Evans v. EM 1600 , 782 Utah Adv. Rep. 55 ( 2015 )

2015 UT App 65_________________________________________________________
THE UTAH COURT OF APPEALS
MARTIN O. EVANS,
Plaintiff and Appellant,
v.
CRAIG C. NIELSEN,
Defendant and Appellee.
Opinion
No. 20130770-CA
Filed March 19, 2015
Fourth District Court, Provo Department
The Honorable Lynn W. Davis
No. 100401526
Barry N. Johnson, David M. Kono, and Joshua L. Lee,
Attorneys for Appellant
Mary Anne Q. Wood, Stephen Q. Wood, and
Jared M. Asbury, Attorneys for Appellee
JUDGE STEPHEN L. ROTH authored this Opinion, in which JUDGES
J. FREDERIC VOROS JR. and MICHELE M. CHRISTIANSEN concurred.
ROTH, Judge:
¶1 Martin O. Evans appeals the district court’s confirmation
of the final award of an arbitrator. Evans argues that we should
reverse the district court’s confirmation and direct the district
court to vacate the arbitrator’s award on the grounds that the
arbitrator exceeded his authority and refused to hear relevant
evidence. We affirm.
Evans v. Nielsen
BACKGROUND
¶2 This case is premised on a promissory note containing an
arbitration agreement. In 2005, Evans and Craig C. Nielsen
purchased a number of H&R Block franchises in Idaho and
formed several limited liability companies (the Tax Companies).
Because Evans lacked the money to fund his portion of the
purchase, Nielsen advanced $500,000 with the understanding
that Evans would eventually repay Nielsen $256,000 plus
interest and make up the balance with ‚sweat equity‛ by
working for the business. The two men agreed that Evans would
own 49% of the Tax Companies and Nielsen would own 51%.
This parties formalized the agreement in a promissory note (the
Note) signed in October 2005. The Note had a maturity date of
October 30, 2006. The Note also provided Nielsen a ‚right of
setoff in all *Evans’s+ ownership interests in all business
ventures, including but not limited to, any interest in any
corporation, partnership, limited liability company, and so
forth.‛ This provision (the Setoff Provision) also stated that
[Evans] authorizes [Nielsen], to the extent
permitted by applicable law, to charge or setoff all
sums owing on the debt against any and all such
interests, and, at *Nielsen+’s option, to file in court
to foreclos[e] such interests to allow [Nielsen] to
protect *Nielsen+’s charge and setoff rights
provided in this paragraph.
¶3 Nielsen asserts that over the next several years Evans took
more than $200,000 in unauthorized compensation from the Tax
Companies and that Evans’s poor investment choices saddled
the Tax Companies with more than $740,000 in uncollectible
receivables. In April 2010, out of growing concern for the future
of the business, Nielsen took steps to terminate his business
relationship with Evans. According to Evans, Nielsen changed
the locks on the filing cabinets and blocked Evans’s access to the
Tax Companies’ books and records while Evans was out of
20130770-CA 2 2015 UT App 65Evans v. Nielsen
town. Shortly thereafter, Evans and Nielsen were both in
attendance as the sole members of the Tax Companies at an
annual membership meeting. Nielsen declared the Note in
default and that, as a consequence, he had ‚strictly foreclosed‛
on all of Evans’s membership interests in the Tax Companies,
the value of which, Nielsen asserted, was equal to the remaining
amount due on Evans’s Note. This left Nielsen as the sole
member and owner of the Tax Companies.
¶4 Evans filed suit against Nielsen seeking a declaration that
Nielsen’s seizure of his interests was ineffective and void, as well
as preliminary injunctive relief. The matter was eventually
referred to arbitration. At arbitration, one of the main disputes
between the parties was whether the Setoff Provision in the Note
established a true right of setoff or had actually created a
security interest requiring foreclosure. This distinction mattered
to the parties because the foreclosure of security interests is
governed by Utah’s Uniform Commercial Code (the UCC) while
a ‚right of recoupment or set-off‛ is not. See Utah Code Ann.
