F I L E D
United States Court of Appeals
Tenth Circuit
NOV 30 2004
PUBLISH
UNITED STATES COURT OF APPEALS PATRICK FISHER
Clerk
TENTH CIRCUIT
SALT LAKE TRIBUNE
PUBLISHING COMPANY, LLC,
Plaintiff - Appellant,
v.
Nos. 03-4256, 03-4259
MANAGEMENT PLANNING, INC.;
MEDIANEWS GROUP, INC.;
KEARNS-TRIBUNE, LLC,
Defendants - Appellees.
Appeal from the United States District Court
for the District of Utah
(Civil Nos. 2:03-CV-565-TS, 2:03-CV-785-TS)
Seth P. Waxman, Wilmer, Cutler & Pickering, LLP, Washington, D.C. (A.
Stephen Hut, Jr., Patrick J. Carome, and David S. Cohen, Wilmer, Cutler &
Pickering, LLP, Washington, D.C.; Gary F. Bendinger and Lisa R. Petersen,
Bendinger, Crockett, Peterson Greenwood & Casey, Salt Lake City, Utah, with
him on the briefs) for Plaintiff - Appellant Salt Lake Tribune Publishing
Company.
Kevin T. Baine, Williams & Connolly LLP, Washington, D.C. (Paul B. Gaffney
and Suzanne H. Woods, Williams & Connolly LLP, Washington, D.C., and James
S. Jardine, and Allan T. Brinkerhoff, Ray, Quinney & Nebeker, Salt Lake City,
Utah with him on the briefs) for the Defendants - Appellees Medianews Group
Inc. and Kearns-Tribune, LLC.
Robert S. Clark, Parr Waddoups Brown Gee & Loveless, Salt Lake City, Utah
(Brian J. Ramriell and Bently J. Tolk, Parr Waddoups Brown Gee & Loveless,
Salt Lake City, Utah, with him on the briefs for Defendant - Appellee
Management Planning, Inc.
Before SEYMOUR , HENRY , and LUCERO , Circuit Judges.
LUCERO , Circuit Judge.
What began as a straightforward transaction has escalated into a frustrating
dispute, which the district court attempted to resolve by applying arbitration
principles. At issue is whether a certain appraisal constituted an arbitration under
the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq. Finding that the
appraisal was an arbitration, the district court granted the considerable deference
owed to arbitrators’ decisions and dismissed Salt Lake Tribune Publishing
Company, LLC’s (“SLTPC”) claims against MediaNews Group, Inc.
(“MediaNews”) and Management Planning, Inc. (“MPI”). Because we conclude
that the appraisal did not constitute an arbitration, we exercise jurisdiction
pursuant to 28 U.S.C. § 1291 and REVERSE.
I
Shareholders of the Kearns-Tribune Corporation, which owned The Salt
Lake Tribune newspaper, sold their company to Tele-Communications, Inc.,
which has now become MediaNews. Kearns-Tribune shareholders formed a new
company, SLTPC, and, at the time of the sale, acquired an option to purchase the
2
newspaper from MediaNews after five years (“Option Agreement”). Under the
Option Agreement, the exercise price of the option equaled the “Fair Market
Value” of the newspaper’s assets. 1 If the parties could not agree on an exercise
price, each side was to appoint an appraiser (“party appraisers”) to assess the
newspaper’s Fair Market Value. If the party appraisers differed from each other
by more than ten percent in their estimation of the newspaper’s value, they would
jointly select a third appraiser and the exercise price would equal the average of
the two closest appraisal values reported by the three appraisers. 2
1
“Fair Market Value,” as defined by the Option Agreement, means “the
price at which a willing seller would sell, and a willing buyer (having full
knowledge of the facts) would buy, the Tribune Assets in any arms’ length
auction transaction without time constraints and without being under any
compulsion to buy or sell.” Additionally, the parties agreed to determine Fair
Market Value “on a going concern or liquidation basis, whichever would yield the
higher result, as of the last day of the month preceding the month of the Notice
Date,” which is the month wherein SLTPC provided written notice of its intent to
exercise its option.
