This opinion will
be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2006).
STATE
OF MINNESOTA
IN COURT OF APPEALS
A06-1264
In re the Arbitration of:
Cincinnati Insurance Company,
Respondent,
vs.
Tyco Fire Products, f/k/a Central Sprinkler Company,
Appellant.
Filed
May 1, 2007
Affirmed
Stoneburner,
Judge
Washington County
District Court
File No. 82C806001071
Bryan B. Carroll, Rolf E. Sonnesyn, Tomsche, Sonnesyn &
Tomsche, P.A., 610 Ottawa Avenue North, Minneapolis, MN 55422 (for respondent)
Mark R. Whitmore, Susan E. Gustad, Bassford Remele, P.A.,
Suite 3800, 33 South Sixth Street, Minneapolis, MN; and
Jeff R. Scurlock, Shook, Hardy & Bacon, L.L.P., 2555 Grand Boulevard, Kansas City, MO 64108-2613 (for appellants)
Considered
and decided by Stoneburner, Presiding Judge, Shumaker, Judge, and Crippen,
Judge.
U N P U B L I S H E D O P I N I O N
STONEBURNER, Judge
Appellant asserts that the district
court erred by vacating an arbitration award on the basis that it was procured
by undue means. Because the record
supports a determination that the exclusion of respondent from the arbitration
proceeding was procured by undue means, and because the manner in which this
arbitration proceeded violated the due-process provisions of the Arbitration
Act, substantially prejudicing respondent, we affirm.
FACTS
Respondent Cincinnati Insurance Company (Cincinnati) brought
a subrogation action against appellant Tyco Fire Products f/k/a Central Sprinkler
Company (Tyco), alleging that Tyco negligently designed, manufactured, and
installed a sprinkling system that malfunctioned causing property damage to
Cincinnati’s insured in the amount of $28,287.17. Cincinnati
and Tyco agreed to submit the matter to binding arbitration by Arbitration
Forums, Inc. (AF), a private organization.
Cincinnati
and Tyco agreed to have the case argued before a panel appointed by AF, and
that all expert testimony would be submitted to the panel by report rather than
live testimony. Because only Tyco
belonged to AF regarding property damage claims, both parties had to provide AF
with consent to proceed in that forum.
AF’s rules provide that an “[a]pplicant
commences an arbitration proceeding by filing a completed P-Form and Contentions
Sheet with AF and the representative of each involved party being filed
against.” The rules provide for
amendments to the initiating documents, to be filed ten days prior to the
hearing.
AF’s P-Form contains a section
titled “APPLICANT INFORMATION and ALLEGATIONS” which is divided into two
columns. The second column under this
title contains five small boxes followed by statements. Relevant to this appeal, one box is followed
by “I request Notice of Hearing (Rule 3-1),” and another is followed by “This
file will be represented in person (Rule 3-7).”
Rule 3-1 provides that “AF will transmit or mail Hearing Notices to all
parties at least 30 days prior to the initial hearing date, unless waived.” Rule 3-7 provides that to present witnesses
or attend an arbitration hearing, a party must indicate such intent on the
original or an amended P-Form.
Cincinnati
submitted its consent to arbitrate in AF’s forum to AF by letter dated June 28,
2005, enclosing a copy of the P-Form, Contentions Sheet, and Cincinnati’s exhibits. The letter notified AF where to send all
correspondence and informed AF that the original P-Form had been forwarded to
Tyco for review, with a request that Tyco return it to Cincinnati for filing
with AF. Tyco was given a copy of the
letter and attachments and was provided with a self-addressed, stamped envelope
in which to return the original P-Form to Cincinnati. Information was filled out on the P-Form in
type, but the notice and attendance boxes were x’d by hand, and the document was
signed and dated by hand.
AF returned all of the documents to Cincinnati with a note
indicating that the materials had to include Tyco’s consent. Tyco provided consent in a letter dated July
21, 2005, addressed to counsel for Cincinnati. By cover letter to AF dated July 22, 2005, Cincinnati enclosed Tyco’s consent, a copy of the P-Form,
Contentions Sheet, and Cincinnati’s
exhibits. The cover letter again
informed AF where to send all correspondence and stated:
The
original Property Form (P-Form) has already been sent to counsel of record for
the Respondent under separate cover for review and completion of the
allegations section and any necessary amendments. I expect Respondent’s counsel will return the
original Property Form (P-Form) to me in the near future. I will file the original form upon receipt.