§ 70A-9a-109(1)(e)–(f), (4)(j) (LexisNexis 2009) (defining in part
the scope of the UCC as adopted by the Utah Legislature). Evans
argued that Nielsen’s foreclosure on his interests in the Tax
Companies was ineffective because Nielsen failed to follow the
process prescribed by the UCC for foreclosure of security
interests. Nielsen countered that the UCC did not apply to the
Note in the first place but that even if it did, the UCC limited
Evans’s recovery to any surplus that a proper foreclosure
process would have produced rather than a restoration of
Evans’s interests in the Tax Companies. See id. § 70A-9a-625(4)
(stating that a ‚debtor whose deficiency is eliminated . . . may
recover damages for the loss of any surplus‛ and ‚may not
otherwise recover . . . for noncompliance‛).
¶5 In an October 2011 interim ruling addressing motions
from both sides, the arbitrator concluded that Evans was in
default on the Note. The arbitrator then determined that the
Note’s Setoff Provision was enforceable on two independent
20130770-CA 3 2015 UT App 65Evans v. Nielsen
alternative grounds. First, the arbitrator ruled that the Setoff
Provision in the Note meant that the ‚UCC expressly is not
applicable to the Parties’ Note.‛ In the alternative, however, he
ruled that even ‚[i]f . . . the UCC were to apply‛ and even if
Evans was correct that Nielsen had failed to conduct a proper
foreclosure sale, Evans could not simply recover his interest in
the Tax Companies. Instead, the arbitrator determined that
subsection 625(4) of the UCC limited Evans’s recovery to any
proceeds in excess of the balance of the Note that would have
been realized had the foreclosure been properly conducted. The
arbitrator then concluded that, under either the ‚setoff‛ or the
UCC scenarios, the only ‚issue left to be decided under the Note
is whether the value of *Evans’s+ Interest in the Tax Companies
on April 10, 2010, exceeded the amount of his Debt on the Note
at that time and, therefore, whether there was a surplus . . . to
which he is entitled.‛
¶6 Evans submitted a ‚Request for Clarification,‛ asking the
arbitrator to reconsider his ruling that Evans was in default on
the Note. Evans argued that neither party had raised default as
an issue to be considered in the motions they presented to the
arbitrator. Evans maintains that he himself had only assumed
the Note was in default for purposes of his motion, which
addressed other issues that he deemed independently
dispositive. And Evans asserted, as summarized here by the
arbitrator,1 that he had defenses to Nielsen’s default claim
because ‚Nielsen in effect agreed to extend the maturity date of
the Note or waive the remaining Debt under the Note and,
therefore, the Note was not in default on April 10, 2010.‛ The
arbitrator responded by issuing a further ruling in which he
1. We quote the arbitrator’s summary and interpretation of
Evans’s arguments rather than his own words because the copies
of Evans’s motion provided in the record on appeal are
incomplete.
20130770-CA 4 2015 UT App 65Evans v. Nielsen
explained, in essence, that his approach to resolution of the case
required a broader consideration of the issues than Evans had
outlined in the motion he filed before arbitration: ‚To determine
the effects of the foreclosure, if any, the Arbitrator had to
determine whether the Note was in default, which triggers the
right of foreclosure. Therefore, the issue of default was
submitted to the Arbitrator for determination by the Parties’
*motions+.‛ The arbitrator entered a second interim order
determining that the value of Evans’s interests in the Tax
Companies did not exceed the balance due on the Note and
concluding that Nielsen was the prevailing party. Later, the
arbitrator issued a third and final order restating each of his
prior determinations and resolving some remaining issues not
pertinent to this appeal. Nielsen then filed a motion in the
Fourth District Court to confirm the award, and Evans filed a
counter-motion to have the arbitrator’s award vacated. The
district court confirmed the award. Evans appeals.
