This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2000).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

C5-01-574

 

John H. Brekke,

Respondent,

 

vs.

 

THM Biomedical, Inc.,

Appellant.

 

 

Filed October 9, 2001

Affirmed

Amundson, Judge

 

St. Louis County District Court

File No. C9-00-602439

 

Marla Christiansen Halvorson, 301 West First Street, Duluth, MN 55802 (for respondent)

 

Mark Roger Privratsky, 4200 IDS Center, 80 South Sixth Street, Minneapolis, MN 55402 (for appellant)

 

            Considered and decided by Peterson, Presiding Judge, Amundson, Judge, and Anderson, Judge.

U N P U B L I S H E D  O P I N I O N

AMUNDSON, Judge

Respondent employee-shareholder sued his company, contending it violated Minn. Stat. §§ 181.79, .101 (2000).  The company moved to compel arbitration, and the district court denied its motion.  Appellant company contends that a valid arbitration agreement covers the dispute, and the district court erred by concluding respondent’s employment contract governed the resolution of the dispute.  We affirm.

FACTS

On November 5, 1990, THM Biomedical, Inc. (THM) was formed when John Brekke entered into an investment agreement with Thomas Maas, Gary Gange, and James Rhude.  The deal was helped in part by an asset infusion from Osmed, a biomedical company, of which Brekke was the CEO.  The investment agreement provided that Brekke be issued 150 shares of common stock, an 18.6% share of the company, in return for “services previously performed and to be performed pursuant to an Employment Agreement attached hereto.”  The investment agreement also provided that all shareholders and option holders “shall sign the form of Owner’s Agreement attached hereto.”

On November 27, Brekke signed both an owner’s agreement and an employment agreement.  The owner’s agreement, which pertained to the management of the closely held company, stated as its intent “to provide for continuity in the management and policies of [THM],” and restricted how stock in the company might be transferred.  It provided that:

All disputes, controversies and differences that may arise between the parties to this Agreement concerning the business and affairs of the Company which are not otherwise covered by this Agreement shall be settled by arbitration as set forth herein.

The employment agreement, which governed the terms of Brekke’s employment, stated that:

This agreement shall constitute the entire agreement between the parties and any prior understanding or representation of any kind preceding the date of this Agreement shall not be binding upon either party except to the extent incorporated in this Agreement.

There was no arbitration clause in the employment agreement, and neither the employment agreement nor the owner’s agreement made mention of the other.

On August 19, 1991, THM loaned Brekke $10,000, for which Brekke signed a promissory note.  In October 1991, THM again agreed to lend Brekke money, this time in the amount of $55,000.  This loan was also evidenced by a promissory note.  This left Brekke owing THM $65,000 with an agreed-upon eight percent interest rate.  Brekke made a payment of $5,000 towards the loan on April 28, 1993, leaving a $60,000 balance.

Due to cash flow problems, THM was unable to consistently pay Brekke and others.  Brekke claims his accrued wages eventually totaled $188,872.98.  THM’s June 30, 2000 balance sheet lists Brekke’s accrued wages as exactly that amount.

In June of 2000, THM’s Board of Directors, which included Brekke, addressed the issue of THM’s debt, which presented a problem because the debt would need to be cleared up before businesses would agree to purchase THM.  The board agreed that if any funds became available, they would be applied first to debts owing to the shareholders, then to accrued salaries, then to outstanding Osmed liabilities, and finally to shareholders based on their ownership stake.

Within weeks after the June 14 meeting, a licensing dispute was resolved, and THM received $950,000.00 in settlement funds.  Those funds were distributed in the agreed-upon manner.  As a result, Maas received $343,105.59 and Brekke received $188,872.98 (listed on his paycheck stub as “special”), plus his regular periodic salary of $5,769.24 (listed on his paycheck stub as “salary”).  From these amounts, payroll taxes were withheld, and, against Brekke’s wishes, so was the $60,000 principal of THM’s personal loan to Brekke.  As a result, the total amount of the settlement money received by Brekke was $59,700.71.

On August 31, 2000, THM sold its assets to Kensey Nash Corporation for more than $11 million dollars, after which Brekke’s employment with THM was terminated.  Brekke then received a check for $7,299 as a shareholder distribution.  No employment taxes were withheld from this amount.