The
P-Form sent to AF with the July 22, 2005, letter is identical to the P-Form
sent with the June 28, 2005 letter except it does not contain any of the
hand-written information that was on the first form. There are no x’s in the notice and attendance
boxes, and there is no signature or date.
The July 22, 2005 cover letter was copied to Tyco, but it is not clear
from the record that the enclosures were sent to Tyco.
Tyco filed its documents with AF,
but never returned the P-Form to Cincinnati and
did not provide Cincinnati
with a copy of materials it sent to AF. AF’s rules provide that a respondent answers
by filing its P-Form and Contentions Sheet with AF and all other involved
parties ten days prior to the hearing and state that “[p]ersonal representation
will not be allowed in cases when an answer has not been filed as outlined
above.”
Despite the incomplete P-Form
submitted by Cincinnati to AF, AF, contrary to
its rule that a completed P-Form is
required to initiate the proceedings, concluded that Cincinnati
waived notice of and appearance at the arbitration hearing, and proceeded with
the arbitration without notice to Cincinnati. Despite Tyco’s failure to answer according to
the rules by providing Cincinnati
with a copy of the documents it submitted to AF, AF allowed Tyco to be
represented at the arbitration hearing. Tyco
did not question AF’s decision to proceed without notice to or appearance by Cincinnati, and Tyco either failed to apprise AF of its
failure to provide its submission to Cincinnati
or took advantage of AF’s oversight in allowing Tyco to appear personally,
contrary to AF’s rules.
On October 12, 2005, Cincinnati’s counsel, who
had not received any documents from Tyco or any notice from AF, contacted AF
and discovered that the arbitration hearing had taken place and that a decision
favorable to Tyco had been issued on October 3, 2005. AF was unable to explain, at that time, why
the matter had proceeded without Cincinnati’s
participation or why the decision had not been mailed to Cincinnati.
Cincinnati did not receive a copy of the
decision until November 16, 2005. The
decision stated that the matter was filed on July 25, 2005, and awarded nothing
to Cincinnati on the ground that Cincinnati had failed to
prove a manufacturing defect. The “explanation
of decision” stated: “Appl contends fire marshall
says sprinkler head defective, yet offers no evid. Appl expert Baymildoors conslusion[sic] are
not supported by evid.” Cincinnati had a metallurgical expert named
John Brynildson, but no expert named “Baymildoor.”
Cincinnati petitioned the district court to
vacate the arbitration award under Minn. Stat. § 572.19 subd. 1(1) (2004), as
procured by “other undue means.” The
district court granted the petition on the basis that AF failed to remedy an
oversight it should have noticed in Cincinnati’s
P-Form. Tyco appealed.
By notice of review, Cincinnati
asserts three alternate theories of how the decision was procured by other
undue means: (1) the decision was the result of improper ex parte contacts
between AF and Tyco; (2) Tyco should not have been allowed to be represented at
the hearing under the rules contained in the arbitration agreement because Tyco
failed to file its documents with Cincinnati, and (3) AF, under the rules set
out in the arbitration agreement, should not have initiated the arbitration
without requiring that Cincinnati complete the P-Form by signing and dating it.
D
E C I S I O N
A party seeking to vacate an
arbitration award has the burden of proving the invalidity of the award. Nat’l
Indem. Co. v. Farm Bureau Mut. Ins. Co., 348
N.W.2d 748, 750 (Minn.
1984).
An arbitration award “will be
vacated only upon proof of one or more of the grounds stated in Minn. Stat. §
572.19.” AFSCME Council 96 v. Arrowhead Reg’l Corr. Bd., 356 N.W.2d 295, 299
(Minn. 1984)
(footnote omitted). Minn. Stat. § 572.19
(2006), provides in relevant part, that on the application of a party, the
district court shall vacate an arbitration award where:
(1) The award was procured by corruption, fraud, or other undue
means;
.
. . .
(4) The arbitrators refused to postpone the
hearing upon sufficient cause being shown therefor or refused to hear evidence
material to the controversy or otherwise so conducted the hearing, contrary to
the provisions of section 572.12, as to prejudice substantially the rights of a
party[.]
