*1 independently court has reviewed IT HEREBY This IS ORDERED approves jointly Compensation the file and recom- decision of the Workers’ 11, 2003, be, disposition. Appeals Court of mended filed June is, opinion. and the same affirmed without files, upon all the Based records and Civ.App. See Minn. R. P. 136.01. herein, proceedings BY THE COURT: IT HEREBY IS ORDERED re- Page C. /s/Alan spondent Campbell Debra Dillan is dis- Associate Justice practice from the of law. Respon- barred pay dent shall costs under Rule $900 GILBERT, J., part in took no RLPR. consideration or decision of this case. BY THE COURT: H. Anderson /s/Paul Justice
Associate
ONVOY, INC., Appellant, (C7-02- SHAL, LLC, Respondent DUDER, Relator, John 621), (C7-02-702), Defendant (C7- Clay, al., et Walter S. Defendants BAKERIES, McGLYNN INC. and Gen- 02-621), Respondents (C7-02-702), Company/Safeco, eral Insurance Respondents. Eddy, Respondent Robert K. No. A03-850. (C7-02-702), Supreme Court of Minnesota. Westrum, Respondent Darrel (C7-02-702).
Sept. 2003. C7-02-621, Nos. C7-02-702. Ltd., Bailly, David H. Bailly, David H. MN, Minneapolis, for Relator. Supreme Court of Minnesota. Nelson, Nemo, Joseph Richard C. M. Sept. III, Arthur, Chapman, Kettering, Smetak Pikala, P.A., MN, Minneapolis, & for Re-
spondents.
ORDER files, upon Based all the records herein, proceedings
Joseph Anthony, Randy W. Gullick- G. son, Dressen, Anthony M. Ostlund Janel <& Baer, PA, MN, appellant Minneapolis, Onvoy, Inc. Rogers,
Frank A. B. Taylor, Charles Firestone, LaBoda, E. H. Janel Julie PA, MN, Minneapolis, Briggs and Morgan, *4 SHAL, respondent for LLC. Musilek, Briol, Joseph Mark J. Briol & Associates, MN, PLLC, Minneapolis, for respondents Clay. Dahl J. Mitchell Gran- Roger Magnuson, W. Dorsey Minneapolis, berg, Whitney, & MN, respondent Eddy. for McNeil, Coleman, R. Hull Donald & VanVliet, MN, respondent Minneapolis, for Westrum.
OPINION
MEYER, Justice. corpo- are asked to decide whether clause in ration an arbitration escape juris- and obtain court a contested contract contract by claiming diction an interested-director void as result of or ultra vires transaction. transaction addition, non- whether may compel contract signatories by signato- brought appeals The court of held ries. claims must be arbitrated. We reverse. pri- Appellant (Onvoy) Inc. Onvoy, vately held Minnesota telecommunications as Minnesota company, formerly known Inc., Services, Access Equal Network ser- telephone local Sixty-five MEANS. providers Onvoy 1988 to vice founded providers long better access give SHAL, defendants, Respondent individually-named distance service. The re- (SHAL) here, spondents company is a Minnesota all had close affiliations LLC Onvoy during with both SHAL and comprised telephone of three local service negotiation question. of the lease in Wal- providers, all whom are also sharehold- Clay corpora- ter was a member of both Onvoy. ers of SHAL constructs and main- directors, tions’ boards of and also served fiber-optic tains telecommunication trans- Onvoy’s on Finance and Audit Committee. facilities, port mostly companies for the Robert Eddy corpo- was member of both “segment who own it. is also a directors, rations’ boards of and additional- provider” Onvoy, meaning provides ly on Onvoy’s served Network Committee. segment capacity one of the transmission Darrel an employee Westrum was long needs to transfer distance SHAL, and served on Network providers Onvoy. traffic from local general Committee. Tom Dahl is the 1998, Onvoy planned In 1997 and a new manager telephone of one of the three fiber network with two routes within SHAL, providers service and served on Minnesota, one of which extended from Onvoy’sNetwork Committee. Plymouth Onvoy planned to Moorhead. At the same time that was receiv- if leasing lease the fiber network would *5 routes, ing optic bids on its new fiber cost than constructing, owning, less seeking was also investors in this new operating Onvoy the fiber network itself. September venture. In of in- two segment providers invited to submit bids companies George vestment of Soros com- Onvoy portions for of the lease new 50,000 purchase bined to shares of convert- providers. network from the preferred ible in Onvoy stock $50,000,000. deal, Onvoy As of that
Onvoy’s developed Network Committee Onvoy’s shareholders amended articles of the “cost benchmark” —the estimated cost 1, 1999, incorporation September on giving building owning Plymouth- the Soros shareholders right to elect Moorhead route —the cost below which three Onvoy’s members of board of di- segment providers had to bid to receive a requiring rectors and that at least one of leasing May Onvoy contract. the Soros approve types directors certain requested telephone bids from 50 local ser- actions, corporate including contracting providers. vice Plym- SHAL bid on the with entering affiliates and into or amend- Onvoy’s outh-Moorhead route. board of ing any material contract. approved negotiation directors of a contract with SHAL and executed a ten- Neither Onvoy nor SHAL much offers 25,1999. year with on lease SHAL October information transpired about what be- president The lease is signed tween the execution of the lease in October side, president SHAL on one and the of of 1999 and filing complaint Technologies, working group Network in this in August action of 2001.1 SHAL Onvoy, within the other on side. The lease notes that during Onvoy time used the mandating contained