2
The Option Agreement provides:
Whenever any determination of the Exercise Price is required
to be made pursuant to this Agreement, [MediaNews] and
[SLTPC] shall endeavor in good faith to agree on such
determination. If they are unable to agree within 10 days after
the Notice Date, each of [MediaNews] and [SLTPC] shall
appoint an [Appraiser]. . . . If the higher of the two Appraised
Values is not greater than 110% of the lower Appraised Value,
then the Fair Market Value of the Tribune Assets shall be
equal to the average of the two Appraised Values; however if
the higher Appraised Value is greater than 110% of the lower
appraised value, then two such Appraisers shall jointly select a
third Appraiser . . . and in such case the Fair Market Value of
(continued...)
3
In August 2002, SLTPC began negotiations with MediaNews to establish
the exercise price. Unable to agree on a price, the parties each retained
appraisers. MediaNews’s appraiser issued a report appraising the Fair Market
Value of the newspaper’s assets at $380 million, which exceeded SLTPC’s
appraiser’s evaluation of $218 million. Because the party appraisers differed by
more than ten percent, they turned to the selection of a third appraiser. Following
protracted negotiations, in which each side rejected the other’s preferred
candidates, the parties ultimately selected MPI. In a letter to the party appraisers,
MPI agreed to appraise the Fair Market Value of the newspaper’s assets and
specified the method by which it would conduct the appraisal. MediaNews and
SLTPC responded with a letter agreeing to retain MPI’s services. In combination,
MPI’s letter to the party appraisers and SLTPC and MediaNews’s response
constitute the Appraisal Agreement. Pursuant to the Appraisal Agreement, and
after conducting the necessary investigation and receiving comments from both
parties, MPI issued its final report valuing the newspaper’s assets at $331 million.
2
(...continued)
the Tribune Assets shall be equal to the average of the two
closest Appraised Values reported by the three appraisers,
provided, however, that if the highest and the lowest of such
three Appraised Values differ from middle by an equal amount,
then the Fair Market Value of the Tribune Assets shall be
equal to such middle determination.
4
Claiming that MPI failed to produce its appraisal under the standards
required by the Option Agreement, SLTPC sued MediaNews and MPI in district
court seeking, inter alia, (1) a declaration that MPI’s appraisal may not be used to
calculate the exercise price, (2) a ruling imposing a new appraisal process using
all new appraisals, a new valuation date, and a new selection of a third appraiser,
(3) compensatory damages from MPI based on its alleged breach of contract, (4)
compensatory and punitive damages based on MPI’s alleged breach of fiduciary
duty, and (5) if MPI’s appraisal were deemed an “arbitration award,” an order
vacating such award. In an order denying, in part, motions to dismiss filed by
MediaNews and MPI, the court below concluded that MPI’s appraisal constituted
an arbitration within the meaning of the FAA, which allowed SLTPC to file a
motion to vacate to overturn MPI’s “arbitration award.” Following that order,
SLTPC filed a motion to vacate under the FAA, which the district court denied.
At this juncture, the court granted the defendants’ motion to dismiss.
In its final order, the court determined that its prior orders concluding that
MPI’s appraisal was an arbitration, not vacated under the FAA, resolved SLTPC’s
first, second, and fifth claims in favor of MediaNews. Accordingly, the court
dismissed all of SLTPC’s claims against MediaNews. In dismissing SLTPC’s
claims against MPI, the court concluded that MPI acted as an arbitrator and
therefore was entitled to immunity from civil liability for all acts performed in its
5
arbitral capacity. SLTPC appealed.
II
We review a district court’s dismissal under Fed. R. Civ. P. 12(b)(6) de
novo, accepting the well-pleaded allegations of the complaint as true and
construing them in the light most favorable to the plaintiff. See Dubbs v. Head
Start, Inc., 336 F.3d 1194, 1201 (10th Cir. 2003).
A
We begin by analyzing whether MPI’s appraisal constituted an arbitration
within the meaning of the FAA. Because Congress did not define “arbitration” in
the FAA, we must first decide which source of law provides that definition.
Relying on the Option Agreement’s choice-of-law provision electing Delaware
law, the district court turned to Delaware law to define “arbitration.” On appeal,
SLTPC urges us to apply federal law. Our review of the authorities leads us to
conclude that SLTPC’s position is correct and that federal law supplies the
standard by which we must determine whether MPI’s appraisal was an arbitration.