Minn. Stat. § 572.12
(2006) requires, in relevant part, that unless otherwise provided by the
agreement, the arbitrators shall give notice of the hearing personally or by
certified mail not less than five days prior to the hearing, and that “[t]he
parties are entitled to be heard, to present evidence material to the
controversy and to cross-examine witnesses appearing at the hearing.”
In this case, the district court
vacated the arbitration award as procured by undue means, stating that
“[b]ecause of AF’s failure to discern that Cincinnati had not checked the
notice box on the P-Form and to remedy the oversight, the . . . decision . . .
was achieved through undue means . . . substantially prejudicing the rights of
Cincinnati to participate in the arbitration proceedings.”
Tyco asserts that neither its
conduct nor AF’s conduct met the definition of undue means as that term has
been interpreted in the caselaw. Tyco
relies on an unpublished opinion of this court to assert that “‘[u]ndue means’
within the Uniform Arbitration Act, generally refers to an improper
relationship between one of the parties and the arbitrator and definitely
requires evidence of impartiality.” West v. Heart of the Lakes Constr., Inc.,
C5-01-1823, 2002 WL 1013529 at *4 (Minn.
App. May 21, 2002) (footnote omitted).
In West, this court cited the following authorities for the
proposition that undue means generally refers to an improper relationship
between a neutral and a party: Safeco
Ins. Co. of Am. v. Stariha, 346 N.W.2d 663, 665-66 (Minn. App. 1984); Nasca v. State Farm Mut. Auto. Ins. Co.,
12 P.3d 346, 350-51 (Colo. Ct. App. 2000); and Gerl Const. Co. v. Medina
County Bd.
of Comm’rs, 493 N.E.2d 270, 276 (Ohio Ct. App. 1985). Id.at *4, n.4. But each of these cases involved an alleged
relationship between a neutral and a party.
While the cases stand for the proposition that “other undue means,” as
used in the Uniform Arbitration Act, includes
a substantial undisclosed relationship between a neutral and a party, we do not
read the cases as limiting “other
undue means” to such relationships.
The authority cited in West for the proposition that “undue
means . . . requires evidence of impartiality,” is Commonwealth Coatings Corp. v. Continental Cas. Co., 393 U.S. 145, 147, 89 S. Ct.
337, 338-39 (1968) (stating that section of United States Arbitration Act,
authorizing vacation of an award procured by corruption, fraud, or undue means
or if partiality by arbitrator, was evidence that shows “desire of Congress to
provide not merely for any arbitration
but for an impartial one”). Id. at 147, 89 S. Ct. at 338. Again, the authority cited does not limit the
meaning of “other undue means” to situations in which there is evidence of
partiality by a neutral. We therefore find
the statement relied on by Tyco from West,
an unpublished opinion, not persuasive in the context of the matter before us.
We are more persuaded by Tyco’s
argument that, consistent with the rule of statutory construction that words in
a statute should be construed with reference to the words surrounding them,
“other undue means” should be construed with reference to the words
“corruption” and “fraud.” See Wayne
v. MasterShield, Inc., 597 N.W.2d 917, 920 (Minn. App. 1999) (stating that
under the doctrine of noscitur a sociis,
a phrase capable of several meanings is defined by the words with which the
phrase is associated), review denied
(Minn. Oct. 21, 1999). And Tyco has
provided cases from other jurisdictions stating that undue means in the context
of the United States Arbitration Act requires something akin to fraud and
corruption. Spiska Eng’g, Inc. v. SPM Thermo-Shield, Inc.,678 N.W.2d 804, 806 (S.D. 2004) (stating that “[g]enerally, courts
have defined the term in conjunction with ‘corruption’ and ‘fraud’”); Shearson Hayden Stone, Inc. v. Liang,
493 F.Supp. 104, 108 (N.D. Ill. 1980) (stating that “undue means” in context of
the United States Arbitration Act “requires some type of bad faith in the
procurement of the award”), aff’d, 653
F.2d 310, 313 (7th Cir. 1981); Seither
& Cherry Co. v. Ill. Bank Bldg. Corp., 419 N.E. 2d 940, 945 (Ill. App. Ct.
1981) (stating that “‘[u]ndue means’ goes beyond the mere inappropriate or
inadequate nature of the evidence and refers to some aspect of the arbitrator’s
decision or decision-making process which was obtained in some manner which was
unfair and beyond the normal process contemplated by the arbitration
act”).
