedar Fair and KBF establishes that appellants knew that when they decided to terminate the Management Agreement, they risked losing the right to continue to use the Camp Snoopy name. We therefore conclude that the district court did not err in rejecting appellants' claim of fraud and in refusing to vacate the arbitration award on that basis.
Arbitrator Exceeded Authority
Appellants argue that the arbitrator exceeded his authority by disregarding the plain and unambiguous language of section 3.4(d)(iv) of the Management Agreement (in favor of language in section 3.4(d)(viii), which was added later to the agreement) and ruling that a compensation calculation should cap a property-tax factor at $500,000. Appellants insist that the arbitrator did not commit mere error, but "altered the contract itself, deleting Section 3.4(d)(iv) and/or changing the reference to Section 3.4(d)(vii) in Section 3.4(d)(viii) to include Section 3.4(d)(iv)."
This issue was exhaustively explored in the arbitration and was well within the scope of arbitration, and thus beyond the boundaries of our judicial review. In his interim award, the arbitrator concluded that "the parties agreed by their conduct and their written amendments . . . that property taxes were capped at $500,000.00" and that Sections 3.4(d)(iv) and 3.4(d)(viii) "when read together . . . are not in conflict." The arbitrator properly decided the issues presented to him and did not go beyond the parameters of those issues. See, e.g., Hilltop Const., Inc. v. Lou Park Apts., 324 N.W.2d 236, 239 (Minn. 1982) ("Absent a clear showing that the arbitrators were unfaithful to their obligations, the courts assume that the arbitrators did not exceed their authority."); Cournoyer, 249 Minn. at 582, 83 N.W.2d at 413 ("In arbitration proceedings the decision of an arbitrator who exercises an honest judgment in resolving ambiguities in the language of a contract is not to be impeached on the ground that he has thereby violated another contract provision which denies him the authority to modify, change, or amend any of the provisions of the agreement."). We therefore conclude that the district court did not err in rejecting appellants' claim that the arbitrator exceeded his authority by interpreting the contract as he did.
Appellants also argue that the arbitrator exceeded his authority by holding Minntertainment, "a non-party to the arbitration agreement[,] liable for damages." Appellants insist that the Management Agreement did not give the arbitrator the authority to exercise jurisdiction over non-parties and that a 1999 assignment validly released Minntertainment from liability.
The arbitrator heard testimony and argument on the issue of whether Minntertainment was a proper party under Minnesota law. The arbitrator concluded that the purported assignment was not effective to relieve Minntertainment of its obligations under the Management Agreement because the assignment "did not change the relationship between the parties" and because appellants "were so intertwined that it would be unjust to treat them as separate entities." As Cedar Fair notes, appellants may disagree with the arbitrator's ruling or with the law applied by the arbitrator, but that does not mean that they have shown that the arbitrator exceeded his authority. The district court did not err in rejecting appellants' claim that the arbitrator exceeded his authority. Arbitrator Refused to Hear Material Evidence
Appellants also argue that the arbitrator "manifestly disregarded" the law when he exercised jurisdiction over Minntertainment and when he found that the parties amended Section 3.4(d)(iv) of the Management Agreement "by their conduct" because Sections 10.13 and 10.16 required amendments and waivers to be in writing. Although "manifest disregard" has been adopted as a basis to vacate an arbitration award in federal litigation, Minnesota courts thus far have refused to apply the doctrine. Hunter, Keith Indus., Inc. v. Piper Capital Mgmt., Inc., 575 N.W.2d 850, 855-56 (Minn.App. 1998).
Appellants argue that the arbitrator precluded them from obtaining the deposition or presenting the testimony of Gerard Kenny, one of Cedar Fair's attorneys. Appellants insist that they sought Kenny's testimony on why he included "property taxes" in the final draft of section 3.4(d)(viii) and whether the handwriting correcting the draft was his own. Appellants further insist that Kenny's testimony was crucial because he was Cedar Fair's chief negotiator in the licensing agreements for the Peanuts characters.
The record shows that appellants sought to depose Kenny before the arbitration hearing but that Cedar Fair objected. The arbitrator initially ruled that he would not require Kenny to attend the arbitration hearing, but suggested that appellants move to compel Kenny's testimony. Appellants' attorney promised to bring a motion to compel, but he subsequently elected not to do so. Cedar Fair's attorney thereafter offered to make Kenny, who lived in California, available for a deposition, but appellants' attorney refused the offer. When the arbitrator inquired at the hearing whether appellants were going to file their motion to compel, appellants' attorney indicated that he had decided against filing the motion.
The district court concluded that appellants failed to properly preserve the issue. Appellants insist that they were not required to ask the arbitrator to reconsider his initial ruling and that their "failure to renew the previously denied request during the arbitration hearing itself, at which Mr. Kenny was not present, can scarcely be the ground for a finding of waiver." To the extent that appellants declined Cedar Fair's offer to depose Kenny or to otherwise force the issue by requesting that the arbitrator compel his testimony at the arbitration hearing, appellants have failed to prove that the arbitrator refused to hear evidence material to the controversy. In addition, had appellants believed that Kenny's testimony was crucial to their case, they could have requested a continuance or postponement of the hearing. The district court did not err in rejecting this as a ground to vacate the arbitration award.
2.
Appellants argue that the district court erred when it awarded Cedar Fair post-arbitration attorney fees. A party may not recover attorney fees from an opponent unless a statutory or contractual provision expressly allows for such recovery. Correll v. Distinctive Dental Servs., 636 N.W.2d 578, 582 (Minn.App. 2001).
The district court determined that Cedar Fair was entitled to attorney fees under sections 10.6 and 10.10 of the Management Agreement. In particular, section 10.6 is entitled "Attorneys' Fees and Expenses" and provides that "in any action between the Parties seeking enforcement of any of the terms and provisions of this Agreement, the prevailing Party in such action shall be awarded, in addition to damages or injunctive or other relief, its costs, expenses and attorneys' fees." Section 10.10(d) is under the title "Arbitration" and provides that "[t]he losing Party shall pay the fee of the arbitrator and shall also pay to the prevailing Party all costs, fees, and expenses (including attorneys' fees) incurred by such prevailing Party in connection with the arbitration." These provisions are broad enough to cover the fees incurred by Cedar Fair to confirm the arbitration award and to oppose appellants' motion to vacate that award.
Appellants insist that Cedar Fair's claim for fees did not arise "in connection with the arbitration," as required by section 10.10(d) and that while section 10.6 allows an award of attorney fees to a prevailing party "in any action between the [p]arties seeking enforcement of any of the terms and provisions of this [a]greement," the proceedings involving appellants' motion to vacate are akin to an appeal, not an action to enforce the terms of the agreement. But judicial confirmation of an arbitration award is required before judgment can be entered on that award. See Minn. Stat. § 572.21 (2006). The proceedings before the district court to dispose of appellants' motion to vacate and to grant Cedar Fair's request to confirm the award were necessary both to the arbitration and to enforcement of the terms of the parties' Management Agreement. The district court thus did not err in awarding post-arbitration attorney fees under the terms of the parties' agreement. Cf. Correll, 636 N.W.2d at 584 (affirming award of fees under Minnesota Human Rights Act that were incurred in connection with petition to stay arbitration when petition to stay was necessary to pursue discrimination claim).