Minn. Stat. § 480A.08, subd. 3 (1996)
Thomas M. Massey, et al.
Chris Holm, et al.,
Edward A. Hamm, et al.,
Hennepin County District Court
File No. CT-94-18932
Richard T. Ostlund, Randy Gullickson, Lindquist & Vennum P.L.L.P., 4200 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402 (for Respondents)
Considered and decided by Crippen, Presiding Judge, Schumacher, Judge, and
Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.
Appellants challenge the district court's confirmation of an arbitration award in favor of respondents. We affirm.
Disputes arose under the agreement and the parties submitted the case to arbitration. After a five-day arbitration hearing, the arbitrator issued factfindings and an award in favor of Holm/DKC, finding Massey and Sitelines jointly and severally liable for breaching the agreement. The arbitrator awarded Holm/DKC damages, but provided a $50,000 set-off for a fee owed to Massey. Holm/DKC immediately requested a modification of the damages, asserting that the $50,000 was an obligation of a third party. The arbitrator subsequently modified the award to eliminate the set-off.
Holm/DKC filed a motion in the district court to confirm the award and Massey/Sitelines filed a motion to vacate the award. The district court confirmed the award. Massey and Sitelines appeal.
In the absence of any factual dispute, the court considers allegations of improper ex parte contacts between an arbitrator and a party to the arbitration de novo. See Crosby-Ironton v. Independent Sch. Dist. No. 182, 285 N.W.2d 667, 670 (Minn. 1979) (reviewing court may vacate arbitration award on ground that improper ex parte contacts occurred between an arbitrator and a party). When an arbitrator and a party to the arbitration communicate concerning the issues under dispute and fail to notify the other parties, there will be a strong presumption that an award "was procured by corruption, fraud or other undue means, and thus subject to vacation." Id.
The communications Massey/Sitelines allege were procedural in nature and did not involve any discussion of the issues under dispute. The first contact, a fax from counsel for Holm/DKC to the arbitrator consisting of a letter from Massey's own counsel and a copy of Massey's motion to vacate the arbitration award, was merely a courtesy notification of a possible substitution of counsel. The second contact was a voicemail message from counsel for Holm/DKC advising the arbitrator that his client intended to seek modification of the damages. The parties agreed at the outset of the arbitration that direct contact with the arbitrator would be permissible for scheduling motions and the message comported with the procedures both parties followed throughout the arbitration process. There was no discussion between the arbitrator and counsel for Holm/DKC about the modification request and Massey/Sitelines fully argued the matter before the arbitrator rendered a decision. We conclude that because these contacts concerned procedural matters only, they do not give rise to a presumption of fraud justifying vacation of the award.
2. Massey argues the award should be vacated because the arbitrator mistakenly found Massey was personally liable for breach of contract. Massey claims he cannot be personally liable under the agreement because he was not a party to the agreement in his individual capacity.
We review de novo a district court order confirming an arbitration award. See Independent Sch. Dist. No. 279 v. Winkelman Bldg. Corp., 530 N.W.2d 583, 586 (Minn. App. 1995) (reviewing de novo a district court order vacating an arbitration award), review denied (Minn. July 20, 1995). The scope of review of an arbitration award, however, is narrow. State Auditor v. Minnesota Ass'n of Prof'l Employees, 504 N.W.2d 751, 755 (Minn. 1993). We must exercise every reasonable presumption in favor of the finality of an award. Id.
A court may vacate an arbitration award if an arbitrator exceeded the arbitrator's powers in issuing the award. Minn. Stat. § 572.19(3) (1996). In determining whether an arbitrator exceeded the arbitrator's authority, we only 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 arbitrator's decision holding Massey personally liable for breach of contract was rationally derived from the agreement. Massey signed the agreement in his individual capacity promising to cause the corporation Sitelines to undertake its contractual obligations. Although Massey's personal obligation under the agreement was limited, the arbitrator reasonably could have found that Massey failed to fulfill that obligation, rendering him personally liable. Because the arbitrator's award draws its essence from the agreement, we will not disturb the award.
3. Massey/Sitelines argue the arbitrator lacked jurisdiction to modify the award. The district court concluded the modification was proper because the arbitrator committed an error of law in the initial award of damages. We review de novo an arbitrator's modification of an award. See Crosby-Ironton, 285 N.W.2d at 669 (reviewing de novo district court's order denying motion to resubmit award to arbitrator for modification).
When an arbitrator's decision is substantively incorrect, but there is no statutory basis for correction of the error, the arbitrator has no jurisdiction to modify the decision. Adler v. Safeco, 413 N.W.2d 566, 568 (Minn. App. 1987). Minn. Stat. § 572.16 (1996) confers authority on an arbitrator to modify an award "where the award is based on an error of law." We agree with the district court that the arbitrator's modification of the set-off was only for the purpose of correcting an error of law.
In the initial award of damages, the arbitrator provided a set-off to Massey/Sitelines for $50,000 based on the erroneous belief that this was an obligation of Holm/DKC. Subsequently, in requesting modification of the award, Holm/DKC brought to the arbitrator's attention that the $50,000 was actually an obligation of a third party. The initial award effectively assigned the debt of the third party, not a party to the arbitration, to Holm/DKC. This was a legal error. The arbitrator was statutorily authorized to correct this error. The modification was proper.