Konrad v. Stoebner

#27772-a-LSW

2016 S.D. 77

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

****
THOMAS KONRAD, Plaintiff and Appellee,

v.

MYRON R. STOEBNER and
PATRICIA STOEBNER, Defendants and Appellants.

****

APPEAL FROM THE CIRCUIT COURT OF
THE FIRST JUDICIAL CIRCUIT
HUTCHINSON COUNTY, SOUTH DAKOTA

****

THE HONORABLE PATRICK T. SMITH
Judge

****

ROBERT T. KONRAD of
Olinger, Lovald, McCahren,
Van Camp & Konrad, PC
Pierre, South Dakota Attorneys for plaintiff
and appellee.

SCOTT R. SWIER
MICHAEL A. HENDERSON of
Swier Law Firm, Prof. LLC
Avon, South Dakota Attorneys for defendants
and appellants.

****

CONSIDERED ON BRIEFS
ON OCTOBER 3, 2016

OPINION FILED 11/02/16
#27772

WILBUR, Justice

[¶1.] In this appeal of the circuit court’s confirmation of an arbitration

award, we determine whether the arbitrator exceeded his powers. We affirm.

Background

[¶2.] Thomas Konrad and Myron and Patricia Stoebner entered into a

contract for the sale of real property on December 30, 2002. They amended that

agreement and executed a second contract in 2011 (Contract). Under the Contract,

the Stoebners agreed to sell to Konrad nine parcels of real estate in Hutchinson and

Charles Mix counties. The sales were set to occur on specific dates over the course

of several years. The Contract set forth the purchase price for each parcel.

[¶3.] After the Stoebners sold Konrad Parcel 8 in January 2014, but before

the parties closed on the sale of the last parcel, Parcel 7, the Stoebners learned that

Konrad had executed a mortgage on Parcel 8 prior to becoming the record owner of

that parcel. In the Stoebners’ view, Konrad’s execution of a mortgage before he

owned Parcel 8 constituted a breach of contract. The Stoebners sent Konrad a

notice of default and refused to close on the sale of Parcel 7, which was scheduled to

occur on January 9, 2015. In response, on January 9, 2015, Konrad sent the

Stoebners a notice of default for the Stoebners’ failure to sell Konrad Parcel 7.

[¶4.] The Contract contains an arbitration clause. On February 10, 2015,

Konrad sent the Stoebners a demand for arbitration. In March 2015, after the

Stoebners did not consent to arbitration, Konrad brought suit in circuit court for

injunctive relief, requesting that the court enter an order compelling the Stoebners

to sell and transfer Parcel 7 to Konrad. The Stoebners answered and requested that

-1-
#27772

the court compel arbitration. Konrad did not object, and the parties retained James

McMahon to serve as the arbitrator.

[¶5.] On May 18, 2015, the arbitrator sent the parties a letter setting forth

the agreed-to rules to govern the arbitration. In particular, the parties agreed that

the arbitrator was to resolve the dispute between the parties and “that the decision

or award of the arbitrator [would] be final.” The parties further agreed that the

arbitrator would issue a written decision. In a subsequent letter, the arbitrator

identified the parties’ claims as follows: Konrad alleged the Stoebners breached the

Contract when they refused to close on the sale of Parcel 7, and the Stoebners

alleged that Konrad breached the Contract when he gave CorTrust Bank a

mortgage on Parcel 8. In the Stoebners’ view, the mortgage constituted a “transfer”

as defined by the Contract, which is an incurable “event of default” under the

Contract.

[¶6.] The arbitrator held a hearing on August 4, 2015. The arbitrator

identified the primary issue to be decided: “whether a mortgage on Parcel 8, which

was given by Konrad to CorTrust Bank and recorded by CorTrust on January 7,

2014 was an incurable default under the Master Contract.” The arbitrator noted

that the evidence demonstrated that Konrad signed a promissory note, commercial

loan and agreement, and mortgage in favor of CorTrust in December 2013. The

mortgage listed Parcel 8 as collateral. CorTrust was not to record the mortgage

until Konrad closed on the sale of Parcel 8. (The Stoebners did not dispute that

CorTrust was not to record the mortgage.) CorTrust, however, mistakenly recorded

the mortgage on January 7, 2014, three days prior to the sale of Parcel 8 to Konrad.

