STATE OF MINNESOTA
IN COURT OF APPEALS
Westonka Investments, Inc., et al.,
Filed August 25, 1998
Hennepin County District Court
File No. 979961
Rebecca E. Bender, Bender Law Firm, 514 Nicollet Mall, Suite 570, Minneapolis, MN 55402 (for appellant)
Robert L. Speeter, Richard H. Speeter, One Financial Plaza, Suite 1515, 120 South Sixth Street, Minneapolis, MN 55402 (for respondent Westonka, et al.)
F. Chet Taylor, One Financial Plaza, Suite 100, 120 South Sixth Street, Minneapolis, MN 55402 (for respondent McDonnell)
Considered and decided by Harten, Presiding Judge, Forsberg, Judge,* and Thoreen, Judge.**
Appellant Scott Buchan appeals from a district court order confirming an arbitration award. The district court based its decision on improper service of process and a failure to show fraud, corruption, or other undue means. We affirm.
In 1995, appellant filed an arbitration action against respondents Westonka Investments, Inc., Pat McDonnell, Tim Friederichs, and two other defendants. The statement of claim was filed for arbitration with the National Association of Securities Dealers (NASD). On March 27, 1997, the NASD panel issued a decision, denying all of appellant's claims.
On June 26, 1997, appellant moved the district court in Minnesota to vacate the arbitration award, citing both the Minnesota Arbitration Act (MAA) and the Federal Arbitration Act (FAA).(1) He served the motion on respondents by mail. On November 17, 1997, respondents moved to confirm the arbitration award, to strike appellant's counsel's affidavit, to disqualify appellant's counsel, and to recover sanctions. On November 24, 1997, the motions were heard. On January 13, 1998, appellant filed an amended motion to vacate the arbitration award. The amended motion was personally served upon respondents.
The district court denied appellant's motion to vacate the arbitration award; the district court instead confirmed the arbitration award and denied respondents' other motions. The district court found that Minnesota law applied and was not preempted by federal law and that proper service of the motion to vacate was untimely under Minnesota law for all claims except those based on fraud, corruption, or other undue means. The district court determined that appellant had not shown undue means. This appeal followed.
We review de novo the interpretation of statutes. Hibbing Educ. Ass'n v. Public Emp. Relations Bd., 369 N.W.2d 527, 529 (Minn. 1985). On established facts the validity of service of process is a question of law, also subject to de novo review. Manson v. Dain Bosworth, Inc., ___ N.W.2d ___, ___, No. C8-98-458, slip op. at 5 (Minn. App. July 28, 1998).
The method of service of process in Minnesota courts is determined by forum law. Id., slip op. at 4-5. Appellant brought the motion to vacate in a Minnesota district court. Accordingly, he must comply with Minnesota rules for service of process.
In a proceeding to vacate an arbitration award, service of process is controlled by statute. The MAA states that a motion to vacate an arbitration award "shall be served in the manner provided by law for the service of a summons in an action." Minn. Stat. § 572.23 (1996). The Minnesota Rules of Civil Procedure require that a summons be served personally or by acknowledged mail. Minn. R. Civ. P. 4.03 (personal service), 4.05 (service by mail). Service by mail is ineffectual if an acknowledgement is not received by the sender. Minn. R. Civ. P. 4.05. "Rule 4.05 requires strict compliance to procedure in order to perfect service." Coons v. St. Paul Cos., 486 N.W.2d 771, 776 (Minn. App. 1992), review denied (Minn. July 16, 1992). If service of process is invalid, the district court lacks jurisdiction to consider the case, and it is properly dismissed. Lewis v. Contracting Northwest, Inc., 413 N.W.2d 154, 157 (Minn. App. 1987).
Further, the MAA sets timing requirements for serving motions to vacate:
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 other 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). The expiration of the 90-day period precludes any challenge to the award. Great American Ins. Cos. v. LeMieux, 439 N.W.2d 733, 735 (Minn. App. 1989), review denied (Minn. July 12, 1989).
Appellant argues that he did not move to vacate the award "under this section" because he also brought the motion pursuant to federal law. Therefore, he argues that the timing requirements do not apply. We disagree. The timing requirements in section 572.19 are part of the Minnesota procedural rules for service of process in this type of proceeding. State courts may apply their own procedural rules to federal claims. Carter v. Cole, 526 N.W.2d 209, 214 (Minn. App. 1995), aff'd (Minn. Oct. 25, 1995). Thus, regardless of whether federal law is to be applied substantively, forum law applies to the method and timing of serving opposing parties.
