Stephen Skalnek v. Richard Skalnek ( 2017 )

STATE OF MICHIGAN
COURT OF APPEALS
STEPHEN SKALNEK, and UNPUBLISHED
SKALNEK FORD INC., October 26, 2017
Plaintiffs-Appellees,
v No. 333085
Oakland Circuit Court
RICHARD SKALNEK, and LC No. 2016-152352-CB
CLEAN CARS COMPANY INC.,
Defendants-Appellants,
and
CLEAN CARS FINANCE COMPANY INC.,
Defendant.
Before: SHAPIRO, P.J., and HOEKSTRA and M. J. KELLY, JJ.
PER CURIAM.
In this action alleging shareholder oppression, defendants appeal from the trial court’s
order denying summary disposition pursuant to MCR 2.116(C)(7) (claim is subject to an
agreement to arbitrate). Because the parties’ agreement did not provide for mandatory
arbitration, we affirm the trial court’s order granting summary disposition. 1
1
This Court reviews de novo a lower court’s decision on a motion for summary disposition,
Cuddington v United Health Servs, Inc, 298 Mich. App. 264, 270; 826 NW2d 519 (2012).
Additionally, the existence and enforceability of an arbitration agreement is a question of law
that this Court determines de novo. Michelson v Voison, 254 Mich. App. 691, 693-694; 658
NW2d 188 (2003).
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Plaintiff Stephen and Defendant Richard are brothers and the sole shareholders, officers,
and directors of plaintiff Skalnek Ford, Inc.,2 which was founded by the parties’ parents in the
mid-1960s. Both parties began working in the dealership as young teenagers. When the parties’
parents retired from the business in 1995, they transferred the stock owned by them to Stephen
and Richard. At the time of the transfer, Richard owned 7,201 shares and Stephen owned 6,199
shares. In 2002, a stock certificate was issued to the parties, through their trust, giving Richard
16,001 shares (50.003% of the company), and Stephen 15,999 shares (49.997% of the company).
In 2008, a dispute arose between the parties which resulted in filing of a lawsuit by
Stephen. While the lawsuit was pending, the parties entered into an agreement in August 2010
titled, “Agreement regarding retention by Skalnek Ford, Inc. of third party to resolve certain
disputes” (hereinafter, “Dispute resolution agreement). The dispute resolution agreement
provides in relevant parts as follows:
1. Retention of Robert Weller. The parties agree that Robert Weller will
be retained by Skalnek Ford, Inc. (“SFI” or the “Company”) as the initial third
party to assist the Parties in resolving certain disputes in the event that the Parties
are unable to agree on important issues affecting SFI or the Parties’ interests as
shareholders or employees.
2. Submission of dispute. Either party may submit a dispute for resolution
by Weller or subsequently-named third party only after the party had made a good
faith effort to resolve the dispute with the other party. The dispute must be
submitted to the third party in writing with a copy delivered contemporaneously
to the other party either by hand-delivery or mail.
3. Facilitation or Determination of outcome. Weller or subsequently-
named third party is empowered to resolve the dispute either through facilitating a
resolution or, if necessary, determining how the dispute will be resolved.
Paragraph 6 of the dispute resolution agreement gave the parties the right to appeal Weller’s
decision through binding arbitration and provides as follows:
Right to Appeal. If Weller, or subsequently-named third party, determines
the outcome of the dispute, the decision can be appealed through binding
arbitration. The appeal must be initiated within three (3) business days of each
party having received the decision by sending to Weller or subsequently named
third party and the other party a Notice of Appeal which is to be hand-delivered or
sent by e-mail. The arbitration will be conducted by a single arbitrator in a
private arbitration proceeding and will be completed in thirty (30) days of the
appointment of the arbitrator unless a longer time is agreed to by the parties. The
cost of the arbitrator will be the responsibility of SFI unless other directed by the
2
Skalnek Ford, Inc. operates as a Ford Motor company authorized dealership engaged in the
business of automobile sales and services.
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arbitrator in the arbitration award and the arbitrator may award sanctions in
accordance with paragraph 5 of this Agreement. The arbitrator will be chosen as
follows:
(a) The party seeking the appeal will submit the manes of three proposed
arbitrators to the other party at the same time the notice of the appeal is provided.
(b) The other party may either accept one of the arbitrators, or submit his
own list if three arbitrators within two (2) business days. If the other party does
neither, Weller or subsequently-named third party will choose the arbitrator from
the three proposed arbitrators submitted by the appealing party.
