May v. First National Pawn Brokers, Ltd.

No. 94-189
IN THE SUPREME COURT OF THE STATE OF MONTANA

FIRST NATIONAL PAWN BROKERS, LTD.,
Defendant and Appellant.

APPEAL FROM: District Court of the Eighth Judicial District,
In and for the County of Cascade,
The Honorable John McCarvel, Judge presiding.

COUNSEL OF RECORD:
For Appellant:
Patrick R. Watt; Jardine, Stephenson, Blewett &
Weaver, Great Falls, Montana

For Respondents:
Howard F. Strause, Attorney at Law, Great Falls,
Montana

Submitted on Briefs: October 5, 1994
Decided: December 15, 1994
Filed:
Justice Karla M. Gray deli+ered the Opinion of the Court.

First National Pawn Brokers, Ltd. appeals from a judgment

entered against it by the Eighth Judicial District Court, Cascade

County, and, more specifically, from the court's refusal to vacate

an arbitration award in favor of Phil and Betty May. We affirm,

concluding that the District Court did not err in refusing to

vacate the award on the basis of evident partiality or manifest

disregard of the law.
Phil and Betty May (collectively, the Mays) brought an action

against First National Pawn Brokers, Ltd. (FNP) for wrongful

discharge under Montana's Wrongful Discharge From Employment Act.

They alleged that they were hired in April 1989, to manage FNP's

Great Falls store, and that they were induced to move to Great

Falls from their home in Laurel by FNP's salary offer to each of

them of 5% of the gross revenues of the store. They further

alleged that their long work hours and six-day work weeks were

largely responsible for the increase in the store's monthly gross

from $16,000 to $100,000 during their tenure as managers.

According to the Mays, FNP cut each of their salaries from 5%

to 3.4% of the gross in 1991, promising at that time never to

reduce the salaries below that amount. They contended that over a

three-day period in August 1993, FNP unilaterally reduced their

compensation, yelled at them and made abusive remarks, and

wrongfully discharged them.
FNP denied the material allegations of the Mays' complaint. It

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asserted a number of affirblative defenses, including that the Mays

voluntarily quit, that they did not mitigate their damages, and

that their refusal to accept an offer of reemployment bars any

recovery. The Mays offered to arbitrate the dispute pursuant to

5 39-2-914, MCA. FNP accepted. The parties stipulated that the

arbitrator would be Gordon R. Bennett (Arbitrator), retired

district court judge, and the District Court appointed him to

arbitrate the dispute.
An arbitration hearing was held on January 12, 1994. In his

subsequent Memorandum and Award, the Arbitrator determined that the

Mays were constructively discharged without good cause and,

therefore, were wrongfully discharged. He set forth applicable

statutory and case law definitions and a number of actions by Ben

Brown, FNP's agent, in support of his determination. Each of the

Mays was awarded $132,432 in damages.

The Mays moved the District Court to confirm the arbitration

award; FNP moved to vacate it. The court confirmed the award and

entered judgment thereon. FNP appeals.
The issue on appeal is whether the District Court erred in

refusing to vacate the award on the basis of evident partiality or

manifest disregard of the law. Our standard in reviewing a court's

refusal to vacate an arbitration award is whether the court abused

its discretion. Duchscher v. Vaile (No. 94-188, decided December

15, 1994, slip op. p. 6).
Montana's Wrongful Discharge From Employment Act specifically

provides for the voluntary arbitration of discharge disputes.

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Section 39-Z-914, MCA. Once an offer to arbitrate is made and

accepted,

arbitration is the exclusive remedy for the wrongful
discharge dispute and there is no right to bring or
continue a lawsuit under [the WDEAI. The arbitrator's
award is final and binding, subject to review of the
arbitrator's decision under the provisions of the Uniform
Arbitration Act.

Section 39-2-914(5), MCA. Applying the statute to the record

before us, it is clear that the Mays and FNP voluntarily undertook

final and binding arbitration of their dispute, subject only to

such review as is authorized by the Uniform Arbitration Act.