a clause optic fiber paid network and under the rules of the American Arbitra- May accordance with the lease. tion Association and elected Minnesota law Onvoy convened an independent provision. under a choice-of-law committee to look into the lease’s terms under-developed The facts in pleadings. this case are 12 motion to dismiss on the appeal because it to us from a comes on Rule subsequently filed that federal arbitration law does not circumstances and County preempt District law. Hennepin Minnesota The district complaint its lease, court did not discuss whether the individu- seeking reformation Court Onvoy then amended among compel other relief. al defendants could arbitration. of 2001 and complaint in November its appeals The court of reversed. After sought rescission. concluding that federal arbitration law did complaint, Onvoy alleged In its amended law, preempt not Minnesota because lease is several times more the SHAL “Minnesota law arbitra- favors price. Onvoy the market expensive than facts,” court appeals tion on these declaratory judgment that the asked for applied Minnesota contract law. The rescission, subject to lease is unlawful and court decided that must arbitrate relief, injunctive damages in excess of complaint sought its claims because its $50,000, attorney fees incurred. monetary damages and not mere rescis- SHAL, Onvoy alleged first Against sion of the contract. The court did not lease between SHAL and ONVOY is whether individual address defendants transaction, prohibited interested-director compel granted could arbitration. We On- (2002). Second, by Minn.Stat. 302A.255 voy’s for further petition review. Onvoy alleged that the lease is an ultra (one authority), without vires transaction I. did
because the board of directors approve it under the amended articles of This court has de review novo incorporation, required which a vote reviewing when arbitration clauses. See one of the Soros directors. least Inc., Piper Jaffray, 530 N.W.2d Johnson *6 unjustly has been en- alleged also (Minn.1995). Onvoy 795 Whether riched, conspired and with the individual may compelled be to arbitrate its claims defendants to commit tortious conduct. depends large language in measure on the multiple against counts the individual de- and of the arbitration clause other lease fendants, Onvoy that defendants alleged Onvoy. and In ana terms between SHAL Westrum, Clay, Eddy, and Dahl breached clauses, courts should lyzing arbitration loyalty duties of fiduciary duties and/or privately negotiated agreements “enforce Onvoy, misrepresentations made material arbitrate, contracts, in like other accor lease, Onvoy that to enter into the induced dance with their terms.” Volt Sci Info. negligently misrepresented the terms Univ., ences, Inc. v. Leland Jr. Stanford bidding process. of the lease and 468, 478, 1248, 103 489 109 S.Ct. U.S. Johnson, (1989); by court denied motions L.Ed.2d 488 see also
The district
arbi
party opposing
defendants to N.W.2d at 795. The
SHAL and the individual
that
complaint
compel
proving
tration bears the burden of
plaintiffs
dismiss
scope
the
of the
dispute
The district court concluded the
is outside
arbitration.
party bears an
Onvoy
compelled
agreement.
to arbitrate
In addition the
that
was not
law,
party
if that
draft
dispute
citing especially high burden
the
under Minnesota
agreement. See Green
Clearing Corp.,
Ateas v. Credit
292 Minn.
ed the arbitration
(1972),
v. Ran
Corp.-Alabama
because the Tree Financial
The
reads:
making
tween SHAL
itself
“[w]hen
issue,
of a claim
Any
put
Arbitration.
un-
as is the result
Mediation and
inducement,
arising under
this
disputes
fraud
issue is more
resolved
be first submitted to media-
properly
Lease shall
trained in
determined
those
dispute
is resolved af-
tion. Unless
the law.” Id. at
at 457.
N.W.2d
between the liaisons of
ter consultation
legal
The district court used the
frame-
party, a mediator shall be selected
each
work we set out Ateas to conclude
operation
the chief
offi-
by agreement of
Onvoy’s
regarding
claims
the formation of
party.
cers of each
the event that
compelled
the lease would not be
into arbi-
mediation,
dispute cannot be resolved
tration. Ateas instructed courts to com-
that the
parties agree
then the
analysis
compel
mence
of a motion to
to arbitration under
shall be submitted
by looking
language
at the
of the American Arbitration
rules
if it
the arbitration clause at issue to see
Association.
enough
plaintiffs
broad
to cover
added.) Onvoy
ap-
(Emphasis
urges us to
claims;
so,
verify
if
courts
that the
should
Act and
ply the
Arbitration
our
Minnesota
plaintiff seeks total rescission of the con-
that act to determine
interpreting
case law
Minn,
Ateas,
347-48,
tract. See
“arising
language
that the
under”
does not
N.W.2d at 456. The district court deter-
evince an intent to arbitrate claims relat-
language
mined that the
of the arbitration
ing
making
to the
of the contract. SHAL
parties’
did not
clause
evince
intent to
argues
that the
intended to arbi-
arbitrate
regarding
making
of the con-
trate claims about
making of the contract and that
tract, relying
argument
on an
sought complete
properly
rescission of the
“arising
enough
under” is
to encom-
broad
contract. The court therefore concluded
pass Onvoy’sclaims.
that,
Ateas, Onvoy’s
under
“claims are
analysis
Reviewing the district court’s
subject
compelled
under
highlights
this case
the status of Minneso-
Minnesota law.”
ta
The district court
law on arbitration.