ISSUES AND STANDARDS OF REVIEW
¶7 Evans advances two bases for his contention that the
district court erred in confirming the arbitrator’s award: (1) the
arbitrator exceeded his authority in determining that the UCC
did not apply to the Note, and (2) the arbitrator refused to hear
relevant evidence related to the issue of default. Two standards
of review govern here. First, ‚*t+he standard of review for a trial
court is an extremely narrow one giving considerable leeway to
the arbitrator, and setting aside the arbitrator’s decision only in
certain narrow circumstances.‛ Softsolutions, Inc. v. Brigham
Young Univ., 2000 UT 46, ¶ 10, 1 P.3d 1095 (citation and internal
quotation marks omitted). ‚The trial court may not substitute its
judgment for that of the arbitrator, nor may it modify or vacate
an award because it disagrees with the arbitrator’s assessment.‛
Id. (citation and internal quotation marks omitted); see also Buzas
Baseball, Inc. v. Salt Lake Trappers, Inc., 925 P.2d 941, 947 (Utah
1996) (‚[J]udicial review of arbitration awards should not be
20130770-CA 5 2015 UT App 65Evans v. Nielsen
pervasive in scope,‛ and should be affirmed ‚as long as the
proceeding was fair and honest and the substantial rights of the
parties were respected.‛ (alteration in original) (citation and
internal quotation marks omitted)). Second, on appeal, ‚*t+here is
no special standard governing *an appellate court’s+ review of a
district court’s decision to confirm, vacate or modify an
arbitration award.‛ Buzas, 925 P.2d at 948 (emphasis and second
alteration in original) (citations and internal quotation marks
omitted). ‚Thus, in reviewing the order of a trial court
confirming, vacating, or modifying an arbitration award, we
grant no deference to the district court’s conclusions *of law+ but
review them for correctness, and we review the district court’s
factual findings under a clearly erroneous standard.‛ Id.
(alteration in original) (citations and internal quotation marks
omitted).
ANALYSIS
I. The Arbitrator Did Not Exceed His Authority.
¶8 Evans first argues that the district court should have
vacated the arbitration award because the arbitrator exceeded
his authority. See Utah Code Ann. § 78B-11-124(1)(d) (LexisNexis
2012) (stating that a court ‚shall vacate an award made in the
arbitration proceeding if . . . an arbitrator exceeded the
arbitrator’s authority‛). The Utah Supreme Court has recognized
‚two situations where a district court may find that an arbitrator
has exceeded her authority,‛ though the court has also noted
these two situations are not exhaustive. Duke v. Graham, 2007 UT
31, ¶ 8, 158 P.3d 540. ‚The first is when the district court
determines that an arbitrator’s award covers areas not
contemplated by the submission agreement. The second is when
the district court finds that the award is without foundation in
reason or fact.‛ Id. (footnote, citations, and internal quotation
marks omitted). This second situation ‚is referred to as the
‘irrationality principle’ and is based on the assumption . . . that
the parties, by their agreement to arbitrate, have given the
20130770-CA 6 2015 UT App 65Evans v. Nielsen
arbitrator the authority to decide their dispute on a rational
basis.‛ Softsolutions, Inc. v. Brigham Young Univ., 2000 UT 46,
¶ 11, 1 P.3d 1095 (omission in original) (citation and internal
quotation marks omitted). Evans appears to invoke the
irrationality principle, arguing that the arbitrator’s ruling that
‚Nielsen’s seizure of Evans’[s] interest in the Tax Companies
was a ‘setoff’ not subject to Article 9 of the UCC‛ ‚lacked any
rational basis.‛ He also argues that the alternative holding of the
arbitrator that Evans was entitled only to a surplus if the UCC
did apply was ‚simply irrational‛ because he contends that
under the UCC, Nielsen’s ‚purported acceptance *of Evans’s
interests in the Tax Companies] was ineffective,‛ and therefore
‚there [was] no surplus or deficiency at issue.‛ Instead, he
argues that his interests in the Tax Companies never transferred
to Nielsen.