(c) If an alternative list is provided by the other party within two (2)
business days, each party will rank all six (6) arbitrators and submit the ranking to
Weller. The arbitrator with the lowest composite score will be deemed chosen.
In the event of a tie, Weller or subsequently-named third-party will choose the
arbitrator from the two persons receiving a tied vote.
Thereafter, the issues in the pending lawsuit were referred to arbitration resulting in a partial
award, followed by a final arbitration award, which was confirmed by the circuit court.
Stephen alleged that after he filed suit in 2008, Richard refused to speak with him or
include him in management meetings, ostracized him, “repeatedly sought to take advantage of
virtually any opportunity to benefit himself financially at Stephen’s expense,” and engaged in
conduct that violated his rights at the business, contrary to the arbitration award. He stated that
he was then compelled to file a Notice of Dispute (NOD), where the issues were submitted to
Weller for resolution. According to Stephen, even after Weller issued his rulings, Richard
routinely violated the rulings and used his two-share majority in the company to abuse Stephen.
In 2016, Stephen, individually and derivatively in the name of Skalnek Ford, Inc., filed a
six count-complaint against defendants alleging shareholder oppression, breach of fiduciary
duties, unjust enrichment, and usurpation of corporate opportunity. Plaintiffs asked the court to
issue a preliminary and permanent injunction against defendants, and to enter a declaratory
judgement for damages and equitable relief, plus costs and attorney fees. Stephen asked the
court to order Richard to purchase his shares in Skalnek Ford, Inc. at fair value.
Defendants moved for summary disposition pursuant to MCR 2.116(C)(7) asking the
court to dismiss plaintiffs’ claim and to compel arbitration. Defendants asserted that the parties’
dispute resolution agreement established a two-step arbitration process, which compelled
arbitration in situations where the disputes arose out of the parties’ status as shareholders or
employees of Skalnek Ford, Inc. According to defendant, the allegations contained in plaintiffs’
complaint show that the dispute was subject to mandatory arbitration. In response, plaintiffs
argued that the plain language of the dispute resolution agreement established that the process
was not mandatory as demonstrated by the use of the word “may.” The trial court agreed and
denied defendant’s motion for summary disposition.
The trial court correctly held that the parties’ dispute resolution agreement was
discretionary. The interpretation of the dispute resolution agreement is controlled by principles
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of contract interpretation. “ ‘Arbitration is a matter of contract.’ ” Altobelli v Hartmann, 499
Mich. 284, 295; 884 NW2d 537 (2016) (citation omitted). Therefore, this Court must apply
contract interpretation legal principles when interpreting an arbitration agreement. Id. The
“primary task in construing a contract is to give effect to the parties’ intentions at the time they
entered into the contract, which requires an examination of the language of the contract
according to its plain and ordinary meaning.” Beck v Park West Galleries, Inc, 499 Mich. 40, 45-
46; 878 NW2d 804 (2016). “The existence of an arbitration contract and enforceability of its
terms are judicial questions that cannot be decided by the arbitrator.” Huntington Woods v Ajax
Paving Indus, Inc (After Remand), 196 Mich. App. 71, 74; 492 NW2d 463 (1992).3
In the instant case, defendant argues that paragraph 2 of the parties’ dispute resolution
agreement constitutes a mandatory arbitration provision. Paragraph 2 provides as follows:
2. Submission of dispute. Either party may submit a dispute for resolution
by Weller or subsequently-named third party only after the party had made a good
faith effort to resolve the dispute with the other party. The dispute must be
submitted to the third party in writing with a copy delivered contemporaneously
to the other party either by hand-delivery or mail.
Although the trial court and the parties treated this provision as an agreement to arbitrate,
it is questionable whether this provision really constitutes an agreement to arbitrate as it lacks all
the terms and structure of an arbitration agreement. Paragraphs 1-3 do not use the term
arbitration. Instead, they refer to using Weller “to assist the parties in resolving certain disputes”
and that he is “empowered to resolve the dispute either through facilitating a resolution or, if
necessary, determining how the dispute will be resolved.” The only phrase in these paragraphs
that suggest that Weller may conduct arbitration is the reference to “determining how the dispute
will be resolved.”4 It is not even clear whether this empowered Weller to resolve the dispute and
bind the parties to his resolution or merely to define a means of reaching resolution. Notably,
arbitration is not mentioned until paragraph 6 which concerns the “appeal” of any decision by
Weller. The only arbitration provision in the agreement is paragraph 6, the right-to-appeal
provision. The use of the word “arbitration” in paragraph 6 shows that the parties knew what
3
Generally, “[a]n agreement contained in a record to submit to arbitration any existing or
subsequent controversy arising between the parties to agreement is valid, enforceable, and
irrevocable except on a ground that exists at law or in equity for the revocation of a contract.”
