Minn. Stat. § 480A.08, subd. 3 (1996).
STATE OF MINNESOTA
IN COURT OF APPEALS
Steven Rice, M.D., et al.,
Stearns County District Court
File No. C5-95-3792
Roger J. Nierengarten, Nierengarten Law Offices, 1111 First Street North, St. Cloud, MN 56303 (for appellant)
Edward J. Laubach, Jr., Hall & Byers, P.A., 1010 West St. Germain, Suite 600, St. Cloud, MN 56301 (for respondents)
Considered and decided by Schumacher, Presiding Judge, Shumaker, Judge, and Mansur, Judge.*
This is an appeal from the district court's order denying appellant's application to vacate or modify an arbitration award. We affirm.
In 1991 and 1992 appellant questioned the propriety of respondents' interpretation of provisions of the partnership agreement as to the definition of "managing partner," the number of votes necessary to take binding action, and the means for amending the agreement. Appellant brought a declaratory judgment action against respondents seeking judicial construction of the parties' partnership agreement. Respondents counterclaimed, alleging that appellant breached both the partnership agreement and his fiduciary duty to the partnership, and they asked for dissolution of the partnership. Respondents also moved to stay the action and to compel binding arbitration as provided in the partnership agreement. The district court granted the motion.
The parties selected a retired judge to serve as the neutral arbitrator. On December 19, 1996 the arbitration hearing was held. Before beginning the arbitration hearing, the arbitrator disclosed to the parties and counsel that, at some time in the past, respondent Dr. Peter Larsen had examined his eyes. The arbitrator then asked appellant and his attorney if either objected to him serving as arbitrator because of this contact. Neither stated any objection. Apparently after the hearing, although the record is unclear as to the precise time, respondent Dr. Frank Brown reviewed his office records and discovered that he had treated the arbitrator's wife approximately nineteen years earlier. Neither Dr. Brown nor the arbitrator recalled that relationship.
The arbitrator issued his findings and order on January 23, 1997. Among other things, he found that appellant had materially breached the partnership agreement and he ordered appellant to sell his interest to respondents. On February 14, 1997, the arbitrator issued a supplemental order providing that appellant's portion of the arbitration fee could be deducted from the buyout price if he had not paid it prior to the consummation of the buyout.
Appellant served his application to vacate or modify the award on April 14, 1997, alleging that the award was the product of undue means and evident partiality and that the arbitrator exceeded his powers. After a hearing, the district court denied the application, holding that the application was untimely, that the arbitrator did not have a conflict of interest, and that the arbitrator did not exceed his powers.
Under Minnesota law, the court must vacate an arbitration award if the award was procured by undue means, the arbitrator was evidently partial to a party, or the arbitrator exceeded his powers. Minn. Stat. § 572.19, subd. 1(1), (2), (3) (1996). The application to vacate the award on any of these grounds must be made within the time limits set by statute:
An application under this section shall be made within 90 days after delivery of a copy of the award to the applicant, except that, if predicated upon corruption, fraud or undue means, it shall be made within 90 days after such grounds are known or should have been known.
Minn. Stat. § 572.19, subd. 2 (1996).
Appellant combines undue means and evident partiality into a single ground for this appeal and argues that the arbitrator's relationships with two of the respondents create an impression of bias and that disclosure of those relationships was essential. Minnesota statute requires a neutral arbitrator to immediately disclose in writing any relationship to the parties involving any conflict of interest or potential conflict of interest. Minn. Stat. § 572.10, subd. 2(b) (1996). The arbitrator did disclose orally the one relationship of which he was aware.
The district court ruled that appellant's application on the partiality ground was untimely. We agree. Appellant learned of the relationship upon which the evident partiality was predicated on December 19, 1996. He served his application to vacate the award on April 14, 1997, 116 days after he knew or should have known of the grounds for vacation of the award.
Appellant urges that the 90-day limit did not begin until the arbitrator issued his supplemental order. However, the limitation period for vacating an award on the ground of partiality begins when the applicant knew or should have known of such ground, irrespective of when the actual award was made. See Minn. Stat. § 572.19, subd. 2. Here, appellant knew or should have known as of December 19, 1996.
In addition to being untimely in his application, appellant waived any challenge to the award on the ground of the arbitrator's relationship with one of the respondents. After learning of the relationship, appellant declined to object to the arbitrator's service as a neutral arbitrator.
A party who challenges an arbitration award must "establish facts that create a reasonable impression of partiality." Pirsig v. Pleasant Mound Mut. Fire Ins. Co., 512 N.W.2d 342, 343 (Minn. App. 1994). Parties to arbitration have a right to have a "hearing that is free from an appearance of impropriety." Id. Whether there is evident partiality is a legal question. Id. at 344. This court's review of legal questions is de novo. Id. at 343. Contacts between an arbitrator and a party that might create an impression of possible bias require that the arbitration award be vacated. Id. at 344.
In Pirsig the contacts did not go to the merits of the dispute and there was no longstanding relationship involved. This court held that such facts did not create an appearance of impropriety and would not "lead a reasonable person to believe the neutral arbitrator would be partial to one party." Id.
In this case, the arbitrator at some time in the past had a single contact for a medical examination with one of the respondent doctors. Other than that, he had no relationship with that respondent. The other contact occurred about nineteen years ago between another of the doctor respondents and the arbitrator's wife for the purpose of a single medical examination. Neither the arbitrator nor the doctor recalled that contact. The district court ruled that such limited and remote contacts did not create a conflict of interest for the arbitrator. We find no error in this ruling.
In assessing the merits of a challenge to an arbitrator's powers, this court's scope of review is limited. The arbitrator's powers are derived from the arbitration agreement and only when the arbitrator has clearly exceeded those powers will the arbitrator's decision be overturned. State Auditor v. Minn. Ass'n. of Professional Employees, 504 N.W.2d 751, 755 (Minn. 1993). The limited scope of review accords finality to an arbitrator's decision, which is one of the goals of arbitration. See Park Const. Co. v. Independent Sch. Dist. No. 32, 216 Minn. 27, 33, 11 N.W.2d 649, 652 (1943), and Aufderhar v. Data Dispatch, Inc., 452 N.W.2d 648, 651 (Minn. 1990).
Appellant argues that the arbitrator exceeded his powers by ordering an "involuntary" dissolution of the partnership agreement. See Minn. Stat. § 572.19, subd. 1(3) (1996) (a court may vacate an award if the arbitrator exceeded his powers). In this case, the partnership agreement required that the partners submit to arbitration and defined the scope of the arbitration. Paragraph 18 of the partnership agreement states:
Any controversy or claim arising out of or relating to this agreement, or the breach thereof, shall be settled by arbitration in accordance with the rules of the American Arbitration Association, and judgment upon the award rendered may be entered in any court having jurisdiction thereof.
(Emphasis added.) Appellant asserts that the arbitrator exceeded his authority by dissolving the partnership. A review of the record shows that the arbitrator made findings only on the issues properly before him, including the dissolution of the partnership. An arbitrator has authority to determine the facts and apply the law to the case. Independent Sch. Dist. No. 279 v. Winkelman Bldg. Corp., 530 N.W.2d 583, 587 (Minn. App. 1995). In this matter, the arbitrator properly ordered the dissolution of the partnership pursuant to the partnership agreement, the request of respondents, and Minn. Stat. § 323.27 (uniform partnership act; partner's interest chargeable). The district court concluded that the arbitrator did not exceed his powers. The evidence supports that conclusion.