¶9 Evans also argues that the arbitrator exceeded his
authority by ‚manifestly disregard[ing] the law‛ in determining
that the UCC did not apply. ‚Manifest disregard of the law is a
judicially created doctrine stemming from the exceeding
authority statutory ground.‛2 Buzas Baseball, Inc. v. Salt Lake
2. It is also a doctrine that Utah courts have never formally
adopted. Buzas Baseball, Inc. v. Salt Lake Trappers, Inc., 925 P.2d
941, 951 & n.8 (Utah 1996) (analyzing the ‚manifest disregard of
the law‛ doctrine because it was a ground relied upon by the
trial court but leaving for another day discussion of whether this
doctrine is recognized in Utah); Pacific Dev., LC v. Orton (Pacific
I), 1999 UT App 217, ¶ 14 n.3, 982 P.2d 94 (declining to decide
whether the doctrine applies in Utah but determining that
appellant would not have been able to satisfy the doctrine even
if the doctrine was recognized), aff’d in part, rev’d in part, (Pacific
II) 2001 UT 36, 23 P.3d 1035 (affirming decision of court of
appeals that appellant had not shown manifest disregard but
failing to expressly address whether the doctrine applies).
20130770-CA 7 2015 UT App 65Evans v. Nielsen
Trappers, Inc., 925 P.2d 941, 951 (Utah 1996); accord Pacific Dev.,
LC v. Orton (Pacific I), 1999 UT App 217, ¶ 14, 982 P.2d 94, aff’d in
part, rev’d in part, (Pacific II) 2001 UT 36, 23 P.3d 1035. This
doctrine requires more than ‚mere error as to the law.‛ Buzas,
925 P.2d at 951. In this respect, our supreme court has articulated
that ‚*t+he error must have been obvious and capable of being
readily and instantly perceived by the average person qualified
to serve as an arbitrator.‛ Id. (citation and internal quotation
marks omitted). Additionally, ‚the term ‘disregard’ implies that
the arbitrator appreciates the existence of a clearly governing
legal principle but decides to ignore or pay no attention to it.‛ Id.
(citation and internal quotation marks omitted).
¶10 In support of his arguments that the arbitrator exceeded
his authority by deciding that Nielsen’s seizure of Evans’s
interests in the Tax Companies constituted an allowable setoff
under the Note’s Setoff Provision, Evans contends that ‚*s+etoff
only works to cancel out mutual debts through disposition of the
creditor’s obligation to the debtor, while a security interest gives
a creditor the right to seize a debtor’s assets to satisfy a debt.‛ He
also argues the distinction between setoff and foreclosure is
obvious and cites National City Bank, Northwest v. Columbian
Mutual Life Insurance Co., 282 F.3d 407 (6th Cir. 2002), which
states, ‚Of course the right of set-off is not a security interest and
has never been confused with one: the [UCC] might as
appropriately exclude fan dancing.‛ Id. at 410 (citation and
internal quotation marks omitted). Evans therefore argues that
Nielsen’s seizure of his ownership in the company was clearly a
foreclosure in substance, even if it was undertaken in the form of
a ‚setoff‛ under the Note. Thus, he contends, the arbitrator’s
determination that Nielsen’s action was a setoff and that the
UCC did not apply was irrational and manifestly disregarded
the law.
¶11 But our role is not to review the arbitrator’s award for
legal error. See Buzas, 925 P.2d at 948. Instead, our only task is to
decide whether the district court erred in determining that the
20130770-CA 8 2015 UT App 65Evans v. Nielsen
arbitrator did not exceed his authority and in ultimately
confirming the arbitration award. See id. In this case, we
conclude that the district court did not err.