The district court then
considered
the Minnesota Arbitration
first considered
impact of federal arbitration case law on
(2002),
Act. Minnesota
572.08
Statutes
*7
its decision. The court concluded that “be-
provision
that “a
in a
declares
written
Supreme
cause the
Court of Minnesota has
any
contract to submit to arbitration
con-
held that
the Minnesota Arbitration Act
troversy
arising
thereafter
between the
preempted by
[is] not
the FAA and that
enforceable,
valid,
parties is
and irrevoca-
the Minnesota Arbitration Act therefore
ble,
upon
grounds
such
as exist at law
save
applies
in
brought
to cases
state courts
any
or in
for the revocation of
con-
equity
involving
agreements,
[Onvoy]
arbitration
1972,
interpreted
tract.” In
we
this act to
compelled
cannot be
to arbitrate the mat-
plaintiff
escape
whether a
could
determine
(relying
ter under the FAA”
on our deci-
clause in his
arbitration
franchise
Advisers,
sion in
v.
Thayer American Fin.
in
agreement by claiming there was fraud
(Minn.1982)).
Inc., 322
599
N.W.2d
Ateas,
the inducement of the contract.
Minn,
Thayer,
acknowledged
we
that federal law
336,
197
at
N.W.2d
450.
Ateas,
diverged
holding
espe-
from our
in
holding
parties
that the
had not intended
cially
severability
in
on the issue of the
to arbitrate the issue of fraud
the in-
ducement,
clauses,2
that the
arbitration
and determined that
and therefore
depth
Discussed in
at 352-53.
more
infra
Volt,
476,
case
arbitration. See
489 U.S. at
by federal
preempted
was not
Ateas
at 603.3
It
that
Thayer,
law.
322 N.W.2d
S.Ct. 1248.
declares
written arbi-
“valid, irrevocable,
tration clauses are
analysis
court’s
is
the district
While
enforceable,
upon
grounds
save
such
as
un
of Minnesota law
application
a correct
equity
at law or in
for the revocation
exist
Thayer,
reasoning
that
now
der Ateas and
(1999).
§ 2
any
contract.” 9 U.S.C.
preempted by federal
conflicts with and is
Any
respect
doubt with
to the intent of the
in
Thayer,
our decision
law. Since
parties regarding
scope
of arbitration
Congress
has decided that
Supreme Court
be resolved in favor of arbitration.
should
full
to use its
commerce
intended
Volt,
476,109
489 U.S. at
S.Ct. 1248.
FAA,
applies
to all
so that
drafting
involve or affect inter
transactions
whether,
question
The
under
Terminix
commerce. Allied-Bruce
state
law, agreeing
federal
to arbitrate claims
Dobson,
265, 271-72, 115
513 U.S.
Cos.
“arising
encompasses
under” the contract
(1995).
834,
The'
130 L.Ed.2d
S.Ct.
claims
the lease is void as an interest
FAA
explained
ap
further that the
Court
transaction or as an ultra vires
ed-director
involve
plies to transactions
fact
commerce,
Supreme
The
held that
whether or not
transaction.
Court
interstate
impact.
clause,
anticipated an interstate
in an
language
similar
It
now clear that Minne
Id. at 273-74.4
“any controversy or claim
shall arise
[that]
apply the FAA to trans
sota courts must
agreement,
enough
out of this
was broad
actions that affect interstate commerce.
compel
plaintiffs
arbitration of the
representations.”
claims of fraudulent
See
respondents
Because
do not dis
Co.,
506,
Scherk v. Alberto-Culver
417 U.S.
fiber-optic
lease
pute that the
transmission
519-20,
94 S.Ct.
L.Ed.2d 270
involves interstate commerce within
(1974).
recently
The Third Circuit
re
Terminix,
the arbitration
meaning
interpreting
federal case law
arbi
viewed
clause
the lease between SHAL
containing
tration clauses
the term “aris
analyzed
be
under federal law
must
ing
substantially
under” or
similar terms
and, therefore, the district court and court
majority
and concluded that the
of circuits
analyzing
this case
appeals
erred
interpreted
have
those terms to include
under Ateas. We overrule Ateas to the
regarding contract formation. Bat
holding
extent it conflicts with the
Al
McKendry,
F.3d
725-27
taglia
Dobson,
Terminix v.
