Swenson v. Bushman Inv. Props., Ltd.

870 F.Supp.2d 1049

In the matter of Douglas L. SWENSON, Jeremy Swenson, and David Swenson, Petitioners,

v.BUSHMAN INVESTMENT PROPERTIES, LTD., a Utah limited partnership, Holman DBSI Arapahoe, LLC, a Utah limited liability company, John M. Claytor, as co-executor of the Estate of William M. Claytor, Charley A. Simmons, Shirley A. Simmons, Linda Grana, William J. Murphy, and Joseph Klem and Anna Klem 2003 Revocable Trust, Respondents.

Case No. 10–cv–00175–EJL.

United States District Court, D. Idaho.

April 27, 2012.

John Joseph Janis, John W. Kluksdal, Kira Dale Pfisterer, Hepworth, Janis & Kluksdal, Boise, ID, Andrea D. Ostrovsky, Matthew A. Carvalho, Patricia A. Eakes, Yarmuth Wilsdon Calfo PLLC, Seattle, WA, for Petitioners.

Christopher F. Huntley, The Huntley Law Firm PLLC, Boise, ID, Edward Peter Sheu, Minneapolis, MN, for Respondents.

MEMORANDUM DECISION AND ORDER

EDWARD J. LODGE, District Judge.

INTRODUCTION

In January 2012, an arbitrator awarded the respondents in this case approximately $458,000 in damages plus an additional $2.27 million in “potential prospective” damages if certain contingencies occur. The respondents move to confirm the arbitration award (Dkt. 27), and the petitioners move to vacate it. (Dkts. 49, 57). The motions have been fully briefed and the Court has determined oral argument would not assist the decision-making process. The Court will therefore decide the motions without a hearing. For the reasons explained below, the Court will vacate one ambiguous portion of the award and remand that portion to the arbitrator for clarification. The Court will confirm the award in all other respects.

BACKGROUND

The respondents are a group of real estate investors. In the fall of 2008, they purchased fractional interests in a piece of vacant land in Arapahoe County, Colorado from a business known as DBSI E–470 East LLC. At the time, DBSI E–470 was a wholly owned and managed subsidiary of DBSI, Inc. DBSI, Inc., in turn, was a real estate investment company based in Boise, Idaho. Petitioner Douglas Swenson is the former president, CEO, and majority owner of DBSI, Inc. His sons, petitioners Jeremy and David Swenson, were employees of a DBSI affiliate called DBSI Realty.

The investors originally sued DBSI E–470 and the Swensons in March 2009 in federal district court in Colorado. The claims against DBSI E–470 were stayed because that entity had filed bankruptcy in November 2008. The Colorado district court concluded it lacked jurisdiction to compel arbitration in Idaho, but ordered the Swensons to commence an action in Idaho seeking to compel arbitration. This action ensued.

In July 2010, this Court ordered the parties to commence binding arbitration. See Dkt. 19. The arbitrator conducted an evidentiary hearing from June 27 through July 1, 2011 and issued an interim award in September 2011, finding all three Swensons liable for breach of contract, and finding Douglas Swenson liable for fraud. In December 2011, the arbitrator issued his final damages award, and then modified that award in January 2012.

ANALYSIS

Before reaching the merits of the pending motions, the Court must resolve two threshold arguments. First, the investors argue that the Swensons' motions to vacate were not timely filed. Second, the investors argue that the arbitrator's award is not subject to judicial review because the parties expressly waived that right in their arbitration agreement.

The Court easily rejects the first argument—the motions to vacate were timely filed. The Court also rejects the second argument, though this presents a closer question. As explained below, although the parties waived all rights to appeal, they did not waive the right to have this Court conduct a limited judicial review of the arbitration award under the Federal Arbitration Act.

A. Timeliness of Motion to Vacate

The deadline for moving to vacate an arbitration award is three months after the arbitrator issues the award. 9 U.S.C. § 12. The investors argue that the clock started ticking in September 2011, when the arbitrator issued his interim award—meaning that the three-month period would have expired in December 2011, well before the Swensons filed their February 2012 motions. The Swensons argue that the three-month period did not begin to run until January 2012, when the arbitrator modified his December 2011 final award. The interim award related to liability; the final award dealt with damages.

