Opinion
No. C8-01-763
Filed December 11, 2001.
Appeal from the District Court, Hennepin County, File No. 9918498.
Jerome S. Rice, (for respondent)
Michael C. Mahoney, Mark W. Peery, Havilah L. Solarz, (for appellants)
Considered and decided by Halbrooks, Presiding Judge, Kalitowski, Judge, and Forsberg, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
Respondent entered into a subscription and investment agreement with appellant company that provided that any disputes would be subject to arbitration. Respondent later sought dissolution of the company. Appellants moved to compel arbitration and the court ordered that the claims be submitted to arbitration. After the arbitrator ruled on the dispute, respondent moved to confirm the award. The court confirmed the award, and this appeal followed. Appellants contend that the court erred by granting relief against individual defendants who had not entered into an agreement to arbitrate claims, by modifying the terms of the award to include sums not awarded, and by adding interest to the arbitrator's award. We affirm.
FACTS
In May 1997, respondent Jerome Rice (Rice) entered into an agreement (Subscription Agreement) with appellant Piney Ridge Acquisition, LLC, now known as Piney Ridge Management, LLC (Piney Ridge), which required the parties to resolve all controversies by arbitration:
It is agreed that all controversies which may arise between [Rice] * * *, and [Piney Ridge], or any of its officers, directors, employees, agents, attorneys, experts or affiliates, concerning [Rice's] purchase of the Units and any representation or omission in connection with any aspect of the transaction contemplated hereby or the construction, performance, or breach of this or any other agreement pertaining to the Units shall be determined by arbitration.
Appellants Michael Mahoney (Mahoney) and Steven Hagberg (Hagberg) are officers of Piney Ridge.
Rice also signed a Member Control Agreement, which states that Piney Ridge shall, "if instructed by the Board, * * * redeem and repurchase any Member's Units and all ownership rights." The redemption provision sets forth a formula for the repurchase of shares and payment terms. The Subscription Agreement specifically incorporates the Member Control Agreement by reference.
In December 1999, Rice petitioned the district court for the dissolution, wind-up, and termination of Piney Ridge and other equitable relief, claiming that Mahoney and Hagberg misapplied and wasted the assets of the limited-liability company, and acted fraudulently and illegally in their capacities as members or governors of Piney Ridge. In response to Mahoney and Hagberg's motion to compel arbitration, the district court ordered the parties to submit to arbitration, finding that the parties agreed to arbitrate all claims arising out of the Subscription Agreement and that Rice's action was arguably subject to the arbitration provision. The district court further stayed the actions indefinitely.
The arbitrator awarded Rice $45,772.21 for his complete interest in Piney Ridge, for which Piney Ridge and Mahoney were made jointly and severally liable. The arbitrator also determined that Piney Ridge, Hagberg, and Mahoney were jointly and severally liable to Rice for: (1) $2,000 in expert witness fees due to discovery abuses and (2) $8,464.94 in fees associated with the arbitration association and compensation for the arbitrator, with $1,624.94 to be paid representing deposits still due the association and/or arbitrator. The arbitrator denied: (1) Rice's request for the appointment of a receiver, for the performance of an accounting, and for the dissolution, wind-up, and termination of Piney Ridge; (2) all claims against Hagberg; and (3) without prejudice, all claims relating to a 40-acre tract of land owned by Piney Ridge.
The district court confirmed the arbitrator's award and determined that the arbitrator had not exceeded his authority in finding Mahoney and Hagberg to be liable to Rice personally and in their capacities as officers of Piney Ridge. Specifically, the court stated that Mahoney and Hagberg "expressly asked the court to direct all of [Rice's] claims to arbitration pursuant to `an agreement [the Subscription Agreement] to arbitrate all disputes with defendants'"; the claims included allegations that Mahoney and Hagberg acted fraudulently in their individual capacities.
DECISION I.
A judicial appeal from an arbitration award is subject to a narrow standard of review. Hunter, Keith Indus., Inc. v. Piper Capital Mgmt. Inc., 575 N.W.2d 850, 854 (Minn.App. 1998). A court can vacate an arbitration award only upon proof of specific statutory grounds listed in Minn. Stat. § 572.19 (2000). Id. Included among the statutory grounds is that the arbitrator exceeded his authority. Minn. Stat. § 572.19, subd. 1(3). If the arbitrator had the requisite authority, the arbitrator's ruling on questions of law and fact should not be set aside. Eide v. State Farm Mut. Auto. Ins. Co., 492 N.W.2d 549, 554 (Minn.App. 1992).
Although review of an arbitration award is subject to a narrow standard of review, a reviewing court determines de novo whether an arbitrator exceeded the scope of his authority. State v. Berthiaume, 259 N.W.2d 904, 909 (Minn. 1977). The burden of establishing that the arbitrator exceeded his authority is on the party challenging the arbitrator's award. County of Hennepin v. Law Enforcement Labor Servs., Inc., Local No. 19, 527 N.W.2d 821, 824 (Minn. 1995). Any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. Johnson v. Piper Jaffray, Inc., 530 N.W.2d 790, 795 (Minn. 1995).
Mahoney and Hagberg claim that they never agreed to submit to arbitration the issue of their personal liability as officers of the company, only the issue of the value of Rice's redemption price under the Member Control Agreement. They claim that the only parties to the Subscription Agreement were Rice and Piney Ridge, and, thus, only Rice and the company were subject to the arbitration provision.
