Shipp v. Peterson

2021 UT App 25THE UTAH COURT OF APPEALS
REX SHIPP, STACIA SHIPP, AND SHIPP LIVING TRUST,
Appellees,
v.
JARED PETERSON AND ESTATE OF JOHN DANIEL PETERSON,
Appellants.
Opinion
No. 20190203-CA
Filed March 11, 2021
Fifth District Court, St. George Department
The Honorable Jeffrey C. Wilcox
No. 160500058
Jared L. Peterson, Attorney for Appellants
Robert L. Jeffs, Attorney for Appellees
JUDGE MICHELE M. CHRISTIANSEN FORSTER authored this Opinion,
in which JUDGES DAVID N. MORTENSEN and RYAN M. HARRIS
concurred.
CHRISTIANSEN FORSTER, Judge:
¶1 After an arbitrator awarded P&S Group, LLC (P&S) the
proceeds of a life insurance policy, Rex Shipp, the listed
beneficiary on that policy and the remaining manager of P&S,
filed a motion to vacate the award on the grounds that the
arbitrator exceeded the scope of his authority because, Shipp
argued, P&S was not a party in the arbitration. The district court
granted Shipp’s motion, and the dispute was submitted to a
different arbitrator, who subsequently determined that Shipp
was entitled to the proceeds. After the district court affirmed the
second arbitration award, the estate of Shipp’s former business
Shipp v. Peterson
partner, John Daniel Peterson (Estate), appealed.1 We reverse
and remand.
BACKGROUND
¶2 John Peterson and Rex Shipp formed P&S in 2004 as a
single-asset company to hold commercial property in Richfield,
Utah, with each partner holding a 50% interest. Peterson, his
spouse, and Shipp also shared ownership (Peterson 25%, his
spouse 25%, Shipp 50%) in a restaurant that operated on P&S’s
property. Peterson and Shipp acted as personal co-guarantors on
a $747,000 loan P&S owed to a bank. The business plan
envisioned Peterson running the restaurant and Shipp handling
financial matters.
¶3 In February 2006, Peterson applied for a $500,000 life
insurance policy that designated Shipp as owner and
beneficiary. Shipp’s spouse was named contingent owner and
beneficiary. P&S paid the life insurance premiums, and the
premiums were reported as expenses on P&S’s tax returns. In
November 2010, Peterson died, and Shipp collected the proceeds
of the life insurance policy.
¶4 The Estate, Peterson’s spouse, and P&S filed a declaratory
judgment action against Shipp in district court to recover the
insurance proceeds paid out to Shipp. After consideration of the
Shipp parties’ motion to dismiss, the district court determined
that the majority of the causes of action raised in the complaint
(excepting those brought by Peterson’s spouse independent of
her status as beneficiary of the Estate) related to “Shipp’s
conduct as manager of P&S and/or [were] premised on the
1. Jared Peterson appears in his capacity as the personal
representative of the Estate. Rex Shipp appears as an individual
and with Stacia Shipp as trustees of the Shipp Living Trust.
20190203-CA 2 2021 UT App 25Shipp v. Peterson
assertion that the proceeds of the insurance policy belong to
P&S.” As such, the court determined most of the claims were
subject to the mediation and arbitration provisions (Arbitration
Clause) contained in P&S’s Operating Agreement. 2 The court
noted in its dismissal that though the Estate was not a signatory
to P&S’s Operating Agreement, dismissing the Estate’s claims in
favor of arbitration was appropriate given that all the claims
brought on the Estate’s behalf were either related to Shipp’s
conduct as manager of P&S or predicated on P&S’s ownership of
the insurance policy proceeds.
¶5 After mediation failed, the parties proceeded to
arbitration pursuant to the Arbitration Clause. On the morning
of the arbitration hearing, October 31, 2014, the Estate, Peterson’s
spouse, and Shipp executed a one-page agreement (Arbitration
2. Paragraph 8.5 of the Operating Agreement concerns dispute
resolution:
(a) Mediation. The parties will endeavor in good
faith to resolve all disputes arising under or related to
this Agreement by mediation according to the then
prevailing rules and procedures of the American
Arbitration Association.
(b) Arbitration. If the parties fail in their attempt to
resolve a dispute by mediation, they will submit the
dispute to arbitration according to the then
prevailing rules and procedures of the American
Arbitration Association. Utah law will govern the
rights and obligations of the parties with respect to
matters in controversy. The arbitrator will allocate
all costs and fees attributable to the arbitration
between the parties equally. The arbitrator’s award
will be final and binding and judgment may be
entered in any court of competent jurisdiction.
(Emphasis added.) The Operating Agreement does not define
the term “parties.”
