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holding that under Washington state law, an arbitration award may be vacated based on "corruption, fraud or other undue means" if the moving party establishes the existence of fraud by clear and convincing evidence, the fraud was not discoverable upon the exercise of due diligence before the close of the arbitration hearing, and the fraud materially related to an issue of consequence in the arbitration
Summary of this case from Wallace v. Island Cnty.Opinion
No. 39380-4-I
File Date: March 8, 1999.
Appeal from the Superior Court for king County No. 96-2-05626-0, Charles V. Johnson, J., on September 12, 1996.
John D. Alkire, Perkins Coie, James O. Lyons,, Counsel for Appellant.
Chris R. Youtz, Sirianni Youtz, Counsel for Respondent.
Perjury materially related to an issue of consequence in an arbitration proceeding constitutes fraud in the procurement of an arbitration award within the meaning of RCW 7.04.160, and requires vacatur if substantial rights of a party were prejudiced thereby. A party seeking vacatur of an arbitration award on grounds of perjury must (1) show by clear and convincing evidence that perjury materially related to an issue of consequence in the arbitration proceeding was in fact committed; (2) demonstrate that the alleged perjury could not reasonably have been discovered in the exercise of due diligence before the close of the arbitration hearing; and (3) demonstrate that that the alleged perjury operated to prevent the party from fully and fairly presenting his or her case or defense. In the absence of a prima facie showing with respect to these factors, the court is not empowered to assess evidence, much less new evidence that was not timely submitted to the arbitrators, in responding to a request for vacatur. Because the moving parties failed in the instant case to make a prima facie showing requiring further factual inquiry by the trial court, summary judgment confirming the arbitration award was appropriate. Accordingly, we affirm the trial court's confirmation of the arbitration award.
The appellants' remaining assignments of error, which we find to be without merit, are treated in the unpublished portion of this opinion.
FACTS
In 1989, respondent Donald Barnard and appellants Seattle Packaging Corporation (SeaPak) and Gordon Younger signed an agreement under which SeaPak and Younger would acquire Barnard's interest in SeaPak. The agreement set the value of the interest between $4.5 million and $7 million. The agreement also provided that the parties would submit to binding arbitration if they were unable to reach an agreed value of Barnard's interest by January 1, 1995.
When the parties were unable to reach an agreed value, Barnard demanded arbitration. After a hearing, the three-member arbitration panel determined the value of Barnard's interest in SeaPak to be $5.6 million. Then, in accord with a stipulation of the parties that the arbitrators should open a sealed envelope after determining the value of Barnard's interest and adjust their award in accord with the contents of the sealed envelope, the arbitrators did so and adjusted the total arbitration award upward to $5,889,956. The arbitrators also ruled that consulting fees and expense reimbursements previously paid to Barnard should not be deducted from the total arbitration award.
When the award was initially issued, it was signed by only one of the three arbitrators, contrary to the rules of the American Arbitration Association. SeaPak and Younger objected. Before the arbitrators reissued the award bearing all three signatures, SeaPak filed a motion to reopen the arbitration hearing based on the discovery of alleged perjury by Barnard and Barnard's expert witness, David Solomon, during the arbitration hearing. The arbitrators denied the motion and reissued the award signed by all three arbitrators.
SeaPak sought declaratory relief in King County Superior Court, alleging that Barnard procured the award in violation of RCW 7.04.160. That statute requires, in pertinent part, that the court vacate the award upon the application of any party to the arbitration where the award was procured by corruption, fraud or other undue means, if the court is satisfied that substantial rights of the parties were prejudiced thereby. Barnard counterclaimed against SeaPak and impleaded Younger as a third party defendant, seeking confirmation and immediate payment of the arbitration award.
SeaPak moved to stay enforcement of the arbitration award pending a hearing on its motion to vacate the award based on the alleged perjury. By motion for summary judgment, Barnard moved to confirm the award. The court denied SeaPak's motion to stay enforcement and granted Barnard's motion to confirm the award. This appeal followed.
DISCUSSION
SeaPak and Younger contend that the trial court erred by denying SeaPak's motion to vacate the arbitration award and by granting summary judgment to Barnard without holding the evidentiary hearing requested in the appellants' motion to stay enforcement of the award.
An arbitration award may be vacated only upon a showing of proper statutory grounds, and the party seeking vacatur has the burden of making that showing. Harris v. Grange Ins. Ass'n, 73 Wn. App. 195, 198, 868 P.2d 201 (1994). The relevant statute provides:
In any of the following cases the court shall after notice and hearing make an order vacating the award, upon the application of any party to the arbitration:
(1) Where the award was procured by corruption, fraud or other undue means.
. . . .
An award shall not be vacated upon any of the grounds set forth under subdivisions (1) to (4), inclusive, unless the court is satisfied that substantial rights of the parties were prejudiced thereby.