lied-Bruce
513 U.S.
(3d Cir.2000) (noting
phrases
that “when
115 S.Ct.
the formation ments”). House, Inc., Domke 12.05 at generally See tion. See E.E.O.C. v. Waffle (noting 14 that an to arbitrate 279, 293, 754, 122 534 U.S. S.Ct. 151 controversy arising or out of “[a]ny claim (2002) that (noting “[FAA] L.Ed.2d 755 para- is the relating agreement” or to th[e] require parties does not to arbitrate when clause). Apply- broad arbitration digmatic so”); they agreed Peggy have not to do cases, forth in these reasoning set ing Eppich, Rose Revocable Trust v. language “arising that we conclude 601, (Minn.2002) (clarifying N.W.2d in the arbitration clause at issue under” “parties may any to agree arbitrate encompass to appears enough broad some type dispute”); generally see Domke contract formation.5 regarding issues (“Parties may agree 12.05 at 13 to sub- concluding that the arbitration clause nearly any controversy mit to arbitration prescribes question is broad and arbi- normally that could be dealt with ordi- claims, we do not mean to tration of most nary proceedings.”). court all future indicate that we will find arbitra- Onvoy urges rely us to on the decisions enough encompass tion broad all clauses appeals certain federal circuit courts of limit our determination to the claims.6 We that have held that some claims about the particular facts of this case and the arbi- very existence of the contract must be at issue. Parties who tration clause want court, despite scope heard a of the jurisdiction retain over mat- the courts to agreement. argues formation, any contract other ters of case, Supreme Prima Paint Court particular may issues foresee arise Conklin, Flood & U.S. S.Ct. relationship, expressly the business must 1801, 18 (1967), dispositive L.Ed.2d 1270 drafting state such an intent when and mandates that arbitrate its in the contract. Pre- arbitration clause claims. par- a clear sented with statement intent, Supreme will Prima Paint Court de- plain ties’ courts honor the document and either that in language plaintiff retain clared order for a to es- (2002) ("[ijnstead Onvoy argues provi Legis. 5. that the inclusion of on 283-84 choosing govern Minnesota law to sion providing disputants options with * * * document shows an intent of the to be resolution, converting the courts are governed by progeny Ateas and its instead of powerful arbitration into a tool for the disagree. We Courts do not inter the FAA. authority powerful”). exert over the less pret language preclude applica contract sympathetic to this criticism. While arbi- parties' tion of the FAA unless the intent is benefits, many tration retains and we contin- Computer "abundantly Mgmt. clear.” UHC Co. v. arbitration, support policy favoring ue to (8th rp., Co Cir. Scis. system all have 1998); see also Mastrobuono v. Shearson Leh comparative advantages system over the court Hutton, Inc., 52, 64, man 514 U.S. 115 S.Ct. originally that were envisioned arbitra- (1995) (holding L.Ed.2d 76 that a promoters. Developments tion’s See —The provision opting choice-of-law for New York Litigation, Paths Civil 113 Harv. L.Rev. law was not sufficient to annul an arbitrator’s adopt 1852-55 The rule we prohibited that was under New award York today, allowing jurisdiction courts to retain law). void, over credible claims that a contract policy favoring the broad federal Critics of escape leaves room for consumers obvious mandatory See, arbitra- arbitration contend contracting. e.g., abuses of *9 depriv- tion clauses in consumer contracts are (2002) (allowing Minn.Stat. 336.2-302 ing people right of their to be heard in court. courts to refuse to enforce an unconscionable See, e.g., Feingold, Mandatory Sen. Russell D. contract). Due?, Arbitration: What Process is 39 Harv. J.
353
claim,
Onvoy
alleged
his or her
Because
has not
cape
any
arbitration of
problem particular
making
to the
allege
problem
with the
plaintiff must
case,
itself,
simple
arbitration clause
this
clause
not
making of the arbitration
application of Prima
403,
Paint would send
as a whole.
Id. at
87
the contract
However,
Onvoy to arbitration.8
some
The Court reached that result
S.Ct. 1801.
federal circuit courts have carved out an
clauses are severable
because arbitration
exception to the Prima Paint
rule that
from the remainder of the contract under
allows a court
challenges
to hear
that are
Paint,
at 403-
the FAA.7 Prim a
388 U.S.
not directed at the arbitration clause itself.
Paint,
04,
In Prima
354
cepted ju rule that have that the ultra vires a similar courts lease is because it was approved party by majority not a very Onvoy one risdiction when denies See, board of directors and one e.g., contract. Soros director existence of the Chas required as Co., by the amended Robinson-Humphrey F.2d articles tain v. 957 incorporation. (11th Cir.1992); Because en- I.S. v. lease was Joseph 851 Co. Co., authority, tered 396, Onvoy into without claims 803 Sugar F.2d Michigan (8th that its is Cir.1986). lease with SHAL void. SHAL findWe the distinction posits any defect such would not void Circuit in by the Second Sandvik made lease, and the arbitration clause would adopt the persuasive exception to the still be court valid. The district found that therein; doctrine enunciated Prima Paint Onvoy legally had set forth a sufficient compelled parties may not be to arbitrate claim relief under Minn.Stat. alleged if have that the con 302A.165, § and therefore denied SHAL’s legally tract never issue existed. motion to dismiss the claim. The court Therefore, allegations a contract appeals did not reach this issue. court, a if void be heard even to the specifically directed governs Minnesota Statutes 302A.165 clause, allegations while a contract is ultra The statute presumes vires acts. voidable must be sent arbitration. valid; an contracts are lawful otherwise contract invalid because corpo- “is not * * * II. ration was without the law, perform this rule of must Applying we contract.” Minn.Stat. However, claims about the consider whether 302A.165. statute delin- Onvo/s lease eates in which formation of the render the lease three situations a contract void, opposed merely transaction can be declared invalid rendering as court makes because it was entered into two claims as to without voidable. applicable for authority.10 void Most this case how the lease is under Minnesota (b) statute, which was allows law—it claims the lease an illicit ultra corporation action bring “against vires and that it transaction was an illicit incumbent or former officers or directors transaction. In deter interested-director exceeding of the corporation for or other- a valid to arbi mining whether violating authority” wise their in a state exists, trate look to applicable courts state court and have the contract inval- declared law, long ap as as the state law invoked id. plies generally to contracts and is not specifically. aimed at arbitration clauses Kirkland, Bell v. 102 Minn. Associates, Casarotto, Inc.
