Seagate Technology, LLC v. Western Digital Corporation, Sining Mao , 854 N.W.2d 750 ( 2014 )

STATE OF MINNESOTA
IN SUPREME COURT
A12-1944
Court of Appeals Anderson, J.
Concurring, Stras, J.
Seagate Technology, LLC,
Respondent,
vs. Filed: October 8, 2014
Office of Appellate Courts
Western Digital Corporation, et al.,
Appellants,
Sining Mao,
Appellant.
________________________
Lewis A. Remele, Jr., Charles E. Lundberg, Mark R. Bradford, Bassford Remele,
Minneapolis, Minnesota; and
Robert N. Hochman, Sidley Austin LLP, Chicago, Illinois, for respondent.
Clifford M. Greene, Larry D. Espel, John M. Baker, Greene Espel PLLP, Minneapolis,
Minnesota;
Lisa S. Blatt, Arnold & Porter, LLP, Washington, District of Columbia; and
Michael D. Schissel, Arnold & Porter, LLP, New York, New York, for appellants
Western Digital Corporation, et al.
Nathan J. Marcusen, Isaac W. Messimore, Bowman and Brooke LLP, Minneapolis,
Minnesota; and
1
George W. Soule, Soule & Stull, LLC, Minneapolis, Minnesota, for appellant Sining
Mao.
Katherine L. MacKinnon, Law Office of Katherine L. MacKinnon, P.L.L.C., Saint Louis
Park, Minnesota, for amicus curiae Minnesota Chamber of Commerce.
Karl E. Robinson, Sweeney & Masterson, P.A., Saint Paul, Minnesota; and
Peter R. Afrasiabi, One LLP, Newport Beach, California, for amicus curiae Professor
Georgene M. Vairo.
Scott Cody, Tarshish Cody, PLC, Chaska, Minnesota; and
Professor David Allen Larson, Hamline University School of Law, Saint Paul,
Minnesota, for amicus curiae Professor David Allen Larson.
Corey J. Ayling, Douglas M. Carnival, McGrann Shea Carnival Straughn & Lamb,
Chartered, Minneapolis, Minnesota, for amicus curiae Minnesota High Technology
Association.
Alan L. Kildow, Sonya R. Braunschweig, DLA Piper LLP, Minneapolis, Minnesota, for
amicus curiae Professor George A. Bermann.
Daniel J. Supalla, Briggs and Morgan, P.A., Minneapolis, Minnesota, for amicus curiae
Minnesota Defense Lawyers Association.
Sharon L. Van Dyck, Van Dyck Law Firm, PLLC, Saint Louis Park, Minnesota, for
amicus curiae Minnesota Association for Justice.
________________________
SYLLABUS
1. Challenges to an arbitration award brought under Minn. Stat. § 572.19,
subd. 1(3)-(4) (2010), do not require an objection as a condition precedent to the
challenge.
2. Vacatur is inappropriate under Minn. Stat. § 572.19, subd. 1(3), when the
arbitration agreement gives the arbitrator authority to “grant injunctions or other relief,”
2
the controlling arbitration rules authorize the arbitrator to “grant any remedy or relief that
would have been available to the parties had the matter been heard in court,” and the
sanctions issued fall within this grant of authority.
3. Challenges to an arbitrator’s failure to use certain evidence in fashioning an
award are outside the scope of Minn. Stat. § 572.19, subd. 1(4), and do not warrant
vacatur under this provision.
Affirmed.
OPINION
ANDERSON, Justice.
An arbitrator issued an award against appellants Sining Mao, Western Digital
Corporation, and Western Digital Technologies, Inc., in an amount exceeding $500
million. The award was vacated in part by the district court and then reinstated by the
court of appeals. Mao and the Western Digital entities now separately seek review of the
reinstatement decision. Mao and Western Digital argue that the arbitrator’s punitive
sanctions, which precluded any evidence or defense and entered a judgment of liability
on certain claims, must be vacated under Minn. Stat. § 572.19, subd. 1(3)-(4) (2010),1
1
Effective August 1, 2011, Minn. Stat. §§ 572.09, 572.12, and 572.19 (2010) were
repealed and replaced with Minn. Stat. §§ 572B.07, 572B.15, and 572B.23 (2012),
respectively, which contain substantially similar language. Act of April 22, 2010,
ch. 264, art. 1, §§ 7, 15, 23, 32-33, 2010 Minn. Laws 499, 501-02, 505, 508-09, 511. But
because the arbitration began in October 2006, the repealed provisions continue to govern
this case pursuant to a savings clause. See Minn. Stat. § 572B.30 (2012) (providing that
sections 572B.01 to 572B.31 do not affect an action commenced before the provisions
take effect). Unless otherwise indicated, references to provisions in Minn. Stat. ch. 572
(2010) are to the pre-repeal version that governed this arbitration proceeding.
3
because the arbitrator exceeded his authority by issuing these sanctions and substantially
prejudiced Mao and Western Digital by refusing to hear evidence material to the
controversy. Because we conclude that the arbitrator did not exceed his authority or
refuse to hear material evidence as required for vacatur under Minn. Stat. § 572.19, subd.
1(3)-(4), we affirm the decision of the court of appeals reinstating the arbitration award in
full.
The arbitration agreement at issue arose out of an employment contract between
Mao and his former employer, respondent Seagate Technology, LLC. Seagate designs
and manufactures hard disk drives for computers. In his role as senior director for
advanced head concepts at Seagate, Mao worked on technology that involves
incorporating tunneling magnetoresistance (TMR) into read heads,2 which, if done
successfully, would allow for vastly improved storage capacity on hard disk drives.
When Mao began working for Seagate, he signed an employment agreement
stating, among other requirements, that if he left Seagate, he would preserve the
confidentiality of all trade secrets, return all company documents, and not solicit any
current Seagate employees for other employment using unfair or deceptive means. The
employment agreement also contained the following arbitration clause:
Arbitration: Except as stated below, I agree that any dispute or controversy
arising out of or relating to any interpretation, construction, performance or
breach of this Agreement, shall be settled by arbitration to be held in
Hennepin County, Minnesota, in accordance with the rules then in effect of
2
A “read/write head” writes data onto or reads data from a magnetic tape or disk. Bharat
Bhushan, Tribology of the Head-Medium Interface, in Magnetic Recording Technology
7.1, 7.1 (C. Denis Mee & Eric D. Daniel eds., 2d ed. 1996).
4
the American Arbitration Association. The arbitrator may grant injunctions
or other relief in such dispute or controversy. The decision of the arbitrator
shall be final, conclusive and binding on the parties to the arbitration.
Judgment may be entered on the arbitrator’s decision in any court having
jurisdiction. The Company and I shall each pay one-half of the costs and
expenses of such arbitration, and each of us shall separately pay our
counsel fees and expenses.