RCW 7.04.160.
A threshold question of first impression in Washington is whether perjury during an arbitration hearing constitutes fraud within the meaning of RCW 7.04.160. Federal authority interpreting similar statutes can provide guidance in resolving issues of first impression. ML Park Place Corp. v. Hedreen, 71 Wn. App. 727, 742, 862 P.2d 602 (1993). Section 10 of the Federal Arbitration Act provides:
In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration (1) Where the award was procured by corruption, fraud, or undue means{.}
9 U.S.C.A. sec. 10 (Supp. 1997).
In Bonar v. Dean Witter Reynolds, Inc., 835 F.2d 1378, 1383 n.7, 1386 (11th Cir. 1988), the court held that perjury constitutes fraud under section 10, and vacated the arbitration award. Id. at 1383 n.7 (citing Dogherra v. Safeway Stores, Inc., 679 F.2d 1293, 1297 (9th Cir. 1982)). We agree, and hold that an arbitration award procured by perjured testimony as to a material fact of consequence in the arbitration proceedings constitutes fraud within the meaning of RCW 7.04.160(1).
For an alleged fraud, including perjury, to constitute grounds for vacatur, the moving party must establish the existence of fraud by clear and convincing evidence; the fraud must not have been discoverable upon the exercise of due diligence before the close of the arbitration hearing; and the moving party must demonstrate that the fraud materially related to an issue of consequence in the arbitration. Bonar, 835 F.2d at 1383. Although the moving party does not need to show that the result of the proceedings would have been different if the fraud had not occurred, he or she must show that the fraud prevented him or her from fairly and fully presenting his or her case or defense. Id. Fraud not reasonably discoverable by the exercise of due diligence before the close of the arbitration hearing that prevents a party from fairly and fully presenting his or her case or defense constitutes prejudice of substantial rights of the party.
Courts do not ordinarily consider evidence presented to the arbitrators. This is because courts are generally prohibited from reviewing an award on the merits. E.g., Price v. Farmers Ins. Co., 133 Wn.2d 490, 496-97, 946 P.2d 388 (1997); Barnett v. Hicks, 119 Wn.2d 151, 153, 829 P.2d 1087 (1992). The court's role in reviewing an arbitration award is to ensure that the hearing process comports with the broad contours of procedural fairness. To this end, the court is directed to consider narrowly circumscribed allegations of misconduct. Without a prima facie showing of such misconduct, the court is not empowered to assess evidence, much less new evidence not presented to the arbitration panel. Merrill Lynch, Pierce, Fenner Smith, Inc. v. Lambros, 1 F. Supp.2d 1337, 1345 (M.D.Fla. 1998).
In cases where the claimant contends that an arbitration award was procured by fraud, including perjury, courts must necessarily review enough of the evidence submitted to the arbitrators to determine whether clear and convincing evidence exists that perjury was committed with respect to a material issue of consequence in the proceedings and that substantial rights of a party have been prejudiced thereby. For example, in Bonar, 835 F.2d at 1378, the court reviewed the testimony of an expert witness who was discovered after the final arbitration award to have egregiously falsified his credentials as an expert during his testimony before the arbitrators. After determining that the evidence of perjury was clear and convincing, and that the perjury could not reasonably have been discovered before the close of the arbitration hearing, the court noted that the face of the award clearly reflected the influence of the perjured testimony, thus demonstrating prejudice. Id. at 1385.
The evidence before the arbitrators may also reveal whether the new evidence could have been discovered in the exercise of due diligence, in advance of the hearing, and whether the alleged perjury prevented the moving parties from fully and fairly presenting their case. Here, we must review the evidence to determine whether the trial court ought to have held an evidentiary hearing to determine whether perjury was in fact committed and, if clear and convincing evidence exists that perjury was committed, whether the appellants could thereby demonstrate prejudice to substantial rights as required by RCW 7.04.160.
Before examining the evidence, however, we first address Barnard's contention that the court should not consider the evidence of perjury because it was considered and rejected by the arbitrators. It is true that a reviewing court should not vacate the arbitration award if the movant presented the evidence of perjury to the arbitrators. Kirschner v. West Co., 247 F. Supp. 550, 553-54 (E.D. Pa.) ("Credibility of witnesses is always for the factfinder, and this is especially so when the factfinder is an arbitrator."), aff'd, 353 F.2d 537 (3d Cir. 1965). But here, the question is not so simple. SeaPak outlined the alleged perjury to the panel in its motion to reopen arbitration, but the panel denied the motion to reopen, without explanation, and thus did not "hear" the new evidence during the arbitration hearing when, presumably, credibility determinations were being formed. Under these circumstances, it would be unfair to deny further consideration on grounds that the evidence of perjury was placed before the arbitrators between the time they issued the award signed by one arbitrator and they time they issued the award signed by all three arbitrators.
