Spiska Eng. v. Spm Thermo-Shield

• Citation: 2007 SD 31,730 N.W.2d 638
• Decision Date: 28 March 2007
• Docket Number: No. 24229.,24229.
• Parties: SPISKA ENGINEERING, INC., Plaintiff and Appellee, v. SPM THERMO-SHIELD, INC., Defendant and Appellant.
• Court: Supreme Court of South Dakota

730 N.W.2d 638

2007 SD 31

SPISKA ENGINEERING, INC., Plaintiff and Appellee, v. SPM THERMO-SHIELD, INC., Defendant and Appellant.

No. 24229.

Supreme Court of South Dakota.

Argued February 14, 2007.

Decided March 28, 2007.

Michael C. Loos, Courtney R. Clayborne of Clayborne & Loos, P.C., Rapid City, South Dakota, Attorneys for plaintiff and appellee.

Jonathan M. Oostra, James S. Nelson of Gunderson, Palmer, Goodsell & Nelson, Rapid City, South Dakota, Attorneys for defendant and appellant.

GILBERTSON, Chief Justice.

[¶ 1.] SPM Thermo-Shield, Inc. appeals a judgment of the circuit court affirming the decision of an arbitrator and denying a motion to vacate the arbitration award. We affirm.

FACTS AND PROCEDURE

[¶ 2.] On August 3, 1994, Thermo-Shield entered into an Agreement with Spiska Engineering, Inc. Under this Agreement, Spiska was designated as the exclusive distributor of Thermo-Shield products in several European countries. Subsequent addendums and supplements to the Agreement granted Spiska additional territories and the right to mix raw Thermo-Shield material instead of buying the pre-mixed product. Beginning in September 2000, Thermo-Shield attempted to amend the Agreement to include a price increase and relinquishment of Spiska's mixing rights. Spiska rejected the proposed amendments. Soon thereafter, Thermo-Shield notified Spiska that its contracts and rights with Thermo-Shield were terminated.

[¶ 3.] There are several provisions of the Agreement relevant to this appeal. They include:

8. This Agreement shall continue in force and govern all transactions and relations between the parties hereto until canceled or terminated. Either party may cancel or terminate this Agreement at any time upon a material breach by the other party (including but not limited to illegal activities, misrepresentation of products or warranty, etc.)[.]

10. On termination of this Agreement, neither Company nor Distributor shall be liable to each other for compensation, reimbursement, or damages (1) either on account or present or prospective profits on sales or anticipated sales, (2) on account of expenditures, investments, or commitments made in connection herewith or in connection with the establishment, development, or maintenance of the business or goodwill of Company or Distributor, or (3) on account of any other cause whatsoever. The termination shall not affect the rights or liabilities of the parties with respect to goods previously sold under this Agreement, or with respect to any indebtedness then owing by either party to the other.

30. In the event of any dispute between the parties[,] such dispute will be arbitrated according to the AAA rules, and the prevailing party shall be entitled to recover from the other party all costs related to the action, including reasonable attorney's fees.

[¶ 4.] Spiska requested arbitration per the Agreement, claiming wrongful termination by Thermo-Shield. The initial arbitrator decided in favor of Thermo-Shield, and the circuit court affirmed that decision. Spiska appealed to this Court. We remanded for the circuit court to reconsider its decision concerning whether the arbitration award was procured by undue means in light of newly discovered documents. Spiska Engineering, Inc. v. SPM Thermo-Shield, Inc., 2004 SD 44, ¶ 16, 678 N.W.2d 804, 809. On remand, the circuit court vacated the initial arbitration award and ordered a new arbitration.

[¶ 5.] A second arbitration hearing was conducted with both parties present. After "review[ing] all the evidence presented, including the specific wording of the various contracts between the parties, and having had the opportunity to observe the witnesses and determine their credibility," the second arbitrator concluded that "SPM Thermo-Shield, Inc. wrongfully terminated certain contracts between it and Spiska Engineering, Inc., and Spiska is entitled to damages, costs, fees, and interest" in the amount of $4,999,257. The award included damages for past expenditures, the sale of the license agreement, illegal sales in Spiska's territories, lost profits, attorneys' fees and costs and lost profits for projected sales. The arbitrator's decision did not include any reasoning for its interpretation of the Agreement to allow damages.¹

[¶ 6.] Thermo-Shield filed an application to the circuit court requesting an order vacating the arbitrator's award of damages, and Spiska sought confirmation of the award. The circuit court issued a memorandum decision confirming the arbitrator's award. In that decision, the court concluded that the arbitrator "was not constrained by the limitation of damages clause in paragraph ten of the contract. Martin [the arbitrator] determined Thermo-Shield's wrongful termination of the contract was not a material breach which was contemplated by the parties in paragraph eight. Therefore, the limitations on damages in paragraph ten are inapplicable." The court also found that it was clear the arbitrator "`construed or applied' the contract when developing his binding decision."