Montana's Uniform Arbitration Act (MUAA) was adopted in 1985;

it is codified at Title 27, Chapter 5, of the Montana Code

Annotated. Under its provisions, a district court must confirm an

arbitration award upon application of a party unless timely urged

to vacate or modify the award. Section 27-5-311, MCA. It is

undisputed that the Mays applied to the District Court for

confirmation and that FNP timely urged that the award be

vacated.

Judicial review of an arbitration award is strictly limited by

statute. Duchscher, slip op. at 4. The grounds for vacating an

arbitration award on application of a party are specified in § 27-

5-312(1), MCA:
(a) the award was procured by corruption, fraud, or
other undue means;
(b) there was evident partiality by an arbitrator
appointed as a neutral or corruption in any of the
arbitrators or misconduct prejudicing the rights of any
party;
(c) the arbitrators exceeded their powers;
Cd) the arbitrators refused to postpone the hearing
upon sufficient cause being shown therefor or refused to

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 hear evidence material to the controversy or otherwise so
conducted the hearing, contrary to the provisions of 27-
5-213, as to prejudice substantially the rights of a
party; or
(e) there was no arbitration agreement and the
issue was not adversely determined in proceedings under
27-5-115 and the party did not participate in the
arbitration hearing without raising the objection.

The MUAA clearly does not authorize judicial review of arbitration

awards on the merits of the controversy. Duchscher, slip op. at 6.

Did the District Court abuse its discretion in refusing
to vacate the award pursuant to 5 27-5-312, MCA, on the
basis of evident partiality?

FNP argues that the award, or the Arbitrator's conduct, shows

evident partiality and, thus, that the award must be vacated

pursuant to § 27-5-312(l) (b), MCA. Its argument is premised on the

following allegations of partiality:

1. The Arbitrator asked a number of irrelevant questions of

FNP officer and stockholder Barbara Brown, concerning FNP's

stockholders and stock transfers;

2. the Arbitrator "badgered" witness Barbara Brown via the

asking of one question;

3. the Arbitrator's use of language such as "demonstrated no

gratitude," "exploited them unconscionably," and "oppressed

them" in characterizing FNP's conduct in the written

arbitration award; and

4. the Arbitrator's interpretation of a September 1993,

letter to the Mays' counsel as containing an "implication that

dismissal of the instant lawsuit would be a condition of re-

employment."

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FNP relies on the following-united States Supreme Court and United

States Circuit Courts of Appeals cases in support of its position:

Commonwealth Coatings Corp. v. Continental Casualty Co. (1968), 393

U.S. 145, 89 S.Ct. 337, 21 L.Ed.Zd 301, reh. den. 393 U.S. 1112, 89

S.Ct. 848, 21 L.Ed.2d 812; Morelite Const. v. N.Y.C. Dist. Council

Carpenters (2nd Cir. 1984), 740 F.2d 79; and Stroehmann Bakeries v.

Local 776 (3rd Cir. 1992), 969 F.2d 1436.

We note that FNP merely extracts principles and statements

from these cases without attempting to establish how or why the

cases are applicable to the facts and circumstances before us.

Nonetheless, we distinguish each below.

We begin by addressing Commonwealth and Morelite, both of

which involved existing and uncontested relationships--one business

and one familial--between the arbitrator and a party to the

arbitration. In Commonwealth, the losing subcontractor in an
arbitration proceeding sought to vacate an award under the United

States Arbitration Act's (USAA) "evident partiality" standard. The

contractor and the subcontractor each selected an arbitrator and

those arbitrators selected a third arbitrator. Unbeknownst to the

subcontractor, the third arbitrator had significant business

dealings with the contractor and had rendered services on the very

projects involved in the arbitration. After an award had been

made, the subcontractor became aware of the relationship and sought

to have the award vacated.
In the course of discussing the "evident partiality" standard

in general, Justice Black, writing for a plurality of four

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justices, stated that "any8 tribunal permitted by law to try cases

and controversies not only must be unbiased but also must avoid

even the appearance of bias." Commonwealth, 393 U.S. at 150. The

Supreme Court decided the case by requiring that arbitrators

"disclose to the parties any dealings that might create an
impression of possible bias." Commonwealth, 393 U.S. at 149.

The case presently before us does not involve allegations of

existing business or social relationships between the Arbitrator

and the Mays. Thus, the Supreme Court's Commonwealth disclosure

requirement has no application here.