The Evidence of Perjury
SeaPak and Younger assert that, at the arbitration hearing, Barnard and his expert witness Solomon testified that they did not think the 1995 sale of an interest in another Pacific Northwest company, Sound Container, was a comparable sale that should be considered in determining the value of SeaPak, because it was not an arm's-length transaction and because other consideration had been paid or was to be paid to the seller by the buyer that was not provided for by the purchase and sale agreement. Shortly after the hearing, Keith Thompson, the purchaser in the 1995 Sound Container sale, stated in a sworn declaration that he told Barnard that "the stock purchase was a standard, regular business transaction between a willing buyer and a willing seller" and that in response to a question by Bernard, he had said that "there was no outside consideration, no `side deal', no special consideration . . . or any other unusual arrangements or irregularity" in the stock purchase transaction. Clerk's Papers at 41. Further, Leon Gale, the seller in the 1995 Sound Container sale, stated in a sworn declaration that there were no unusual arrangements in the Sound Container transaction and that he described the transaction to a person who called Gale and identified himself as working for Barnard, as "a standard, regular business transaction between a willing buyer and a willing seller." Clerk's Papers at 45.
The arbitration hearing was not transcribed. SeaPak and Younger's assertions regarding the content of Barnard and Solomon's testimony are contained in letters and notes written at or near the time of the hearing by various witnesses who were present at the hearing. Although Barnard complains that this is not competent evidence of the testimony during the arbitration hearing, his own account of the testimony at the hearing does not materially differ from that of SeaPak and Younger.
In a responding declaration, Barnard maintained that nothing in his testimony at the arbitration hearing was contradicted by the declarations of Thompson and Gale. According to Barnard, shortly before the arbitration hearing he and Solomon jointly participated in a telephone conversation with Leon Gale, who told them that he didn't try to get as much money as he could have for his stock for several reasons: he did not want to push Thompson too far because he needed Thompson's technical advice in setting up a business in Arizona; he was receiving equipment and other assistance from Thompson but did not wish to give them any further information about this. According to Barnard, Gale refused to reveal the purchase price for his stock in Sound Container. Barnard further declared that he testified at the arbitration hearing that he knew that Thompson and Gale were good friends and that, in his opinion, the relationship affected the sales price. He also testified that, in his opinion, Gale's departure from Sound Container would adversely affect that company in that Gale had been the principal salesman for the company. And further:
{SeaPak's} motion suggests that I testified that Thompson and Gale were not willing buyers and sellers. That is not true. I understood that Gale was willing to sell and Thompson was willing to buy, but it was my belief and it is still my belief that their personal relationship affected the price paid for the stock. Gale did not want Thompson to get upset at him, and I believe that this affected the price.
Clerk's Papers at 126.
The Evidence before the Arbitrators
According to Barnard, Solomon was asked at the arbitration hearing why he did not include Sound Container as a comparable sale in the course of his valuation and Solomon stated that, in his opinion, it was not an arm's-length transaction because of the relationship between buyer and seller and because it appeared there was other consideration besides the stock that was being provided as part of the sale. Barnard also avers that one of SeaPak's own experts testified at the arbitration hearing that loss of a key man can adversely affect a company's value.
The record on appeal contains Solomon's valuation report and written narrative testimony submitted to the arbitrators. He utilized three distinctive valuation methodologies, only one of which was based on comparable sales. He opined that the value of Barnard's ownership interest in SeaPak, as of December 31, 1994, was $9.8 million.
One of SeaPak and Younger's experts, Tony Leung, testified at the arbitration hearing that he was able to ascertain the EBITDA multiple (a comparison of the consideration received for the sale of a company with its "earnings before interest, taxes, depreciation and amortization") for the Sound Container sale, which he believed to be a comparable sale, and it was 4.5, indicating a value for Barnard's stock of considerably less than the $4.5 million minimum price contained in the contract. Leung also opined that the value of the entire company as of December 31, 1994, not just Barnard's share, was only $4.6 million; thus the minimum price set in the contract would result in a gross overpayment to Barnard.
At the close of the hearing, the arbitrators requested the parties to include discussion of the significance of the Sound Container transaction in their final briefs. In its final arbitration brief SeaPak emphasized the reliability of the EBITDA multiple for Sound Container that Leung had obtained, as reflected by the very similar EBITDA multiples for sales of other companies like Sound Container and SeaPak, that had been testified to by other experts in the case. SeaPak also characterized Barnard and Solomon's report of their conversation with Leon Gale as "rank hearsay" and argued that "{t}here is simply nothing to indicate other than a willing buyer-willing seller transaction." Clerk's Papers at 399.