In the absence of clear evidence that Congress intended state law to define
“arbitration,” we must assume that federal law provides the definition. The
meaning that the law attaches to the term “arbitration” establishes the scope and
force of the FAA. Unless Congress plainly intended the various states’ laws to
define “arbitration,” and to therefore regulate the FAA’s application within their
6
borders, we will look to federal law for the definition. See Mississippi Band of
Choctaw Indians v. Holyfield, 490 U.S. 30, 43 (1989) (“We start . . . with the
general assumption that in the absence of a plain indication to the contrary,
Congress when it enacts a statute is not making the application of the federal act
dependent on state law.”) (internal citations omitted). Because federal law
applies nationally, we assume that Congress desires national uniformity in the
application of its laws. See, e.g., Jerome v. United States, 318 U.S. 101, 104
(1943). Those cases where Congress intended state law to define a statutory term
have usually been those where Congress clearly did not intend uniformity. See
Holyfield, 490 U.S. at 43-44.
Neither the language nor the legislative history of the FAA demonstrate
that Congress plainly intended state law to define the FAA’s central term. Not
only does the FAA lack a plain indication that state law should govern, it is silent
as to what law defines “arbitration.” We cannot, on the basis of congressional
muteness, conclude that state law should define the FAA’s pivotal word.
Were we to hold that state law guides our determination, we would
empower states to define arbitration as they choose, thus limiting the FAA’s
utility. This we decline to do. Congress passed the FAA to ensure that state law
would not undermine arbitration agreements. Southland Corp. v. Keating, 465
U.S. 1, 16 (1984) (“Congress intended to foreclose state legislative attempts to
7
undercut the enforceability of arbitration agreements.”). In passing the FAA to
curb state attempts to eliminate arbitration provisions, Congress likely did not
delegate to the states the power to define arbitration in a way that would
circumscribe its availability. “It should not be necessary, but it definitely is, to
stress that whether a given dispute resolution procedure is arbitration within the
meaning of the FAA is a question of federal, not state, law.” I Ian R. MacNeil,
et. al., Federal Arbitration Law § 2.1.2A (1999 Supp.).
In concluding that state law should define “arbitration,” the district court
relied on decisions by the Ninth and Fifth Circuits. In Wasyl, Inc. v. First Boston
Corp., 813 F.2d 1579, 1582 (9th Cir. 1987), the Ninth Circuit defined arbitration
by reference to California law. Although a subsequent panel faced with a similar
question felt constrained to follow Wasyl, all three judges concurred specially to
“question the vitality of Wasyl . . . .” Portland General Electric Co. v. United
States Bank Trust Nat’l Assoc., 218 F.3d 1085, 1091 (9th Cir. 2000) (McKeown,
J., concurring). The judges declared it inappropriate to “look to state law to
define a term in a federal statute on a subject as to which Congress has declared
the need for national uniformity,” and that the case before it illustrated that Wasyl
created “a patchwork in which the FAA will mean one thing in one state and
something else in another.” Id. (Tashima and Lay, J.J., concurring). In Hartford
Lloyd’s Insurance Co. v. Teachworth, 898 F.2d 1058 (5th Cir. 1990), which
8
explicitly followed the reasoning in Wasyl, the Fifth Circuit defined “arbitration”
by reference to both Texas law and the law of other states. Although this
approach is preferable to looking to only one state’s law, we nonetheless conclude
that applying federal law is the only way to ensure national uniformity.
Congress did not plainly intend arbitration to mean different things in
different states. Rather, it sought a uniform federal policy favoring agreements to
arbitrate. Accordingly, we will apply federal law standards to determine whether
MPI’s appraisal constituted arbitration.
B
Under federal law, we must determine if the process at issue sufficiently
resembles classic arbitration to fall within the purview of the FAA. See, e.g., Fit
Tech, Inc. v. Bally Total Fitness Holding Corp., 374 F.3d 1, 14 (1st Cir. 2004)
(“the question is how closely the specified procedure resembles classic
arbitration”). Central to any conception of classic arbitration is that the
disputants empowered a third party to render a decision settling their dispute. See
Harrison v. Nisson Motor Corp., 111 F.3d 343, 350 (3d Cir. 1997) (“the essence
of arbitration” is that parties “agreed to arbitrate [their] disputes through to
completion, i.e. to an award made by a third-party arbitrator.”). Under this test,
MPI’s appraisal did not constitute an arbitration.
