This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1998).
IN COURT OF APPEALS
Northern States Power Company,
MT Properties, Inc.,
Hennepin County District Court
File No. CT 98-018161
David D. Meyer, Steven J. Quam, Fredrikson & Byron, P.A., 1100 International Centre, 900 Second Avenue South, Minneapolis, MN 55402; and
Harold J. Bagley, Northern States Power Company, 5th Floor, 414 Nicollet Mall, Minneapolis, MN 55401 (for appellant)
Byron D. Olsen, Stanley J. Duran, Mark S. Radke, Felhaber, Larson, Fenlon & Vogt, P.A., 601 Second Avenue South, Suite 4200, Minneapolis, MN 55402-4302 (for respondent)
Considered and decided by Halbrooks, Presiding Judge, Kalitowski, Judge, and Schumacher, Judge.
Appellant challenges an order denying its motion to vacate an arbitration award that set the amount of annual rental payments appellant was required to pay respondent for an electric-transmission easement. Appellant contends that the arbitration panel’s determination of rental payments and award of interest exceeded the scope of its authority. We affirm.
In 1969, appellant NSP and respondent MT Properties, Inc.’s (MT) predecessor-in-interest negotiated the terms of an electric-transmission-line easement. The easement permitted NSP to construct and maintain an electric-transmission line, including the necessary towers, along MT’s railroad corridor. The easement runs along approximately 6.1 miles of MT’s railroad corridor which extends from St. Paul to Fridley, Minnesota.
The easement agreement required NSP to pay $27,054 each year for the first ten years. According to the agreement, NSP and MT must determine a fair and reasonable annual payment to be paid during each succeeding five-year period. If the parties are unable to agree on the amount, the easement agreement provides for arbitration to resolve the annual payment issue. The agreement specifies that the issue was to be decided by a panel of three arbitrators. NSP and MT each select one arbitrator and those two arbitrators choose a third. The decision of two arbitrators becomes final and binding on NSP and MT.
The parties successfully negotiated annual payments through the five-year period that ended on May 9, 1994. They were unable, however, to agree to annual payments for the May 10, 1994 through May 9, 1999 period. Following several failed negotiations, MT invoked the easement agreement’s arbitration provision.
In December 1997, an eight-day arbitration was held. Both NSP and MT called several witnesses to testify regarding the rental value of the easement. MT’s appraiser opined that the fair and reasonable rental value of the easement was $439,500 per year. NSP’s witnesses testified that the easement did not interfere with the highest and best use of the land, and NSP argued that the annual payment should be the minimum payment provided for in the original contract, i.e., $27,054.
The arbitrators issued a decision on September 1, 1998. Two of the arbitrators determined that the fair and reasonable annual payment was $145,000. Their decision was accompanied by findings of fact, conclusions of law, and a memorandum. The arbitrator selected by NSP dissented from the majority decision.
The majority also decided to retain jurisdiction over the dispute for the purpose of deciding the amount of interest NSP owed MT if the parties were unable to reach a settlement on that issue. The parties were unable to agree on what, if any, interest was due, and the arbitrators issued a second decision on January 15, 1999, ordering pre-award and post-award interest at a rate of 10% per year.
NSP brought a motion in district court to vacate the arbitration award. It argued that the arbitrators exceeded their authority and issued a decision that was arbitrary or capricious. The district court denied NSP’s motion and confirmed the arbitration award in its entirety. This appeal followed.
D E C I S I O N
1. Standard of Review
An appeal from an arbitration award is subject to an extremely narrow standard of review. State, Office of State Auditor v. Minnesota Ass'n of Prof'l Employees, 504 N.W.2d 751, 755 (Minn. 1993). An arbitration award may be vacated only on the grounds listed in Minn. Stat. § 572.19, subd. 1 (1998). Hunter, Keith Indus. v. Piper Capital Mgmt., 575 N.W.2d 850, 854 (Minn. App. 1998). The party seeking to vacate the award has the burden of proving the invalidity of the arbitration award. National Indem. Co. v. Farm Bureau Mut. Ins. Co., 348 N.W.2d 748, 750 (Minn. 1984).
Arbitrators are the final judges of both law and fact and their award will not be reviewed or set aside for mistake of either law or fact in the absence of fraud, mistake in applying their own theories, misconduct, or other disregard of duty. Cournoyer v. American Television & Radio Co., 249 Minn. 577, 580, 83 N.W.2d 409, 411 (1957). “This court must exercise ‘every reasonable presumption’ in favor of the award’s finality and validity.” Hunter, Keith, 575 N.W.2d at 854 (quoting State Auditor, 504 N.W.2d at 754). When parties have availed themselves of the benefits of arbitration, judicial interference should be kept to a minimum. AFSCME Dist. Council 96 v. Independent Sch. Dist. No. 381, 351 N.W.2d 33, 35 (Minn. App. 1984), review denied (Minn. Sept. 12, 1984).
2. Determination of Rental Payments
NSP contends that the arbitrators exceeded their authority by issuing a decision on the rental value of the easement that was arbitrary or capricious. A court shall vacate an arbitration award if “[t]he arbitrators exceed their powers.” Minn. Stat. § 572.19, subd. 1(3). We will vacate an arbitration award under this provision of the statute
only when the objecting party meets its burden of proof that the arbitrators have clearly exceeded the powers granted to them in the arbitration agreement.