We agree with SeaPak and Younger that whether the Sound Container sale was a comparable sale was an issue of consequence at the arbitration hearing. Although we have considerable doubt that a finder of fact would be persuaded that perjury actually occurred, we can agree that SeaPak and Younger have made a prima facie case of perjury. But we cannot conclude, on this record, that the alleged perjury could not have been discovered in the exercise of reasonable diligence before the close of the arbitration hearing or that the alleged perjury prevented SeaPak and Younger from fully and fairly presenting their case with respect to whether the Sound Container sale was a comparable sale.
Barnard and his appraiser obtained the information they presented to the arbitrators by the simple expediency of picking up the telephone and calling the principals of the Sound Container sale. SeaPak and Younger took the position that the Sound Container sale was a comparable sale; yet they have failed to explain, below or for this appeal, why they or Mr. Leung did not pick up the telephone and call the principals, themselves, in preparation for their case. Courts routinely deny motions to vacate arbitration awards where fraud would have been discoverable in the exercise of due diligence prior to or during the arbitration. E.g., Karppinen v. Karl Keifer Machine Co., 187 F.2d 32, 35 (2d Cir. 1951); Lambros, 1 F. Supp.2d at 1337.
Moreover, it is clear from the record that although SeaPak and Younger presented evidence that the Sound Container sale was comparable, it was not the only comparable sale presented by the various experts; other comparable sales were presented, as well, some bearing EBITDA multiples very similar to that of Sound Container. Indeed, comparable sales were not the only valuation method utilized by the various experts. Insofar as we can ascertain from the incomplete record of the arbitration proceedings, each appraiser utilized various methodologies in reaching his ultimate opinion of value. Thus, it appears that the alleged perjury did not prevent SeaPak and Younger from fully presenting their case.
The test for determining whether an arbitration award has been procured by fraud has been compared to the test for setting aside a judgment under CR 60(b) by reason of fraud. See Bonar, 835 F.2d at 1383 n.8 (citing Harre v. A. H. Robins Co., Inc., 750 F.2d 1501, 1503 (11th Cir. 1985) (that the tests are nearly identical is not surprising considering that both the arbitration statute and rule 60(b) counteract the strong policy favoring the finality of awards and judgments; thus, cases arising under rule (60(b) are persuasive authority in deciding cases under the arbitration statute), vacated in part on other grounds by 866 F.2d 1303 (11th Cir. 1989)).
Peoples State Bank v. Hickey, 55 Wn. App. 367, 777 P.2d 1056 (1989), is instructive in this regard. There, a decree of foreclosure was entered by default after proper service upon and failure to appear by one Hickey, who claimed an interest in the property. In obtaining the default judgment, the bank misrepresented to the court that Hickey's lien was inferior and subordinate to that of the bank. In fact, this was not so Hickey's lien was superior to that of the bank. But Hickey slept on her rights and failed to move to set aside the default judgment within one year. After that deadline had passed, she moved to vacate the judgment under CR 60(b), citing the misrepresentation by the bank, without which her property rights would not have been foreclosed. This court denied relief despite Hickey's strong showing of material misrepresentation, stating:
The rule is aimed at judgments which were unfairly obtained, not at those which are factually incorrect. For this reason, the conduct must be such that the losing party was prevented from fully and fairly presenting its case or defense. Applying the above authorities to the facts at bar, we find vacation of the default judgment is not warranted. Although {the bank} misrepresented the status of Hickey's lien, there is no connection between the bank's misrepresentation and Hickey's failure to respond to the complaint or employ an attorney. There is no evidence that Hickey relied on the misrepresentation or was misled by {the bank's} statements in the complaint. . . . The misrepresentation having nothing to do with her failure to respond to the summons and complaint, Hickey cannot meet the requirement that the misrepresentation must have operated to prevent her from fully and fairly presenting her case.
Peoples State Bank, 55 Wn. App. at 372 (citations and footnote omitted).
Similarly, here, SeaPak and Younger cannot demonstrate that the alleged perjury operated to prevent them from fully and fairly presenting their case. Although they relied upon the Sound Container sale as a comparable sale, they never contacted the principals of the sale to ascertain whether it was an arm's-length transaction before the close of the arbitration hearing. At the arbitration hearing they had the opportunity to present all the evidence they wished to present with respect to that sale. That they were able to contact the principals of the Sound Container sale immediately after hearing the testimony of Barnard and Solomon indicates that they just as easily could have done so before the hearing as Barnard and Solomon testified that they did.