20190203-CA 3 2021 UT App 25Shipp v. Peterson
Document) that, among other things, set forth procedural rules
governing the arbitration hearing and which provided that the
“parties” would pay the arbitrator in “equal shares.” In addition,
the Arbitration Document contained the following provision:
The Claimants, Jared Peterson, in his capacity as
Personal Representative of the [Estate] and Janice
Peterson, as heir of John Daniel Peterson, except as
reserved by the court, and Respondents, Rex
Shipp, an individual, Rex Shipp and Stacia Shipp,
as trustees of the Shipp Living Trust, by and
through their attorneys, hereby agree to arbitrate
the claim of the [Estate] and Janice Peterson to the
insurance proceeds of that certain life insurance
policy on the life of John Daniel Peterson issued by
Beneficial Life Insurance Company, Respondents.
¶6 The Arbitration Document did not identify P&S as a party
to the arbitration or identify P&S as a claimant, although the
document stated that “[t]his arbitration is being conducted
under [the Arbitration Clause] of the [P&S] Operating
Agreement.” The issue of whether P&S was a party to the
arbitration was never explicitly raised during the arbitration.
However, several pleadings filed with the arbitrator by the
Peterson side were, on their face, also submitted on P&S’s behalf
and explicitly identified P&S as a party to the arbitration. And in
those pleadings, the Estate took the position that Shipp was
named as the beneficiary of the insurance policy in his
representative capacity for P&S, and not individually.
Throughout the arbitration, the Estate maintained that P&S
owned the policy, and a ruling to that effect would mean the
Estate would receive one-half of the policy proceeds while Shipp
would receive the other half.
¶7 After taking evidence and considering the several
pleadings and motions that had been filed, the arbitrator (First
Arbitrator) concluded that although Shipp was designated as the
20190203-CA 4 2021 UT App 25Shipp v. Peterson
owner and beneficiary in Peterson’s life insurance application,
Shipp “had no personal insurable interest in the life of . . .
Peterson,” whereas “P&S had an insurable interest” in Peterson’s
life. First Arbitrator determined that Shipp had violated his
fiduciary duty to P&S by wrongfully converting the insurance
proceeds to his own use and thus awarded P&S the insurance
proceeds, along with interest and attorney fees.
¶8 Shipp filed a motion to vacate First Arbitrator’s decision.
The district court granted the motion and agreed with Shipp that
First Arbitrator exceeded the scope of the Arbitration Document
in awarding the insurance policy proceeds to P&S. Specifically,
the court stated that “P&S did not sufficiently participate in the
arbitration proceeding to become a de facto party under any
theory of implied acquiescence by” Shipp. As relevant here, the
district court recognized that the parties’ repeated arguments in
arbitration about the proper distribution of the insurance
proceeds expanded the scope of the arbitration. The district
court also acknowledged that Shipp did not come close to
showing “a manifest disregard of the law” on the part of First
Arbitrator. But the court still ordered that First Arbitrator’s
award to P&S be set aside on the ground that “after the parties
entered [the Arbitration Document] clearly omitting P&S, there
[was] no evidence of any conduct implying an agreement to
arbitrate with P&S.”
¶9 After the district court vacated the first arbitration award,
the parties proceeded to a second arbitration before a different
arbitrator (Second Arbitrator), who considered the same
question as First Arbitrator and came to a different conclusion:
Shipp was entitled to the insurance proceeds, less 50% of the
premiums (with interest) P&S paid. Second Arbitrator based this
determination on two conclusions. First, owing to the business
relationship between Shipp and Peterson, “Shipp had an
insurable interest in the life of . . . Peterson.” Second, “[t]he plain
and unambiguous provisions of the application and
subsequently issued policy indicate[d] that the beneficiary of the
20190203-CA 5 2021 UT App 25Shipp v. Peterson
policy was to be . . . Shipp, not P&S . . . or . . . Shipp as a manager
of P&S.”
¶10 The district court affirmed the second arbitration award
and denied the Estate’s motions (1) to vacate the award from the
second arbitration and (2) to reconsider the court’s prior decision
vacating the first arbitration award. The Estate appeals.
ISSUE AND STANDARDS OF REVIEW
¶11 The Estate contends that the district court erred in
vacating the first arbitration award. “In reviewing the order of a
[district] 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.” Evans v. Nielsen, 2015 UT App 65, ¶ 7, 347 P.3d 32(quotation simplified).3 Accordingly, our “scope of review is
limited to the legal issue of whether the [district] court correctly
exercised its authority in confirming, vacating, or modifying an
arbitration award.” Intermountain Power Agency v. Union Pac. R.R.