Moreover, even if the plurality's broad statement that

arbitrators must avoid even the appearance of bias were the Supreme
Court's holding in the case, it cannot be applied in a vacuum. The

type of bias being addressed by the Supreme Court in Commonwealth--
a direct, ongoing, undisclosed business relationship involving

pecuniary gain to the arbitrator--might well meet any definition of

"evident partiality." Such partiality is not presented, even by

allegation, here.

Similarly, the Second Circuit Court of Appeals' Morelite

decision is entirely inapposite to the case before us. There, the

Second Circuit applied the "evident partiality" standard from the

USAA to an arbitration award involving a construction contractor

and a local union, noting that "what constitutes 'evident

partiality' by an arbitrator is a troubling question." Morelite,

740 F.2d at 82. It rejected a mere "appearance of bias" standard,

determined that a "proof of actual bias" standard would be
insurmountable, and held that "evident partiality" within the

meaning of the USA?. "will be found where a reasonable person would

have to conclude that an arbitrator was partial to one party to the

arbitration." Morelite, 740 F.2d at 84. Applying that standard,

the Second Circuit vacated the award before it on the basis of the

father-son relationship between the arbitrator and an officer of

the international union whose local was a party to the arbitrat,ion.

Morelite, 748 F.2d at 85. We are not faced with such a

relationship, or anything even remotely akin to one, here.

Finally, we examine the Third Circuit's Stroehmann decision,

cited by FNP for the proposition that evident partiality may be

shown by such indications of bias as may be found both in an

arbitrator's behavior and comments during the hearing and in his

opinion, and by indications that his findings and conclusions are

based on something other than reason and fact. Suffice it to say

in this regard that the Third Circuit's affirmance of the vacating

of an arbitration award was not based on the USAA's "evident

partiality" standard. The award in Stroehmann was vacated under
the Labor Management Relations Act's public policy exception to the

general rule that courts may not review the merits of arbitration

awards. Stroehmann, 969 F.2d at 1441. The present case does not
present such a situation. The discussion in Stroehmann of the

arbitrator's bias and partiality related to whether the trial

court's remedial order remanding for hearing before a different

arbitrator was proper. Stroehmann, 969 F.2d at 1446. That
situation also is not before us here.
 Having distinguished the primary authorities relied on by FNP,
we examine FNP's allegations of partiality to determine whether the

District Court erred in refusing to vacate the arbitration award

before us pursuant to § 27-5-312(l) (b), MCA, on grounds of evident

partiality. We do so only briefly faced, as we are, with FNP's

failure to cite to any decisions of sister states on the subject.

While we recognize that no Montana decisions have interpreted the

MUAA's "evident partiality" standard, the legislature has directed

that we be guided by decisions in sister states which have enacted

the Uniform Arbitration Act in order to effectuate the purpose of

keeping the law uniform. & § 27-5-112, MCA (emphasis added).

The burden of proof in establishing a statutory ,basis for

vacating an arbitration award is on the party attacking the award,

here FNP. The partiality which will suffice to vacate an

arbitration award must be certain, definite and capable of

demonstration; alleged partiality which is remote, uncertain or
speculative is insufficient. William B. Lucke, Inc. v. Spiegel

(Ill. App. 19701, 266 N.E.Zd 504, 508.

FNP's allegations of partiality by the Arbitrator during the

hearing are that he asked a number of irrelevant questions of an
FNP witness and, via one specific question, "badgered" her. FNP

contends that similar conduct was sufficient to constitute evident

partiality in Holodnak v. Avco Corp. (D. Conn. 19741, 381 F.Supp.
191. We disagree.

