This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2006).






Norman H. Herman, petitioner





Stielow Properties, Inc.,



Filed June 19, 2007


Ross, Judge


Hennepin County District Court

File No. 27-CV-05-010520


Mathew M. Meyer, J. Vincent Stevens, Moss & Barnett, P.A., 4800 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402-4129 (for respondent)


Michael T. Milligan, Heidi N. Thoennes, James S. McAlpine, Quinlivan & Hughes, P.A., P.O. Box 1008, St. Cloud, MN 56302-1008 (for appellant)


Considered and decided by Ross, Presiding Judge; Kalitowski, Judge; and Halbrooks, Judge.

U N P U B L I S H E D   O P I N I O N


ROSS, Judge


This case concerns the validity of the arbitration clause of a contract that one member of a partnership executed without the permission of the other.  On appeal from the district court’s order denying the motion of Stielow Properties, Inc., to compel arbitration and to dismiss the complaint brought by Norman Herman, Stielow Properties argues that the district court erred because Herman’s cause of action arises out of a valid management agreement that contains the clause requiring arbitration.  Because we hold that Herman ratified the improperly executed management agreement, the arbitration clause is valid and we reverse.


In 1981 Norman Herman and John Stielow formed Northwestern Building, a Minnesota partnership.  Aprovision of their 1981 partnership agreement is central in this dispute.  That provision expressly required the consent of both partners on matters concerning management of the partnership’s business.  The partnership purchased real property in Minneapolis, and, in 1989, retained Stielow Properties, Inc., to manage the property.  Both partners signed the management agreement on behalf of the partnership, consistent with the requirement of mutual consent as stated in the partnership agreement.  Northwestern Building’s management agreement with Stielow Properties provided Herman with the right to unilaterally terminate the agreement and Herman exercised this right in November 2000.  Herman and Stielow then began arbitration proceedings to determine which of three companies that had submitted proposals, including Stielow Properties, was best suited to manage Northwestern Building’s property.  In May 2001, the arbitrator found that although Stielow Properties had made some prior accounting errors, it had not breached any fiduciary duties and was in the best position to manage the property.

In May 2001, Northwestern Building entered a new management agreement with Stielow Properties.  Although the partnership agreement required consent of both partners to enter a management agreement, this time Stielow signed the management agreement on behalf of the partnership without Herman’s consent.  After this litigation arose, Herman told the district court that he never saw the agreement before Stielow signed it and that he had not authorized Stielow to sign it.  The new management agreement included a clause requiring arbitration of “[a]ny dispute or controversy arising under, out of, or in connection with or in relation to [the management agreement].”  Stielow Properties’ president signed the agreement on the company’s behalf.

Northwestern Building later sold its property and closed on the sale in 2004.  The management and property agreements provided that each agreement would terminate when any sale of the property closed.

In February 2005, Herman commenced a commercial-arbitration proceeding against Stielow to obtain information on Stielow Properties’ management of Northwestern Building’s property.  Herman stipulated to stay the arbitration proceeding after Stielow represented that he did not have any of the information Herman sought and that Stielow Properties had exclusive control of the records.  Herman then filed a complaint in district court against Stielow Properties, alleging that it had books and records related to the property but had refused Herman’s requests to produce them.  Stielow Properties moved to dismiss the complaint and compel arbitration based on the arbitration clause in the May 2001 management agreement.  The district court denied the motion, and Stielow Properties appeals.


We must decide whether the express arbitration clause in the 2001 management agreement between Stielow Properties and the partnership is invalid by virtue of Stielow’s failure to obtain his partner’s consent to enter the management agreement on behalf of the partnership.  A written agreement to submit a controversy to arbitration is valid, and a court must compel arbitration when the parties previously agreed to arbitrate.  Minn. Stat. §§ 572.08, .09(a) (2006); see also Schoenborn v. State Farm Auto. Ins. Co., 495 N.W.2d 460, 463 (Minn. App. 1993) (holding that court cannot compel arbitration when party did not agree by contract to arbitrate).  We review de novo the denial of a motion to compel arbitration.  Cmty. Partners Designs, Inc. v. City of Lonsdale, 697 N.W.2d 629, 632 (Minn. App. 2005).  The parties do not dispute the scope of the arbitration agreement, only its validity. 

