This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2006).
IN COURT OF APPEALS
Norman H. Herman, petitioner
Stielow Properties, Inc.,
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.
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.
1981 Norman Herman and John Stielow formed
February 2005, Herman commenced a commercial-arbitration proceeding against
Stielow to obtain information on Stielow Properties’ management of
D E C I S I O N
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
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.
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.
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
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.