Holodnak involved First Amendment considerations relating to
the plaintiff's publishing of an article critical of his employer's

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and union's practices. Throughout the proceedings, the arbitrator
permitted questions about the plaintiff's reading habits, political

views and personal background; the arbitrator himself participated

in questioning about the plaintiff's views on communism and a trip

to Cuba in 1960. He repeatedly showed undue concern for the

plaintiff's motives and at times openly badgered the plaintiff by

persistent questioning. On the basis of such a record, the federal

district court found "clear bias revealed by the arbitrator's

comments throughout the arbitration proceedings," and vacated the

award under the US&A's evident partiality standard. Holodnak, 381

F.Supp. at 199.
Our scrutiny of the transcript before us in this case

discloses no such improper conduct, bias or partiality by the
Arbitrator. One series of arguably irrelevant questions and one

other question characterized as "badgering" are not the

quantitative equivalent of the repeated and persistent conduct of

record in Holodnak. Furthermore, while the Arbitrator's series of

questions relating to FNP's stockholders and stock transfers may

have been of limited relevance here, the federal district court's

concern in Holodnak clearly was premised on the intrusive nature of

the arbitrator's questions into areas and views protected by free

speech or privacy interests.

Nor do we agree that the Arbitrator's asking of one question--

which may have been perceived by FNP as rude or even hostile--

constitutes the kind of badgering established by the record in
Holodnak. Absent actual overt misconduct, a disappointed party's

1 0
perception of an arbitrator's rudeness is not the sort of "evident

partiality" contemplated as grounds for vacating an award. &

Fairchild & Co. v. Richmond, F. & P.R. Co. (D.D.c. 1981), 516

F.Supp. 1305.

FNP's remaining allegations of partiality concern the
Arbitrator's choice of language in characterizing acts of Ben Brown

on FNP's behalf, and his interpretation of a September 1993,

letter. While FNP argues that these inclusions in the Arbitrator's

written award establish "evident partiality" under § 2?-5-

312(I) (b), MCA, we do not agree. At best, these arguments amount

to speculative and conclusory allegations of partiality rather than

the direct and demonstrable evidence of partiality required to

vacate an award.

Indeed, boiled down to their essence, FNP's award-based

allegations constitute nothing more than disagreement by the losing

party with the Arbitrator's weighing of the evidence, credibility

determinations, and ultimate resolution of the dispute. Through

the guise of partiality arguments, FNP essentially seeks to have
this Court review the merits of the controversy and the extent to

which the evidence supports the Arbitrator's decision. We are not

free to do so under the MUAA. See Duchscher, slip op. at 6;

Seither & Cherry Co. v. Ill. Bank Bldg. Corp. (Ill. App. 1981), 419

N.E.2d 940, 945.
We conclude that FNP's partiality allegations relating to the

Arbitrator's conduct during the hearing and the arbitration award

do not establish "evident partiality" under § 27-5-312(l) (b), MCA.

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we hold, therefore, that the District Court did not abuse its

discretion in refusing to vacate the award on that basis.

Did the District Court abuse its discretion in refusing
to vacate the award on the basis of manifest disregard of
the law?

FNP also argues that we should adopt the approach of some

federal courts that an arbitration award based on "manifest

disregard of the law" will not be enforced and, on that basis,

vacate the award before US. FNP's contention is that the

Arbitrator manifestly disregarded the law in the following ways:

1. By incorrectly applying the "intolerable working

conditions" definition for constructive discharge utilized by

the federal district court in Russell v. Mini Mart, Inc. (D.

Mont. 1988), 711 F.Supp. 556; and

2. by incorrectly interpreting two alleged offers of re-

employment from FNP to the Mays.

FNP begins its argument on this issue by suggesting that this

Court "endorsed" the "manifest disregard" approach in McIntosh v.

Hartford Fire Ins. Co. (1938), 106 Mont. 434, 78 P.Zd 82. McIntosh

has no application here. It predated the legislature's enactment

of the MUAA by nearly fifty years and, for that reason, can hardly

be said to have interpreted the statutes which now govern judicial

review of arbitrations. Moreover, our “manifest injustice"

language in McIntosh related specifically to insurance appraisal

arbitration cases; in any event, it is not equivalent to the

"manifest disregard" basis FNP asserts under several federal cases.

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 Nor are we willing to adopt the manifest disregard basis for

vacating an arbitration award as FNP presents it here. As in the
first issue, FNP extracts and reiterates general statements from

three decisions of the United States Supreme Court and the Circuit

Courts of Appeals. It makes no effort to establish how or why the

case before us fits within the factual context of the cases

containing the statements.