In their final arbitration brief, SeaPak and Younger characterized Barnard and Solomon's testimony regarding their communications with the principals of the Sound Container sale as rank hearsay and entitled to no weight whatsoever. They are unable to demonstrate from the face of the award that the arbitrators placed any weight whatsoever on the challenged testimony. The amount of the award reflects that the arbitrators may very well have rejected the allegedly perjured testimony, in that the award falls far short of the opinion of value rendered by Solomon. Contrary to the appellants' apparent belief that the arbitrators' failure to adopt their expert's opinion of value in and of itself demonstrates that the award was procured by fraud, the award merely demonstrates that the arbitrators concluded that the truth lay somewhere in between the extremes of conflicting expert testimony regarding complex valuation issues. Indeed, from a mathematical standpoint, the award is closer to Leung's proposed value than to Solomon's.
We conclude that the trial court did not err. We are not satisfied that substantial rights of the appellants were prejudiced by the alleged perjury as required by RCW 7.04.160.
We affirm the trial court's denial of SeaPak and Younger's motion to stay enforcement of the arbitration award and to conduct an evidentiary hearing on their motion to vacate the award; we also affirm the grant of Barnard's motion to confirm the award.
The remainder of this opinion lacks precedential value and will not be published in the Washington Appellate Reports but will be filed of record in accord with RCW 2.06.040.
Because the parties are familiar with the facts and the remainder of this opinion will not be published, we treat the remaining issues by means of statements of issues and answers, without further description of the underlying facts.
Issue: Did the trial court err by entering partial summary judgment without considering extrinsic evidence on the intent of the parties to make various deductions from the arbitration award, after the parties had already submitted the same issues to the arbitrators without apparent objection?
The arbitrators determined that consulting fees, tax credits and expense reimbursements previously paid to Barnard should not be deducted from the total arbitration award. SeaPak and Younger contend these issues were not arbitrable under the agreement, and further that the court should hear evidence and decide whether SeaPak and Younger are entitled to imputed interest on payments made to Barnard during the years between the execution of the agreement and the arbitration award. Barnard contends that the consulting fees and expense reimbursements issues were arbitrable under the agreement, and further that the appellants submitted all of the deduction and imputed interest issues to the arbitrators, without objection, thereby consenting to the jurisdiction of the arbitrators even if the arbitration agreement did not so provide. Thus, Barnard argues that the trial court properly deferred to the arbitrators' decision on the merits.
"A reviewing court does not consider the merits of the case or the evidence presented to the arbitrator. Unless an error appears on the face of the award, it will not be vacated or modified." Hanson v. Shim, 87 Wn. App. 538, 546, 943 P.2d 322 (1997), review denied, 134 Wn.2d 1017 (1998) (citing Davidson v. Hensen, 85 Wn. App. 187, 192-93, 933 P.2d 1050, aff'd, 135 Wn.2d 112 (1998)). "The very purpose of arbitration is to avoid the courts insofar as the resolution of the dispute is concerned. The object is to avoid what some feel to be the formalities, the delay, the expense and vexation of ordinary litigation." Boyd v. Davis, 127 Wn.2d 256, 262-63, 897 P.2d 1239 (1995) (quoting Barnett v. Hicks, 119 Wn.2d 151, 160, 829 P.2d 1087 (1992)).
The arbitrability of an issue is a question of law based on the face of the arbitration agreement. Davidson, 85 Wn. App. at 192-93 (citing Boyd v. Davis, 127 Wn.2d at 263); ACF Property Management, Inc. v. Chaussee, 69 Wn. App. 913, 914, 850 P.2d 1387 (1993). "The arbitration award must concern only those matters included within the agreement for submission and must not exceed the power established by the submission." Chaussee, 69 Wn. App. at 919 (quoting Sullivan v. Great Am. Ins. Co., 23 Wn. App. 242, 246, 594 P.2d 454 (1979) (footnote omitted)).
However, even if an issue is not submitted pursuant to an arbitration agreement, after seeking and consenting to arbitrate an issue, a party waives its right to challenge the arbitrator's jurisdiction to enter the arbitration award, unless the party objected to the arbitrability of the issue to the arbitrator. ML Park Place Corp. v. Hedreen, 71 Wn. App. 727, 736-37, 862 P.2d 602 (1993). This rule encourages the parties to fully participate in the arbitration process before seeking relief from the courts. Id. (citation omitted).
We do not need to determine whether the arbitration agreement does or does not provide for the arbitration of the deductions, or whether the agreement is ambiguous in that regard, or whether the trial court otherwise should have heard evidence with regarding the parties' intent with respect to imputed interest on the interim payments because it is clear from the face of the award and the appellants' final arbitration brief that these issues were, indeed, arbitrated.
"Because review of an arbitration award on the merits is not permitted, a court's independent legal determination of arbitrability is limited to review of the arbitration clause, the contentions of the parties, and the face of the award itself." Hedreen, 71 Wn. App. at 739 (citations omitted)
The panel determined that the value of Donald E. Barnard's interest in Sea-Pak is $5,600,000.00. We then opened the envelope and learned that the parties stipulated that $662,000.00 should be added to the 100% value of Sea-Pak. Therefore, the $5,600,000.00 value must be increased by 43.8% of the $662,000.00 for a total arbitration award of $5,889,956.00.