State Auditor, 504 N.W.2d at 755 (quotation omitted) (emphasis in original).
Our review of the record reveals that both parties presented substantial evidence regarding what they believed was the appropriate valuation of the easement. NSP presented evidence to the arbitrators and argues on appeal that its easement does not interfere with, or in any way diminish, the highest and best use of MT’s railroad corridor. NSP reasons that the annual rental payment should, therefore, be, if not zero, no more than the minimum payment provided for by the agreement.
On the other hand, MT presented evidence at the hearing based on the “across-the-fence” method of valuation. This method examines the value of land adjacent to the subject land to determine the value of that land. According to MT’s appraisers, this is the most appropriate valuation method in this case. Based on this valuation method, MT’s appraiser determined the annual rental value of the easement should be $439,500.
The arbitration agreement is silent regarding the method by which the parties or the arbitrators are to determine the “fair and reasonable rental value of the easement.” The parties each presented evidence regarding the valuation method that they deemed appropriate, and the majority of the arbitrators agreed with the method proposed by MT. This appears to be the type of decision wholly within the scope of the arbitrators’ authority. See State Auditor, 504 N.W.2d at 755 (holding that where arbitration agreement does not define a relevant term “the arbitrator was free to adopt a reasonable definition”). The arbitrators’ adoption of the across-the-fence valuation method was not unreasonable.
NSP bargained for this decision in 1969 when it entered into the easement agreement and provided that disputes regarding the annual payment were to be resolved by arbitration. Its argument that the decision was arbitrary or capricious is without merit. The parties presented conflicting evidence regarding the appropriate annual payment over the course of an eight-day hearing. The arbitrators, exercising their duty as the finders of fact, determined the fair and reasonable rental value of the easement. NSP has not met its burden of proving that the arbitration panel clearly exceeded its power under the agreement.
Further, we note that NSP asks us to hold that an arbitrary or capricious decision by an arbitration panel inherently exceeds the panel’s power. Because the arbitrators’ decision in this case was not arbitrary or capricious, we do not need to decide this issue. We do note, however, that there is no caselaw or statutory authority in this jurisdiction that would require such a holding if the arbitrators’ decision were in fact arbitrary or capricious.
3. Award of Interest
NSP also challenges the arbitration panel’s award of interest to MT. In the September 1, 1998 decision, the arbitrators recognized that MT had not been paid the majority of the annual payments it was entitled to for the disputed five-year period. The panel stated in its decision that it would retain jurisdiction over the question of interest in the event that the parties were unable to settle the issue on their own. The parties were unable to agree to what, if any, interest should be paid. On January 15, 1999, two of the three arbitrators determined that NSP owed MT pre-award and post-award interest of 10% per year. The arbitrators stated that the arbitration agreement gave them the authority to award interest and Minn. Stat. § 572.15(a) (1998) required them to award interest.
As mentioned above, the agreement calls for the arbitrators to determine a “fair and reasonable rental value of the rights herein granted.” There is, however, no express mention of interest in the agreement. NSP contends that the question of interest was not arbitrable and that the arbitration panel exceeded its authority by awarding interest to MT. This court’s review of an arbitrability determination is de novo. Independent Sch. Dist. No. 88 v. School Serv. Employees Union Local 284, 503 N.W.2d 104, 106 (Minn. 1993). There is a presumption in favor of arbitrability. Id. at 107. The burden of proving that a matter is not arbitrable is on the objecting party. Morrison v. Northern States Power Co., 491 N.W.2d 675, 677 (Minn. App. 1992), review denied (Minn. Jan. 15, 1993).
In determining whether the arbitrators exceeded their authority, we consider whether an award draws its “essence” from the parties’ agreement. City of Minneapolis v. Police Officers’ Fed., 566 N.W.2d 83, 87 (Minn. App. 1997). 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 two-arbitrator majority concluded that they were “not precluded from determining that interest was part of the component of the fair and reasonable rental value to be paid by NSP for the rights conveyed by them.” We agree.
The absence of language in the agreement regarding whether or not interest can be included in a determination of the fair and reasonable rental value does create an ambiguity regarding the scope of the arbitrator’s authority. But because we 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), we will not vacate this award on this record. Merely demonstrating a lack of specific language in the agreement permitting interest, as opposed to demonstrating that the arbitration or a collateral agreement prohibits an award of interest, is not sufficient to establish that the arbitrators clearly exceeded their authority. See id. at 755.
Additionally, the arbitrators concluded that Minn. Stat. § 572.15(a) required them to award interest. That statute reads, in part, that an arbitration “award must include interest.” Id. (emphasis added). NSP contends that this strict application of this statute could potentially produce absurd results. But the award of interest in this case was not absurd, and more importantly, the interpretation of this statute is an issue of law. We do not reach the issue of whether the arbitrators misapplied this statute. See State Auditor, 504 N.W.2d at 754 (noting that arbitrators are the final judges of law and an award will not be vacated solely because the arbitrators erred in interpreting the law). Rather, we affirm the award of interest as having drawn its essence from the arbitration agreement. Police Officers’ Fed., 566 N.W.2d at 87 (noting that arbitrators do not exceed their powers if the award draws its essence from the agreement).