Opinion
No. C0-96-191.
Filed November 12, 1996.
Appeal from the District Court, Hennepin County, File No. 93743.
Jeffrey J. Keyes, Jay W. Schlosser, (for Respondent)
Michael D. Schwartz, David E. Wandling, (for Appellants)
Considered and decided by Kalitowski, Presiding Judge, Lansing, Judge, and Willis, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1996).
UNPUBLISHED OPINION
Appellants Secure Data Systems (Secure Data) and DataCard de Mexico challenge the district court's decision to confirm an arbitration award in favor of respondent DataCard Corporation (DataCard). Appellants contend (1) the district court erred by granting DataCard's motion to compel arbitration and (2) statutory grounds exist for vacating the award. We affirm.
FACTS
In January 1986, Secure Data and DataCard signed a "Distributor Agreement," whereby Secure Data became the exclusive distributor of DataCard products in Mexico. The agreement contained a provision that the parties would arbitrate "[a]ll disputes and differences of any kind arising under th[e] Agreement, including the existence or continued existence of th[e] Agreement." It provided for automatic termination at the end of five years "unless the parties agree in writing prior to such date to renew [the] Agreement." The parties dispute whether they reached a new agreement in 1991.
In May 1992, DataCard expressed "serious concerns" with Secure Data's organization in Mexico and told Secure Data that it would continue its "current relationship" with Secure Data for a probationary period. In January 1993, DataCard stopped selling products to Secure Data and filed a complaint for a declaratory judgment that its action was lawful. In its answer and subsequent amended answers, Secure Data (1) added DataCard de Mexico as an additional counterclaimant, (2) asserted counterclaims, and (3) sought a declaratory judgment that DataCard had improperly terminated the parties' relationship. In their November 1994 amended answer, appellants added two new claims for breach of contract. DataCard immediately moved to compel arbitration of those claims, and the district court granted the motion.
The arbitrator's June 1995 award prohibits appellants from (1) using any DataCard trademarks, (2) using any trademarks incorporating the DataCard name, (3) threatening DataCard with sanctions for using the DataCard name or pursuing such sanctions, or (4) interfering with the import or distribution of DataCard products in Mexico. The arbitrator denied appellants' counterclaims for damages based on breach of contract. In October 1995, the district court denied appellants' motion to vacate the arbitration award and granted DataCard's motion to confirm the award. This appeal followed.
DECISION
The Minnesota Uniform Arbitration Act provides "summary procedures" to compel or prevent arbitration and to review awards. Mely v. State Farm Ins. Co., 530 N.W.2d 216, 217 (Minn.App. 1995).
Every reasonable presumption must be exercised in favor of the finality and validity of the arbitration award, * * * and courts will not overturn an award merely because they disagree with the arbitrator's decision on the merits.
State Auditor v. Minnesota Ass'n of Professional Employees, 504 N.W.2d 751, 754-55 (Minn. 1993).
I. Motion to compel arbitration.
Appellants contend the district court erred by granting DataCard's motion to compel arbitration, arguing that DataCard waived its right to demand arbitration by initiating judicial proceedings and engaging in litigation for nearly two years. We disagree.
A party may waive its right to enforce a contract's arbitration provision "if judicial proceedings based on that contract have been initiated and have not been expeditiously challenged." Brothers Jurewicz v. Atari, Inc., 296 N.W.2d 422, 428 (Minn. 1980). Appellants incorrectly focus on the fact that DataCard continued to pursue judicial proceedings when it was aware of the possibility that appellants might amend their answer to seek money damages. Secure Data's November 1994 counterclaim contained new breach of contract allegations that significantly broadened the scope of the litigation by seeking money damages and revived DataCard's right to demand arbitration. See Envirex, Inc. v. K.H. Schussler Fur Umwelttechnik, 832 F. Supp. 1293, 1296 (E.D.Wis. 1993) (holding that new allegations in an amended complaint revived the right to demand arbitration); Brown v. E.F. Hutton Co., 610 F. Supp. 76, 78 (D.C. Fla. 1985) ("[W]hen a plaintiff files an amended complaint which changes the theory or scope of the case, the Defendant is allowed to plead anew as though it were the original complaint."). DataCard promptly asserted its right to demand arbitration after appellants' counterclaim revived that right.
II. Arbitration award.
Appellants argue that the district court erred by denying their motion to vacate on grounds that the arbitrator showed evident partiality and exceeded his authority. See Minn. Stat. § 572.19, subd. 1(2), (3) (1994) (limiting grounds on which arbitration award may be vacated). "Courts are extremely reluctant to set aside an arbitration award and will do so only under the conditions set forth in Minn. Stat. § 572.19." Minnesota State Patrol Troopers Ass'n v. State, Dep't of Pub. Safety, 437 N.W.2d 670, 674 (Minn.App. 1989), review denied (Minn. May 24, 1989).
A. Evident partiality.
Evident partiality goes to the right of a party to have an arbitration hearing that not only is fair, but also "is free from an appearance of impropriety." Pirsig v. Pleasant Mound Mut. Fire Ins. Co., 512 N.W.2d 342, 343 (Minn.App. 1994). The party challenging the award must establish facts that create a reasonable impression of partiality. Id. Appellate courts review de novo whether the conduct challenged constitutes evident partiality. Id.