Mao left Seagate in September 2006 and joined Seagate’s competitor, Western
Digital Corporation, in October 2006. After Mao joined Western Digital, Seagate
commenced a district court action seeking injunctive relief to prevent the disclosure of
Seagate’s trade secrets and later amended its claim to allege actual misappropriation of
trade secrets. Seagate’s primary allegation, in essence, was that Mao stole Seagate’s
trade secrets and confidential information regarding TMR technology and provided it to
Western Digital, which Western Digital then used to design and manufacture a TMR read
head. Specifically, Seagate made: (1) claims against Mao and Western Digital for the
misappropriation of eight trade secrets; (2) claims against Mao for breach of contract,
breach of fiduciary duty, and breach of loyalty; and (3) a claim against Western Digital
for tortious interference with contract.
Western Digital invoked the arbitration clause of the employment agreement, and
the district court stayed the lawsuit pending arbitration. Before the arbitration hearing
began, Seagate brought a motion for sanctions against Western Digital and Mao based on
alleged fabrication of evidence.3 The fabrication related to documents submitted by
Western Digital and Mao, which were intended to prove that three of Seagate’s claimed
3
Seagate also brought a motion, later denied, asserting spoliation of evidence.
5
trade secrets, referred to as Trade Secrets 4-6, had been publicly disclosed before Mao
left Seagate. Seagate alleged that Mao had inserted additional PowerPoint slides
containing information on Trade Secrets 4-6 into his copy of a presentation that he had
given at a conference while employed by Seagate to make it appear as if this information
had been presented in public, and therefore did not qualify as trade secrets.
In the motion for sanctions based on fabrication, Seagate requested “a sanction
commensurate with the severity of the misconduct.” Specifically, Seagate requested an
order precluding Western Digital and Mao “from presenting any defense to the trade
secret misappropriation claims asserted against them, including barring [Western Digital
and Mao] from (1) disputing the validity and misappropriation of any of Seagate’s eight
asserted trade secrets, and (2) disputing Western Digital’s use of Seagate’s eight asserted
trade secrets.” Seagate also requested compensation for “the costs and attorneys’ fees it
was forced to incur to investigate and expose the document fabrication and to bring this
motion to remedy it.” Western Digital and Mao responded by requesting sanctions
against Seagate to “compensate the Claimants for the unnecessary fees and costs incurred
in defending against Seagate’s frivolous charges.” Western Digital and Mao also asked
the arbitrator to defer consideration of the sanctions motions until after the arbitrator had
heard evidence “in the context of the full arbitration hearing,” and the arbitrator granted
this latter request.
The arbitration hearing was held over 34 days in 2011. The arbitrator found in
favor of Mao and Western Digital with respect to claims arising out of Trade Secrets 1-3
and 7-8, concluding that Seagate had failed to prove that the information reflected in
6
these claims met the definition of a trade secret.4 Trade Secrets 4-6 were addressed
separately, as the arbitrator first reviewed the motion for sanctions based on fabrication
and determined that Mao fabricated the disputed slides for the purpose of litigation while
working at Western Digital. The arbitrator stated: “The fabrications were obvious.
There is no question that Western Digital had to know of the fabrications and yet
continued to represent to the Arbitrator that Dr. Mao did in fact insert the disputed
slides . . . at the time of the conferences.” The arbitrator concluded that “Dr. Mao’s
fabrication of evidence and Western Digital’s complicity by submitting the obviously
fabricated evidence to the Arbitrator is an egregious form of litigation misconduct and
warrants severe sanctions.” The arbitrator then cited Harris Trust & Savings Bank v. Ali,
425 N.E.2d 1359, 1366 (Ill. App. Ct. 1981), which states that “[w]hen evidence is . . .
fabricated, a presumption arises that the cause of action or the defense it was intended to
support is without substantial foundation.” (citation omitted) (internal quotation marks
omitted). The arbitrator imposed the following sanctions against Western Digital and
Mao:
a) Preclusion of any evidence or defense by Western Digital and Dr. Mao
disputing the validity of Seagate’s asserted trade secrets 4, 5, and 6;
b) Preclusion of any evidence or defense by Western Digital and Dr. Mao
regarding misappropriation by Western Digital and Dr. Mao of Seagate’s
asserted trade secrets 4, 5, and 6;
4
The arbitrator also found for Mao on Seagate’s claims for breach of fiduciary duty
and for Western Digital on Seagate’s claim for tortious interference with contract.
7
c) Preclusion of any evidence or defense by Western Digital disputing that it
has used or is using Seagate’s asserted trade secrets 4, 5, and 6 in Western
Digital’s manufactured TMR read heads; and
d) Entry of judgment against Western Digital and Dr. Mao of liability for
misappropriation and use of Seagate’s asserted trade secrets 4, 5, and 6.
After determining that Seagate had established that Trade Secrets 4-6 qualified as
trade secrets and, consistent with the sanctions, that these trade secrets had been
improperly used by Western Digital, the arbitrator found in favor of Seagate on its claims
arising out of Trade Secrets 4-6. The arbitrator also found that Mao’s testimony, in part
due to the fabrication of evidence, lacked credibility and that Mao had breached his
employment contract by disclosing confidential information, not returning company
documents, and soliciting a Seagate employee for employment at Western Digital. The
arbitrator calculated damages based on “the unjust enrichment method,” awarding
Seagate compensatory damages of $525 million, prejudgment interest totaling nearly $96
million, and post-award interest. The arbitrator determined that Western Digital and Mao
are jointly and severally liable for the damages.
Western Digital and Mao brought a motion in Hennepin County District Court to
vacate the portion of the arbitration award concerning Trade Secrets 4-6, and Seagate
moved to confirm the entire award. Following a hearing, the district court issued an
order confirming the award in part, vacating the award in part, and ordering a rehearing
before a new arbitrator. The district court determined that the arbitrator’s ability to
impose sanctions was determined by the arbitration agreement, and that the agreement in
this case did not contain provisions that could be interpreted as authorizing sanctions
8
beyond attorney fees. Furthermore, the district court determined that even if sanctions
had been permitted, the arbitrator misapplied sanctions law by not allowing Western
Digital and Mao to rebut the presumption created by the fabricated evidence that their
defense was without substantial foundation. Thus, the district court concluded that the
arbitrator exceeded his authority by issuing punitive sanctions against Western Digital
and Mao, and so vacatur of the portion of the award impacted by the sanctions was
appropriate under Minn. Stat. § 572.19, subd. 1(3). The district court also concluded that
by disregarding material evidence when fashioning the award, the arbitrator substantially
prejudiced Western Digital and Mao by “refus[ing] to hear evidence material to the
controversy,” and so Minn. Stat. § 572.19, subd. 1(4), also required vacatur. Therefore,
the district court vacated the portion of the award regarding Trade Secrets 4-6, confirmed
the award regarding the other claims, and ordered that the matter be reheard before a new
arbitrator.
