Welty v. Brady

Decision Date08 December 2005
Docket NumberNo. 05-73.,05-73.
Citation123 P.3d 920,2005 WY 157
PartiesAlta WELTY; Welty's Inc., a Wyoming corporation; Welty's General Store; and Welty's General Merchants, Appellants (Defendants), v. Lois I. BRADY, as Bankruptcy Trustee for Johanna P. Welty, Appellee (Plaintiff).
CourtWyoming Supreme Court

Representing Appellants: Joe M. Teig and Paula A. Fleck of Holland & Hart, LLP, Jackson, Wyoming. Argument by Mr. Teig.

Representing Appellee: Robert M. Shively and Amy M. Taheri of Shively, Taheri & Rochelle, P.C., Casper, Wyoming. Argument by Mr. Shively.

Before HILL, C.J., and GOLDEN, KITE, VOIGT, and BURKE, JJ.

KITE, Justice.

[¶ 1] Alta Welty, Welty's Inc., Welty's General Store, and Welty's General Merchants (collectively referred to as "the Weltys") appeal from the district court's order confirming an arbitration award in favor of Johanna Welty (Johanna)1. The Weltys claim the district court should have vacated the arbitration award because Johanna engaged in fraud to procure the award and the arbitrators committed manifest mistakes of fact and law. Finding no error, we affirm.

ISSUES

[¶ 2] The Weltys state the issues on appeal as follows:

This appeal raises the issues of whether the District Court erred in its application of the Uniform Arbitration Act and Wyoming case law which provide that arbitration awards procured by fraud, or mistake of fact or law, must be vacated. More specifically, the issues for review are:

A. Did the District Court err as a matter of law when it refused to vacate an arbitration award based on newly-discovered evidence that the award was procured by fraud?

B. Did the District Court err as a matter of law when it refused to vacate an arbitration award based on the mistakes of fact and law committed by the arbitration panel?

Johanna articulates a single appellate issue:

After finding that Appellants did not show by clear and convincing evidence that the arbitration award was obtained by fraud or a manifest mistake of fact or law, did the District Court properly deny the Defendants'/Appellants' Motion to Set Aside the Arbitration Award?

FACTS

[¶ 3] Alta Welty and Frank Welty, Jr. (Alta and Frank Jr.) owned and operated a general store in Dubois. The store, which had been in the Welty family for many years, operated as a proprietorship under the business names Welty's General Store or Welty's General Merchants until it was incorporated as Welty's Inc. in 1992. Alta and Frank Jr. had a child, Frank Welty, III (Frank III).

[¶ 4] Johanna married Frank III on December 29, 1973. Alta and Frank Jr. attended the wedding festivities and, according to Johanna, presented the newlyweds with several wedding gifts, including a check for $20,000 to each of them. Alta then directed the couple to write two separate checks returning the money to Welty's General Store, with a notation on the memo line indicating the checks were a loan to the store with interest at ten percent (10%) per annum. Johanna claimed the same gift/loan transaction occurred for twelve years, from 1973 through 1984. Thus, she maintained, over the years, she received $240,000 as gifts from Alta and Frank Jr. and returned the funds as loans to Welty's General Store at ten percent interest. Based upon conversations with Alta, Johanna believed the loans would be repaid when she and Frank III took over the store at a reduced price.

[¶ 5] Johanna and Frank III settled in California with their daughter, although Frank III lived and worked in other locations during their marriage. Johanna often worked in the general store during the summers and purchased items for resale in the store, without compensation. She also performed the work necessary to have the store listed on the National Register of Historic Places, again without compensation. Frank Jr. passed away in 1994, after a lengthy illness.

[¶ 6] On February 23, 2000, Frank III served Johanna with divorce papers, beginning a long and bitter divorce battle in California. On July 12, 2002, Johanna's attorney sent a letter to Alta, formally requesting repayment of the loans. Johanna did not receive a response to her demand and, consequently, filed an action in federal district court against the Weltys. The federal court complaint included two counts: breach of contract for money lent and promissory estoppel. The parties undertook discovery, including taking the depositions of Johanna, Alta and Frank III. The Weltys moved for summary judgment on both counts. The federal district court granted summary judgment to the Weltys on Johanna's breach of contract claim, finding that the statute of limitations had expired, but denied the Weltys' motion for summary judgment on Johanna's promissory estoppel claim.