Doctor’s (1907), N.W. out types set two 681, 685, U.S. 116 S.Ct. 134 L.Ed.2d ultra type, vires contracts. The first (1996); Group, Inc. Triplefine Shaw violation, more serious describes “a con- Cir.2003). 115, 120 (2d Int’l Corp., tract which is not within the scope of the powers corporation any of a to make under A Acts Ultra Vires circumstances, any purposes.” or for Id. consider whether ul The type second refers to within contracts claim, successful, tra if corporation’s power, vires render but would with “some irregularity lease void or voidable. asserts or defect in the actual exercise al., keeps statute Cyclopedia Minnesota's with the trend Fletcher the Law Private (Perm.Ed., Corporations among §§ states to abolish or limit the vires ultra rev. Fletcher, vol.1999). 7 William doctrine. See A Meade et *11 multiple decisions that unnec- 219,113 at 273. mittee made N.W. Id. at power.” the benchmark, up the essarily ratcheted cost type the first ultra vires of that are Acts making likely it more that SHAL could type void, those of the second while that this win the bid. 219, 113 Id. at automatically void. are not self-dealing, which is void un- amounts to put A distinction at 274. similar N.W. an “interested di- Minnesota law as der treatise, describing in Fletcher’s forward maintains that a rector” contract. SHAL as those outside ultra vires contracts true involving interested directors transaction the cor- powers of express implied or the The dis- makes a lease at most voidable. charter, statutes, or fixed in its poration court, motion to analyzing SHAL’s trict that law, distinguishing acts common dismiss, “adequately found that had interest of the performed have been upon based [pled] a claim for rescission authority of “beyond the corporation but The interested director transaction.” Corpora- Cyc. Fletcher management.” 7A not reach this issue. appeals court of did §§ 3402. tions directors sullied A claim that interested ap case present The facts governed by statute a transaction ultra vires type of the second proximate Minnesota Statutes Minnesota. closely than the in Bell more act described (2002) presumes a transaction § 302A.255 first, Onvoy’s ultra vires that suggesting voidable,” approved if or even is “not void un the lease void would not render claim officers, directors, legal representa- or Onvoy had au § 302A.165. der Minn.Stat. financial interest” as with a “material tives type and of this to enter into leases thority validity party asserting as the long so; simply a Onvoy alleges did regularly of four safe satisfy can one the transaction corporate of its in the exercise “defect” (in this The defendant provisions. harbor by a approve the lease failing individually-named de- case SHAL and Onvoy board of directors majority of the fendants) proving has the burden it was Because one Soros director. 18 John H. validity of the transaction. See corpora authority of the not outside Garon, Minnesota Philip & S. Matheson the lease and Minn.Stat. to enter into tion Practice, Law and Practice Corporation valid, contracts are presumes § 302A.165 must The defendant 3.32 at 93 Onvoy’s claim that we conclude (1) that the transaction was either show vires, proven, if would is ultra even lease corporation to the reasonable fair and void, lease to declare the not be sufficient (2) that material approved; it was the time must be arbitrated.11 and therefore and the directors’ facts about the contract and the con- fully were disclosed interest Interested-Director Transaction B. by at good faith approved tract was corpo- the lease is void and Onvoy also asserts the disinterested two-thirds of least (3) shareholders; indi- material facts subject because the to arbitration rate con- and the directors’ negotiated the contract vidually-named defendants about by a board or committee being flicts were known Onvoy while either on behalf of lease transaction without authorized the employees of SHAL. who members or board (4) directors; that the of interested vote Network Corn- Onvoy alleges Ping War Tai Ins. Co. 14. See also M/V presents both arbitrable “Where a case schau, Cir.1984) (5th issues, subject nonarbitrable issues effort” (holding “duplication that neither an arbitra be tried before should enough "intertwining doctrine” was tor, nonar- nor leaving to determine the the court court). Domke, keep issue in supra, an arbitrable 12.05 at matters.” bitrable distribution, rule, merger, contract is a or ex- tions to the however. Federal cases *12 § principles 302A.255. have set out at least three on change. See Minn.Stat. On- which a voy complaint nonsignatory in its that none of to contract can alleges provisions apply compel equitable estoppel, harbor arbitration: the statute’s safe agency, third-party beneficiary. to the facts of this case. MS Franklin, Dealer Serv. 111 F.3d Corp. § Minnesota Statutes 302A.255 (11th Cir.1999).12 942, Equitable es- open possibility leaves the that a transac toppel prevents signatory from relying may partic tion be void as a result of the on the underlying contract to make his or ipation of an interested director. Because her claim against nonsignatory. the See Onvoy that interested directors im alleges id.; Domke, § supra, Principles 10.07. lease, properly negotiated the the burden agency “prevent work to circumvention individually-named shifts to SHAL agreements arbitration but also to effectu- defendants to establish the existence of signatory parties ate the intent of the to stage one of safe harbors. At this protect acting individuals on of the behalf proceedings, SHAL and the individual principal in agreement.” furtherance of the ly-named op have not had defendants Domke, § supra, Finally, 10.02. nonsigna- portunity develop to a record on this issue third-party tories who are beneficiaries and, therefore, ripe it is for decision. may an enforce arbitration clause if the Therefore, we remand to the district court “contracting parties intended the third to determine whether this lease is the party directly to benefit from the con- product of an interested-director transac Domke, § tract.” supra, 10.08. The indi- tion sufficient to void the lease under vidual defendants claim equitably is If the Minn.Stat. 302A.255. district court estopped seeking jurisdiction from court determines the lease is void under our and that agents defendants are statute, corporate Onvoy’s law interested- SHAL. director claim be heard the district court instead of an arbitrator. If the dis note the individual defen trict only appear employees court determines the lease is dants to be or agents of voidable, SHAL, Dahl, Onvoy’s exception claims must be com with the of Tom pelled pursuant to arbitration whose to the Pri- status is unclear from the record. Drake, ma For ruling. Sphere agents Paint See those defendants who are SHAL, ability compel their F.3d at 32. to arbitration
of their
ability
claims is linked to SHAL’s
III.