Seagate appealed, arguing that the district court erred by: (1) determining that the
arbitrator had exceeded his authority by issuing sanctions and concluding that Western
Digital and Mao had not waived their right to challenge the sanctions; (2) reviewing the
merits of the arbitrator’s decision to impose sanctions; (3) granting vacatur based on
public policy; and (4) ordering a rehearing before a new arbitrator. The court of appeals
granted discretionary review, then reversed and remanded for entry of an order
confirming the award and judgment entered on that order. Seagate Tech., LLC v. W.
Digital Corp., 834 N.W.2d 555, 567 (Minn. App. 2013). The court of appeals applied a
method of waiver analysis from the Eighth Circuit, which holds that there is a waiver if
9
the party did not object during the arbitration and that party asked the arbitrator to use a
power similar to the power they now challenge. Id. at 561-62; see Wells Fargo Bank,
N.A. v. WMR e–PIN, LLC, 653 F.3d 702, 711–12 (8th Cir. 2011). Using this Eighth
Circuit method, the court of appeals concluded that Western Digital and Mao had waived
their right to challenge the arbitrator’s ability to issue punitive sanctions. Seagate Tech.,
834 N.W.2d at 561-62.
Although the court of appeals stated that its finding of waiver “is dispositive of the
issue of arbitrator authority and could end our analysis,” it nonetheless reviewed the
merits of the arbitrator’s use of punitive sanctions and the district court’s order for a
rehearing before a new arbitrator. Id. at 562. The court of appeals concluded that a
broadly worded arbitration agreement confers inherent authority on the arbitrator to
impose punitive sanctions, that the arbitrator’s possible misapplication of sanctions law
did not compel vacatur, that the arbitration award did not violate public policy, and that
the district court abused its discretion by directing a rehearing before a new arbitrator. Id.
at 564-67. We granted Western Digital and Mao’s request for further review.
I.
Before evaluating if the arbitrator imposed permissible sanctions on Western
Digital and Mao, we must determine if Western Digital and Mao waived their right to
request vacatur under Minn. Stat. § 572.19, subd. 1(3)-(4) (2010). We review a district
court’s determination of waiver for clear error, In re Civil Commitment of Giem, 742
N.W.2d 422, 432 (Minn. 2007), but we review the interpretation of a statute de novo,
Krueger v. Zeman Constr. Co., 781 N.W.2d 858, 861 (Minn. 2010).
10
The grounds for Western Digital and Mao’s challenges to the arbitration award are
statutory. Therefore, although other jurisdictions have developed various methods for
analyzing waiver in the context of an arbitration, the necessity of an objection before
requesting vacatur under Minn. Stat. § 572.19, subd. 1, is controlled first by the language
of the statute.5 Subdivision 1 provides in relevant part:
5
The concurrence contends that part of Seagate’s argument on the waiver issue is
that Mao and Western Digital implicitly waived their ability to seek vacatur under the
statute by asking the arbitrator to impose sanctions on Seagate. This is a
mischaracterization of the issue. Although there was some discussion of an implicit
expansion of the arbitrator’s authority by Western Digital and Mao’s conduct, Seagate’s
main focus on the waiver issue has always been on Mao and Western Digital’s failure to
object, regardless of their conduct in the arbitration. The district court framed the issue
as whether Western Digital and Mao conceded that the arbitrator had the authority to
impose punitive sanctions by “not stating that the Arbitrator had no authority” to impose
punitive sanctions during the arbitration. Likewise, in their briefs to the court of appeals,
the main focus of both parties was whether Western Digital and Mao had objected and if
such an objection was required either by statute or the American Arbitration Association
Employment Arbitration Rules and Mediation Procedures. For example, at the court of
appeals Seagate argued that “[t]he failure to object to the Arbitrator’s power to decide the
issue precludes any argument that the Arbitrator’s ruling should be vacated as beyond the
scope of his authority.” In its brief to our court, Seagate also contends that Western
Digital and Mao were required to object during the arbitration regardless of their conduct,
arguing that the “failure to object would constitute waiver,” that not requiring an
objection would risk parties abusing the arbitration process, and that not requiring an
objection would be unfair. Mao also frames the issue as a question of waiver by failing
to object, regardless of conduct, as he asks us to decide whether “a party waive[s] its right
to judicial review if the party d[oes] not make a precisely worded, formal objection
during the arbitral proceedings.” Thus, the concurrence is simply incorrect in suggesting
that we are addressing an issue not raised by the parties by deciding whether or not an
objection is required before requesting vacatur under Minn. Stat. § 572.19, subd. 1(3)-(4).
The concurrence raises a question that is not squarely presented by the parties,
which is whether Western Digital and Mao’s conduct was an intentional relinquishment
of their right to object. Although Seagate argues that Western Digital and Mao invoked
the arbitrator’s power to sanction, the parties have failed to expressly argue whether such
an invocation served as an intentional relinquishment of the right to object. For example,
(Footnote continued on next page.)
11
Upon application of a party, the court shall vacate an award where:
(1) The award was procured by corruption, fraud or other undue
means;
(2) 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;
(3) The arbitrators exceeded their powers;
(4) The arbitrators refused to postpone the hearing upon sufficient
cause being shown therefor or refused to hear evidence material to the
controversy or otherwise so conducted the hearing, contrary to the
provisions of section 572.12, as to prejudice substantially the rights of a
party; or
(5) There was no arbitration agreement and the issue was not
adversely determined in proceedings under section 572.09 and the party did
not participate in the arbitration hearing without raising the objection.
Western Digital and Mao challenge the arbitration award on the basis of
subdivision 1(3), alleging that the arbitrator exceeded his authority, and subdivision 1(4),
alleging that the arbitrator refused to hear material evidence. They note that while
subdivision 1(5) requires that “the party did not participate in the arbitration hearing
without raising the objection,” subdivisions 1(3) and (4) do not contain any similar
limiting language.
(Footnote continued from previous page.)
none of the parties have addressed whether Western Digital and Mao’s conduct was an
intentional relinquishment, which would be a key issue under the concurrence’s framing
of the issue. As the concurrence notes, the argument that Western Digital and Mao
intentionally gave up their right to object “may be more complex” than the parties
appreciate, and so we decline to resolve this issue in a case such as this where the parties
have not expressly argued or fully briefed the issue. See Plunkett v. First Nat’l Bank of
Austin, 259 Minn. 562, 563, 107 N.W.2d 220, 220 (1961) (declining to decide “issues
[that] have not been fully briefed or presented to us”). Therefore, we disagree with the
approach adopted by the concurrence.