Moreover, FNP does not analyze how this Court properly could

adopt and apply the manifest disregard standard given the strictly

limited judicial review available under the MUAA and our statutory

obligation to refrain from inserting into statutes matters not

included by the legislature. See Duchscher, slip op. at pp. 4-5;

§§ 27-5-312 and l-2-101, MCA. Significantly, as in the first

issue, FNP presents no authority from sister states applying the

manifest disregard standard under their respective Uniform

Arbitration Acts. It is clear that the legislature intended us to

be guided by such sister state decisions in interpreting the MUAA,

rather than simply following blindly every federal approach to
arbitration.

Nor are the federal cases on which FNP relies in urging the
"manifest disregard" basis for vacating an arbitration award

particularly persuasive or useful. FNP first cites to Wilko v.

Swan (1953), 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed 168, as the

seminal case on the subject. No specific quote is offered and no

mention of the facts of that case is made. In any event, however,

the United States Supreme Court has expressly overruled m,

13
determining that it was pervaded by traditional judicial hostility

to arbitration. Rodriguez de Quijas v. Shearson/Am. Exp. (1989),

490 U.S. 477, 109 S.Ct. 1917, 104 L.Ed.2d 526.

Next, FNP relies on San Martine Compania de Nav. v. Saguenay

Term. Ltd. (9th Cir. 1961), 293 F.Zd 796, as authority that

manifest disregard may exist (1) where the arbitrator understands

and correctly states the law, but proceeds to disregard it; and (2)
if the record reveals a clear infidelity to what the arbitrator

knows to be the law, but deliberately disregards. We note that the

Ninth Circuit includes these types of statements primarily as

quotes from the subsequently overruled Wilko decision and, indeed,

characterizes them as "probably dictum" by the Supreme Court in

that case. Moreover, the San Martine court clearly was troubled by

the Supreme Court's lack of definition of "manifest disregard" as

it must be distinguished from mere errors of law which are not

reviewable by courts. San Martine, 293 F.2d at 801. FNP does not

cite to any post-Rodriguez de Quiias decisions from the Ninth

Circuit or any other Circuit Court of Appeals addressing what might

remain of the "manifest disregard" basis after Rodricruez de Ouiias.

We glean the following from FNP's limited presentation of the

"manifest disregard" standard: (1) that Wilko, asserted to be the
seminal "manifest disregard" case, has been overruled; (2) that the

"manifest disregard" basis probably was dicta even in its initial

manifestation in Wilko; and (3) that FNP has offered no post-
Rodriquez de Ouiias analysis of the status of the "manifest

disregard" basis for vacating an arbitration award in the federal

14
court 23, much less an analysis establishing how this Court properly

could and should engraft such a basis onto a statute strictly

limiting judicial review of arbitration awards. As presented in

this case, we decline to adopt the "manifest disregard of the law"

basis for vacating an arbitration award and, therefore, do not

attempt to apply such a basis to the record before us.

We hold that the District Court did not abuse its discretion

in refusing to vacate the award on the basis of manifest disregard

of the law.

Are the Mays entitled to Rule 32, M.R.App.P., damages
because FNP's appeal lacks substantial and reasonable
grounds?

The Mays request that we assess damages against FNP pursuant

to Rule 32, M.R.App.P., because the law is clear on the issues

raised in the appeal, and the appeal is frivolous, mean-spirited or

taken for purpose of delay, and totally without merit
While we agree that the record before us does not establish

evident partiality under any reasonable interpretation of that

statutory language, we have not heretofore addressed that issue;

thus, we cannot say that the law in Montana was clear on this issue

prior to this case. On that basis, Mahrt v. Kalispell (19841, 213

Mont. 96, 690 P.2d 418, is distinguishable. Moreover, FNP did

request a "change" from existing law, however inartfully presented,

via its request that we adopt the manifest disregard basis for

vacating an arbitration award. To that extent, the Mays' reliance

on LJussy v. Davidson (1984), 210 Mont. 353, 683 P.2d 915, is

15
misplaced.

Nor can we conclude from anything of record that the appeal is

mean-spirited or taken for purpose of delay. While it should be

clear from our discussions of the issues that we view this appeal

as verging on the frivolous, we cannot conclude that it meets the

standards we have established for the assessment of Rule 32

damages. Therefore, we decline to assess such damages.