Expense reimbursements, tax credits and consulting fees received by Donald E. Barnard should not be deducted from the amount owed to him pursuant to this award.
Clerk's Papers at 118. Thus, the parties clearly arbitrated the deductions for personal expense reimbursements and consulting fees.
SeaPak's final arbitration brief also indicates that the parties submitted the deductions for personal expense reimbursements and consulting fees to the arbitrators. Clerk's Papers at 405-06.
It is unclear based on the face of the award whether the parties submitted the imputed interest and capital contributions issues. The parties did not include Barnard's demand for arbitration in the clerk's papers for this appeal but did include SeaPak's final arbitration brief, in which the appellants argued the imputed interest and the capital contribution deductions to the arbitrators. Therefore, the parties also arbitrated these issues.
The appellants contend that because they raised the jurisdictional issue to the arbitrators, they did not consent to arbitrating these issues. Appellants' Reply Br. at 8. According to Barnard, the appellants "never objected to the scope of the arbitration" to the arbitrators and voluntarily submitted the issues to arbitration. Respondent's Br. at 13. The appellants fail to cite any evidence in the record that they raised the arbitrability issue before the arbitrators. "A party seeking review has the burden of perfecting the record so that the reviewing court has before it all of the relevant evidence." State v. Vazquez, 66 Wn. App. 573, 583, 832 P.2d 883 (1992) (citing State v. Garcia, 45 Wn. App. 132, 140, 724 P.2d 412 (1986)). Because the reviewing court cannot determine which issues, if any, the appellants objected to before the arbitrators, and because the award and final arbitration brief, taken together, reflect that all the issues were arbitrated, we conclude that the appellants consented to the arbitrators' jurisdiction to decide these deduction issues on the merits. ML Park Place, 71 Wn. App. at 736-37.
Therefore, the trial court properly deferred to the arbitrators' final decision on the merits and we need not reach the appellants' contention that the trial court should have considered extrinsic evidence of the parties' intent with respect to these issues.
Issue: Did the appellants waive their right to challenge certain issues in the court's order granting Barnard's motion for partial summary judgment by opposing the of imposition joint and several liability for payment of the arbitration award on Younger and the immediate payment of the balance due on the arbitration award in full for the first time in their motion for reconsideration?
Barnard contends that the appellants failed to timely object to the imposition of joint and several liability on Younger and the order of immediate payment of the arbitration award in full. The appellants contend that because Barnard failed to serve them with a copy of the proposed order in violation of LR 56(c)(1)(E), the first reasonable opportunity to respond was in their motion for reconsideration.
Effective September 1, 1996, the local rules were amended to eliminate this requirement. See 1997 Washington Court Rules.
Under RAP 2.5(a), the appellate court may refuse to review any claim of error that was not raised in the trial court. Thus, Barnard contends, because the appellants failed to properly raise this issue below under LR 56(c)(5), this court should not consider his arguments here.
In Barnard's motion for summary judgment he stated the issue as:
Is Barnard entitled to judgment against Younger and Seattle Packaging for the full amount owed him when Younger and Seattle Packaging materially breached the Agreement by refusing to pay the amount owed and by providing a promissory note that is more than $2 million less than Barnard is entitled to receive?
Clerk's Papers at 325-26. Barnard also stated in his brief that "{t}he Agreement was terminated by the breach, and Barnard is owed the full amount due under the Agreement." Clerk's Papers at 327. In a footnote, Barnard argued that the appellants "cannot claim that they have the right to now change their mind and provide a promissory note for the correct amount." Clerk's Papers at 327 n.3. Barnard's proposed order, which the court adopted, stated that Barnard "is entitled to judgment against Seattle Packaging Corporation and Gordon Younger, jointly and severally, for $4,504,210.46, plus interest . . . until paid in full." Clerk's Papers at 428.
The Rules of Appellate Procedure "will be liberally interpreted to promote justice and facilitate the decision of cases on the merits." RAP 1.2. Here, by not serving on the appellants a copy of the proposed order, which clearly presented the issues, Barnard hampered the appellants' ability to effectively respond to the relief sought by Barnard, especially on the issue of immediate payment in full. Further, the appellants did argue the merits of their claims to the trial court in their motion for reconsideration. Therefore, we will review the merits of the appellants' arguments on these issues.
Issue: Did the trial court err by imposing joint and several liability for payment of the arbitration award on Younger?
The appellants contend that the trial court incorrectly construed the arbitration agreement by imposing joint and several liability on Younger. Specifically, the appellants contend that the agreement only imposed a duty to pay the final value of the arbitration award on SeaPak. Barnard contends that Younger signed the agreement on behalf of SeaPak and himself individually and, therefore, is joint and severally liable.