12
We agree that this distinction is significant. We construe a statute “as a whole so
as to harmonize and give effect to all its parts, and where possible, no word, phrase, or
sentence will be held superfluous, void, or insignificant.” Jackson v. Mortg. Elec.
Registration Sys., Inc., 770 N.W.2d 487, 496 (Minn. 2009) (citation omitted) (internal
quotation marks omitted); see also Minn. Stat. § 645.16 (2012) (“Every law shall be
construed, if possible, to give effect to all its provisions.”). Here, if the Legislature had
intended for all clauses of Minn. Stat. § 572.19, subd. 1, to implicitly require an
objection, the explicit requirement of an objection in subdivision 1(5) would be
superfluous. Moreover, “distinctions in language in the same context are presumed to be
intentional,” In re Stadsvold, 754 N.W.2d 323, 328-29 (Minn. 2008), so a condition
expressly mentioned in one clause of a subdivision provides evidence that the Legislature
did not intend for the condition to apply to other clauses in which the condition is not
stated. In addition, “[w]e cannot add words or meaning to a statute that were
intentionally or inadvertently omitted.” Rohmiller v. Hart, 811 N.W.2d 585, 590 (Minn.
2012). Therefore, we cannot conclude that subdivision 1(3)-(4) requires an objection
during arbitration when, as evidenced by difference in the language between these
clauses and subdivision 1(5), the Legislature appears to have intentionally omitted such a
requirement.
Our case law also supports this reasoning. In Twomey v. Durkee, we held that the
plaintiffs were estopped from challenging the arbitrability of a dispute because they had
participated in the arbitration proceedings without objection. 291 N.W.2d 696, 699
(Minn. 1980). Twomey recognized that Minn. Stat. § 572.19, subd. 1, requires an
13
objection for challenges brought under subdivision 1(5). But in Twomey we also stated
that claims based on a violation of Minn. Stat. § 572.19, subd. 1(4), or other clauses of
subdivision 1, “except those relating to arbitrability,” are “not affected by a finding of
estoppel” based on the failure to object. 291 N.W.2d at 699. Twomey clearly
distinguishes between the necessity of an objection under subdivision 1(5), which
involves arbitrability, and the other clauses of section 572.19, subdivision 1, which do
not. This distinction is in line with our statutory analysis, suggesting that while
subdivision 1(5) claims can be subject to estoppel based on a failure to object, challenges
raised under the other clauses of section 572.19, subdivision 1 are not similarly
vulnerable to the absence of an objection.
In addition to the statutory analysis, the structure of arbitration proceedings
supports this result. Given the very limited appeal rights, the absence of a transcript in
many informal arbitration proceedings, and the use of nonlawyers as arbitrators in some
arbitration hearings, the imposition of an objection requirement by our court when the
Legislature did not do so would be an awkward fit at best. See, e.g., Larson v. Nygaard,
148 Minn. 104, 107-08, 180 N.W. 1002, 1003 (1921) (discussing an arbitration in which
the arbitrators did not have legal training, all proceedings were oral, no attorneys or
advisors could participate, and “[a]ll technicalities were to be disregarded”).
Based on this analysis, we conclude that under Minn. Stat. § 572.19, subd. 1, an
objection during arbitration is required only for challenges brought under subdivision
1(5) and is not required for challenges brought under the other clauses of that
subdivision. We accordingly reject the court of appeals’ use of the Eighth Circuit method
14
of waiver analysis for this provision, which would find waiver whenever a party failed to
object during the arbitration and invoked the same power during arbitration that the party
now challenges on appeal. See Wells Fargo Bank, 653 F.3d at 711–12. Although
Seagate makes several policy-based arguments in favor of the Eighth Circuit approach,
such considerations cannot outweigh the plain language of the statute. See Minn. Stat.
§ 645.08, subd. 1 (2012) (stating that when interpreting statutes, “words and phrases are
construed . . . according to their common and approved usage).
We hold that Western Digital and Mao did not waive their right to challenge the
arbitration award on the basis of Minn. Stat. § 572.19, subd. 1(3)-(4).
II.
Having concluded that Western Digital and Mao did not waive their right to
challenge the arbitration award under Minn. Stat. § 572.19, subd. 1(3)-(4), we must now
review the merits of these challenges.
A.
We first examine whether the arbitrator had the authority to impose punitive
sanctions that precluded any evidence or defense on certain issues and entered a
judgment of liability. Western Digital and Mao contend that by issuing these sanctions,
the arbitrator exceeded his authority. Accordingly, they request vacatur under Minn. Stat.
§ 572.19, subd. 1(3), of the portion of the award impacted by the sanctions. The
authority of an arbitrator to impose punitive sanctions, which for purposes of this opinion
15
refers to sanctions stemming from party misconduct,6 is an issue of first impression in
Minnesota. Courts in other jurisdictions are divided not only on the proper result, but
also on the method of analysis.7
We determine the scope of an arbitrator’s authority de novo. Cnty. of Hennepin v.
Law Enforcement Labor Servs., Inc., Local No. 19, 527 N.W.2d 821, 824 (Minn. 1995).
An arbitration award “will be set aside by the courts only when the objecting party meets
its burden of proof that the arbitrators have clearly exceeded the powers granted to them
6
See Black’s Law Dictionary 1429 (10th ed. 2014) (defining “punitive” as
involving or inflicting punishment); cf. Taylor v. Illinois, 484 U.S. 400, 435 (1988)
(“[M]isconduct is amenable to direct punitive sanctions against attorneys as a deterrent
that can prevent attorneys from systemically engaging in misconduct that would disrupt
the trial process.”).
7
Some courts have held that punitive sanctions in arbitrations are not allowed based
on public policy reasons. See Garrity v. Lyle Stuart, Inc., 353 N.E.2d 793, 796 (N.Y.
1976) (“Punitive sanctions are reserved to the State . . . .”), overruled by Mastrobuono v.
Shearson Lehman Hutton, Inc., 514 U.S. 52, 56-59 (1995). Other courts have concluded
that punitive sanctions are not incorporated into a broad arbitration agreement without
specific language granting the authority. See Certain Underwriters at Lloyd’s, London v.
Argonaut Ins. Co., 264 F. Supp. 2d 926, 944-45 (N.D. Cal. 2003) (requiring express grant
of authority before imposing punitive sanctions); MCR of Am., Inc. v. Greene, 811 A.2d
331, 343-44 (Md. Ct. Spec. App. 2002) (concluding that the terms “remedy” and “relief”
were too vague to include punitive sanctions). But other courts have held that arbitrators
do have the power to impose punitive sanctions. Some courts have based this power on a
concept of inherent authority. First Pres. Capital, Inc. v. Smith Barney, Harris Upham &
Co., Inc., 939 F. Supp. 1559, 1565 (S.D. Fla. 1996) (concluding arbitrators have authority
to enforce their directives, including imposing punitive sanctions such as dismissal of a
claim). Other courts have grounded the arbitrator authority to issue sanctions in broad
language in the arbitration agreement. See AmeriCredit Fin. Servs., Inc. v. Oxford Mgmt.