Appellant also argues that Minnesota law is preempted by the FAA. The FAA may preempt a state law "to the extent that it 'stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'" Volt Info. Sciences, Inc. v. Board of Trustees, 489 U.S. 468, 477, 109 S. Ct. 1248, 1255 (1989) (quoting Hines v. Davidowitz, 312 U.S. 52, 67, 61 S. Ct. 399, 404 (1941)). Minnesota requirements for service of a motion to vacate an arbitration decision do not undermine the objectives of the FAA and are not preempted by it. Manson, slip op. at 12.
In sum, Minnesota requirements for service of process apply to motions to vacate arbitration awards brought in Minnesota regardless of the substantive law under which the claims are made. Minnesota procedural rules require that motions be served personally or by acknowledged mail and within the time limits in section 572.19.
Having served respondents by mail with no acknowledgement, appellant did not properly serve respondents in June 1997. Appellant argues that service by mail was proper under rule 5.02 of the Minnesota Rules of Civil Procedure. Rule 5.02 governs service of motions and pleadings subsequent to the original complaint. We have held that a motion to vacate an arbitration award initiates a proceeding in Minnesota district court and therefore Minnesota law governing service of a summons applies. Manson, slip op. at 6. Thus, rule 5.02 does not apply, and we do not agree that appellant's compliance with requirements for service of a motion was adequate to initiate the proceeding.
Appellant did not serve respondents properly until January 13, 1998, long after the expiration of the 90-day period, which began running on March 27, 1997. Service of the motion was untimely for all claims except those based on fraud, corruption, or other undue means, discovered within 90 days of proper service. See Minn. Stat. § 572.19, subd. 2; Minn. R. Civ. P. 4.03, 4.05.
Appellant argues that he discovered new information in November 1997 which constituted fraud, corruption, or other undue means. The information related to a discussion between Edward Anderson and representatives of R.J. Steichen & Company about employment opportunities. Anderson is an NASD staff attorney. R.J. Steichen is the employer of respondents Friederichs and McDonnell.
A judicial appeal from an arbitration award is subject to a narrow standard of review. State, Office of the State Auditor v. Minnesota Ass'n of Prof'l Employees, 504 N.W.2d 751, 754 (Minn. 1993). This court views every presumption in favor of the finality and validity of the arbitration award. Id. An arbitration award should not be vacated on grounds of mere inadequacy. Beebout v. St. Paul Fire & Marine Ins. Co., 365 N.W.2d 271, 273 (Minn. App. 1985), review denied (Minn. May 31, 1985). Fraud must be established by "clear allegations and proof." Id. (quoting Mork v. Eureka Sec., 230 Minn. 382, 391, 42 N.W.2d 33, 38 (1950).
Minnesota courts have vacated arbitration awards where the nature of the relationship complained of was long-standing and repeated. Safeco Ins. Co. v. Stariha, 346 N.W.2d 663, 666 (Minn. App. 1984) (citing Northwest Mechanical v. Public Utils. Comm'n, 283 N.W.2d 522 (Minn. 1979). In Safeco, we held that
a remote and unrelated attorney-client relationship between the neutral arbitrator and counsel for one of the parties is not a basis to vacate an arbitration award for undue means or evident partiality.
346 N.W.2d at 666. Here, Anderson was not an arbitrator, but was a staff attorney for the NASD. Neither Anderson nor R.J. Steichen has had any direct involvement in this case. Moreover, their relationship was not long-standing and repeated, but consisted of only one discussion.
In Ronning v. Citizens Sec. Mut. Ins. Co., 557 N.W.2d 363, 366 (Minn. App. 1996), we looked for prejudice to appellant in determining undue means. The evidence supports the district court's conclusion that Anderson's discussion with R.J. Steichen representatives did not impact the decision of the arbitrators. Appellant has pointed to no evidence in the record proving that the decision was a result of undue means.
We conclude that the district court did not err in denying appellant's motion to vacate the arbitration award.
* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.
** Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.
(1) The parties had signed a contract that specified Texas law as governing disputes arising under it. No party has argued that Texas law should apply. Moreover, the contract was not provided to the district court and therefore is not part of our record on appeal. See Minn. R. Civ. App. P. 110.01 ("The papers filed in the trial court, the exhibits, and the transcript of the proceedings, if any shall constitute the record on appeal."). For these reasons, we do not consider the application of Texas law.