¶12 In its ruling, the district court first determined that it
could only find that the arbitrator had exceeded his authority if
the award ‚is ‘without foundation in reason or fact’ *or+ is based
on a ‘manifest disregard of the law.’‛ (Quoting Buzas, 925 P.2d at
941, 950–51.) And the court recognized that the scope of its
review of the award was constrained; that is, the district court
was ‚not to determine whether the UCC should or should not
apply, only to determine whether there is a rational basis to not
apply the UCC.‛ See Softsolutions, Inc., 2000 UT 46, ¶ 10. The
court then noted that ‚a setoff is a counterclaim or recoupment
which a person may have against another . . . to satisfy whatever
is owed,‛ and it also observed that the parties specifically
contracted with regard to both the meaning of ‚setoff‛ as well as
Nielsen’s ability to satisfy any debt owed to him through a setoff
of Evans’s business interests. The district court ultimately
concluded that under these circumstances, ‚it was reasonable for
the arbitrator to hold that Nielsen was exercising his right to
setoff Evans’[s] business interests‛ and ‚proper for the arbitrator
to exclude the UCC from consideration.‛ We agree.
¶13 The standard for showing either irrationality or manifest
disregard for the law in an arbitration award is very high. At
arbitration, Nielsen argued that the Note was enforceable and
created setoff rights specifically excluded from the UCC by
subsection 109(4)(j). See Utah Code Ann. § 70A-9a-109(4)(j)
(LexisNexis 2009) (stating that ‚*t+his chapter does not apply to
. . . a right of recoupment or set-off,‛ with certain exceptions not
applicable here). The arbitrator agreed with Nielsen, citing the
same subsection and stating, ‚Having considered the applicable
provisions of the UCC and the Parties[’] briefs and arguments,
the Arbitrator has determined that the UCC expressly is not
applicable to the Parties’ Note.‛ Evans contends this
determination was irrational, arguing that the action taken by
20130770-CA 9 2015 UT App 65Evans v. Nielsen
Nielsen was not a setoff but a failed attempt at strict foreclosure
of a UCC security interest. Evans asserts this attempt was
ineffective in transferring Evans’s interests in the Tax Companies
to Nielsen because Nielsen did not comply with the UCC’s
requirements governing strict foreclosure. See id. § 70A-9a-620.
¶14 Evans’s argument is certainly plausible. The Setoff
Provision in the Note could be interpreted as creating a true
setoff falling outside of the UCC rather than a security interest
appropriately governed by the UCC. But the arbitrator relied
heavily on the parties’ express agreement that Nielsen could
choose to ‚setoff‛ Evans’s ownership interests in the Tax
Companies against any amount Evans owed Nielsen under the
Note. Were the district court required to review the award under
the standards applicable to questions of law on appeal, Evans’s
arguments might have prevailed. But the district court does not
review an arbitration award for legal error. Rather, as noted in
Buzas, an arbitrator’s award may not be set aside unless it is so
‚completely irrational‛ that ‚reasonable minds could agree that
. . . [the award] was not possible under a fair interpretation of the
*evidence+.‛ 925 P.2d at 950 (alterations and omission in original)
(citations and internal quotation marks omitted); see also id.
(‚[T]he irrationality principle must be applied with a view to the
narrow scope of review in arbitration cases.‛ (citation and
internal quotation marks omitted)). So while Evans’s contentions
may have merit in a broader sense (something we do not decide
here), the district court’s only duty was to determine whether
the arbitrator’s award was ‚without foundation in reason or
fact,‛ not whether it was correct as a matter of law. See id.
(citation and internal quotation marks omitted). Evans has failed
to demonstrate that the district court erred when it answered
affirmatively the question of whether the arbitrator had ‚a
rational basis to not apply the UCC‛ in this case where the
arbitrator’s decision rested heavily on the language of the Note
itself as well as the relevant statutes. See Softsolutions, Inc. v.
Brigham Young Univ., 2000 UT 46, ¶ 11, 1 P.3d 1095 (explaining
that the ‚irrationality principle‛ requires a showing that the
20130770-CA 10 2015 UT App 65Evans v. Nielsen
award was ‚without foundation in reason or fact‛ (citation and
internal quotation marks omitted)).
