Filed January 6, 1998.
Appeal from the District Court, Hennepin County, File No. CT-97-3238.
Karl L. Cambronne, Jeffrey D. Bores, Becky L. Erickson, Chestnut Brooks, P.A., (for appellant)
David D. Meyer, Steven J. Quam, Fredrikson Byron, P.A., (for respondent)
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1996)
Appellant Berkshire Multimedia, Inc. challenges the district court's order denying its motion to confirm a favorable arbitration award, arguing the district court erred in holding the arbitrators exceeded their authority. We reverse and remand to the district court for an order confirming the award.
In September 1994, Berkshire Multimedia, Inc. (Berkshire) and respondent IVI Publishing, Inc. (IVI) entered an agreement under which IVI was required to spend $500,000 marketing Berkshire's CD-ROM game. The agreement also contained a provision mandating arbitration of disputes.
IVI expended only $211,000 marketing Berkshire's game and the game failed in the marketplace. Berkshire sought damages and the dispute was submitted to a panel of arbitrators. After a three-day hearing, the arbitrators awarded Berkshire damages of $289,000.
When IVI failed to voluntarily pay the award, Berkshire filed a motion in the district court to confirm the award. The district court denied Berkshire's motion, holding the arbitration panel exceeded its authority by awarding Berkshire consequential damages in contravention of a provision in the parties' agreement prohibiting consequential damages. Berkshire appeals.
This court reviews de novo a district court's order denying confirmation of an arbitration award. See Independent Sch. Dist. No. 279 v. Winkelman Bldg. Corp. , 530 N.W.2d 583, 586 (Minn.App. 1995), review denied (Minn. July 20, 1995) (reviewing de novo district court's order vacating an arbitration award).
Pursuant to Minn. Stat. § 572.19, subd. 1(3) (1996), a district court may vacate an arbitration award if the arbitrators "exceeded their powers." Id. Because the law favors arbitration as a means of dispute resolution, however, a court may take this action only when it is clearly established that the arbitrators exceeded their authority. City of Minneapolis v. Police Officers' Fed'n , 566 N.W.2d 83, 84 (Minn.App. 1997). In reviewing an arbitration award, a district court must presume that the arbitrators did not exceed their authority. Hilltop Constr., Inc. v. Lou Park Apartments , 324 N.W.2d 236, 239 (Minn. 1982). The court is bound by the arbitrators' factfindings and interpretations of the law and may not reverse an award because it disagrees with the arbitrators' decision. State Office of State Auditor v. Minnesota Ass'n of Prof'l Employees , 504 N.W.2d 751, 754 (Minn. 1993).
In determining whether an arbitration panel exceeded its authority, the court considers only whether an award draws its "essence" from the parties' agreement. City of Minneapolis , 566 N.W.2d at 87. If an award is rationally derived from an agreement, it should be upheld. Id.
The district court determined that the arbitrators' award to Berkshire was for consequential damages. Because the parties' agreement prohibited consequential damages, the court concluded the arbitrators' award failed to comply with the terms of the agreement. The court further concluded that, even if consequential damages were permitted under the agreement, the arbitrators' award was improper because it did not represent the damages Berkshire suffered as a direct result of IVI's breach.
IVI argues the arbitrators' award constituted punitive damages. IVI asserts this argument for the first time on appeal and, therefore, we do not address it. See Thiele v. Stich , 425 N.W.2d 580, 582 (Minn. 1988) (reviewing court generally shall not consider issues not presented to and considered by district court).
The arbitrators did not prepare factfindings or an explanation of their award. The award did not indicate that the damages awarded were consequential. The district court's conclusions, therefore, were based on speculation. IVI agrees that its breach provided a basis for some damages other than consequential damages. The agreement does not prohibit the award of other damages. Further, the arbitration panel apparently considered the proscription against consequential damages. The record shows the panel entertained IVI's motion in limine to limit testimony about damages. Because Berkshire suffered damages and damages were recoverable under the agreement, the arbitrators' award draws its essence from the parties' agreement. IVI failed to clearly establish that the arbitrators exceeded their authority in fashioning a remedy for IVI's breach of the agreement. Because IVI failed to meet its burden of clear proof sufficient to overcome the strong presumption in favor of arbitration awards, the district court erred in denying Berkshire's motion to confirm the award.
The agreement between Berkshire and IVI did not require the arbitrators to justify an award. Neither Berkshire nor IVI requested written findings at the time of the arbitration hearing. Moreover, the arbitrators' award complied with statutory requirements. See Minn. Stat. § 572.15 (1996) (arbitration award must be in writing and signed by a majority of the arbitration panel members); see also Minn.R.Gen.Pract. 114(d)(3) ("[n]o findings of fact, conclusions of law, or opinions supporting an arbitrator's decision are required").
Berkshire argues the district court abused its discretion in denying Berkshire's motion for an order requiring the arbitrators to explain the award. See Hilltop Constr. , 324 N.W.2d at 240 (district court may order arbitrators to explain an award and the court's denial of a party's application for such an order is reviewed under abuse of discretion standard). We disagree. The district court denied Berkshire's motion to confirm the award on the ground that the award was improper regardless of any proffered justification.
After the district court denied Berkshire's motion to confirm the award, Berkshire requested the arbitrators to provide an explanation of the award. In response, the arbitration panel prepared a letter declining to provide any written justification for the award. Berkshire included this letter in the appendix to its brief. IVI moved to strike the letter because it was not part of the record before the district court. In light of our decision in this matter, we need not address the motion.