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STATE OF MINNESOTA IN COURT OF APPEALS A10-875 Michael Elsenpeter d/b/a A & M Liquor Store, Respondent, vs. St. Michael Mall, Inc., Appellant. Filed March 1, 2011 Affirmed in part and reversed in part Schellhas, Judge Concurring in part, dissenting in part, Hudson, Judge Wright County District Court File No. 86-CV-08-242 Robert S. Halagan, Halagan Law Firm Ltd., Buffalo, Minnesota (for respondent) Justin L. Seurer, Seurer Law LLC, Minnetonka, Minnesota (for appellant) Considered and decided by Schellhas, Presiding Judge; Hudson, Judge; and Ross, Judge. SYLLABUS A party who obtains an order compelling arbitration, but does not prevail in the underlying action, is not a prevailing party entitled to an award of fees and costs.

OPINION SCHELLHAS, Judge Appellant challenges the district court`s award of attorney fees and costs to respondent, arguing that the district court erred by (1) compelling arbitration of the parties` lease dispute and (2) determining that respondent was entitled to an award of fees and costs as a prevailing party because he succeeded in obtaining an order compelling arbitration, even though he did not succeed on the merits in the underlying action. Because we conclude that the parties` lease dispute was arbitrable, we affirm the district court`s order compelling arbitration. But because respondent was not a prevailing party on the merits in the underlying action, we reverse the award of fees and costs to him. FACTS Appellant St. Michael Mall Inc. (the mall), was formed in 1998 to own and operate a strip mall in St. Michael. The mall has 12 shareholders, including respondent Michael Elsenpeter and his wife, all of whom rent retail space in the mall. On

September 8, 1998, Elsenpeter entered into a 15-year lease with the mall for the rental of approximately 3,620 square feet of retail space to operate A&M Liquor. Article 3.05 of the lease, entitled ABITRATION, provides: Any matter which is specifically set forth in this Lease to be resolved in accordance with the provision of this paragraph shall be determined by binding arbitration . . . . After setting out the method for choosing the arbitrator and the applicable procedure, the lease further provides: The costs and expenses of the arbitrators, the fees of the arbitrators, and all attorneys` fees and costs incurred, shall be paid by the losing party in the arbitration 2

proceeding, and the definition of losing party` shall be a proper subject of the arbitration proceeding. Lease Addendum 9, entitled Attorney`s Fees, provides: In the event either party hereto institutes legal action or proceedings arising out of or in any way connected with this Lease, the non-prevailing party shall reimburse the prevailing party for all reasonable attorney fees and costs incurred in connection therewith. In early 2007, Elsenpeter determined that his square footage of retail lease space contained less area than described in his lease. After the mall property manager refused to reduce his rent, Elsenpeter requested arbitration. When he received no response to his request, Elsenpeter commenced suit against the mall and sought an order compelling arbitration and awarding costs and fees. The mall answered Elsenpeter`s complaint, denied that the dispute was arbitrable, counterclaimed that Elsenpeter had breached his fiduciary duty to the mall and wasted corporate assets under Minn. Stat.

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Minnesota Law