¶15 We again reserve the question of the applicability of the
doctrine of ‚manifest disregard of the law‛ for another day, see
supra ¶ 9 note 2, because Evans has failed to persuade us that
even if this doctrine were to be applied to this case, the district
court erred in determining that the arbitrator did not simply
disregard the law in agreeing with Nielsen’s theory of the case
instead of Evans’s. ‚Manifest disregard of the law‛ is ‚more than
error,‛ and Evans has made no claim that the arbitrator failed to
‚appreciate*+ the existence of a clearly governing legal principle
but decide*d+ to ignore or pay no attention to it.‛ Buzas Baseball
Inc. v. Salt Lake Trappers, Inc., 925 P.2d 941, 951 (Utah 1996)
(citation and internal quotation marks omitted). Rather, as the
district court noted, the arbitrator was ‚cognizant of the
governing laws in this matter‛ and the arbitration award itself
clearly spelled out the arguments advanced by Evans and cited
the UCC in rejecting them. Indeed, there was considerable legal
dispute over the meaning of the Note’s Setoff Provision and
whether it fell within the scope of the UCC, a dispute the
arbitrator ultimately resolved—rightly or wrongly—by deciding
that the UCC did not apply. But even if the arbitrator was wrong
(which, again, we do not decide), his error was one that a
rational person might make, not the result of a decision to ignore
a clearly applicable legal principle. Accordingly, Evans has failed
to carry his burden of demonstrating that the Note, rather than
creating a right of setoff against his interests in the Tax
Companies, as it stated, instead so clearly created a security
interest governed by the UCC that this conclusion was ‚obvious
and capable of being readily and instantly perceived by the
average person qualified to serve as an arbitrator.‛ See id.(citation and internal quotation marks omitted); see also Pacific II,
2001 UT 36, ¶ 15, 23 P.3d 1035 (‚Pacific’s manifest disregard
argument simply amounts to a ‘manifest disagreement’ with the
arbitrator’s findings and final award.‛ (citation and internal
quotation marks omitted)).
20130770-CA 11 2015 UT App 65Evans v. Nielsen
¶16 Accordingly, we conclude that the district court did not
err in determining that the arbitrator was neither ‚completely
irrational‛ nor acting in manifest disregard of the law when he
determined the UCC did not apply to the Note. We therefore
decline to overturn the district court’s confirmation of the
arbitration award.3
II. The Arbitrator Did Not Refuse to Hear Relevant Evidence.
¶17 Evans next contends that the district court should have
vacated the arbitration award because the arbitrator refused to
hear relevant evidence. See Utah Code Ann. § 78B-11-124(1)(c)
(LexisNexis 2012) (stating that a court shall vacate an arbitration
award when an arbitrator ‚refused to consider evidence material
to the controversy‛). Evans argues on appeal, as he did to both
the arbitrator and the district court, that the question of whether
the Note was in default was not properly before the arbitrator in
the parties’ cross-motions for summary judgment and that by
nevertheless deciding the issue, the arbitrator prevented Evans
from offering evidence that the Note was not in default. We
conclude that the issue of default was properly before the
arbitrator and that the arbitrator did not refuse to hear relevant
evidence.
¶18 In support of his argument that the arbitrator could not
consider the issue of default, Evans cites case law to the effect
that district courts err when they ‚sua sponte grant summary
judgment on an issue when neither party has sought summary
judgment on that issue.‛ See Kell v. State, 2008 UT 62, ¶ 46, 194
P.3d 913. However, Evans ignores the fact that the principle on
3. Because we affirm the district court’s decision on this ground,
we need not consider the parties’ arguments related to the
arbitrator’s alternative ruling that Nielsen would prevail even if
the UCC did apply.