compel
to
arbitration —if
can com
pel
it,
The final issue we must decide
Onvoy’s
is
arbitration of
claims against
whether the four individual defendants are
compel
individuals can also
to
provi
entitled
enforce the arbitration
against
agents
them as
SHAL,
sion of the lease between
because to do otherwise would
Generally,
SHAL.
arbitration clauses are
be to subvert
intent
signatories.
by per
Dealer,
947;
contractual
cannot be enforced
See MS
177 F.3d at
see also
parties
Pierce,
sons who are not
to the contract.
Lynch,
Pritzker Merrill
Fenner
Domke,
Smith, Inc.,
(3d
supra,
excep-
10.00. There are
&
1 F.3d
Cir.
(1976)
previously
12. Minnesota courts have not
(deciding
parties
had
552-53
that two
suit,
precise question.
multiparty
agents
occasion to address this
See
who were not
but
Concrete,
separate corporations,
Prestressed
Inc. v.
& Peter-
could not be com-
Adolfson
son, Inc.,
22-23,
claims).
pelled
308 Minn.
240 N.W.2d
to arbitrate their
majority correctly
1993);
points
The
out that
Corp.,
v. Arnold
Arnold
Letizia,
(6th Cir.1990);
favors
Individuals
v. Pru-
the law
arbitration.
have
contract,
Secs., Inc.,
right
F.2d
which includes the
dential Bache
Cir.1986).
(9th
right
agree
disputes.
have
to arbitrate them
Because we
1187-88
parties freely agree
two
court for further When
arbitra-
remanded to the district
and that
made clear
ability
compel
arbi-
tion
inquiry into SHAL’s
clause,
tration,
language
the issue of
we must also remand
However,
subject
to the terms of that
signatories.
the individual
*13
agency theory
agreement
the
and
have waived their
clarifying that
worth
right
by
individu-
to have their
decided
a
to claims that the
cannot extend
agree-
have been clear that an
Onvoy;
only jury.
them duties to
als breached
SHAL,
right
by
a
to trial
agents ment to arbitrate waives
applies to their actions as
“
jury
right
jury
If
court deter-
because
‘loss of
to
principal.
the district
arbitration,
fairly
necessary
and trial is a
obvious con-
compel
mines
can
”
sequence
are not
of an
to arbitrate.’
the individual defendants
some of
Inc.,
SHAL,
Dispatch,
shall
v. Data
452
the district court
agents of
Aufderhar
(Minn.1990)
648,
(quoting
individuals
653
ability
on the
of those
N.W.2d
also rule
Dean, Witter,
Inc.,
estoppel
compel
Reynolds,
to
Pierson v.
rely
equitable
on
to
(7th Cir.1984)).
defendants
339
More-
If the individual
arbitration.
over,
acknowledge
entitled to
I
that we have made it
agents
of SHAL nor
neither
estoppel
only
that arbitration
favored
principle
equitable
to clear
as
use the
claim,
particular
resolving disputes,
a
a method of
but that
compel arbitration of
court.
arbitration clauses should be construed to
that claim must remain
district
favor arbitration. We have said:
and remand to the district
We reverse
evaluating
parties
whether
proceedings
further
in accor-
court for
* * * dispute,
agreed to arbitrate
we
[a]
opinion.
dance with this
any
remain aware that we should resolve
scope of
concerning
doubts
arbitra-
HANSON, J.,
part
took no
in the
arbitration,
ble issues
favor of
or decision of this case.
consideration
problem at hand is the
“whether the
(con-
ANDERSON,
H„
language
it-
construction of
contract
PAUL
Justice
waiver, delay,
allegation
self or an
or
curring).
arbitrability.”
a like defense to
I concur with the result reached
Inc., 530 N.W.2d
Piper Jaffray,
Johnson v.
separately
highlight
to
majority, but write
(Minn.1995)
Moses H.
(quoting
795
potential for
my
regarding
concerns
Hosp. Mercury
Memorial
Constr.
Cone
unequal
when
with
abuse
1, 24-25, 103 S.Ct.
Corp., 460 U.S.
power contract
to arbitrate
bargaining
(1983)).
