May v. First Nat. Pawn Brokers, Ltd.

• Decision Date: 15 December 1994
• Docket Number: No. 94-189,94-189
• Citation: 887 P.2d 185,269 Mont. 19
• Parties: , 130 Lab.Cas. P 57,903 Phil MAY and Betty May, Plaintiffs and Respondents, v. FIRST NATIONAL PAWN BROKERS, LTD., Defendant and Appellant.
• Court: Montana Supreme Court

Page 185

887 P.2d 185

269 Mont. 19, 130 Lab.Cas. P 57,903

Phil MAY and Betty May, Plaintiffs and Respondents, v. FIRST NATIONAL PAWN BROKERS, LTD., Defendant and Appellant.

No. 94-189.

Supreme Court of Montana.

Submitted on Briefs Oct. 5, 1994.

Decided Dec. 15, 1994.

Patrick R. Watt, Jardine, Stephenson, Blewett & Weaver, Great Falls, for appellant.

Howard F. Strause, Great Falls, for respondents.

GRAY, Justice.

First National Pawn Brokers, Ltd. appeals from a judgment entered against it by the Eighth Judicial District Court, Cascade County, and, more specifically, from the court's refusal to vacate an arbitration award in favor of Phil and Betty May. We affirm, concluding that the District Court did not err in refusing to vacate the award on the basis of evident partiality or manifest disregard of the law.

Phil and Betty May (collectively, the Mays) brought an action against First National Pawn Brokers, Ltd. ^P for wrongful discharge under Montana's Wrongful Discharge From Employment Act. They alleged that they were hired in April 1989, to manage FNP's Great Falls store, and that they were induced to move to Great Falls from their home in Laurel by FNP's salary offer to each of them of 5% of the gross revenues of the store. They further alleged that their long work hours and six-day work weeks were largely responsible for the increase in the store's monthly gross from $16,000 to $100,000 during their tenure as managers.

According to the Mays, FNP cut each of their salaries from 5% to 3.4% of the gross in 1991, promising at that time never to reduce the salaries below that amount. They contended that over a three-day period in August 1993, FNP unilaterally reduced their compensation, yelled at them and made abusive remarks, and wrongfully discharged them.

FNP denied the material allegations of the Mays' complaint. It asserted a number of affirmative defenses, including that the Mays voluntarily quit, that they did not mitigate their damages, and that their refusal to accept an offer of reemployment bars any recovery. The Mays offered to arbitrate the dispute pursuant to § 39-2-914, MCA. FNP accepted. The parties stipulated that the arbitrator would be Gordon R. Bennett (Arbitrator), retired district court judge, and the District Court appointed him to arbitrate the dispute.

An arbitration hearing was held on January 12, 1994. In his subsequent Memorandum and Award, the Arbitrator determined that the Mays were constructively discharged without good cause and, therefore, were wrongfully discharged. He set forth applicable statutory and case law definitions and a number of actions by Ben Brown, FNP's agent, in support of his determination. Each of the Mays was awarded $132,432 in damages.

The Mays moved the District Court to confirm the arbitration award; FNP moved to vacate it. The court confirmed the award and entered judgment thereon. FNP appeals.

The issue on appeal is whether the District Court erred in refusing to vacate the award on the basis of evident partiality or manifest disregard of the law. Our standard in reviewing a court's refusal to vacate an arbitration award is whether the court abused its discretion. Duchscher v. Vaile (1994), --- Mont. ----, ----, 887 P.2d 181, 184.

Montana's Wrongful Discharge From Employment Act specifically provides for the voluntary arbitration of discharge disputes. Section 39-2-914, MCA. Once an offer to arbitrate is made and accepted,

arbitration is the exclusive remedy for the wrongful discharge dispute and there is no right to bring or continue a lawsuit under [the WDEA]. The arbitrator's award is final and binding, subject to review of the arbitrator's decision under the provisions of the Uniform Arbitration Act.

Section 39-2-914(5), MCA. Applying the statute to the record before us, it is clear that the Mays and FNP voluntarily undertook final and binding arbitration of their dispute, subject only to such review as is authorized by the Uniform Arbitration Act.

Montana's Uniform Arbitration Act (MUAA) was adopted in 1985; it is codified at Title 27, Chapter 5, of the Montana Code Annotated. Under its provisions, a district court must confirm an arbitration award upon application of a party unless timely urged to vacate or modify the award. Section 27-5-311, MCA. It is undisputed that the Mays applied to the District Court for confirmation and that FNP timely urged that the award be vacated.