Three months later, Brekke filed suit in district court alleging violations of Minnesota wage and hour laws under Minn. Stat. §§ 181.79, .101 (2000).  THM filed an answer and a motion to compel arbitration and dismiss.  The district court denied that motion, and this appeal followed.

D E C I S I O N

THM argues on appeal that the district court erred by concluding that the parties’ dispute was not subject to the arbitration clause contained in the parties’ owner’s agreement.  This court reviews the district court’s denial of a motion to compel arbitration de novo.  Johnson v. Piper Jaffray, Inc., 515 N.W.2d 752, 753 (Minn. App. 1994).

When considering a motion to compel arbitration, the court’s inquiry is limited to determining (1) whether a valid arbitration agreement exists, and (2) whether the dispute falls within the scope of the arbitration agreement.  Amdahl v. Green Giant Co., 497 N.W.2d 319, 322 (Minn. App. 1993).  There is no question that the owner’s agreement signed by Brekke contained an arbitration clause and that the employment agreement did not.  The only question here is which agreement governs this dispute.

The issue of arbitrability is determined by ascertaining the intention of the parties through examination of the language found in the arbitration agreement.  Id.  THM first characterized the funds from which the $60,000 was deducted as a “distribution.”  Therefore, it argues, the deduction concerns “the business and affairs of the company,” and the dispute over its propriety is subject to the arbitration clause.  Brekke counters that, because the source of the deduction was accrued wages, the deduction was governed by the employment agreement, which contains no arbitration clause. 

THM rests its argument on its characterization of the dispute as pertaining to the company’s collection policies, or to financial allocations and distributions.  In so doing, THM notes that Brekke’s share of the settlement funds was designated as a “special” distribution on his paycheck stub.  But the balance sheet used by THM to prepare the company for sale lists Brekke’s accrued salary to be $188,872.98—the exact amount of this distribution.  Furthermore, payroll taxes were deducted from this distribution.  Finally, the fact that the paycheck stub in question distinguished between “salary” and “special,” the latter being the source of the deduction, is of no import as the listing “salary” was reserved for Brekke’s regular monthly salary payment.  The term “special” need not indicate that it was not salary.  It may simply have been intended to distinguish between Brekke’s regular salary payment, and payment for his past due, or accrued salary.

THM next argues that the entire relationship between Brekke and THM was governed by the owner’s agreement and therefore, the arbitration clause.  Under this theory, it would not matter if the dispute was over a loan, terms of employment, or shareholder distributions; all disputes between THM and Brekke would be subject to arbitration.  But the language of the arbitration clause at issue is not so broad.  The clause specifically limits its scope to all “disputes, controversies and differences that may arise between the parties to [the owner’s agreement] concerning the business and affairs of the company.” (emphasis added).

THM construes this clause very broadly.  In fact, it argues that it could not possibly have drafted a broader arbitration clause, and that any dispute whatsoever between THM and Brekke was therefore subject to compelled arbitration.  But broader, or at least clearer, language was certainly available.  The parties could have, for example, signed one all-encompassing agreement instead of two.  The owner’s agreement could have referred to or incorporated the employment agreement.  The employment agreement could have included an arbitration clause.

In contrast, the employment agreement, which contained no arbitration clause, made no mention of the owner’s agreement and specifically stated that it was the exclusive document controlling the parties’ relationship.  Furthermore, the employment agreement clearly contemplated district court involvement.  Section 20 of the employment agreement provides that if “any action is filed in relation to this agreement,” the unsuccessful party is responsible not only for the relief granted, but also for “a reasonable sum for the successful party’s attorney’s fees.”  “Action” is a term of art that does not, unless otherwise provided, encompass arbitration.  Kersting v. Royal-Milbank Ins., 456 N.W.2d 270 at 273-74 (Minn. App. 1990); see Minn. Stat. § 572.22, subd. 2 (2000) (providing that an arbitration judgment or decree may be docketed “as if rendered in an action”).  And even if “action,” by itself, did not clearly refer to a judicial proceeding, other language contained in section 20 confirms that to be its meaning.

Construing these documents together, it is clear that employment disputes are not subject to arbitration, whereas disputes pertaining to the management of the company or how stock is transferred are intended to be arbitrated.  As the dispute here does not pertain to the management of the company, the district court properly denied the motion to compel arbitration.

Affirmed.