Co., 961 P.2d 320, 323 (Utah 1998). Moreover, our analysis “turns
on application of the correct standard of review by the district
court” of the arbitration award. See Softsolutions, Inc. v. Brigham
Young Univ., 2000 UT 46, ¶ 10, 1 P.3d 1095. And the district
court’s review of the arbitration award “is an extremely narrow
one giving considerable leeway to the arbitrator, and setting
3. The Estate also contends that the district court erred (1) in
failing to reconsider its order vacating the first arbitration award,
(2) in failing to submit the first arbitration award to First
Arbitrator for clarification, and (3) in confirming the second
arbitration award. Because we conclude that the district court
erred in vacating the First Arbitrator’s decision, we need not
address these remaining issues.
20190203-CA 6 2021 UT App 25Shipp v. Peterson
aside the arbitrator’s decision only in certain narrow
circumstances. The [district] 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. (quotation simplified).
ANALYSIS
¶12 The Estate contends that the district court erred in
vacating the first arbitration award after it concluded that P&S
was not a party to or a participant in the arbitration and, on that
basis, determined that First Arbitrator exceeded the scope of his
authority in awarding the insurance proceeds to P&S. We agree
with the Estate. Though the Arbitration Document executed on
the day of the arbitration did not name P&S, the entire basis for
the arbitration was the Arbitration Clause in the P&S Operating
Agreement. And it is this Arbitration Clause that caused the
district court, in the first place, to refer the claims filed by the
Estate and P&S to arbitration and that gave rise to and defined
the scope of the arbitration. Moreover, P&S’s filings in the
arbitration documented its participation in the proceedings. And
the issue of P&S’s interest in the insurance proceeds was
adequately and comprehensively addressed by the Estate’s and
Shipp’s claims to those proceeds. As a consequence, the district
court erred in vacating the first arbitration award.
¶13 “Upon motion to the court by a party to an arbitration
proceeding, the court shall vacate an award made in the
arbitration proceeding if . . . an arbitrator exceeded the
arbitrator’s authority . . . .” Utah Code Ann. § 78B-11-124(1)(d)
(LexisNexis 2018). Our 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.” Evans v. Nielsen, 2015 UT App
65, ¶ 8, 347 P.3d 32 (quotation simplified). “The first is when the
district court determines that an arbitrator’s award covers areas
20190203-CA 7 2021 UT App 25Shipp v. Peterson
not contemplated by the submission agreement. The second is
when the district court finds that the award is without
foundation in reason or fact.” Duke v. Graham, 2007 UT 31, ¶ 8,
158 P.3d 540 (quotation simplified); accord Softsolutions, Inc. v.
Brigham Young Univ., 2000 UT 46, ¶ 15, 1 P.3d 1095; Intermountain
Power Agency v. Union Pac. R.R. Co., 961 P.2d 320, 323 (Utah
1998); Buzas Baseball, Inc. v. Salt Lake Trappers, Inc., 925 P.2d 941,
949–50 (Utah 1996).
¶14 As the above cases suggest, the remedy of vacating an
arbitration award “is narrow and should be reserved for
circumstances of an arbitrator’s extraordinary lack of fidelity to
established legal principles.” See Dupont v. Tobin, Carberry,
O'Malley, Riley, Selinger, PC, 322 F. App’x 66, 68 (2d Cir. 2009)
(quotation simplified). Thus, “the standard for reviewing an
arbitration award is highly deferential to the arbitrator.” Buzas
Baseball, 925 P.2d at 946. “Judicial review of arbitration awards
should not be pervasive in scope or encourage repetitive
adjudications but should be limited to the statutory grounds and
procedures for review.” Denison Mines (USA) Corp. v. KGL Inc.,
2016 UT App 171, ¶ 12, 381 P.3d 1167 (quotation simplified).
“Generally, an arbitration award will not be disturbed because
the court does not agree with the award as long as the
proceeding was fair and honest and the substantial rights of the
parties were respected.” Softsolutions, 2000 UT 46, ¶ 14
(quotation simplified). And “in deciding whether the arbitrator
exceeded its authority, we resolve all doubts in favor of
arbitration.” Pacific Dev., LC v. Orton, 1999 UT App 217, ¶ 7, 982
P.2d 94 (quotation simplified), rev’d in part on other grounds, 2001
UT 36, 23 P.3d 1035. “We bear these fundamental arbitration
principles in mind as we review whether the district court’s
decision . . . to vacate [First Arbitrator’s award to P&S] was
correct.” See Denison Mines, 2016 UT App 171, ¶ 12.
¶15 Furthermore, while the parties’ arbitration agreement
limits the issues the arbitrator is to decide, an arbitrator has
“jurisdiction to resolve the ultimate matter on any of the
20190203-CA 8 2021 UT App 25Shipp v. Peterson
reasonable grounds presented by the parties.” Intermountain
Power, 961 P.2d at 324. And “[i]n deciding whether to confirm or
vacate the award, we will not assess the wisdom of any
particular decisional basis.” Id.; see also Softsolutions, 2000 UT 46,
¶ 18 (concluding that an arbitrator “did not stray from the scope
of authority delegated to him by the parties” when he reframed
two questions submitted by the parties into one).