The district court denied Stielow Properties’ motion to dismiss and to compel arbitration, finding that “[t]he state of facts now existing does not compel dismissal of this case.”  At the hearing on the motion, the court expressed its concerns that the arbitration clause was not authorized by both partners as required by the partnership agreement, that the arbitrator did not have the agreement when he made his decision in 2001, and that Stielow’s inclusion of the arbitration clause created a potential for self-dealing.

Because a partner is an agent of the partnership, an act by one partner apparently carrying on in the ordinary course of business will bind the partnership, unless the partner had no authority to act for the partnership and the person with whom the partner was dealing knew or had notice that the partner lacked authority to act.  Minn. Stat. § 323A.0301(1) (2006).  Stielow and Herman’s partnership agreement provided that “consent of both partners shall be required with respect to the management, conduct and operation of the partnership business in all respects and in all matters.”  A partnership agreement governs relations between partners and between the partners and the partnership, although the agreement is subject to some statutory constraints.  See id. § 323A.0103 (2006) (allowing partnership to use agreement to govern relations but requiring partnership to maintain certain statutory rights and duties).  Stielow therefore did not have actual authority to enter the management agreement on behalf of the partnership without Herman’s consent.  And Stielow, who knew he did not have authority to enter a contract without Herman’s consent, is a shareholder in Stielow Properties.  See id. § 323A.0102(a)-(d) (2006) (defining knowledge, notice, and receipt of notice). 

Because Stielow did not act with actual authority, and Stielow Properties knew of his lack of authority, the arbitration clause is part of a contract that under ordinary circumstances would not bind the partnership.  We conclude, however, that despite the unauthorized execution of the 2001 management agreement, Herman later ratified the agreement and arbitration clause through his conduct and has waived his right to challenge the enforceability of the clause.  A party waives a contractual default if “with knowledge of the facts, he treats the contract as still in force and deals with the other party accordingly.”  Miller v. Snedeker, 257 Minn. 204, 217, 101 N.W.2d 213, 223 (1960).  Although waiver is usually a question of fact, it may be inferred as a matter of law when a party’s conduct “leave[s] no room for a reasonable inference to the contrary.” Flaherty v. Indep. Sch. Dist. No. 2144, 577 N.W.2d 229, 232 (Minn. App. 1998) (quotation omitted), review denied (Minn. June 17, 1998).  On these facts we hold as a matter of law that Herman waived any challenge to the validity of the 2001 management agreement and, therefore, to the validity of its arbitration clause.

After Stielow executed the agreement on May 8, 2001, Stielow Properties sent Herman a copy of the agreement within days, on May 17.  The record reflects correspondence between Herman and Stielow’s attorneys discussing the agreement in the summer and fall of 2001.  Herman raised several points of disagreement, listing his concerns over some of the agreement’s particulars in great detail.  But Herman never objected to the arbitration clause.  And although the correspondence refers to changes or clarifications to be made in a revised agreement, none of those discussed changes regarded the arbitration clause and the parties never executed a revised agreement.  While aware of the May 2001 agreement and its details, Herman operated under the terms of the agreement, benefiting from Stielow Properties’ management until the partnership sold its property.  Herman’s complaint also implies acknowledgement of a valid management agreement.  The complaint states that “On or about May 8, 2001, . . . a new management agreement between the [p]artnership and Stielow Properties was entered into whereby Stielow Properties continued as property manager.”  He attached a copy of the agreement.  The four-page complaint includes 11 references to the management agreement, and it addresses both Stielow Properties’ and Herman’s rights and obligations under the agreement.  Herman requested that the district court provide relief in “such amounts as may be determined due under the terms of the [m]anagement [a]greement.”  Nowhere in the complaint does Herman assert or suggest that the agreement is invalid.

Herman argues that Stielow Properties waived its argument that the management agreement is enforceable because Stielow Properties concedes that the agreement terminated when the partnership sold its property.  But Herman’s claims expressly arise out of “Stielow Properties’ duties under the [m]anagement [a]greement.” 

Because Herman ratified and waived any objection to the enforceability of the arbitration clause and Herman’s claims relate to Stielow Properties’ management under the agreement, the district court should have dismissed his complaint and compelled arbitration.