AFFIRMED. n

We concur:

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Justice Terry N. Trieweiler specially concurring.

I concur with the majority's conclusion that the District

Court did not abuse its discretion when it refused to vacate the

arbitrator's award.

However, I do not agree with all that is said in the majority

opinion. I specifically do not agree with the majority's

conclusion that arbitration awards should not be reviewed for

manifest disregard of the law.
While the parties in this case did enter into a true agreement

to submit their dispute to arbitration; and while it may be more

"judicially comfortable" to limit our review to the few bases

provided for by statute; we, as a Court, have an independent

responsibility to invalidate agreements which are in violation of

public policy.
If an agreement to arbitrate relieves the parties to that

agreement from their responsibilities provided for by law, as

should be inferred from the majority opinion, then in my opinion,

that agreement is void because it is contrary to the public

policies of this State. The only way to uphold the agreement,

then, is to hold that arbitration awards are reviewable for

manifest disregard of the law. I also conclude that doing so does

not exceed our statutory scope of review.

The majority states that:

Moreover, FNP does not analyze how this Court
properly could adopt and apply the manifest disregard
standard given the strictly limited judicial review
available under the MUAA and our statutory obligation to
 refrain from inserting into statutes matters not included
by the legislature.

However, reviewing arbitration awards for manifest disregard for

the law is perfectly consistent with the statutory bases for

reviewing arbitration awards. Section 27-5-312(l) (b), MCA,

provides that arbitration awards may be vacated by a district court

where "there was evident partiality by an arbitrator . . . or
misconduct prejudicing the rights of any party . . . .II

Those federal decisions which have discussed the meaning of a

"manifest disregard of the law" have concluded that it involves

more than simply a misapplication of the law. It results where the

record reveals that the arbitrator clearly understands the law but

deliberately disregards it. See San Martine Compcmia de Navegacion, S.A. v.

Saquenay Terminal, Ltd. (9th Cir. 1961), 293 F.2d 796, 801. If

understanding, but then blatantly refusing to follow the law is not

evidence of partiality or misconduct which prejudices the rights of
the victimized party, then I do not know what would satisfy that

statutory standard for setting aside an arbitration award.

I am also troubled by the majority's repeated criticism of the

appellant for failing to cite to authority from sister states which
would allow this Court to review the arbitrator's findings of fact

or conclusions of law, while at the same time it refuses to
acknowledge that such authority has in fact been brought to its

attention.

When discussing whether evident partiality has been

established, the majority states:

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 We do so only briefly faced, as we are, with FNP's
failure to cite to any decisions of sister states on the
subject. While we recognize that no Montana decisions
have interpreted the MUAA'S "evident partiality"
standard, the legislature has directed that we be guided
by decisions in sister states which have enacted the
Uniform Arbitration Act in order to effectuate the
purpose of keeping the law uniform.

Later in its opinion, the majority states that:

Significantly, as in the first issue, FNP presents no
authority from sister states applying the manifest
disregard standard under their respective Uniform
Arbitration Acts. It is clear that the legislature
intended us to be guided by such sister state decisions
in interpreting the MUAA, rather than simply following
blindly every federal approach to arbitration.
New Mexico is a sister state which has enacted the Uniform

Arbitration Act at N.M. Stat. Ann. §§ 44-7-l to -22 (Michie 1978).

That state, through the decisions of its highest court, has limited

its review of arbitration awards to the statutory bases provided

for in the Uniform Act. However, in the application of those

statutory criteria, that court has not found it necessary to turn

a blind eye to a gross misapplication of the facts or the law. In

Fernandezv. Farmers Ins. Co. ofArizona (N.M. 1993)) 857 P.2d 22, 26, that

court stated:

We recognize that under appropriate circumstances
the district court may find an arbitration panel's
mistake of fact or law so gross as to imply misconduct,
fraud, or lack of fair and impartial judgment, each of
which is a valid ground for vacating an award.

(Citing Board of Educ. v. Prince George’s County Educators’ Ass’n ( 19 8 7 ) , 3 0 9 Md .

85, 522 A.2d 931, 938.)

In other words, even in the judiciary's application of the

statutory criteria for reviewing arbitrator awards, there must

19