SLTPC and MediaNews fashioned an agreement where, in the event that
9
they could not agree on a price and their chosen appraisers were too far apart, a
third appraiser would contribute a value that may, or may not, be used to calculate
the exercise price. Parties need not establish quasi-judicial proceedings resolving
their disputes to gain the protections of the FAA, but may choose from a broad
range of procedures and tailor arbitration to suit their peculiar circumstances.
However, one feature that must necessarily appertain to a process to render it an
arbitration is that the third party’s decision will settle the dispute. See, e.g.,
MacNeil § 2.3.1.1 (Process is arbitration under the FAA where “the decision of
the dispute resolver shall be both final and binding, subject only to the limited
judicial review spelled out in the FAA.”). 3
Furthermore, the language employed by the parties in their contract has
little probative weight. If the contract states that the third party’s decision is final
3
MediaNews relies heavily on AMF, Inc. v. Brunswick Corp., 621 F. Supp.
456 (S.D.N.Y. 1985) and the Second Circuit’s McDonnell Douglas decision to
argue that MPI’s appraisal constituted an arbitration. Both cases acknowledged
that arbitration involves a third party rendering a decision that settles the dispute
between the parties. See McDonnell Douglas Finance Corp. v. Pennsylvania
Power & Light Co., 858 F.2d 825, 830 (2d Cir. 1988) (Arbitration because “the
language clearly manifests an intention by the parties to submit certain disputes to
a specified third party for binding resolution.”) (emphasis added); AMF, 621
F.Supp. at 460 (“If the parties have agreed to submit a dispute for a decision by a
third party, they have agreed to arbitration.”). Judge Weinstein in AMF found
that the process at issue constituted arbitration because “the dispute will be
settled by this arbitration.” AMF, 621 F. Supp. at 461. Because MPI’s appraisal
would not necessarily settle the parties’ dispute, these cases do not alter our
analysis.
10
and binding, courts must nonetheless scrutinize the process created by the parties
to ascertain whether the third party’s decision does in fact resolve the dispute.
We agree with the Second Circuit that “what is important is [whether] the parties
clearly intended to submit some disputes to their chosen instrument for the
definitive settlement of grievances under the Agreement.” McDonnell Douglas,
858 F.2d at 830 (internal quotation omitted) (emphasis added).
Here, MPI’s appraisal would by no means definitively settle the dispute
between SLTPC and MediaNews. At most, MPI supplied a data point that the
parties could use in establishing the exercise price. Under the terms of the Option
Agreement, a scenario existed where the parties would not use MPI’s report at all.
If the party appraisers reported Fair Market Values that constituted the two
closest values, MPI’s value would not contribute to the exercise price. Thus, if
SLTPC’s appraiser valued the newspaper at $200 million and MediaNews’s
appraiser assigned a $230 million price tag, the parties would turn to a third
appraiser because the higher value is greater than 110% of the lower value. If
that third appraiser returned with a $270 million figure, the exercise price would
equal the average of SLTPC and MediaNews’s appraised values and would totally
disregard the third evaluation. In such a circumstance the third appraiser’s report
would hardly settle the parties’ dispute, yet under the process established by
SLTPC and MediaNews the hypothetical situation is no less likely than the one
11
giving rise to this case.
MPI was not asked to decide between two values established by SLTPC and
MediaNews, nor were they asked to assign independently a single value binding
on the parties. Indeed the parties did not even agree to average MPI’s figure with
one or both of their own. The parties merely asked MPI to prepare a report
evaluating the newspaper and establishing the Fair Market Value of the
newspaper’s assets, a value which the parties may, under certain circumstances,
have used to fix the exercise price under the Option Agreement. MPI’s report
would not necessarily settle a dispute between SLTPC and MediaNews.