[¶ 7.] The court also filed findings of fact and conclusions of law. The court concluded that "the arbitrator did not exceed his authority," for the "decision [was] justified and supported by the agreements." The court reasoned:

In arriving at his decision the arbitrator reviewed the entire original contract including paragraphs 8 and 10 which dealt with termination of the contract and so-called limitations of damages, respectively. Paragraph 8 of the contract allows the contract to be terminated only where there is a material breach, which is defined to include ". . . illegal activities, misrepresentations of products or warranty, etc." Certainly, the finding by the arbitrator that the contract was wrongfully terminated was within his authority to decide all disputes arising out of the agreement. Because the arbitrator found the contract was wrongfully terminated by Thermo-Shield, he was not constrained by the limitation of damages found in paragraph 10 of the contract.

"Applying an `extraordinary level of deference' to Arbitrator Martin's decision," the court upheld and confirmed the award.

[¶ 8.] Thermo-Shield appeals, raising one issue:

Whether the circuit court erred in affirming the arbitration award.

STANDARD OF REVIEW

[¶ 9.] We have recently stated the standard of review of a court order affirming an arbitrator's award as such:

Judicial review of arbitration awards is narrow as provided by SDCL 21-25A-24. In reviewing a trial court's order "confirming the arbitrator's award, we accept the court's factual findings unless clearly erroneous, but decide questions of law de novo." The party asserting error has the burden of proof.

Spiska Engineering, Inc., 2004 SD 44, ¶ 4, 678 N.W.2d at 805 (quotation omitted).

ANALYSIS AND DECISION

[¶ 10.] Thermo-Shield claims the arbitration award in favor of Spiska should be vacated pursuant to SDCL 21-25A-24(3), because the arbitrator exceeded his powers in awarding monetary damages. Thermo-Shield argues that the Agreement clearly and unambiguously limits damages in the event of termination by either party. Thus, it submits that the arbitrator's award of damages violated the Agreement between the parties and was an act beyond the powers of the arbitrator. Spiska claims the Agreement is amenable to the arbitrator's interpretation allowing an award of damages in the case of a wrongful termination, thus the arbitrator did not exceed his powers in interpreting the Agreement in such a manner and subsequently awarding damages.

[¶ 11.] SDCL 21-25A-24 lists grounds available for vacation of an arbitrator's award. "`Unless one of the statutory subsections to vacate or modify an award is applicable, arbitration awards are presumptively correct.'" Azcon Const. Co., Inc. v. Golden Hills Resort, Inc., 498 N.W.2d 630, 635 (S.D.1993) (quoting Western Cas. & Sur. Co. v. Gridley, 362 N.W.2d 100, 102 (S.D.1985)). The subsection relevant to this appeal provides: "Upon application of a party, the court shall vacate an award where: . . . (3) The arbitrators exceeded their powers." SDCL 21-25A-24(3).

[¶ 12.] "Whether an arbitrator acted within the scope of his authority, or, conversely, exceeded his powers, is a question of law, reviewed de novo, the resolution of which depends on the intention of the parties. The intention of the parties is determined by reference to the agreement or submission." Double Diamond Const. v. Farmers Co-op. Elevator Ass'n of Beresford, 2004 SD 65, ¶ 10, 680 N.W.2d 658, 660 (citations omitted). "In deciding whether an arbitrator has exceeded his power, the court need only examine the submission and the award to determine whether the award conforms to the submission." Id. at 660-61 (citation omitted). Further, "the arbitrators' powers are derived from the arbitration agreement; therefore, the arbitration award must conform to, and comply with, the arbitration agreement." Aamot v. Eneboe, 352 N.W.2d 647, 649 (S.D.1984) (citations omitted).

[¶ 13.] Moreover, "`we must confirm the award even if we are convinced that the arbitrator committed serious error, so long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority.'" Vold, 2005 SD 80, ¶ 10, 699 N.W.2d at 486 (quotation omitted). And, once again, "`when a party claims that the arbitrators have exceeded their authority, the claimant bears the burden of proving this contention, and every reasonable presumption in favor of the award will be made.'" Azcon Const. Co., Inc., 498 N.W.2d at 635 (quotation omitted).

[¶ 14.] This Court has held an arbitrator exceeded his powers on three occasions. Aamot, 352 N.W.2d at 649-50; Double Diamond Const., 2004 SD 65, ¶ 12, 680 N.W.2d at 661; Vold, 2005 SD 80, ¶ 21, 699 N.W.2d at 488. In Aamot, we held the equitable division provided by the arbitrators was not within the scope of the agreed-upon issues for arbitration, therefore the...