Judicial review of an arbitration award is strictly limited by statute. Duchscher, at ----, 887 P.2d at 183. The grounds for vacating an arbitration award on application of a party are specified in § 27-5-312(1), MCA:

(a) the award was procured by corruption, fraud, or other undue means;

(b) there was evident partiality by an arbitrator appointed as a neutral or corruption in any of the arbitrators or misconduct prejudicing the rights of any party;

(c) the arbitrators exceeded their powers;

(d) the arbitrators refused to postpone the hearing upon sufficient cause being shown therefor or refused to hear evidence material to the controversy or otherwise so conducted the hearing, contrary to the provisions of 27-5-213, as to prejudice substantially the rights of a party; or

(e) there was no arbitration agreement and the issue was not adversely determined in proceedings under 27-5-115 and the party did not participate in the arbitration hearing without raising the objection.

The MUAA clearly does not authorize judicial review of arbitration awards on the merits of the controversy. Duchscher, at ----, 887 P.2d at 184.

Did the District Court abuse its discretion in refusing to vacate the award pursuant to *188s 27-5-312, MCA, on the basis of evident partiality?

FNP argues that the award, or the Arbitrator's conduct, shows evident partiality and, thus, that the award must be vacated pursuant to § 27-5-312(1)(b), MCA. Its argument is premised on the following allegations of partiality:

1. The Arbitrator asked a number of irrelevant questions of FNP officer and stockholder Barbara Brown, concerning FNP's stockholders and stock transfers;

2. the Arbitrator "badgered" witness Barbara Brown via the asking of one question;

3. the Arbitrator's use of language such as "demonstrated no gratitude," "exploited them unconscionably," and "oppressed them" in characterizing FNP's conduct in the written arbitration award; and

4. the Arbitrator's interpretation of a September 1993, letter to the Mays' counsel as containing an "implication that dismissal of the instant lawsuit would be a condition of reemployment."

FNP relies on the following United States Supreme Court and United States Circuit Courts of Appeals cases in support of its position: Commonwealth Coatings Corp. v. Continental Casualty Co. (1968), 393 U.S. 145, 89 S.Ct. 337, 21 L.Ed.2d 301, reh. den. 393 U.S. 1112, 89 S.Ct. 848, 21 L.Ed.2d 812; Morelite Const. v. N.Y.C. Dist. Council Carpenters (2nd Cir.1984), 748 F.2d 79; and Stroehmann Bakeries v. Local 776 (3rd Cir.1992), 969 F.2d 1436.

We note that FNP merely extracts principles and statements from these cases without attempting to establish how or why the cases are applicable to the facts and circumstances before us. Nonetheless, we distinguish each below.

We begin by addressing Commonwealth and Morelite, both of which involved existing and uncontested relationships--one business and one familial--between the arbitrator and a party to the arbitration. In Commonwealth, the losing subcontractor in an arbitration proceeding sought to vacate an award under the United States Arbitration Act's (USAA) "evident partiality" standard. The contractor and the subcontractor each selected an arbitrator and those arbitrators selected a third arbitrator. Unbeknownst to the subcontractor, the third arbitrator had significant business dealings with the contractor and had rendered services on the very projects involved in the arbitration. After an award had been made, the subcontractor became aware of the relationship and sought to have the award vacated.

In the course of discussing the "evident partiality" standard in general, Justice Black, writing for a plurality of four justices, stated that "any tribunal permitted by law to try cases and controversies not only must be unbiased but also must avoid even the appearance of bias." Commonwealth, 393 U.S. at 150, 89 S.Ct. at 340. The Supreme Court decided the case by requiring that arbitrators "disclose to the parties any dealings that might create an impression of possible bias." Commonwealth, 393 U.S. at 149, 89 S.Ct. at 339.

The case presently before us does not involve allegations of existing business or social relationships between the Arbitrator and the Mays. Thus, the Supreme Court's Commonwealth disclosure requirement has no application here.

Moreover, even if the plurality's broad statement that arbitrators must avoid even the appearance of bias were the Supreme Court's holding in the case, it cannot be applied in a vacuum. The type of bias being addressed by the Supreme Court in Commonwealth--a direct, ongoing, undisclosed business relationship involving pecuniary gain to the arbitrator--might well meet any definition of "evident partiality." Such partiality is not presented, even by allegation, here.

Similarly, the Second Circuit Court of Appeals' Morelite decision is entirely inapposite to the case before us. There, the Second Circuit applied the "evident partiality" standard from the USAA to an arbitration award involving a construction contractor and a local union, noting that "what constitutes 'evident partiality' by an arbitrator is a troubling question." Morelite, 748 F.2d at 82. It rejected a mere "appearance of bias" standard, determined that a "proof of actual bias" standard would be insurmountable, and held that "evident partiality" within the meaning of the USAA "will be found where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration." Moreli...