"An agreement to pay money, signed by two, but in the body providing for payment by one of them only, has been regarded as a joint and several obligation." 17A C.J.S. Contracts sec. 355 (1967). "The court looks to the parties' intentions to determine whether their agreements create a joint obligation." Smith v. Washington Ins. Guar. Ass'n, 77 Wn. App. 250, 258, 890 P.2d 1060 (1994) (citing Turner v. Gunderson, 60 Wn. App. 696, 704, 807 P.2d 370 (1991)). The trial court should consider extrinsic evidence to determine the parties' intentions. Turner, 60 Wn. App. at 704 n.2 (citing Berg v. Hudesman, 115 Wn.2d 657, 801 P.2d 222 (1990)). However, extrinsic evidence "is not admissible for the purpose of adding to, modifying, or contradicting the terms of a written contract, in the absence of fraud, accident, or mistake." Berg, 115 Wn.2d at 669 (quoting J. W. Seavey Hop Corp. v. Pollock, 20 Wn.2d 337, 348-49, 147 P.2d 310 (1944)).
Here, the court had ample uncontradicted evidence from which to conclude that the parties intended to impose joint and several liability on Younger. First, Younger signed the agreement on behalf of SeaPak and himself. Second, the agreement provides that Younger "intends to acquire Barnard's interest" in SeaPak, and Barnard "intends to sell his interest in Sea-Pak to Younger." Clerk's Papers at 350. Third, the day after the parties entered into the agreement, Younger signed a promissory note to Barnard on behalf of SeaPak and himself, individually, specifically imposing joint and several liability for the obligations under the note. Younger presented no competent evidence that the parties did not intend to impose joint and several liability on SeaPak and Younger. Therefore, because no genuine issues of material fact existed as to the intentions of the parties to impose joint and several liability on Younger, the court did not err by imposing joint and several liability based on the face of the agreement in its order granting Barnard's motion for partial summary judgment.
Issue: Did the trial court err by ordering immediate payment of the award to Barnard in full upon SeaPak and Younger's breach of the payment schedule in the agreement, in its order granting Barnard's motion for partial summary judgment?
SeaPak executed a promissory note to Barnard for $2,216,654. SeaPak calculated the amount of the promissory note by taking various deductions from the total arbitration award that SeaPak allegedly believed the agreement permitted, including deductions for imputed interest on prior payments to Barnard under the agreement, personal expense reimbursements made to Barnard plus interest, consulting fees paid to Barnard plus interest, and capital contributions made to SeaPak by parties other than Barnard. Barnard filed a motion for partial summary judgment for payment in full. The court granted the motion and ordered SeaPak and Younger, jointly and severally, to immediately pay Barnard $4,504,210.46. The court calculated the figure by subtracting prior payments paid to Barnard under the agreement from the total arbitration award. The trial court made no further deductions from the arbitration award. SeaPak and Younger filed a motion for reconsideration, which the court denied.
Barnard then moved for summary judgment on SeaPak's motion to vacate the arbitration award and Younger's counterclaim regarding the terms of the Adventure '79 lease. The court granted Barnard's motion for summary judgment and dismissed SeaPak's motion to vacate and Younger's counterclaim, with prejudice.
The appellants contend that the court improperly ordered immediate payment of the arbitration award in full, because the arbitration agreement expressly provided for payment over time. Barnard contends that the appellants breached the agreement by "refusing to either pay the amount owed in full or to provide a promissory note for the full amount owed to Barnard," thereby requiring immediate payment of the award. Respondent's Br. at 29.
This court will affirm an order granting summary judgment if "the pleadings, affidavits, depositions, and admissions on file demonstrate there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law." Wilson v. Steinbach, 98 Wn.2d 434, 437, 656 P.2d 1030 (1982) (citing Barrie v. Hosts of Am., Inc., 94 Wn.2d 640, 642, 618 P.2d 96 (1980)); CR 56(c). On this issue, the relevant facts are not in dispute. Under the agreement, Barnard was entitled to the amount of the arbitration award. After making the various deductions for imputed interest, personal expense reimbursements, consulting fee payments, and capital contributions, the appellants executed a promissory note to Barnard for $2,216,654. At the time, with credit for prior payments made to Barnard, the appellants still owed Barnard $4,335,284.12 under the award.
The appellants argue that no breach occurred because they believed in "good faith" that they were entitled to make the deductions and promptly sought declaratory relief. Appellants' Reply Br. at 18. Barnard contends that the appellants breached by failing to adhere to the agreement.