Servs., 627 F. Supp. 2d 85, 96 (E.D.N.Y. 2008) (allowing dismissal of a counterclaim
based on destruction of evidence because the agreement enabled arbitrator to resolve
“any dispute”); David v. Abergel, 54 Cal. Rptr. 2d 443, 445 (Ct. App. 1996) (concluding
that an arbitration agreement granting “any remedy or relief to which a party is entitled
under California law” grants all powers that a court would have, including the ability to
impose punitive sanctions).
16
in the arbitration agreement; courts will not overturn an award merely because they may
disagree with the arbitrators’ decision on the merits.” Children’s Hosp., Inc. v. Minn.
Nurses Ass’n, 265 N.W.2d 649, 652 (Minn. 1978) (emphasis added); see also State v.
Minn. Ass’n of Prof’l Emps., 504 N.W.2d 751, 755-56 (Minn. 1993) (“In evaluating
challenges to the scope of an arbitrator’s powers, this court’s scope of review is very
limited . . . .”). In our review of an arbitrator’s authority, “[e]very reasonable
presumption is exercised in favor of the finality and validity of the award.” Nat’l Indem.
Co. v. Farm Bureau Mut. Ins. Co., 348 N.W.2d 748, 750 (Minn. 1984).
The arbitrator’s ability to issue punitive sanctions is controlled by the arbitration
agreement. Law Enforcement Labor Servs., 527 N.W.2d at 824 (“The scope of an
arbitrator’s authority is a matter of contract interpretation to be determined from a
reading of the parties’ arbitration agreement.”). Therefore, parties are able to include or
exclude the use of punitive sanctions when constructing an arbitration agreement, either
through express provision or through the incorporation of a particular set of arbitration
rules.8 When reviewing an arbitration agreement to determine the scope of an arbitrator’s
authority, we use principles of contract interpretation. Children’s Hosp., 265 N.W.2d at
652. While courts possess inherent judicial powers that enable them to impose punitive
sanctions, see Chambers v. NASCO, Inc., 501 U.S. 32, 44 (1991), arbitrators have no
8
For example, the American Arbitration Association (AAA) Commercial
Arbitration Rules and Mediation Procedures state that “[t]he arbitrator may, upon a
party’s request, order appropriate sanctions where a party fails to comply with its
obligations under these rules or with an order of the arbitrator.” AAA Commercial R.
58(a).
17
correlating inherent authority and receive their powers from either the arbitration
agreement, see Law Enforcement Labor Servs., 527 N.W.2d at 824, or the Legislature.9
Following principles of contract law, we begin by looking at the language of the
agreement. Interpreting a contract requires us to “determine if the language is clear and
unambiguous, meaning it has only one reasonable interpretation. If so, we give effect to
the language of the [agreement].” Halla Nursery, Inc. v. City of Chanhassen, 781
N.W.2d 880, 884 (Minn. 2010) (citation omitted). Seagate notes that we have often
construed arbitration agreements broadly. See, e.g., Michael-Curry Cos. v. Knutson
S’holders Liquidating Trust, 449 N.W.2d 139, 142 (Minn. 1989); David Co. v. Jim W.
Miller Constr., Inc., 444 N.W.2d 836, 842 (Minn. 1989). But we cannot convey broader
powers than the words of the arbitration agreement provide under their ordinary meaning.
See Halla Nursery, 781 N.W.2d at 884-85 (rejecting an interpretation that “directly
contradicts the plain terms” of a contract). Although Seagate argues that the arbitrator is
empowered to interpret his authority on the basis of the agreement and to impose any
award that does not manifestly disregard the spirit of the agreement,10 the arbitrator
9
The Legislature has occasionally given arbitrators authority through statute.
Although enacted after this case, and therefore not relevant here, one example of this type
of authority is found in Minn. Stat. § 572B.21(a) (2012), which authorizes arbitrators to
award “punitive damages or other exemplary relief if such an award is authorized by law
in a civil action involving the same claim and the evidence produced at the hearing
justifies the award under the legal standards otherwise applicable to the claim.”
10
See also Ramsey Cnty. v. Am. Fed’n of State, Cnty. & Mun. Emps., Council 91,
Local 8, 309 N.W.2d 785, 793 (Minn. 1981) (“If arbitration is to remain a viable
alternative to problem resolution in the area of industrial strife, the concept of judicial
(Footnote continued on next page.)
18
cannot expand his authority beyond what could reasonably be interpreted from the
arbitration agreement.
The arbitration agreement empowered the arbitrator to settle “any dispute or
controversy arising out of or relating to any interpretation, construction, performance or
breach” of the employment agreement, and the agreement states that “[t]he arbitrator may
grant injunctions or other relief in such dispute or controversy.” The agreement also says
that the arbitration will be conducted in accordance with the “the rules then in effect of
the American Arbitration Association.” The American Arbitration Association
Employment Arbitration Rules and Mediation Procedures (AAA Employment Rules) do
not specifically address punitive sanctions, but they do authorize arbitrators to “grant any
remedy or relief that would have been available to the parties had the matter been heard
in court including awards of attorney’s fees and costs.” AAA Employment R. 39(d)
(2009).
We must determine, therefore, whether the power to grant “injunctions or other
relief” or “any remedy or relief that would have been available to the parties had the
matter been heard in court” includes the power to impose punitive sanctions. Western
Digital argues that punitive sanctions are neither a remedy nor a form of relief. Western
Digital distinguishes between sanctions issued to punish a party after misconduct, which
it labels “punitive sanctions,” and sanctions intended to remedy a harm caused to one
(Footnote continued from previous page.)
deference to arbitral authority must encompass the recognition that the arbitrator is the
‘reader’ of the contract.”).
19
party, which it labels “remedial sanctions.” Thus, Western Digital argues that while
remedial sanctions, being a form of remedy, are permitted under the parties’ arbitration
agreement, the punitive sanctions issued here were outside the arbitrator’s authority
because they did not serve as a remedy or relief to either party. Seagate argues that there
is no distinction between punitive and remedial sanctions, but that even if there was, the
term “relief” is broad enough to encompass both.
We look first at the language in the arbitration agreement authorizing the arbitrator
to “grant injunctions or other relief” in “any dispute or controversy arising out of or
relating to any interpretation, construction, performance or breach” of the employment
agreement. “Relief” is defined as “[t]he redress or benefit, esp[ecially] equitable in
nature (such as an injunction or specific performance), that a party asks of a court.”