20130770-CA 12 2015 UT App 65Evans v. Nielsen
which he relies is grounded in the Utah Rules of Civil Procedure,
see id. ¶ 47 (citing Utah R. Civ. P. 56), rules that do not apply to
arbitration proceedings, see Jenkins v. Percival, 962 P.2d 796, 803
(Utah 1998) (Russon, J., dissenting) (summarizing established
principles of arbitration and stating that participants who submit
claims for arbitration ‚waive procedural safeguards, including
the rules of evidence and the rules of civil procedure‛). Instead,
the scope of an arbitration is defined by the parties’ arbitration
agreement. Pacific II, 2001 UT 36, ¶ 11. Here, the arbitration
agreement was part of the Note signed by both Evans and
Nielsen. It reads (with our emphasis):
ARBITRATION AGREEMENT. Arbitration –
Binding Arbitration. [Nielsen] and each party to
this agreement her[e]by agree, upon demand by
any party, to submit any Dispute to binding
arbitration in accordance with the terms of this
Arbitration Program. A ‚Dispute” shall include any
dispute, claim or controversy of any kind, whether in
contract or in tort, Legal or equitable, now existing
or hereafter arising, relating in any way to this
Agreement or any related agreement incorporating
this Arbitration Program (hereinafter
‚Documents‛), or any past, present, or future
loans, transactions, contracts, agreements,
relationships, incidents or injuries of any kind
whatsoever relating to or involving [Nielsen] or
any successor group of [Nielsen]. DISPUTES
SUBMITTED TO ARBITRATION ARE NOT
RESOLVED IN COURT BY A JUDGE OR JURY.
The issue of whether Evans had defaulted on the Note falls well
within the scope of a ‚dispute, claim or controversy of any kind‛
related to the Note. Therefore, under the arbitration agreement
set forth in the Note and signed by the parties, the issue was
clearly within the scope of the arbitration agreement and within
the arbitrator’s authority to decide as part of his resolution of the
20130770-CA 13 2015 UT App 65Evans v. Nielsen
parties’ dispute. And the arbitrator considered resolution of the
question of whether the Note was in default to be central to his
task: ‚To determine the effects of the foreclosure, if any, the
Arbitrator had to determine whether the Note was in default,
which triggers the right of foreclosure. Therefore, the issue of
default was submitted to the Arbitrator for determination by the
Parties’ [motions]‛ Evans has not shown that the arbitrator was
bound to await the parties’ specific request before he could
address the question of default when the parties’ cross-motions
had already raised issues that clearly implicated the default
question.
¶19 Having determined that the issue of default was properly
before the arbitrator, we next consider whether the arbitrator
refused to hear relevant evidence on that issue. See Utah Code
Ann. § 78B-11-124(1)(c). In response to Evans’s request for
clarification on the ‚default‛ decision, the arbitrator described
the evidence that he had already received on the issue of default
and concluded that it was sufficient for him to make a
determination. The arbitrator explained that the Note clearly set
forth the date of maturity as well as the amount Evans was to
pay. Evans had admitted that he paid no more than $125,000 on
the $256,000 Note, and the arbitrator noted that the Note was
well past its maturity date when Nielsen declared it in default at
the Tax Companies’ annual membership meeting. Evans argued4
that Nielsen had agreed, in effect, to either ‚an extension of the
maturity date of the Note‛ or ‚a waiver . . . of the remaining
Debt‛ by agreeing that monetary distributions to which Evans
was entitled under the Parties’ operating agreement could be
4. Again, we recite the argument as summarized by the
arbitrator. The copies in the record of Evans’s motion from
which the arbitrator summarized Evan’s arguments are
incomplete, but there does not appear to be any dispute as to
motion’s content.