A party can only be required to arbitrate disputes that he contractually agreed to submit to arbitration. Ottman v. Fadden, 575 N.W.2d 593, 595 (Minn.App. 1998). An arbitrator's authority to resolve disputes flows directly from the parties' arbitration agreement. Id. Whether a party agreed to arbitrate a particular dispute is a matter of contract interpretation, which this court reviews de novo. Id.
In this case, the scope of the arbitration clause authorizing the arbitrator to decide "all controversies" is broad. See David Co. v. Jim W. Miller Constr., Inc., 444 N.W.2d 836, 842 (Minn. 1989) (finding clause authorizing arbitrator to decide "all claims" to be broad). The Subscription Agreement specifically states that "all controversies" arising between Rice and Piney Ridge, or any of its officers or directors, be resolved by arbitration. Also, in their demand for arbitration, Piney Ridge, Mahoney, and Hagberg note that Rice was subject to the arbitration provision contained in the Subscription Agreement. Their demand for arbitration outlines the nature of the dispute to consist of claims in Rice's petition to the district court, which includes allegations that Mahoney and Hagberg misapplied and wasted the assets of Piney Ridge and that they acted fraudulently, illegally, and in an unfairly prejudicial manner in their capacities as members or governors. Because appellants demanded arbitration within the broad language of the Subscription Agreement and the claims in Rice's petition include specific allegations against Mahoney and Hagberg, we conclude that the arbitrator did not exceed his authority.
II.
Mahoney and Hagberg also argue that the trial court erred by modifying the award to include a sum of $3,758.52, which they claim the arbitrator did not award. They argue that the district court lacked authority to grant Rice's motion absent clarification from the arbitrator and that Rice failed to raise this issue before the district court and ask for clarification within 20 days after the arbitration award as required by Minn. Stat. § 572.16, subd. 3 (2000).
Rice brought a motion under Minn.R.Civ.P. 70, which states that "[i]f a judgment directs a party to * * * perform any * * * specific act and the party fails to comply within the time specified, the court may direct the act to be done." The judgment specifically states that Piney Ridge, Mahoney, and Hagberg are liable for the full $8,464.94 associated with administration fees and the arbitrator's compensation. Because the arbitrator clearly made Piney Ridge, Mahoney, and Hagberg liable for the full $8,464.94 in fees and compensation, Rice is entitled to be reimbursed for any advance fees he expended. Because the arbitrator's award does not require clarification, Rice's motion under rule 70 was appropriate, and the district court did not err.
III.
Mahoney and Hagberg finally argue that the district court erred in awarding Rice interest in the amount of $4,764.25. They argue that the arbitrator's award does not provide for additional interest and that $45,772.21 includes all sums due.
The arbitrator awarded Rice $45,772.21 under the terms set forth in section 3.7 of the Piney Ridge Management, LLC, Member Control Agreement dated March 21, 1997. This is for Rice's complete interest in Piney Ridge Management LLC.
Section 3.7 of the Member Control Agreement states that [p]ayment for such redemption may be made on such terms and conditions as the Board deems appropriate, but in no event in less than 60 equal monthly payments together with simple interest at 8%.
In general, a district court may not award prejudgment interest if there is no such award by the arbitrator. See Nat'l Indem. Co. v. Farm Bureau Mut. Ins. Co., 348 N.W.2d 748, 752 (Minn. 1984) (stating that court may not award prejudgment interest where application for arbitration included interest as an item of damage and none was awarded by the arbitrator). And an arbitrator's award "must include interest." Minn. Stat. § 572.15(a) (2000).
In this case, the arbitrator's award directed the payment to Rice to be according to the terms of the Member Control Agreement, which outlines the formula to calculate a member's interest and which explicitly refers to a 60-month/8% interest payment plan from the date of a buyout. Therefore, because the arbitrator's award included an interest award as specified in the Member Control Agreement, we conclude that the district court did not err.
IV.
Rice argues that Mahoney and Hagberg are collaterally estopped from challenging the scope of the arbitrator's authority and his award because Mahoney and Hagberg demanded the arbitration. Collateral estoppel precludes the relitigation of issues actually litigated by identical parties, determined by, and essential to a previous judgment. Ellis v. Minneapolis Comm'n on Civil Rights, 319 N.W.2d 702, 704 (Minn. 1982). Whether collateral estoppel applies involves a mixed question of law and fact subject to de novo review by this court. Parker v. MVBA Harvestore Sys., 491 N.W.2d 904, 906 (Minn.App. 1992).
In the proper circumstances, "particularly where the estopped party sought the arbitration, a prior arbitration decision may result in application of collateral estoppel" in a subsequent action. Houlihan v. Fimon, 454 N.W.2d 633, 636 (Minn.App. 1990) (citing Lysholm v. Liberty Mut. Ins. Co., 404 N.W.2d 19, 20-21 (Minn.App. 1987) (estoppel may apply where the estopped party actively sought arbitration and later challenged the result in a subsequent action)). In this case, collateral estoppel does not apply to Mahoney and Hagberg's challenge to the arbitrator's scope of authority and award. Although they demanded arbitration and participated in the arbitration proceeding, their challenge has been brought within the course of the original action.
V.
Rice argues that he should be entitled to damages and costs under Minn.R.Civ.App.P. 138 because Mahoney and Hagberg appealed simply to delay proceedings. Under rule 138, an "appellate court may award just damages and single or double costs to the respondent" if an appellant delays proceedings on a judgment and appears to have been taken merely for delay. There is nothing in the record in this case that suggests Mahoney and Hagberg appealed merely for delay. Thus, we deny Rice's motion for damages and costs.