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In the Matter of the Arbitration between: Hunter, Keith Industries, Inc., Respondent, vs. Piper Capital Management Incorporated, et al., Appellants. C3-97-1796, Co...

STATE OF MINNESOTA IN COURT OF APPEALS C3-97-1796 In the Matter of the Arbitration between: Hunter, Keith Industries, Inc., Respondent, vs. Piper Capital Management Incorporated, et al., Appellants. Filed March 17, 1998 Affirmed Lansing, Judge Hennepin County District Court File No. 9615124 Lewis A. Remele, Jr., Christopher R. Morris, Jeffer Ali, Bassford, Lockhart, Truesdell & Briggs, P.A., 3550 Multifoods Tower, 33 South Sixth Street, Minneapolis, MN 55402 (for respondent) George F. McGunnigle, Lawrence J. Field, Catherine A. McEnroe, Leonard, Street & Deinard, 150 South Fifth Street, Suite 2300, Minneapolis, MN 55402 (for appellants) Considered and decided by Lansing, Presiding Judge, Crippen, Judge, and Kalitowski, Judge. SYLLABUS I. The facts do not establish that the arbitration panel manifestly disregarded the law by awarding punitive damages, and it is therefore unnecessary to decide whether Minnesota should adopt the "manifest disregard doctrine" as a basis for overturning arbitration awards. II. By agreeing to arbitrate a dispute, parties vest the arbitrator with the authority to determine the proper remedy, and the fact that a court of law would not or could not apply that remedy is not, by itself, grounds for overturning it. OPINION LANSING, Judge Piper Capital Management Incorporated and Piper Jaffray, Inc. (Piper), appeal from a judgment confirming an arbitration award of $1,000,000 in punitive damages. The punitive damages were awarded in a National Association of Securities Dealers (NASD) arbitration commenced by Hunter, Keith Industries, Inc. (Hunter, Keith). We reject Piper's argument that the punitive damages were awarded in manifest disregard of the law or in violation of public policy. FACTS Hunter, Keith appointed Piper as investment manager for its qualified ERISA profit sharing plan. The plan covered Andrew Hunter, owner and chairman of the board, and Robert Keith, president. The plan was funded solely through contributions from the corporation that were allocated to separate sub-accounts maintained for Hunter and Keith. Hunter and Keith could direct the investment of their accounts to several investment funds managed by Piper. When Hunter, Keith transferred the plan's assets to Piper, each sub-account had a market value of $1,254,679. Piper served as the plan's investment manager from January 1992 until April 1995.

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In the Matter of the Arbitration between: Hunter, Keith Industries, Inc., Respondent, vs. Piper Capital Management Incorporated, et al., Appellants. C3-97-1796, Co...

Under the Investment Management Contract, the parties agreed that all controversies "shall be determined by arbitration to the fullest extent provided by law." In July 1995, Hunter, Keith initiated a NASD arbitration action against Piper on behalf of the two participants. The complaint alleged that Piper was a fiduciary under a plan governed by the Employee Retirement Income Security Act (ERISA) and that it breached its fiduciary duties, causing the Hunter, Keith plan to lose hundreds of thousands of dollars. The complaint also alleged breach of contract, fraud, negligence, and violations of state and federal securities laws. Both parties signed submission agreements in which they agreed to arbitrate under the NASD rules and "to abide by and perform any awards" rendered under the agreement. After an eight-day arbitration in the summer of 1996, arbitrators ordered Piper to pay $303,724 in compensatory damages, $170,000 in attorneys' fees, and $1,000,000 in punitive damages "pursuant to the authorities submitted including state law, federal law, and ERISA statues." After receiving the order, Hunter, Keith sent a letter to NASD requesting clarification of the compensatory damages award. The next day, Piper sent a responsive letter to NASD. Piper's response also asked the panel to clarify the authority for its punitive damages award and argued that ERISA prohibits punitive damages. Hunter, Keith sent a second letter to NASD responding to Piper's letter. Six weeks later, NASD's staff attorney sent a letter confirming the amount of the compensatory damage award but declining to comment on the punitive damage award or any other aspect of the award. Piper paid the compensatory damages and attorneys' fees but refused to pay the punitive damages award. Hunter, Keith filed a motion to confirm the award in state district court. Piper attempted to remove the state court action to federal court, commenced a separate federal action seeking to vacate the award, and filed a conditional motion to vacate the state court action. On motion by Hunter, Keith, the federal court dismissed the federal court action for lack of federal jurisdiction and remanded the state court action. Hunter, Keith then filed a second motion in state district court to confirm the award, and Piper filed an opposing memorandum. The district court granted Hunter, Keith's motion to confirm the award. Piper appeals that decision. ISSUES Did Piper waive the right to appeal the punitive damages award? Is manifest disregard of the law a basis for overturning an arbitration award in Minnesota? Should this court exercise its discretion to award attorneys' fees to Hunter, Keith under Minn. R. Civ. App. P. 138? ANALYSIS I Whether Piper waived the right to appeal this arbitration award is a question of law, which we review de novo. FrostBenco Elec. Ass'n v. Minnesota Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn. 1984). Hunter, Keith raises four arguments to support its claim that Piper waived its right to review. First, Hunter, Keith argues that Piper waived all right to judicial review by including an arbitration clause in its standard investment management contract. We find no language in the contract that could be interpreted as a waiver, and imputing waiver because Piper required an arbitration clause in the management contract would contradict the specific grounds for appeal set forth in Minn. Stat.

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