20130770-CA 14 2015 UT App 65Evans v. Nielsen
applied to Evans’s obligations with regard to other businesses
the parties were involved in, ‚instead of being paid on the Note
to secure his interest in the Tax Companies.‛ Evans argued ‚that
this arrangement amounts to an extension of the maturity date of
the Note and/or a waiver . . . of the remaining Debt under the
Note.‛ The arbitrator explained, however, that the plain
language of the Note required him to reject this claim because
the Note specifically provided that Nielsen ‚may delay or forgo
enforcing any of [his] rights or remedies under this Note without
losing them‛ and that ‚any change‛ to the Note, ‚unless
otherwise expressly stated in writing,‛ would not release a party
from liability. (Internal quotation marks omitted.) The arbitrator
thus concluded that because ‚Evans has produced no writing
signed by [Nielsen] which extends the maturity date of the Note
or waives the remaining Debt under the Note,‛ Evans’s
contention ‚fails as a matter of law.‛
¶20 Thus, what Evans claims was a refusal by the arbitrator to
hear relevant evidence—that is, Evans’s evidence regarding
Nielsen’s extension of the Note or waiver of the balance—was
really a decision by the arbitrator that the additional evidence
Evans proffered was insufficient as a matter of law to require a
change in his decision that Evans had defaulted on the Note. In
other words, the arbitrator appears to have actually considered
the evidence Evans proffered in his motion and found it
unpersuasive based on his interpretation of the language of the
Note itself and the applicable law.
¶21 ‚Whether the court agrees with the arbitrator’s judgment
is irrelevant, as long as the arbitrator construed and applied the
contract in an arguably reasonable manner.‛ Intermountain Power
Agency v. Union Pac. R.R. Co., 961 P.2d 320, 323 (Utah 1998). Here
the arbitrator determined, from the plain language of the Note
along with other evidence presented by the parties that the Note
was in default and rejected Evans’s claims that the due date had
been extended or payment of the balance waived. The
arbitrator’s interpretation and application of the Note was
20130770-CA 15 2015 UT App 65Evans v. Nielsen
‚arguably reasonable.‛ See id. As a consequence, Evans has
failed to establish that the arbitration proceeding was not ‚fair
and honest.‛ See Buzas Baseball, Inc. v. Salt Lake Trappers, Inc., 925
P.2d 941, 947 (Utah 1996) (citation and internal quotation marks
omitted). We therefore decline to disturb the district court’s
ruling confirming the arbitration award on this ground.
III. Attorney Fees
¶22 Nielsen requests an award of the attorney fees he incurred
on appeal. In general, ‚[a]n award of fees on appeal requires
both a fee award below and success in the appellate court.‛
Holladay Towne Ctr., LLC v. Brown Family Holdings, LC, 2008 UT
App 420, ¶ 25, 198 P.3d 990, aff’d, 2011 UT 9, 248 P.3d 452. The
district court expressly denied attorney fees below, ordering the
parties to bear their own costs. Nielsen has not challenged that
decision on appeal. Therefore, we decline to grant attorney fees
on appeal.
¶23 Evans argues that Nielsen should be sanctioned for
engaging in ‚irrelevant and scandalous personal attacks against
Evans‛ in his briefing on appeal. While some of Nielsen’s
statements may have been intemperate, we conclude that
Nielsen’s conduct does not rise to a level warranting sanctions.5
5. Among the statements Evans found objectionable were the
following: ‚Mr. Evans fancied himself an investor and
entrepreneur,‛ and ‚*I+t is hornbook law that no court would use
its equitable power to force an unwilling businessman back into
a partnership with a profligate and unreliable partner.‛ While
we do not find the language worthy of sanction, we caution
counsel that such language, at best, diverts focus away from the
merits of the argument.
20130770-CA 16 2015 UT App 65Evans v. Nielsen
CONCLUSION
¶24 We conclude that the district court did not err in refusing
to vacate the arbitration award on the grounds that the arbitrator
had exceeded his authority. We also conclude that the arbitrator
did not refuse to hear relevant evidence on the issue of default.
We therefore affirm the district court’s ruling confirming the
arbitration order. And because attorney fees were not awarded
to Nielsen below, we decline to grant them on appeal.
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20130770-CA 17 2015 UT App 65