Hennepin County District Court File No. 27-CV-11-3938.
Karen R. Cole, Law Office of Karen Cole, St. Paul, Minnesota; and Gavin P. Craig, Minnetonka, Minnesota (for appellants)
William L. Davidson, Richard A. Lind, Ryan P. Myers, Lind, Jensen, Sullivan & Peterson, P.A., Minneapolis, Minnesota (for respondents)
Considered and decided by Cleary, Chief Judge; Kalitowski, Judge; and Kirk, Judge.
Appellants J.J. and C.J. challenge (1) the district court's order denying their motion to vacate an arbitrator's decision, and (2) the district court's entry of judgment on the arbitration award requiring appellants to pay liquidated damages for violating a confidentiality clause in the parties' mediated settlement agreement. We affirm.
In February 2011, appellants filed claims against respondents S.F., X-Corp., and Y-Corp. arising from a dispute over appellants' investments in the respondent corporations. The district court referred the case for mediation and the parties executed a mediated settlement agreement (MSA) in September 2011. Under the terms of the MSA, respondents would pay appellants specified sums of money over the course of several years and appellants would transfer their holdings in X-Corp., Y-Corp., and related entities to respondents. The parties agreed to negotiate and sign ancillary documents necessary to complete the transfer and effectuate the payments at a later date. They also agreed to keep the terms of the MSA confidential, that breaches of confidentiality would be subject to a specified amount of liquidated damages, and that disputes about the MSA's terms or its confidentiality provisions would be resolved by arbitration.
The parties' negotiations regarding the ancillary documents failed, and on November 9, 2011, appellants filed a motion asking the district court to enforce the MSA. Appellants did not file the motion under seal. On November 29, 2011, respondents served a request for arbitration, asking the arbitrator to determine whether appellants had breached confidentiality by filing their motion unsealed. Respondents sought liquidated damages, attorney fees, and costs. They also asked the arbitrator to decide outstanding issues regarding the terms to be incorporated in the ancillary documents.
The district court heard appellants' motion to enforce on December 2, 2011, while respondents' arbitration request was pending. The district court denied appellants' motion, sealed the district court record, and ordered the parties to submit their dispute to arbitration. The court also ordered that if the parties did not submit a stipulation of dismissal by December 31, 2011, the case would be set for trial. Arbitration occurred by teleconference on December 22, 2011. The arbitrator scheduled a follow-up hearing to address the breach-of-confidentiality claim for March 2012, found that neither party had otherwise breached the MSA, and ruled on the terms to be incorporated in the ancillary documents.
On or about December 27, 2011, the parties executed a stipulation of dismissal. The stipulation stated, in pertinent part, that the dispute had "been fully, finally and completely compromised between the parties" and directed "that all claims, including all cross-claims, be and hereby are dismissed with prejudice, on the merits, and without costs and disbursements to any party . . . ."
In March 2012, the parties arbitrated respondents' breach-of-confidentiality claim. Appellants argued that they had not breached the confidentiality agreement, but did not argue that the stipulation of dismissal resolved the breach-of-confidentiality dispute. The arbitrator found that appellants had breached confidentiality and were liable for liquidated damages, attorney fees, and costs. Appellants filed a motion before the district court to vacate the arbitrator's decision. In their memorandum in support of that motion, appellants did not argue that the stipulation resolved the breach-of-confidentiality claim. But during the hearing, appellants read a passage from the stipulation (roughly the same language quoted in the previous paragraph of this opinion) and stated that the stipulation "should take care of it . . . because that would have, this is certainly part of all claims and that was dismissed." Appellants cited no statutory or caselaw authority. Respondents had no notice that this issue would be raised, and no opportunity to analyze or address it in their memorandum opposing appellants' motion.
The district court denied appellants' motion to vacate and ordered them to pay the amounts awarded by the arbitrator. The district court's order and memorandum give no indication that the district court considered the effect ...