[¶ 7] The parties agreed to submit Johanna's promissory estoppel claim to binding arbitration before a panel of three arbitrators. The arbitration agreement was signed by Alta and Frank III, on behalf of all of the defendants. The parties agreed to forego an evidentiary hearing before the arbitrators and submitted the case to the panel upon briefs, exhibits, and counsel's oral arguments. The arbitration panel held a hearing on May 7, 2004, and issued its decision on June 4, 2004, awarding Johanna $837,500, together with interest in the amount of $65.75 per day, effective May 8, 2004.

[¶ 8] On June 9, 2004, Johanna filed a motion for confirmation of the arbitration award, and the district court set a hearing on her motion. Prior to the hearing, the Weltys filed a motion for a continuance, requesting additional time to prepare a motion to vacate the arbitration award. The district court granted the Weltys' request for a continuance and gave them until September 2, 2004, to file a motion to vacate the arbitration award. On that day, the Weltys filed a response opposing Johanna's motion for confirmation of the arbitration award and requesting vacation of the arbitration award. The Weltys also sought leave to supplement the arbitration record with newly-discovered evidence of fraud. They claimed to have recently discovered bank statements and canceled checks, which showed Johanna lied when she testified Frank Jr. and Alta had gifted her $20,000 per year from 1973 through 1984 and she had loaned those funds to Welty's General Store.

[¶ 9] The district court held a hearing on the parties' motions and, subsequently, entered an order denying the Weltys' motion to set aside the arbitration award and a judgment confirming the arbitration award. The Weltys filed a notice of appeal from the district court's orders.

STANDARD OF REVIEW

[¶ 10] Wyo. Stat. Ann. § 1-36-114 (LexisNexis 2005) articulates the statutory bases for vacation of an arbitration award. Section 1-36-114 states, in pertinent part:

(a) Upon application of a party the court shall vacate an award where:

(i) The award was procured by corruption, fraud or other undue means;

(ii) There was evident partiality by an arbitrator appointed as a neutral, corruption of any of the arbitrators or misconduct prejudicing the rights of any party;

(iii) The arbitrators exceeded their powers;

(iv) The arbitrators refused to postpone the hearing upon sufficient cause being shown, refused to hear evidence material to the controversy or otherwise conducted the hearing as to prejudice substantially the rights of a party; or

(v) There was no arbitration agreement, the issue was not adversely determined by a court as provided by law and the applicant did not participate in the arbitration hearing without raising the objection. The fact that the relief was such that it could not or would not be granted by a court of law or equity is not a ground for vacating or refusing to confirm the award.

[¶ 11] In addition to the reasons articulated in the statute, our case law sets out other bases for vacation of an arbitration award. However, the scope of judicial review of arbitration awards is very narrow. As such, we have stated that an arbitration award may be vacated if the appellant shows by clear and convincing evidence that the award

"was obtained by fraud, corruption, behavior beyond the bounds of natural justice, excess of authority, or a manifest mistake of fact or law appearing upon the face of the award. . . ."

Matter of Town of Greybull, 560 P.2d 1172, 1175 (Wyo.1977) quoting Riverton Valley Electric Assoc. v. Pacific Power and Light Co., 391 P.2d 489, 500 (Wyo.1964).2 See also, Texas West Oil and Gas Corp. v. Fitzgerald, 726 P.2d 1056, 1062 (Wyo.1986). Clear and convincing evidence is the "`kind of proof which would persuade a trier of fact that the truth of the contention is highly probable.'" Alexander v. Meduna, 2002 WY 83, ¶ 29, 47 P.3d 206, 216 (Wyo.2002) quoting MacGuire v. Harriscope Broadcasting Co., 612 P.2d 830, 839 (Wyo.1980).

[¶ 12] When reviewing the district court's order after an arbitration, we "`undertake a full review of the record without deference to the views of the trial court.'" JBC of Wyoming Corp. v. City of Cheyenne, 843 P.2d 1190, 1194 (Wyo.1992) quoting Inter-Mountain Threading, Inc. v. Baker Hughes Tubular Serv., Inc., 812 P.2d 555, 558 (Wyo.1991). "[T]he issue of whether the arbitrator exceeded his authority is primarily a question of law. We owe no deference to the trial court's determination of questions of law." JBC of Wyoming Corp., 843 P.2d at 1194.

DISCUSSION
A. Fraud

[¶ 13] The Weltys claim the arbitration award should have been vacated on the basis of fraud, pursuant to § 1-36-114(a)(i), because the arbitrators relied upon Johanna's perjured testimony about the gift/loan transactions. In a related argument, they also claim the district court erred by refusing to consider the newly discovered bank statement evidence.

[¶ 14] We will consider first the Weltys' contention that the district court erred by denying their motion to supplement the record and allegedly refusing to consider their "newly discovered" evidence of fraud. The district court's order does not...

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