Black’s Law Dictionary 1482 (10th ed. 2014). Here, the punitive sanctions issued were
requested by Seagate as a redress for the wrong committed by Western Digital and Mao
when Mao fabricated evidence. In addition, although punitive sanctions are issued in
large part to punish one party, because they also benefit the other party, they are
appropriately categorized as a form of relief. The Legislature has also categorized
punitive measures as a form of relief, such as when discussing the authority of an
arbitrator to award “punitive damages or other exemplary relief.” Minn. Stat.
20
§ 572B.21(a) (2012) (emphasis added).11 These sources confirm that punitive sanctions
qualify as “injunctions or other relief” as authorized by the arbitration agreement.
The sanctions issued were also authorized by the AAA Employment Rules, which
were incorporated into the arbitration agreement and allow the arbitrator to grant “any
remedy or relief that would have been available to the parties had the matter been heard
in court including awards of attorney’s fees and costs.” AAA Employment R. 39(d). As
we have established, punitive sanctions fall within the ordinary meaning of relief.
Punitive sanctions can also be properly construed as a remedy. Remedy is defined as
“[t]he means of enforcing a right or preventing or redressing a wrong; legal or equitable
relief” and “anything a court can do for a litigant who has been wronged or is about to be
wronged.” Black’s Law Dictionary 1485 (10th ed. 2014) (quoting Douglas Laycock,
Modern American Remedies 1 (4th ed. 2010)). Here, the sanctions were issued in part to
redress a wrong, the fabrication of evidence, which harmed Seagate during the
arbitration. Thus, the sanctions constitute a remedy provided to Seagate.
Our conclusion that punitive sanctions are a remedy is also supported by case law.
For example, in State v. Miller we equated a punitive sanction with a remedy, noting that
a district court sanction excluding certain testimony was a “proper remedy” that
“appropriately reflect[ed] the seriousness of the ethical violation and the prejudice to
appellant.” 600 N.W.2d 457, 468 (Minn. 1999). Likewise, the Eighth Circuit has found
11
We reiterate that because this statute was enacted after the arbitration proceedings
began in this case, we do not examine here whether Minn. Stat. § 572B.21(a) directly
authorizes the use of punitive sanctions in arbitrations.
21
dismissal to be an appropriate sanction “when there has been a clear record of delay or
contumacious conduct by the plaintiff.” Bergstrom v. Frascone, 744 F.3d 571, 575 (8th
Cir. 2014) (citation omitted) (internal quotation marks omitted).12
Having established that the sanctions qualify as a “relief or remedy” for purposes
of AAA Employment Rule 39(d), we next examine whether the sanctions issued also
satisfy the second requirement set out in AAA Employment Rule 39(d). That
requirement states that the relief or remedy would “have been available to the parties had
the matter been heard in court.” The preclusion of evidence or any defense on an issue is
a sanction used by courts. See, e.g., State v. Richards, 495 N.W.2d 187, 199 (Minn.
1992) (noting that the “preclusion of evidence is a severe sanction”). This type of
sanction has also been applied as a response to fabricated evidence. See, e.g., Aoude v.
Mobil Oil Corp., 892 F.2d 1115, 1119 (1st Cir. 1989) (“We find the caselaw fully
consonant with the view that a federal district judge can order dismissal or default where
a litigant has stooped to the level of fraud on the court.”); Vargas v. Peltz, 901 F. Supp.
1572, 1581 (S.D. Fla. 1995) (“The federal case law is well established that dismissal is
the appropriate sanction where a party manufactures evidence which purports to
12
This conclusion is also supported by decisions from other jurisdictions that have
examined similar language in the context of an arbitrator’s authority to issue sanctions.
See Polin v. Kellwood Co., 103 F. Supp. 2d 238, 264 (S.D.N.Y. 2000) (concluding that
sanctions based on attorney misconduct were permissible under the arbitration
agreement’s broad remedial power, which authorized the arbitrator to “grant any remedy
or relief that the arbitrator deems just and equitable”), aff’d, 34 F. App’x 406 (2d Cir.
2002); David, 54 Cal. Rptr. 2d at 445 (concluding that language in an arbitration
agreement authorizing “any remedy or relief to which a party is entitled under California
law” permitted the arbitrator to sanction a party for a frivolous claim).
22
corroborate its substantive claims.”); Sun World, Inc. v. Lizarazu Olivarria, 144 F.R.D.
384, 391 (E.D. Cal. 1992) (ordering the entry of default judgment when defendant
committed fraud on the court). Therefore, we conclude that the sanctions issued were of
the type that would have been “available to the parties had the matter been heard in
court,” and as such, they were authorized by AAA Employment Rule 39(d).
Western Digital argues that it did not act with a level of culpability to warrant
punitive sanctions and that the arbitrator exceeded the level of authority given to a court
to issue punitive sanctions. Likewise, Mao argues that the arbitrator exceeded his
authority by not applying sanctions law in the same way that a Minnesota court would
have. But the arbitration agreement did not specify that the remedies or relief must be
awarded utilizing judicial principles or limitations; instead, the agreement broadly
authorized the arbitrator to grant “injunctions or other relief.”13 In addition, although
AAA Employment Rule 39(d) requires the relief to be one available to the parties in a
court action, it does not require the arbitrator to employ the sanction using the same
13
Mao argues that a provision in the employment agreement stating that the
agreement will be governed by the law of Minnesota required the arbitrator to also follow
Minnesota law. This provision, however, is located within the section on personal
jurisdiction and other matters relating to state and federal courts, not in the section on
arbitration. Although this provision may introduce some ambiguity as to the parties’
intent to allow punitive sanctions that are only judicial in character, it cannot overcome
the clear authorization in the arbitration section of the agreement authorizing “injunctions
or other relief” without limitation. See Mastrobuono, 514 U.S. at 64 (concluding that
where a choice-of-law provision and an arbitration clause in an agreement conflict, the
“choice-of-law provision covers the rights and duties of the parties, while the arbitration
clause covers arbitration”). Therefore, we conclude that the choice-of-law provision in
the employment agreement was not a restriction on the arbitrator’s ability to grant
“injunctions or other relief.”
23
standards as any particular court. “Where the arbitrators are not restricted by the
submission to decide according to principles of law, they may make an award according
to their own notion of justice without regard to the law.” Metro. Waste Control Comm’n
v. City of Minnetonka, 308 Minn. 385, 389, 242 N.W.2d 830, 832 (1976).