L.Ed.2d 765
disputes.
their
I am concerned that too
arbitration clauses to
of arbitration clause When we construe
broad
construction
formation,
encompass
of contract
we
applied to issues such as
issues
language when
potential
be mindful of the
of the arbitration clause
need to
the formation
unknowingly
and involuntari-
deprive
right
of their
to a
individuals
some individuals
right to a trial
ly waive their constitutional
by jury
guaranteed
trial
as
the Seventh
I,
4 of Minne-
by jury. Article
Section
to the
Constitu-
Amendment
United States
I,
provides
Constitution
tion and Article
Section of the Minne-
sota
by jury shall remain
right of trial
“[t]he
sota Constitution.
inviolate,
at one
time an
extend to all cases at
sions is
same
and shall
the amount in con-
regard
jury
trial
“open
right
law without
attack” on the
gen-
rights are
troversy.” Constitutional
causing
and a “secret machination”
for-
only when the waiver is
erally waived
right
pre-
that Blackstone
feiture of
voluntary,
intelligent.”
See
“knowing,
“sap
dicted would
and undermine” the
Camacho, 561
N.W.2d
State
right,
“public
and with that our
(Minn.1997) (applying this standard to the
private liberties].”
intent
rights). The
waiver of Miranda
Co.,
Kloss v. Jones &
310 Mont.
“expressed affir-
jury
trial must be
waive
(2002)
1, 12-13
(Nelson, J., concurring
P.3d
“appear by necessary
infer-
matively”
Blackstone,
specially)
(quoting William
unequivocal acts or conduct.”
ence from
on
Laws
England
Commentaries
Aufderhar,
It is true that arbitrators and mediations cannot sever world, occurring daily. all their ties 'with the business since they expected get are not all system Minnesota’s of ADR originated their income from their work deciding prior to statehood. The underpinnings cases, should, but we if anything, be ADR in Minnesota have been with us since scrupulous even more safeguard the territorial laws of the State Minne impartiality of arbitrators than judges, sota were established in 1851. See Rev. since the former have completely free (Territory) Stat. ch. 1. When the first rein to decide the law as well as the legislature of the State of Minnesota con subject appellate facts and are not vened, provisions from territo review. days rial incorporated were in our statutes. Commonwealth Coatings Corp. v. Conti See Minn.Stat. ch. 89 The statute Co., 145, 148-49, nental Cas. 393 U.S. 89 preserved a common right law of arbitra *15 (1968). 337, 21 S.Ct. L.Ed.2d 301 tion. The first arbitration case in the generally I concur with the result Supreme Minnesota only upheld Court not by reached the majority and believe that an agreement, general but also (“ADR”) dispute alternative resolution ly encouraged the settlement of differences plays important in system role our of by Lufkin, arbitration. See Washburne v. However, justice. the Federal Arbitration (1860). 4 Minn. 471-72 implemented Act as significant has some times, importance recent ADR of shortcomings. poignantly, Most it lends grown has only continually and has not too much system to an arbitration by Congress been favored both and the properly impar- does not account for Minnesota legislature for a number of tiality and a lack legal oversight. of years, but the Minnesota courts also must vigilant preserve therefore be to and adopted practice rules of to institutionalize improve system Minnesota’s ADR where See, ADR judiciary. e.g., within the Minn. possible and should not eager be so to 65B.525, (Qualification § Stat. R. 10 of Ar- system defer to the federal clearly unless bitrator); Minn. Along Gen. R. Prac. 114. required under federal law. I also re- development, with this Minnesota has spectfully majority’s dissent from the dis- adopted professional and ethical rules and cussion relating and remand decision standards which arbitrators and media- the individual defendants. tors must conduct their affairs on behalf of adjudication Private is an alternative to Dispute our citizens. The Alternative primary two resolution forums jurisdiction Resolution Board has over dis- in were established our constitutions: cipline complaints relating matters and Const, juries. courts and See U.S. art. approved actions neutrals. Const, Ill, VI, VII; § amends. Minn. I, II, § However, art. art. 1. Any pointed substitute as out in a recent law article, for these constitutional forums must be review arbitrators and mediators relatively employed regular and unaccounta- arbitrators on a in are autonomous basis Gislason, Demysti- Adam Furlan depen- ble. See interstate commerce have become fying Regulation ADR Neutral Minne- industry groups dent on the will Uniformity The Need and Public sota: they for serve their tenure office and for Twenty-First Century ADR Trust in in payment the amount of their salaries or 83 Minn. L.Rev. System, compensation. The Declaration of In- Cf. Furthermore, although 28 U.S.C. (1776) (“[The para. dependence king] (2003)calls for a certification of arbitrators Judges dependent made on his has Will for and the establishment of standards fed- alone, offices, for the of their tenure and arbitrators, there court-appointed ap- eral their payment the amount and sala- lack rules pears to be a of standards or ries.”). The system federal arbitration extra-judi- large portion ongoing particular is very strongly tilted favor of Extra-judicial cial arbitration. arbitra- “repeat high-volume customers.” are now dominant in interstate com- tions major shortcoming A second of both merce, but have been left largely and proceedings federal state arbitration industry groups to devices of various es- requirement relates to the lack of that de- qualification tablish rules selection. according cisions be made to a rule of law. problems inherent therefore Several exist are Arbitrators often told this as system ADR.1 with the current industry training Initially, sessions. First, ability of arbitrators me- agreements were utilized impartial suspect. to be Many diators coequal had who entered into arbitrators mediators have ties arms-length negotiations. Although that they industries from which derive cases. type negotiation may have be- occurred numbers of Large professional arbitrators appellant respondents tween the trained, recruited, have been enlisted and herein, Now, always is not the case. industry or rehired as secu- arbitrators notwithstanding negotiations lack of groups cases rities related whose *16 clauses, concerning our legisla- arbitration deciding. Many now