Perhaps recognizing that MPI’s appraisal, standing alone, does not
constitute an arbitration, MediaNews stated at oral argument that the entire
process, including the party appraisals, was an arbitration. MediaNews suggests
that the appraisers respectively hand-picked by the two parties, whose
qualifications, abilities, and methods have been thoroughly impugned by the
opposing party in the briefs, were somehow co-equal arbitrators with MPI. First,
the court below dismissed SLTPC’s claims based on its conclusion that MPI’s
appraisal constituted an arbitration. Nowhere did the district court suggest that
the entire process constituted an arbitration. See Salt Lake Tribune Publishing
Company, LLC v. Management Planning, Inc., No. 2:03-CV-565 TS, slip op. at 7,
12 (D. Utah Sept. 18, 2003) (“Defendants contend that the Third Appraisal is an
12
arbitration . . . .”) (“the court finds that, under Delaware law, the Third Appraisal
is an arbitration.”). Second, to the extent there existed a dispute requiring
arbitration, the party appraisers produced the dispute by affixing values more than
ten percent apart. The appraisers selected by the individual parties functioned
more like dueling experts than arbitrators. Also belying the suggestion that the
process constituted arbitration is the express language of the Appraisal Agreement
that provides in the event the Option Agreement “preclude[s] an appraisal in
accordance with . . . industry standards and principles, . . . the parties agree to
then seek guidance from the Court to resolve that conflict.” This hardly sounds
like arbitration to us. Because the three-appraisal process does not resemble
classic arbitration, we reject MediaNews’s suggestion that the entire process
constituted an arbitration.
Although our conclusion that the parties did not structure a process
sufficiently resembling classic arbitration resolves the question before us, we also
note that the parties did not intend to submit their dispute to arbitration. See, e.g.,
Oil, Chemical & Atomic Workers Int’l Union v. American Oil Co., 528 F.2d 252,
254 (10th Cir. 1976) (“The issue of arbitrability is for judicial determination
because no party has to arbitrate a dispute unless it has consented thereto.”).
Because we are reviewing the district court’s dismissal of SLTPC’s complaint
pursuant to Rule 12(b)(6), we must accept the well-pleaded allegations in the
13
complaint as true and view them in the light most favorable to SLTPC. See Fuller
v. Norton, 86 F.3d 1016, 1020 (10th Cir. 1996). The complaint reveals that the
parties did not consent to, or intend to establish, an arbitration process.
We accept as true that at no time during the negotiation of the Option
Agreement did the parties discuss utilizing the Third Appraisal in an arbitral
manner. Our review of the pleadings, which include, by incorporation, the Option
Agreement and Appraisal Agreement, confirms that at the time of contracting the
parties did not understand that the Third Appraisal would be subject to the FAA
and its limitations on judicial review. Furthermore, at no point during
negotiations with MPI did any party suggest that MPI would function as an
arbitrator or that its appraisal would be considered an arbitral award. Neither at
the time of negotiating the Option Agreement nor during discussions with MPI
did the parties intend to contractually bind themselves to arbitration.
When SLTPC and MediaNews negotiated the Option Agreement they did
not intend to submit a dispute over the exercise price to arbitration governed by
the FAA. Rather they crafted a flexible process maximizing the likelihood that
their respective values would contribute to the exercise price and permitting a
single scenario under which only one of their appraised values would factor into
the price. Simply because MPI assigned a value to the newspaper’s assets that
was closer to one of the parties’ evaluations than the parties were to each other
14
does not render MPI’s report an arbitrator’s decision deserving immunity.
Accordingly, we reverse the district court’s order dismissing SLTPC’s claims. 4
Because the court below erred in resolving this dispute on the basis of
arbitral immunity, the court failed to resolve SLTPC’s claims at the 12(b)(6)
stage. This leaves us no alternative but reluctantly to remand for further
proceedings. In doing so, we do not intend this decision to express any opinion as
to the underlying merits of the parties’ claims. We merely hold that MPI’s
appraisal did not constitute an arbitration within the meaning of the FAA.
C
Having concluded that MPI is not entitled to arbitral immunity, we must
answer the question of which state’s law the district court should employ to
adjudicate SLTPC’s claims. MediaNews argues that because MPI’s authority to
perform its appraisal derived from the process specified in the Option Agreement,
the Appraisal Agreement implicitly incorporated the Option Agreement’s choice-
of-law provision selecting Delaware law. 5 We therefore turn to the question of
whether the Appraisal Agreement incorporated the Option Agreement’s choice-of-
4
Because we hold that MPI’s appraisal did not constitute an arbitration, we
need not discuss the merits of SLTPC’s fifth claim for relief, requesting an order
vacating MPI’s “award” in the event that the appraisal was an arbitration.
5
The Option Agreement provides: “This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware without
reference to rules governing conflicts of law.”