Furthermore, we have previously held that arbitrators have broad power to fashion
remedies within the scope authorized by the language of the arbitration agreement. See
David Co., 444 N.W.2d at 840 (allowing an arbitrator to fashion an equitable award
instead of providing a monetary remedy). And we have recognized that “an award will
not be vacated merely because the court may believe the arbitrators erred.” Id.; see also
Minn. Stat. § 572.19, subd. 1 (“[T]he fact that the relief was such that it . . . would not be
granted by a court of law or equity is not ground for vacating or refusing to confirm the
award.”). In addition, the AAA Employment Rules do not limit an arbitrator’s authority
to forms of relief that would have been granted by a court; rather, Rule 39(d) references
forms of relief that “would have been available” in a court. AAA Employment R. 39(d)
(emphasis added). This language implies that while arbitrators may be limited to the
types of relief available in a court, they are not limited in the manner of awarding these
forms of relief by the same rules as a court would have been. Because punitive sanctions
were a permissible form of relief and because the arbitrator had discretion in fashioning a
remedy, we hold that the arbitrator did not clearly exceed his authority in violation of
Minn. Stat. § 572.19, subd. 1(3), by issuing punitive sanctions against Western Digital
and Mao.
24
We recognize that entrusting an arbitrator with broad powers over forms of relief
could theoretically lead to unfair results in arbitration. Certainly Mao and Western
Digital, implicitly if not explicitly, argue that the award here was a result of an out-of-
control arbitrator or was otherwise unjust.14 Some believe that arbitration has benefits,
potentially including faster resolution and less expense than the judicial system as well as
a high degree of confidentiality. Christopher R. Drahozal & Stephen J. Ware, Why Do
Businesses Use (or Not Use) Arbitration Clauses?, 25 Ohio St. J. on Disp. Resol. 433,
451-52 (2010). But the benefits come with costs, including significantly less oversight of
decisions, evidentiary and otherwise, and very limited review of the final award. See
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)
(stating that by agreeing to arbitrate, parties “trade[] the procedures and opportunity for
review of the courtroom for the simplicity, informality, and expedition of arbitration”).
Here, despite the best efforts of experienced appellate counsel to argue otherwise,
Mao and Western Digital’s decision to demand arbitration necessarily limited the
availability of the protections and advantages of the judicial system. See Bowles Fin.
Grp., Inc. v. Stifel, Nicolaus & Co., 22 F.3d 1010, 1011 (10th Cir. 1994) (“Those who
choose to resolve a dispute by arbitration can expect no more than they have agreed. One
choosing arbitration should not expect the full panoply of procedural and substantive
14
Arbitrator performance and the fairness of the result are, of course, disputed by the
parties. For example, the amount of the award here, exceeding one half-billion dollars, is
characterized as excessive by Mao and Western Digital. Seagate notes in response that
the arbitrator’s award was one-third of Seagate’s maximum damage claim. We take no
position on the merits of these arguments.
25
protection offered by a court of law.”). In addition, we reiterate that the scope of
arbitrator authority is a matter of contract, Law Enforcement Labor Servs., 527 N.W.2d at
824, and parties are always free to fashion arbitration agreements in ways that limit the
arbitrator’s power to award certain types of relief.
B.
We next review whether an arbitrator’s imposition of sanctions that preclude any
evidence or defense on a claim warrants vacatur as a refusal to hear evidence. Minnesota
Statutes § 572.19, subd. 1(4), states that a court shall vacate an arbitration award if “[t]he
arbitrators . . . refused to hear evidence material to the controversy or otherwise so
conducted the hearing, contrary to the provisions of section 572.12, as to prejudice
substantially the rights of a party.” Section 572.12 provides, “The parties are entitled to
be heard, to present evidence material to the controversy and to cross-examine witnesses
appearing at the hearing.” Minn. Stat. § 572.12(b) (2010). The district court concluded
that the arbitrator’s decision to preclude Western Digital and Mao’s evidence on Trade
Secrets 4-6 constituted a failure to hear material evidence in violation of Minn. Stat.
§ 572.19, subd. 1(4); the court of appeals did not address this issue. We review de novo
whether the sanctions imposed constituted a refusal to hear evidence material to the
controversy and substantially prejudiced the rights of Western Digital and Mao, as
described in Minn. Stat. § 572.19, subd. 1(4). See Hibbing Educ. Ass’n v. Pub. Emp’t
Relations Bd., 369 N.W.2d 527, 529 (Minn. 1985) (stating that statutory construction is a
question of law subject to de novo review on appeal).
26
Western Digital and Mao argue that the punitive sanctions issued against them
violated the arbitrator’s duty to hear material evidence. Again, the sanctions precluded
“any evidence or defense by Western Digital and Dr. Mao” that disputed the validity of
Seagate’s asserted Trade Secrets 4-6, the misappropriation of those trade secrets, or that
Western Digital had used those trade secrets. The sanctions also entered “judgment
against Western Digital and Dr. Mao of liability for misappropriation and use of” Trade
Secrets 4-6. Western Digital and Mao argue that these sanctions constitute a refusal to
hear their evidence and violate principles of fundamental fairness. Seagate responds that
the arbitrator heard both sides of the controversy before issuing the award, as Western
Digital and Mao were allowed to present witnesses and other evidence, and the court
received these submissions. Seagate also characterizes the sanctions as evidentiary
determinations, with the arbitrator choosing to not assign weight to evidence that he did
not find credible, and argues that the interpretation of the statute proposed by Western
Digital and Mao would construe any evidentiary decision as a refusal to hear material
evidence.
We begin by noting that the arbitrator heard the challenged evidence at the request
of Western Digital and Mao and conducted the hearing in accordance with section
572.12, which requires that the parties be heard, be allowed to present evidence material
to the controversy, and be allowed to cross-examine the witnesses appearing at the
hearing. Western Digital and Mao’s challenge, therefore, centers not around the
admission of evidence, but rather around the arbitrator’s failure to use that evidence when
constructing the final award. This challenge differs from our previous case law
27
concerning an arbitrator’s refusal to hear evidence, which has generally involved
preventing a party from testifying or submitting certain evidence. See, e.g., Redner v.
N.Y. Fire Ins. Co., 92 Minn. 306, 309, 99 N.W. 886, 887 (1904) (involving arbitrators
who “refused the plaintiff the privilege of appearing before them, and refused to hear any
evidence whatever from the plaintiff, or the witnesses produced by him, or any testimony
on his behalf”).
The scope of Minn. Stat. § 572.19, subd. 1(4), is properly limited to situations
involving the presentation and admission of evidence at the hearing, not situations
involving the use or weighing of evidence in constructing the final award or other form of
relief. This conclusion is supported by the language of Minn. Stat. § 572.19, subd. 1(4),
including the incorporation of Minn. Stat. § 572.12. Minnesota Statues § 572.19, subd.