MCL 691.1686(1). “The court shall decide whether an agreement to arbitrate exists or a
controversy is subject to an agreement to arbitrate.” MCL 691.1686(2). On a motion to enforce
an agreement to arbitrate, the trial court must, in the event a party opposes arbitration, order
arbitration “unless it finds that there is no enforceable agreement to arbitrate.” MCL
691.1687(1)(b).
4
Paragraph 3 of the parties’ dispute resolution agreement states that “Weller or subsequently
named third party is empowered to resolve the dispute either through facilitation or, if necessary,
determining how the dispute will be resolved.”
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arbitration was, including the procedure; and could have used the terminology in paragraphs 1-35
had they wished to define Weller’s role as that of an arbitrator.
Moreover, to the degree the agreement provides for Weller to resolve disputes, its
language demonstrates an intention to make the dispute resolution process permissive and not
mandatory. First, the agreement stated that either party “may” submit a dispute for resolution
regarding “important issues affecting [Skalnek Ford, Inc.] or the Parties’ interest as shareholders
or employees.” A review of the parties’ pleadings leaves no doubt that the dispute between the
parties involves important issues affecting Skalnek Ford, Inc. and the parties’ interests as
shareholders and employees. Generally, the word “may” is “permissive rather than mandatory in
contrast to the word ‘shall’ ” Perkovic v Zurich American Ins Co, 500 Mich. 44, 61-62; 893
NW2d 322 (2017). Moreover, paragraph 2 demonstrates that the parties understood the
difference between mandatory and permissive language as it provides that if either party choose
to submit their dispute to Weller or a subsequently-named individual, that party “must” follow
the procedure outlined in the preceding paragraph. According to the agreement, “[t]he dispute
must be submitted to the third party in writing with a copy delivered contemporaneously to the
other party either by hand-delivery or email.” The use of the word “may” in the context of
submission of the dispute to arbitration, and the word “must” for the process of submission of the
dispute, strongly supports the view that the arbitration provision is permissive.
In the context of statutory interpretation, this Court has held that generally, “the word
‘may’ will not be treated as a word of command unless there is something in the context or
subject matter of the act to indicate that it was used in such a sense.” Mill Creek Coalition v
South Branch of Mill Creek Intercounty Drainage Dist, 210 Mich. App. 559, 565; 534 NW2d 168
(1995) (interpreting the Drain Code, MCL 280.122). This reasoning if applied to this context
lends support to the conclusion that the parties intended the dispute resolution provision to be
permissive. For instance, the parties’ agreement created a two-step dispute resolution process.
The first step involves submission of the dispute to “Weller or a subsequently-named third party”
for resolution. The agreement then provides a right-to-appeal provision from Weller or the third
party’s decision. Not only is this two-step dispute resolution process unusual, it also goes
against the strong public policy in favor of arbitration as a simple expeditious means of resolving
disputes. Rooyakker & Sitz, PLLC v Plante & Moran, PLLC, 276 Mich. App. 146, 163; 742
NW2d 409 (2007) (citation omitted). A determination that the provision is mandatory would
compel the parties to seek resolution with Weller’s assistance and then appeal his “decision” if
the unsuccessful party is dissatisfied with it, before recourse to court.
5
Having said that, it is important to note that plaintiff has not explicitly argued that the
agreement does not provide for arbitration agreement. At the trial court, plaintiff argued it was a
non-mandatory arbitration agreement. On appeal, plaintiffs refer to the agreement as an “open-
ended process that does not have the necessary structure of arbitration, with all the specifics and
procedural aspects provided by statute.”
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Defendants rely primarily on this Court’s decision in Mollett v Taylor, 197 Mich. App.
328; 494 NW2d 832 (1992), to argue that the word “may” in arbitration provisions should be
construed as requiring arbitration. However, Mollet is readily distinguishable from the present
case. In Mollett, the plaintiff, a former municipal firefighter, filed a constructive discharge
lawsuit against defendant without pursuing administrative remedies available to him under the
governing collective bargaining act or under the police and civil service act, MCL 38.501 et seq.
Id. at 329. Section 14 of the civil service act provides in relevant part that:
If the removing officer fails to make charges to the satisfaction of a
member or members of a fire department in a city, village, or municipality, the
member or members of the fire or police department may present the information
to the civil service commission. [MCL 38.514(14)(1) (emphasis added).]