In this case, the district court did
not explicitly find that what it determined to be “other undue means” was akin
to corruption or fraud or was obtained in some unfair manner. But from our review of the record, we conclude
that Cincinnati
has met its burden to show that the decision-making process in this case was
obtained in a manner that was unfair and beyond the normal process contemplated
by the arbitration act, and more specifically, beyond the process contemplated
by the arbitration agreement in this case.
AF, for reasons not explained in the
record, initiated the proceeding based on an obviously incomplete P-Form
submitted by Cincinnati,
which was attached to a letter that specifically stated that the original
P-Form would be submitted when it was returned by Tyco. Tyco, with the completed P-Form requesting
notice and appearance in its possession, allowed AF to exclude Cincinnati from the
proceedings. AF failed to disqualify
Tyco from appearing, despite its failure to serve Cincinnati
with arbitration documents, and Tyco either misled AF about having filed its
documents with Cincinnati
or took unfair advantage of AF’s oversight in allowing it to appear. As the district court rightly concluded, the
manner in which this matter proceeded to hearing substantially prejudiced the
rights of Cincinnati
to participate in the proceedings. On
this record, we conclude that the district court did not err by vacating the
award as procured by “other undue means” under Minn. Stat. § 572.19, subd. 1(1).
Tyco argues that Cincinnati did not raise the issue of ex
parte contact in the district court and that this court should therefore
decline to consider it. See Thiele v. Stich, 425 N.W.2d 580, 582
(1988) (stating that a party may not obtain review of an issue by raising the
same general issue as that litigated below but under a different theory). But this court may affirm the vacation on an
alternative basis from that stated by the district court. See County of Hennepin
v. Hennepin County Ass’n of Paramedics & Emergency Medical Technicians,
464 N.W.2d 578, 580, 582 (Minn. App. 1990) (affirming vacation of arbitration
award on alternative basis from ground stated by district court). Appellate courts have a responsibility to decide
cases in accordance with the law, and that responsibility should not be diluted
by counsel’s oversight. State v. Hannuksela,452 N.W.2d 668, 673 n.7 (Minn.
1990); Greenbush State Bank v. Stephens,
463 N.W.2d 303, 306 n.1 (Minn. App. 1990)
(applying Hannuksela in a civil
case), review denied (Minn. Feb. 4,
1991). Further, the Minnesota Supreme
Court has recently concluded that a claimant is not procedurally barred from
raising on appeal a claim that is a refined version of a claim made to the
district court, as long as the claim can be evaluated based on the record. Jacobson
v. $55,000 in U. S. Currency,
728 N.W.2d 510, 523 (Minn.
Mar. 15, 2007).
We
conclude that Tyco’s failure to provide its arbitration documents to Cincinnati resulted in
Tyco having ex parte communication with the neutrals in this case. Even if Cincinnati
could be said to have waived notice of and appearance at the hearing, Cincinnati never waived its
right to receive copies of Tyco’s submissions or its right to amend its own submissions
in response to Tyco’s submissions. The
ex parte presentation of Tyco’s evidence in this arbitration further supports
our conclusion that the decision was procured in an unfair manner constituting “other
undue means” as that term is used in the statute.
We further conclude that vacation of
the arbitration award should be affirmed under Minn. Stat. § 572.19, subd. 1(4),
on the alternative ground that the hearing in this matter was conducted
contrary to the due process requirements in Minn. Stat. § 572.12 and
substantially prejudiced Cincinnati’s
rights under that section. Whether
challenged conduct constitutes prejudicial misconduct is reviewed de novo. Aaron
v. Ill. Farmers Ins. Group, 590 N.W.2d
667, 669 (Minn.
App. 1999). Cincinnati argued in the district court that
the manner in which this decision was procured violated its rights to due
process, which is the substance of Minn. Stat. § 572.12.
Minn. Stat. § 572.12 requires that unless
otherwise provided by the arbitration agreement, the arbitrators must have
notification of the arbitration hearing served on the parties “personally or by
certified mail not less than five days before the hearing.” Minn.
Stat. § 572.12(a). And the parties have
the right to be heard, to present evidence, and to cross-examine witnesses at
the hearing. As discussed above, the purported
waiver of these rights was not “provided by the agreement” because (1) AF
ignored the requirement of a completed P-Form and (2) Tyco ignored the
requirement that it provide its arbitration documents to Cincinnati and that its failure to do so would
waive its own appearance at the hearing.
Affirmed.