15
law clause. 6
Answering that question leads us through a choice-of-law bramble. Our
first step requires us to determine which state’s law governs our interpretation of
the Appraisal Agreement for the limited purpose of deciding whether the
Appraisal Agreement implicitly makes a choice of law. Because this case comes
to us from the District of Utah, Utah’s law controls our choice-of-law decision at
this point. See Shearson Lehman Brothers v. M& L Investments, 10 F.3d 1510,
1514 (10th Cir. 1993) (“In making choice of law determinations, a federal court
sitting in diversity must apply the choice of law provisions of the forum state in
which it is sitting. This is true even when choice of law determinations involve
the interpretation of contract provisions.”) (internal citations omitted).
Utah courts “apply the ‘most significant relationship’ approach as described
in the Restatement (Second) of Conflict of Laws in determining which state’s
laws should apply to a given circumstance.” Waddoups v. Amalgamated Sugar
Co., 54 P.3d 1054, 1059 (Utah 2002). In contract disputes, courts consider (1) the
place of contracting, (2) the place of negotiation of the contract, (3) the place of
6
Because SLTPC bases its first and second claims on alleged deficiencies
in MPI’s appraisal, and seeks compensatory and punitive damages from MPI in its
third and fourth claims based on MPI’s alleged breach of contract and fiduciary
duties, we frame our inquiry as whether the Appraisal Agreement incorporated the
Option Agreement’s choice-of-law provision, and not whether the Option
Agreement implicitly extended its choice-of-law clause to disputes arising out of
the appraisals specified by the Option Agreement.
16
performance, (4) the location of the subject matter of the contract, and (5) the
domicile, residence, nationality, place of incorporation and place of business of
the parties. See Morris v. Health Net of California, Inc., 988 P.2d 940, 942 (Utah
1999); Restatement 2d of Conflict of Laws, § 188; see also Rocky Mountain
Helicopters v. Bell Helicopters Textron, 24 F.3d 125, 129 (10th Cir. 1994)
(applying Utah’s “most significant relationship” test to contract dispute).
These factors lead us to conclude that New Jersey law should govern our
interpretation of the Appraisal Agreement for the limited purpose of deciding
whether the Appraisal Agreement imported the Option Agreement’s choice-of-law
clause. With respect to the first factor, the place of contracting, New Jersey, New
Mexico, Illinois, Colorado, and Utah all have relationships to the contract. The
“contract” at issue consists of two letters: one prepared by MPI in New Jersey
and sent by MPI from New Jersey to the party appraisers in Illinois and New
Mexico, and a second prepared by MediaNews in Colorado and SLTPC in Utah
and sent to MPI in New Jersey. Unfortunately, with regard to the second factor,
the record does not reveal where the parties were located when they negotiated all
of the terms of the Appraisal Agreement. We do know that on November 22,
2002, SLTPC and MediaNews sought the Utah district court’s assistance in
ironing out some of the terms of the Appraisal Agreement.
Turning to the third factor, MPI performed most of the contract in New
17
Jersey, which consisted of MPI reviewing financial statements, scrutinizing the
appraisals by the party appraisers, examining the newspaper’s books, evaluating
audit reports, and preparing both a draft and a final appraisal report. As to the
fourth factor, the subject matter of this contract is a contract for services,
specifically appraisal services. When assessing the subject matter’s location in
service contracts, Utah courts have looked to both the site where the parties
agreed to render services and the recipient’s location. See Morris, 988 P.2d at
942 (“The primary subject matter of the contract was the provision of medical
services in California to School District employees.”). Here, the Appraisal
Agreement provides that MPI will perform its appraisal almost exclusively in
New Jersey for the benefit of corporations in Utah and Colorado. Finally, the
last factor requires us to review the location of the parties. MPI is a Maryland
corporation with its principal place of business in New Jersey, SLTPC is a Utah
corporation with its principal place of business in Utah, and MediaNews is a
Delaware corporation with its principal place of business in Colorado.
It appears that both Utah and New Jersey have strong ties to the contract.
Because the alleged breach at issue in this matter occurred in New Jersey, and
because New Jersey edges out Utah in our review of the relevant factors, we
conclude that New Jersey has the most significant relationship to the Appraisal
Agreement.
18
Under New Jersey law, our interpretation of the Appraisal Agreement
primarily depends on the expressed or apparent intent of the parties. See
Simonson v. Z Cranbury Associates, 695 A.2d 222, 223 (N.J. 1996). “In
interpreting a contract, it is not the real intent but the intent expressed or apparent
in the writing that controls.” Garfinkel v. Morristown Obstetrics & Gynecology
Assocs., P.A., 773 A.2d 665, 672 (N.J. 2001) (internal quotation omitted).