Ninth Circuit law is clear on this point. An interim award “may be deemed final for functus officio purposes if the award states it is final, and if the arbitrator intended the award to be final.” Bosack v. Soward, 586 F.3d 1096, 1103 (9th Cir.2009). Here, the interim award does not state it is final and there is no indication that the arbitrator intended it to be final. Rather, at the conclusion of the hearing, the arbitrator stated that he was keeping the hearing open until “we deal with interim award issues, attorneys' fees, interests, those types of things.” Arbitration Hearing Transcript, Ex. C. to Ostrovsky Dec., Dkt. 48–1, at 1336:13–23; see also id. at 43:3–7; 1333:19–22. Additionally, there is no evidence that the parties believed the interim award was final. The Swensons' motions to vacate were therefore timely filed.

The investors' citation to various non-binding authorities does not change this conclusion. Relying on these authorities, the investors argue that if arbitration proceedings are bifurcated into liability and damages phases, an interim award adjudicating liability is final. See Reply, Dkt. 45, at 7 (citing, among other cases, Nationwide Mut. Ins. Co. v. First State Ins. Co., 213 F.Supp.2d 10, 16–17 (D.Mass.2002)). But these cases recognized that the arbitrator and the parties must understand that the ruling on liability was a final award. See, e.g., id. (citing Providence Journal Co. v. Providence Newspaper Guild, 271 F.3d 16 (1st Cir.2001)); McGregor Van De Moere, Inc. v. Paychex, Inc., 927 F.Supp. 616, 618 (W.D.N.Y.1996) (“nothing in the record that even remotely suggests that the parties and the panel itself believed that the panel's decision on liability would be anything less than final.”). Again, there is no indication in this case that the parties and the arbitrator understood the interim award to be the final award.

B. Court Authority to Review the Arbitration Award

The arbitration award is also subject to limited judicial review under the Federal Arbitration Act, despite the parties' agreement that the arbitration award would be “final and binding” and their more specific waiver of appellate rights. The arbitration clause reads as follows:

7.18 Arbitration of Disputes.

7.18.1 All Claims Subject to Arbitration. Any dispute, controversy or other claim arising under, out of or relating to this Agreement or any of the transactions, contemplated hereby, or any amendment thereof, or the breach or interpretation hereof or thereof, shall be determined and settled by binding arbitration in Boise, Idaho in accordance with Idaho law, and the rules and procedures of the American Arbitration Association. The substantially prevailing party shall be entitled to an award of its reasonable costs and expenses, including but not limited to attorney's fees and costs. Any award rendered therein shall be final and binding on each and all of the parties thereto and their personal representatives, and judgment may be entered thereon in any court of competent jurisdiction.

7.18.2 Waiver of Legal Rights. By initialing in the space below, the parties acknowledge and agree to have any dispute arising out of the matters included in this Section 7 decided by neutral arbitration as provided under Idaho law and that they are waiving any rights that may possess to have the dispute litigated in a court or by jury trial. The parties further acknowledge and agree that they are waiving their judicial rights to discovery and appeals except to the extent such rights are specifically included in this section. If either part refuses to submit to arbitration after execution of this Agreement and initialing below, such party may be compelled to arbitrate under the authority of Idaho law. Each party's agreement to this section is voluntary. The parties have read and understand the foregoing and agree to submit disputes arising out of the matters included in this section to neutral arbitration.

Purchase Agreement, Dkt. 52–4 (emphasis added).

The effect of this clause is not entirely clear. The Ninth Circuit has not squarely addressed whether a clause such as this eliminates judicial review under § 10(a) of the Federal Arbitration Act. It has twice indicated—albeit in dicta—that parties to an arbitration agreement can waive judicial review of the arbitrator's decision if they clearly state their intent to do so. In Kyocera Corp. v. Prudential–Bache Trade Services, Inc., 341 F.3d 987, 1000 (9th Cir.2003) (en banc), an en banc panel of the Ninth Circuit held that parties could not expand federal review of an arbitration award beyond what 9 U.S.C. § 10(a) provides. But in reaching that decision, the court stated that “the decision to contract for a narrower standard of review than the courts generally apply in the absence of a statutory command is a decision that may be less troublesome than the attempt to contract for a broader standard of review than that authorized by Congress, although we need not resolve that question here.” Id. at 998 n. 16.

In an earlier decision, Aerojet–General Corp. v. American Arbitration Association, 478 F.2d 248, 251 (9th Cir.1973), the Ninth Circuit observed that “[w]hile it has been held that parties to an arbitration can agree to eliminate all court review of the proceedings, the intention to do so must clearly appear.” In that case, the court held that a clause providing that the arbitration was to be “final and binding” did not show clear intent to eliminate judicial review of the arbitrator's decision. See also Bowen...