Appellants argue that the arbitrator demonstrated evident partiality by manifestly disregarding the law because, appellants claim, the undisputed facts establish that the parties entered into an "International Distribution Agreement" in 1991. Appellants rely on Marshall v. Green Giant Co., 942 F.2d 539 (8th Cir. 1991); however, the court there stated that the term "disregard" implies that the arbitrator knew and ignored a clearly governing legal principle. The record must contain some showing, "' other than the result obtained, that the [arbitrator] knew the law and expressly disregarded it.'" Id. at 550 (emphasis added) (quoting Merrill Lynch, Pierce, Fenner Smith, Inc. v. Bobker, 808 F.2d 930, 933 (2d Cir. 1986)); see also Johnson v. American Family Mut. Ins. Co., 426 N.W.2d 419, 421 (Minn. 1988) (holding that "a court will not even set aside an arbitration award because it thinks the [arbitrator] erred as to the law or facts, as long as the reasoning and judgment are consistent."). Appellants have produced no evidence, other than the result obtained, to establish evident partiality. Thus, we need not determine whether the parties reached a new agreement in 1991.
B. Arbitrator's authority.
Appellants claim the arbitrator exceeded the scope of his authority by (1) determining trademark rights secured independently from the distributor agreement and (2) failing to fashion a definite award. A reviewing court will set aside an arbitration award only when the objecting party establishes that the arbitrator has clearly exceeded the powers granted in the arbitration agreement. Ramsey County v. AFSCME, Council 91, 309 N.W.2d 785, 789-790 (Minn. 1981). A reviewing court determines the scope of the arbitrator's authority de novo. County of Hennepin v. Law Enforcement Labor Servs., 527 N.W.2d 821, 824 (Minn. 1995).
Appellants claim that the trademark rights disputed here do not arise under any distribution agreement between the parties because DataCard de Mexico obtained rights to the DataCard name through an individual in Mexico. In confirming the arbitration award, the district court commented that "it appears as though the Arbitrator went through the 1986 Distributor Agreement, tailored the terms in Articles 3.25, 3.26, 11.4 for the specific parties, and made his award in a procedure strictly adhering to the contract terms." We agree.
In Article 3.25 of the Distributor Agreement, Secure Data agreed to acknowledge DataCard's "exclusive right, title, and interest in and to all patents and trademarks of [DataCard], whether unregistered [or] registered." (Emphasis added). Article 3.26 prohibits Secure Data from using DataCard's "trade names, corporate names or trade styles" without its consent or "upon the expiration or termination of this Agreement for any reason." Finally, Article 11.4 provides:
Upon the expiration or termination of this Agreement for any reason, all the rights of [Secure Data] hereunder shall cease * * *.
[Secure Data] shall not thereafter use any deceptively similar corporate name, trade name or trademark tending to give the impression that any relationship between [DataCard] and [Secure Data] still exists. [Secure Data] agrees that it shall have no right to impede any later imports or sales into the Territory by [DataCard] directly or through another distributor, agent, representative or affiliate, and expressly consents to [DataCard's] obtaining injunctive relief to bar [Secure Data] from any such activities.
Appellants argue that the trademark issues were inappropriate for arbitration because parties necessary to the resolution of those disputes are not parties to the agreement that contains the arbitration provision. Appellants rely on Prestressed Concrete v. Adolfson Peterson, 308 Minn. 20, 240 N.W.2d 551 (1976), where the supreme court held the district court properly refused to compel arbitration of a complex multiparty litigation because arbitration would have jeopardized other favored procedures and policies. Id. at 22-24, 240 N.W.2d at 553. Prestressed is factually distinguishable because, unlike this case, the issues involved in the principal action were not subject to arbitration. Id. Moreover, it is not necessary here to determine any third party's trademark rights to restrict appellants from using DataCard's name.
Appellants contend arbitration is an improper forum because proceedings on the trademark issues are pending in Mexico. This court, however, has stated that the determination whether to assert jurisdiction over a foreign party requires balancing whether considerations of public policy, efficiency, and justice demand retaining jurisdiction or whether exercise of jurisdiction should be withheld based on forum non conveniens. Amatuzio v. Amatuzio, 410 N.W.2d 871, 874 (Minn.App. 1987), review denied (Minn. Oct. 28, 1987). "`But unless the balance is strongly in favor of the defendant, the plaintiff's choice of forum should rarely be disturbed.'" Hague v. Allstate Ins. Co., 289 N.W.2d 43, 46 (Minn. 1978) (quoting Gulf Oil Co. v. Gilbert, 330 U.S. 501, 508 (1947)), aff'd, 449 U.S. 302 (1981). Minnesota is the proper forum for this litigation because the dispute is based on Minnesota law, the arbitrator made no attempt to interpret Mexican trademark law, and respondents submitted no evidence that the judgment may contravene any Mexican public policy.
Appellants also dispute the district court's finding that they "fully litigated the trademark issues during the arbitration proceeding." Appellants contend they objected to the arbitrator's jurisdiction over trademark issues and that DataCard elicited all testimony regarding those issues. Even if that were true, (1) the arbitration provision expressly authorized the arbitrator to determine all disputes of any kind arising under the Distributor Agreement, (2) the Distributor Agreement addressed Secure Data's limited right to trademark use, and (3) there was a dispute regarding trademark use. When the arbitrator rejected appellants' jurisdictional objection, it was then appellants' responsibility to present whatever evidence they wanted before the arbitrator on trademark issues.
Finally, appellants contend the arbitrator exceeded his authority by giving DataCard a "blank check" to fashion its own award. The arbitration award provides:
[Appellants] shall, upon written request of [DataCard] and/or its counsel, immediately sign all documents and do all acts deemed by [DataCard] to be necessary and/or appropriate to confirm [DataCard's] exclusive right, title, and interest in any and all trademarks, service marks and trade names using the designation "Data Card" in the United States and Mexico * * *.
We agree with the district court's determination that the arbitrator provided a logical means to effectuate that part of the award requiring Secure Data to refrain from using DataCard's name. The award parallels Article 11.4 of the distribution agreement, which details the acts Secure Data is required to take upon the termination of the agreement.