retail customer provided may ture has that a court vacate agreements contain standard arbitration “[b]ut an award the fact that the relief clauses. Most arbitration associations also was such that not or would could not be publish past awards amounts of of a granted by equity court of law or is not Any “approved large their arbitrators.” ground refusing for vacating or confirm award arbitration will be documented and 572.19, the award.” Minn.Stat. subd. industry who groups noted decide 1(5) (2002). The Arbitration Act Federal they are to rehire an going whether arbi- specifies grounds of an for vacation award signifi- have made trator. Arbitrators who (2003), in 9 U.S.C.' but that does not could easily cant awards be excluded from provision. have the same statutory How- any new arbitration on behalf of their ever, developed federal law has case large solely retail establishment because of very high regard to the legal standard prior significant These removal award. that is underpin- grounds vacating an award sim- legal decisions often have no statutory and not facts or ilar to the frame- nings are based on the Minnesota professionalism generally work. The courts will merits the case or the federal Indeed, many professional the arbitrator. not vacate an award is Arbitration?, critique 1. For a detailed on the arbitration Can Public Count on Fair S.F. Chron., system, Reynolds Holding, see Private Oct. Justice: A15. based on an erroneous conclusion of law. cess as its use increases. If the arbitra- Skurnick, See Ainsworth 960 F.2d process tion going to continue to be a (11th Cir.1992). 940-41 Some circuits will system justice, valid of our Con- not vacate an arbitration award absent a gress legislatures and our have to be See, e.g., disregard “manifest the law.” aware of significant shortcomings that Cos., Piper Jaffray Kiernan v. developed system. have within the The (8th Cir.1998).2 588, 594 long-term viability of process the ADR fully dependent upon the trust and confi- increasing With the use of arbitration dence of our citizens. major times of we have to reevaluate whether or not the government budget shortfalls on the feder- arbitrators should be bound to follow the al and state level and in the interest of initially law. We excused arbitrators from continuing to divert a large portion of our following the law because arbitrators disputes civil process, into ADR we must law, necessarily be learned and professionalize work to process, estab- they powers parties derive their from the lish definite standards ethical behavior and not from the law of the land. See reincorporate importance and Park Constr. v. Ind. Sch. Dist. No. rule of law in decision-making process. 182, 186, Minn. 296 N.W. Now that the officially courts are advocat Finally, I disagree majority’s with the ing the use of and mediation discussion relating to the four individual cases, court people more and more defendants and whether or not involuntarily seem to be thrust into the personally entitled to invoke arbitration process, provision ADR that arbitrators provisions of the lease between ability follow the law to the best of their majority SHAL. The in asserting is correct would help jury be order. With the generally arbitration clauses are con- instructions, juries we trust our to follow tractual and by persons cannot be enforced expect the law. can and should no less who are not to the contract. To from arbitrators who function as both case, enforce the arbitration clause in our judge jury with the equivalent the majority cites several federal circuit finality nonappealable of a judgment, court relating equitable estop- decisions which is set aside only courts pel, agency third-party beneficiaries. rarest of occasions. so, doing majority constructs a line *17 reasoning effectively mind, nullifies the With these reservations in I con- constitutional jurisdictional rights by cur with of citizens restrict- result reached majority However, ing adjudicate their access to our this case. courts to system ADR placed upon does need some immediate claims. This restriction is improve attention an effort to pro- despite these citizens fact that they Recently, 2. away the Ninth Circuit moved tration clause also violated state consumer judicial strengthen from the trend to arbitra- protection required law because consumers AT&T, agreements. Ting tion pay they costs excess of those (9th Cir.2003). Ting, the court found pay brought would have to if had their unconscionable an AT&T arbitration clause Additionally, claims in court. Id. at 1151. mailing. that was included within a mass Id. provision required proceedings to be con- provision at 1148-49. It held that a unreasonably fidential was found to favor AT&T’sarbitration clause that banned class- AT&T, provided advantage as it an undue action lawsuits violated California uncon- towards future arbitrations. Id. at 1152. scionability law. Id. at 1150. AT&T's arbi- signed into negotiated directly
never Marriage Patricia In re the requirement. the arbitration ROONEY, Petitioner, L. princi- for individual very common It is Respondent, personally guar- upon to pals to be called companies which agreements antee Similarly, personal ar- involved. they are ROONEY, Respondent, T. Michael principals, di- provisions for
bitration rectors, could also be agents officers company’s arbitration within the
included Faith, third- Household of Christ’s drafting agreements. Respondent, Appellant, party parties, sophisticated agreements between incorporate simple to quite it would be princi- the individual provisions requiring agree also to pals with the entities involved Ramsey County, Intervenor, type of issue This
to abide arbitration. Respondent. negoti- subject discussion and should be No. A03-53. agreements are be- when arbitration ation ing drafted. Appeals Court of of Minnesota. employees who Similarly, individual Sept. should companies one or both agents be by clearly compelled to arbitrate only be rather than court
negotiated agreements court should therefore en- opinions. The terms of the arbitration specific force effectively amend- rather than agreement nonparties. to include ing so, likely will these issues be By doing private negotiation through addressed It judicial intervention. will rather than being step forced to prevent courts from complex in order to decide into a relating equita- legal factual and issues agency third-party bene- estoppel, ble ficiaries.