-2-
#27772

After the closing on Parcel 8, the Stoebners and Konrad learned that CorTrust

recorded the mortgage early. Ultimately, Konrad and CorTrust executed a partial

release of the mortgage. The Stoebners stipulated that they suffered no harm as a

result of CorTrust recording the mortgage three days early. However, they argued

that Konrad’s execution of a mortgage on Parcel 8 while the Stoebners still owned

Parcel 8 constituted a “transfer” in violation of Section 7.1 D of the Contract.

Konrad, in response, asserted that the execution of the mortgage did not constitute

a transfer because he did not transfer or intend to transfer his interest in Parcel 8;

CorTrust mistakenly recorded the mortgage.

[¶7.] The arbitrator issued a written decision on August 12, 2015. The

arbitrator identified that Article 7.3 provided that Konrad did “not have the right to

cure any Event of Default under Sections 7.1 A, 7.1 B, or 7.1 E.” There is no section

7.1 E in the Contract. The arbitrator concluded that Section 7.3’s reference to

Section 7.1 E was “clearly supposed to be 7.1 D.” Section 7.1 D provided that a

default occurs when Konrad transfers his “interest in any Parcel other than in

accordance with the requirements of Article 8.” The arbitrator held, therefore, that

“a transfer in violation of 7.1 D would be incurable.” A “Transfer” is defined in

Section 8.1 as “any assignment, conveyance, transfer, lease, sublease, or mortgage

of this Master Contract or any interest in any Parcel.”

[¶8.] Based on his view of the evidence, the arbitrator concluded that

Konrad’s execution of a mortgage on Parcel 8 did not constitute a transfer in

violation of 7.1 D. “[T]here is no question a mortgage was not to be filed on Parcel 8

prior to the closing. Consequently, Konrad did not transfer or intend to transfer his

-3-
#27772

interest in Parcel 8 prior to the closing.” In the arbitrator’s view, what happened

“was not an Event of Default under the Master Contract and was not a legitimate

basis for the Stoebners to refuse to transfer Parcel 7 or to invalidate the transfer of

Parcel 8.” The arbitrator regarded it “[i]llogical to believe that the language in

Article 7.1 D of the Master Contract was intended to preclude Konrad from

obtaining a loan and giving a mortgage to a lender as he closed on a parcel.”

Alternatively, the arbitrator indicated that even if the Contract could be construed

in this manner, it would have been “unreasonable for Stoebners to refuse a request

by Konrad to give a mortgage to a financing institution loaning Konrad money to

purchase a parcel.” The arbitrator ruled that the Stoebners breached the Contract

and ordered the Stoebners to transfer Parcel 7 to Konrad. The arbitrator also

ordered that the Stoebners pay the arbitrator’s and Konrad’s fees.

[¶9.] Konrad filed an application for judicial confirmation of the arbitration

award in circuit court under SDCL 21-25A-23. The Stoebners moved to vacate the

award under SDCL 21-25A-24(3), arguing that the arbitrator exceeded his powers.

The court held a hearing on November 23, 2015, issued a memorandum decision on

January 8, 2016, and issued findings and conclusions on January 20, 2016. The

court denied the Stoebners’ application to vacate the award and confirmed the

arbitration award. The Stoebners appeal, asserting that the circuit court erred

when it refused to vacate the arbitration award.

Analysis

[¶10.] The Stoebners assert that the arbitrator exceeded his powers by

disregarding the contractual definition of “transfer.” In the Stoebners’ view, had

-4-
#27772

the arbitrator correctly applied the unambiguous definition of “transfer,” it would

have concluded that Konrad’s mortgage of his interest in Parcel 8 constituted a

transfer in violation of the Contract.