Upon breach of a contract, the court may require payment in full even if the contract provides for payments over time, because the claimant is "not suing to specifically enforce {the contract} but to recover damages." Smith v. King, 106 Wn.2d 443, 449-50, 722 P.2d 796 (1986) (involving a real estate contract in which the subsequent purchasers breach caused the original purchasers to forfeit their interest in the property). Similarly, the Kansas Supreme Court has held that "{o}ne who repudiates his obligation under a contract cannot thereafter exercise the right of election contained in its provisions; the right of election passes to the other party who may elect which alternative he will accept." Anderson v. Rexroad, 180 Kan. 505, 306 P.2d 137, 142 (1957). Thus, Barnard contends, upon breach, he could choose between immediate payment or payment under the terms of the arbitration agreement.
The construction of a contract, the process by which the legal consequences of the terms are determined, involves a question of law. Burgeson v. Columbia Producers, Inc., 60 Wn. App. 363, 366-67, 803 P.2d 838 (1991). The agreement required that Barnard be paid the Final Value and Adjusted Final Value. The arbitrators set the Adjusted Final Value at $5,889,956.00. By failing to pay the balance due on that amount, the appellants breached the agreement. Therefore, the trial court did not err by ordering immediate payment of the arbitration order in full in its order granting Barnard's motion for partial summary judgment.
Issue: Did the trial court err by granting Barnard's motion for summary judgment dismissing Younger's counterclaim for declaratory relief on the terms of the Adventure '79 lease, without considering extrinsic evidence?
SeaPak rents real estate at an above-market rate from Adventure '79, a partnership owned equally by Barnard and Younger. At the arbitration hearing, the appellants contend that Barnard "restated" the rental rate down to fair market value to make his interest in SeaPak appear greater. Alleging that Barnard will be unjustly compensated if the rents remain above market value, Younger now seeks a declaratory judgment that he may unilaterally amend the terms of the lease agreement.
Barnard contends that the lease agreement plainly and clearly states the lease terms and that Younger cannot amend the terms of the lease without Barnard's consent. Younger contends that the trial court should have received extrinsic evidence on the proper interpretation of the lease before entering summary judgment.
This court will affirm an order granting summary judgment if "the pleadings, affidavits, depositions, and admissions on file demonstrate there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law." Wilson, 98 Wn.2d at 437 (citing Barrie, 94 Wn.2d at 642); CR 56(c). If the defendant is the moving party, it may meet its initial burden by pointing out an absence of evidence to support the plaintiff's case. Howell v. Spokane Inland Empire Blood Bank, 117 Wn.2d 619, 624, 818 P.2d 1056 (1991) (citations omitted). The burden then shifts to the plaintiff, who bears the burden of proof at trial. "If, at this point, the plaintiff `fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial', then the trial court should grant the motion{.}" Hiatt v. Walker Chevrolet Co., 120 Wn.2d 57, 66, 837 P.2d 618 (1992) (citations omitted).
In this case, Younger cites no legal authority that would give him the unilateral authority to alter the terms of the lease. Further, Younger fails to cite any provision in the lease that could be interpreted as giving Younger unilateral authority to amend the lease, nor any evidence that the parties intended to give Younger unilateral authority to amend the lease. Therefore, no genuine issue of material fact exists that would require the admission of extrinsic evidence under Berg.
When no issues of material fact are present, the court may interpret the legal consequences of the contract terms as a matter of law. Burgeson, 60 Wn. App. at 366-67. The lease states the terms under which Seattle Packaging rents the property from Adventure '79. Therefore, the trial court did not err by interpreting the terms of the lease and dismissing Younger's counterclaim as a matter of law.
The trial courts orders are affirmed in all respects.
WE CONCUR:
I agree that we should affirm the trial court's confirmation of the arbitration award, but write separately to emphasize what I believe to be the correct analysis in these circumstances.
First, perjury in the course of an arbitration proceeding can and should constitute fraud as that concept is used in the applicable statutes. Second, and more important to the quandary posed by this case, the process by which to raise a challenge to an arbitration is a fact specific inquiry for the superior court, an inquiry that is not restricted by the doctrine that subsequent judicial review of an arbitration award cannot go behind the face of the award. Rather, it is incumbent on the party challenging the award to produce a prima facie case establishing that perjury occurred, and that the perjury materially affected the outcome of the proceeding.
Neither circumstance was established here. Certainly, who said what and when with regard to a comparable sale is disputed, but that dispute is no more than the proverbial swearing contest, in contrast to perjury. Moreover, the record reveals this comparable sale to have been no more than "some" of the substantial evaluation evidence presented to the arbiters. The appellants did not establish a prima facie case requiring further factual inquiry by the trial court. Summary judgment was appropriate.
As a final note, I do not disagree that CR 60(b) provides a good analogous analytical framework for the determination of whether fraud materially affected the outcome. However, Peoples State Bank v. Hickey, 55 Wn. App. 367, 777 P.2d 1056 (1989), was wrongly decided, even while reciting the correct principle, and I would not give the case the further dignity of relying on it here.