Hennepin County District Court File No. CT021083
Considered and decided by Kalitowski, Presiding Judge, Klaphake, Judge,
and Harten, Judge.
1. Appellant is estopped from arguing that the arbitration award should be vacated on the ground that it was not subject to the arbitration agreement because appellant participated in the arbitration hearing without raising this objection.
2. The district court properly rejected appellant's argument that the award should be vacated because the arbitrator exceeded his powers.
The opinion of the court was delivered by: Kalitowski, Judge
Appellant Microboards Manufacturing, LLC challenges the district court's confirmation of an arbitration award arguing that the award should be vacated because (1) appellant was not a party to the agreement to arbitrate; and (2) the arbitrator exceeded his powers.
On August 17, 2000, David Wolfer (respondent) agreed to sell certain assets to Microboards Technology, LLC. An asset purchase agreement governed the sale. As part of the transaction, respondent and Technology also entered into a separate operating agreement that formed Microboards Manufacturing, LLC (appellant). According to the terms of the agreement, Technology and Wolfer were "members" under the operating agreement. Manufacturing was not a "member."
Wolfer was an employee of Manufacturing until October 24, 2000, when Manufacturing and Wolfer decided to end their relationship. Wolfer and Manufacturing entered into a "confidential termination of employment agreement and general release." The general release stated that the parties released each other "from any liability arising from the employment relationship."
On November 22, 2000, a letter was sent to Wolfer requesting that Wolfer transfer his shares back to the company pursuant to the terms of the operating agreement. Paragraph 5.03(b) of that operating agreement stated that upon a member's termination or withdrawal of employment, Manufacturing would purchase all of the membership interest of that member. On December 1, 2000, Wolfer returned his membership share certificates. On December 12, 2000, Manufacturing's general counsel sent a letter to Wolfer outlining a payment plan for the shares pursuant to paragraph 5.04(c) of the operating agreement.
But Manufacturing never paid respondent for the shares, and Wolfer made a demand for arbitration based on Manufacturing's breach of the operating agreement. Paragraph 12.05 of the operating agreement contained a mandatory arbitration clause that stated
members irrevocably agree that all actions or proceedings in any manner or respect, arising out of or from or related to this operating agreement shall be arbitrated by binding arbitration * * * within Hennepin County Minnesota.
Manufacturing submitted to arbitration and responded with affirmative defenses and counterclaims. Manufacturing argued that the asset purchase agreement was induced by fraud and that the operating agreement, which was closely related to the asset purchase agreement, was therefore also induced by fraud. In addition, Manufacturing made a request to amend its answering statement and counterclaim to include breaches of the operating agreement, breach of fiduciary duty, unjust enrichment, conversion, and waste of company assets.
The arbitrator ruled in favor of Wolfer and awarded Wolfer seven semi-annual installment payments of $81,347.24. This award was identical to the payment plan outlined in the letter Manufacturing's general counsel had sent to Wolfer in December 2000. In addition, the arbitrator granted Wolfer's motion to strike Manufacturing's counterclaims based on a lack of jurisdiction, concluding that Manufacturing's counterclaims were related to the asset purchase agreement and that the asset purchase agreement stated that disputes involving the asset purchase agreement would be arbitrated in San Francisco. Finally, the arbitrator denied Manufacturing's motions to amend to add new counterclaims against Wolfer, ruling that: (1) some of the new counterclaims proposed by Manufacturing were again related to the asset purchase agreement and were therefore subject to ...