[¶11.] “Those who voluntarily make arbitration agreements assuredly

bargain for these advantages, and a deferential standard of review protects such

contractual arrangements.” Black Hills Surgical Physicians, LLC v. Setliff, 2014

S.D. 68, ¶ 14, 855 N.W.2d 407, 411. The Legislature has enacted such protections,

strictly limiting when a court may vacate an arbitration award. Id. “But on the

question whether arbitrators exceeded their powers, we have long held a less

deferential standard of review.” Id. ¶ 16. We examine de novo whether an

arbitrator exceeded his powers as defined by the arbitration agreement or

submission. Id.; Azcon Constr. Co., Inc. v. Golden Hills Resort, Inc., 498 N.W.2d

630, 635 (S.D. 1993).

[¶12.] In our review, we “need only examine the submission and the award to

determine whether the award conforms to the submission.” Spiska Eng’g, Inc. v.

SPM Thermo-Shield, Inc., 2007 S.D. 31, ¶ 12, 730 N.W.2d 638, 643 (quoting Double

Diamond Constr. v. Farmers Coop Elev. Ass’n of Beresford, 2004 S.D. 65, ¶ 10, 680

N.W.2d 658, 660-61). Here, the parties retained the arbitrator and submitted to the

arbitrator the power to interpret the parties’ contract, including the meaning of the

term “transfer.” When a party asserts that the arbitrator exceeded his authority by

failing to apply the plain meaning or terms of a contract, we will not “interfere with

the arbitrator’s award unless it can be said with positive assurances that the

contract is not susceptible to the arbitrator’s interpretation.” Id. ¶ 17 (quoting

-5-
#27772

United Food & Commercial Workers, AFL-CIO, CLC, Local No. 88 v. Shop ‘N Save

Warehouse Foods, Inc., 113 F.3d 893, 895 (8th Cir. 1997)). Nor will we vacate an

award unless the arbitrator’s interpretation of the contract “so directly contradicts

the plain meaning of the parties’ agreement that it effectively rewrites it.” Id. ¶ 17

(quoting Boise Cascade Corp. v. Paper Allied-Indus., Chem. & Energy Workers

(PACE), Local 7-0159, 309 F.3d 1075, 1081 (8th Cir. 2002)). “Only when arbitrators

‘must have based’ their awards ‘on some body of thought, or feeling, or policy, or law

that is outside the contract’ are such awards deemed in excess of the arbitral powers

delegated in the parties’ agreement.” Setliff, 2014 S.D. 68, ¶ 17, 855 N.W.2d at 412

(quoting Ethyl Corp. v. United Steelworkers of Am., 768 F.2d 180, 184-85 (7th Cir.

1985)).

[¶13.] From our review, the arbitrator did not base his decision “on some

body of thought, or feeling, or policy, or law outside the contract[.]” See id. A

“transfer” includes “any assignment, conveyance, transfer, lease, sublease, or

mortgage of this Master Contract or any interest in any parcel.” And, under Section

7.1 D, Konrad may not “Transfer” his “interest in any Parcel other than in

accordance with the requirements of Article 8.” The arbitrator concluded Konrad

did not “transfer” his interest in Parcel 8 because CorTrust mistakenly recorded the

mortgage three days before the parties closed on the sale of Parcel 8. Reading

Section 7.1 D in context with the definition of “transfer,” we cannot say that the

arbitrator’s interpretation ignores the plain language of the contract or “directly

contradicts the plain meaning of the parties’ agreement” such that the arbitrator

effectively rewrote the contract. See Spiska Eng’g, Inc., 2007 S.D. 31, ¶ 17, 730

-6-
#27772

N.W.2d at 644. Because the arbitrator did not exceed his powers when he decided

the issue submitted, the circuit court did not err when it confirmed the arbitration

award in favor of Konrad.

[¶14.] Affirmed.

[¶15.] GILBERTSON, Chief Justice, and ZINTER, SEVERSON, and KERN,

Justices, concur.

-7-