The trial court dismissed the plaintiff’s claims holding that he was required to exhaust his
administrative remedies under the act and the collective bargaining agreement before filing an
action in the circuit court. Mollett, 197 Mich. App. at 332. On appeal, plaintiff argued that the
use of the word “may” in the statute meant that he could file his claim with the civil service
commission or “proceed directly to the circuit court.” Id. at 339. However, the Mollet decision
rested on the well-settled principle that in civil service cases a plaintiff is required to exhaust
administrative remedies, whatever they may be. This is mandated by MCL 24.301,6 and Mollet
cited many cases that confirmed the need to exhaust administrative remedies in the context of
action by a government agency. Given that by statute an aggrieved party must exhaust
administrative remedies, the Mollet Court properly concluded that the use of “may” in MCL
38.514(14)(1) meant that that “a discharged employee may present a claim to the civil service
commission or choose to do nothing at all.” Mollett, 197 Mich. App. at 339.
Defendants briefly refer to out-of-state and federal cases. As the issue before us is to be
determined by Michigan contract law, we are not bound by federal caselaw. Travelers Prop Cas
Co of America v Peaker Servs, Inc, 306 Mich. App. 178, 188; 855 NW2d 523 (2014) (citation
omitted) (stating that caselaw from sister states and federal courts are not binding but may be
considered persuasive authority). Nevertheless, we have considered them and they do not lead
us to a different result.
6
MCL 24.301 reads in pertinent part:
When a person has exhausted all administrative remedies available within
an agency, and is aggrieved by a final decision or order in a contested case,
whether such decision or order is affirmative or negative in form, the decision or
order is subject to direct review by the courts as provided by law. Exhaustion of
administrative remedies does not require the filing of a motion or application for
rehearing or reconsideration unless the agency rules require the filing before
judicial review is sought.
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Several of the cases such as Bonnot v Congress of Independent Unions, Local No, 14, 331
F 2d 355, 359 (CA 8, 1964), Deaton Truck Line v Local Union 612, 314 F 2d 418, 422 (CA 5,
1962), and Local 771 IATSE, AFL-CIO v RKO General, 546 F 2d 1107, 1116 (CA 2, 1977)
involve collective bargaining agreements. We do not find them instructive because collective
bargaining agreements are specialized documents that are obtained through legally defined
negotiation processes. Alarcon v Fabricon Prods, Div of Eagle-Picher Co, 5 Mich. App. 25, 33;
145 NW2d 816 (1966) (recognizing that collective bargaining agreements are unique and a class
of its own). Moreover, underlying collective bargaining agreements are the duties of a union to
its members. See Goolsby v Detroit, 419 Mich. 651; 358 NW2d 856 (1984); Republic Steel Corp
v Maddox, 379 U.S. 650, 653; 85 S. Ct. 614; 13 L. Ed. 2d 580 (1965) (stating that the union’s
interest in prosecuting employees grievances “complements [its] status as exclusive bargaining
representative by permitting it to participate actively in the continuing administration of the
contract” and enhances its “prestige with employees”). The interpretation of collective
bargaining agreements does not assist us with determining the parties’ intent in the instant
setting.
More generally, the cited cases, with one exception, turn on contracts that specifically
define arbitration as the dispute resolution mechanism and many of these refer to statutory
mechanisms or the rules of the American Arbitration Association. Others contain provisions or
are subject to statutes requiring exhaustion of administrative remedies. As noted above, the
contractual language in this case does not require exhaustion of administrative remedies and does
not define Weller’s role as that of an arbitrator.7
We conclude that the contract before us does not mandate arbitration and that, as the trial
court concluded, plaintiffs were free to file suit. We emphasize however, that we are not setting
forth a broad rule that “may” in an arbitration agreement is permissive. Rather, we are
addressing the question in the context of the unique language of the subject contract.
Affirmed. As prevailing party, plaintiff may tax costs. MCR 7.219A.
/s/ Douglas B. Shapiro
/s/ Joel P. Hoekstra
/s/ Michael J. Kelly
7
The one exception is TM Delmarva Power, LLC v NCP of Virginia, LLC, 263 Va 116,123; 557
SE2d 199 (2002), where the Virginia Supreme Court in a 4-3 decision considered a contract
similar to the one before us and concluded that it provided for mandatory arbitration. We agree
with the dissenting Justices in that case, who noted that “the parties were not subject to a
collective bargaining agreement or any other separate agreement or clause requiring that dispute
resolution mechanisms be exhausted prior to litigation. . . . The contract, as written . . . did not
limit any party’s access to the courts.” Id. at 124.
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