Our anfractuous journey therefore ends at the four corners of the Appraisal
Agreement, which we examine to ascertain whether the parties intended to
incorporate the Option Agreement’s choice-of-law provision. To be sure, the
Appraisal Agreement explicitly incorporates some, but not all, important elements
of the Option Agreement. By its terms, the Appraisal Agreement adopts the
Option Agreement’s definition of “Tribune Assets” and “Fair Market Value.”
Additionally, MPI promises to conform its analysis, opinions, and conclusions to
“the Uniform Standards of Professional Appraisal Practice of the Appraisal
Foundation and the Principles of Appraisal Practice and Code of Ethics of the
American Society of Appraisers, and the terms of the Option Agreement.” If MPI
were to determine at any point that the Option Agreement prevents MPI from
conducting an appraisal in accordance with the referenced industry standards, the
Appraisal Agreement requires it to report this conflict to the parties. Finally, the
Appraisal Agreement provides that the party appraisers shall supply MPI with a
19
copy of the Option Agreement.
Which assets MPI appraised and one of the standards by which it evaluated
them were provided by the Option Agreement. Finding that the Appraisal
Agreement “references, incorporates, is in furtherance of, and performs a task
required by and defined in, the Option Agreement,” the district court concluded
that the state law chosen by the Option Agreement, the law of Delaware, governed
MPI’s appraisal. Salt Lake Tribune Publishing Company, LLC v. Management
Planning, Inc., No. 2:03-CV-565 TS, slip op. at 9-10 (D. Utah Sept. 18, 2003).
Although the Appraisal Agreement does reference, further, and perform a task
required by the Option Agreement, it does not incorporate the Option Agreement
as a whole. Instead, it adopts certain elements of the Option Agreement. We
cannot hold MPI’s appraisal to Delaware’s standards unless all parties explicitly
agreed to adopt the Option Agreement’s choice-of-law clause. Were this solely a
dispute between MediaNews and SLTPC under the Option Agreement, Delaware
law would clearly apply by the choice of the parties. However, the agreement at
issue involves a third party – a stranger to the first agreement – and this
additional party causes us to look solely to the second agreement, the Appraisal
Agreement, to answer the choice-of-law question.
MPI and the party appraisers demonstrated their ability to selectively
incorporate provisions from the Option Agreement. They imported the Option
20
Agreement’s definition of assets and Fair Market Value. Rather than agreeing to
observe solely the Option Agreement’s standards for conducting an appraisal,
MPI elected to abide by both industry standards and the terms of the Option
Agreement. Anticipating a potential conflict between those measures, MPI agreed
to alert the parties if and when such friction arose. It seems that MPI and the
party appraisers scrutinized the Option Agreement and incorporated only those
provisions they thought necessary or desirable, and only to the extent they thought
practical.
Furthermore, SLTPC’s and MediaNews’s letter to MPI makes no reference
to the Option Agreement whatsoever. The response letter corrects at least one
omission from MPI’s letter, specifying that MPI will assume the accuracy of all
information provided by the parties and will not directly examine the newspaper’s
files. Had the parties wished to add that Delaware law would govern the
appraisal, they could have done so in the response letter.
Although they easily could have adopted the Option Agreement’s choice-
of-law provision by reference, they did not. Accordingly, we conclude that the
Appraisal Agreement did not incorporate the Option Agreement’s choice-of-law
provision. Absent a choice-of-law provision, a federal court sitting in diversity
must apply the forum state’s choice-of-law principles, which in this case involves
employing Utah’s “most significant relationship” test. As discussed above, New
21
Jersey has the most significant relationship to the Appraisal Agreement.
Therefore, the district court should adjudicate SLTPC’s claims under New Jersey
law.
III
Because we hold that the Third Appraisal does not constitute an arbitration,
we REVERSE the district court’s order dismissing SLTPC’s claims and
REMAND for proceedings consistent with this opinion.
22
Salt Lake Tribune Publishing Co. v. Management Planning, Inc.
Court: Court of Appeals for the Tenth Circuit
Date filed: 2004-11-30
Citations: 390 F.3d 684
Copy CitationsCombined Opinion