1(4), focuses on how an arbitrator should conduct a hearing. It addresses an arbitrator’s
refusal to postpone the hearing, an arbitrator’s refusal to “hear evidence material to the
controversy,” and an arbitrator’s violations of Minn. Stat. § 572.12, which again centers
on how a hearing should be conducted. Minn. Stat. § 572.19, subd. 4 (emphasis added);
see Minn. Stat. § 572.12 (detailing how to conduct a hearing, including that an arbitrator
shall appoint a time and place for the hearing, notify the parties about the hearing,
adjourn the hearing, and receive evidence at the hearing). Nothing in either Minn. Stat.
§ 572.19, subd. 1(4), or Minn. Stat. § 572.12, describes how an arbitrator is to fashion a
remedy for misconduct or the final award; the entire focus of these statutes is how the
hearing itself should be conducted, not the deliberation process that happens after the
hearing.
28
Based on an analysis of the statutory language, we conclude that it is appropriate
to read Minn. Stat. § 572.19, subd. 1(4), as a provision concerned with the admissibility
of evidence and the manner in which the hearing is conducted, not as a provision limiting
the arbitrator’s authority to use, or refuse to use, certain evidence when providing relief
or fashioning an award after the hearing has been completed. In this case, Western
Digital and Mao do not challenge any of the arbitrator’s actions during the hearing, as
Western Digital and Mao were allowed to present their case in full and the arbitrator
received the evidence in question. But the arbitrator chose not to factor this evidence into
the final award because of sanctions that were awarded and, as discussed above, were
permissible as within the arbitrator’s authority. In short, Western Digital and Mao’s
challenge, which is primarily about the arbitrator’s refusal to use certain evidence in
fashioning the final award, is outside the scope of Minn. Stat. § 572.19, subd. 1(4).
III.
Having concluded that the arbitrator did not exceed his authority or refuse to hear
material evidence as provided in Minn. Stat. § 572.19, subd. 1, we affirm the court of
appeals’ decision reinstating and confirming the arbitration award in full. Because the
award is confirmed and no rehearing is required, we do not reach the issue of whether the
district court erred in ordering a new arbitrator for the rehearing of issues related to Trade
Secrets 4-6.
Affirmed.
29
CONCURRENCE
STRAS, Justice (concurring).
I agree with the court that none of the grounds for vacating an arbitration award
are present here. See Minn. Stat. § 572.19, subd. 1 (2010). I am less certain, however,
that the court’s analysis of waiver is correct.
When the court answers the question of what happens to a party’s challenge to the
authority of the arbitrator under Minn. Stat. § 572.19, subd. 1(3), in the absence of an
objection during the course of the arbitration, it answers only half of Seagate’s argument.
The other half of Seagate’s argument is, and always has been, that Mao and Western
Digital impliedly (yet intentionally) waived their challenges to the authority of the
arbitrator when they asked the arbitrator to impose sanctions, including attorney fees and
costs, on Seagate.
The record seems clear on this point. When Western Digital first moved to vacate
the arbitration award, Seagate’s response was that “Western Digital waived its objections
to imposition of sanctions by itself requesting sanctions.” Although the district court
disagreed with Seagate, it accurately summarized Seagate’s position as follows: Mao and
Western Digital agreed that the arbitrator had the authority to impose sanctions by
“(1) . . . not argu[ing] that the Arbitrator had no authority to impose sanctions, and (2)
[themselves] request[ing] sanctions” (emphasis added). Seagate advanced the same
argument before the court of appeals, stating that, “having invoked the Arbitrator’s
sanctioning power, [Mao and Western Digital] cannot seriously dispute that power.”
This time, Seagate prevailed because the court of appeals concluded that Mao and
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Western Digital “waived their challenge to the arbitrator’s authority to impose sanctions
by (1) failing to make that challenge to the arbitrator during the arbitration and (2)
requesting the arbitrator to impose sanctions against [Seagate].” Seagate Tech. v. W.
Digital Corp., 834 N.W.2d 555, 561 (Minn. App. 2013) (emphasis added). Seagate
argues yet again in its brief to this court that Mao and Western Digital waived their
challenges when they “told the Arbitrator he had ‘inherent’ sanctioning power, and
invited him to use that power.” Western Digital responds to Seagate’s implied-waiver
argument in its brief, see Br. of Western Digital Corp. 45 (“Nor did Western Digital and
Dr. Mao seek ‘to invoke the very authority of the arbitrator that they now seek to
challenge’ . . . .” (quoting Seagate, 834 N.W.2d at 562)), yet the court remains strangely
silent.
It is possible that the court confuses forfeiture with waiver. The absence of an
objection, standing alone, would raise a question of forfeiture. “ ‘[F]orfeiture is the
failure to make the timely assertion of a right,’ ” Kontrick v. Ryan, 540 U.S. 443, 458
n.13 (2004) (quoting United States v. Olano, 507 U.S. 725, 733 (1993)), usually through
“failing to raise a timely objection,” see United Student Air Funds, Inc. v. Espinosa, 559
U.S. 260, 275 (2010). Seagate’s argument, by contrast, raises a question of waiver:
whether Mao’s and Western Digital’s actions during the arbitration, coupled with their
failure to object, constituted the “intentional relinquishment or abandonment of a known
right or privilege,” Johnson v. Zerbst, 304 U.S. 458, 464 (1938).
In any event, by focusing on the absence of an objection by Mao and Western
Digital, the court silently converts a question of waiver into one of forfeiture. The court
C-2
answers the forfeiture question easily enough, because, as it concludes, the statute
requires an objection only when an argument for vacatur rests on the absence of an
arbitration agreement. See Minn. Stat. § 572.19, subd. 1(5). The court’s answer,
however, only partially responds to Seagate’s argument.
An example illustrates my point. Suppose the parties had expressly agreed to
waive their rights to challenge the arbitrator’s authority to impose punitive sanctions.
Under those circumstances, presumably the court would not allow Mao and Western
Digital to seek vacatur, notwithstanding the fact that the relevant statutory provisions do
not require an objection. Seagate’s argument is that this case is no different, and that the
real question is whether Mao’s and Western Digital’s conduct had the same effect as an
express waiver. On that question, the text of section 572.19 does not yield an easy
answer.
Because the waiver issue is both difficult1 and unnecessary to our decision, I see
no reason to address it. But if the court insists on doing so, it should answer the question
actually posed, not one of its own making.
1
In fact, Seagate’s argument may be more complex than either Seagate or the court
appreciates. In addition to waiver, Seagate’s argument, extended to its logical ends, may
also implicate principles of estoppel. See Twomey v. Durkee, 291 N.W.2d 696, 698-99
(Minn. 1980) (holding that parties who “acquiesc[ed] in and participat[ed] in” an
arbitration proceeding were estopped from later arguing that they had not agreed to
arbitration). However, because Seagate does not expressly argue that Mao and Western
Digital are estopped from challenging the arbitrator’s authority, I will not address this
possibility further.
C-3