I. P&S was a party to the arbitration under the Operating
Agreement’s Arbitration Clause.
¶16 Even though P&S was not specifically named in the
Arbitration Document the parties signed on the morning of the
arbitration hearing, First Arbitrator remained within the scope of
his authority when he awarded the insurance proceeds to P&S
because P&S’s status as a party to the arbitration was already
established. Contrary to the district court’s determination that
“P&S did not sufficiently participate in the arbitration
proceeding to become a de facto party under any theory of
implied acquiescence by . . . Shipp[],” the record indicates that
First Arbitrator clearly had the issue of P&S’s claim to the
proceeds before him when the dispute over the insurance
proceeds was ordered to arbitration under the P&S Operating
Agreement and when First Arbitrator rejected Shipp’s claim to
the insurance proceeds. Moreover, P&S did not need to be
further identified as a party to the arbitration when the Estate’s
claim to the proceeds was derived from P&S’s ownership of the
insurance policy and the Estate adequately pursued and
represented that position during the arbitration.
¶17 Most fundamentally, the fact that P&S’s own Operating
Agreement compelled arbitration of the dispute indicates that
the designation of the parties and arbitrable claims were framed
by the complaint filed in this case. In its order dismissing the
complaint in favor of arbitration of P&S’s and the Estate’s claim
to the insurance proceeds, the district court explicitly stated,
20190203-CA 9 2021 UT App 25Shipp v. Peterson
All of the claims brought in [the relevant] causes of
action on behalf of the [Estate] or P&S GROUP,
LLC relate to Defendant Shipp’s conduct as
manager of P&S and/or are premised on the
assertion that the proceeds of the insurance policy
belong to P&S. Thus, such claims are disputes
arising under or related to the Operating
Agreement.
(Quotation simplified.) Furthermore, the Arbitration Document
itself explicitly stated, “This arbitration is being conducted under
[the Arbitration Clause] of the Operating Agreement of P&S
Group, LLC, a limited liability company, signed and dated
September, 2007 and signed by John Peterson and Rex. P.
Shipp.” And the Operating Agreement’s Arbitration Clause
specified, “The parties will endeavor in good faith to resolve all
disputes arising under or related to [the Operating Agreement]
by mediation . . . . If the parties fail in their attempt to resolve a
dispute by mediation, they will submit the dispute to arbitration
. . . .” Thus, the Operating Agreement’s Arbitration Clause
required arbitration, and the Arbitration Document signed by
the parties explicitly acknowledged that the arbitration
proceedings were being conducted under the auspices of the
Arbitration Clause. In the context of the arbitration proceedings,
P&S’s Operating Agreement inextricably linked P&S both to
Shipp and to the Estate. The foundational role of the Operating
Agreement’s Arbitration Clause in giving rise to the arbitration
proceedings, as well as the fact that P&S was unquestionably a
party to the claims referred to arbitration by the district court,
demonstrates that P&S’s status as a party—and its entitlement to
the insurance proceeds—were “contemplated by the submission
agreement.” See Duke v. Graham, 2007 UT 31, ¶ 8, 158 P.3d 540(quotation simplified).
¶18 Because the Arbitration Clause was the provision that
compelled the parties to arbitration and defined the scope of the
dispute, the Arbitration Document that the parties signed on the
20190203-CA 10 2021 UT App 25Shipp v. Peterson
morning of the arbitration hearing must be viewed as a
supplement to the Operating Agreement, not as the
foundational document for the arbitration. In essence, the
Operating Agreement’s Arbitration Clause is the interpretive
key for understanding the Arbitration Document. The
Arbitration Document itself specified that the Estate and Shipp
agreed “to arbitrate the claim of the [Estate] and Janice Peterson
to the insurance proceeds.” First Arbitrator presumptively took
a broad view of the word “claim” to include the right of P&S to
the insurance proceeds since the Estate’s claim to the proceeds
ran directly through P&S. And the record certainly indicates
that P&S’s participation throughout pre-arbitration proceedings
supports a broad view of the arbitration’s scope to decide the
question of whether P&S was the proper beneficiary of the
insurance proceeds. Indeed, P&S, as the owner of the policy, is
identified in numerous pre-arbitration documents as a party
having a claim to the insurance proceeds.
¶19 Moreover, both sides’ arguments to First Arbitrator
framed the question of whether P&S was the proper recipient of
the insurance proceeds as a dispositive issue that necessarily
had to be decided. In its arbitration brief submitted to First
Arbitrator, the Estate asserted that “[t]he sole issue at hand
requires a determination of who is entitled to the [insurance]
[p]olicy [p]roceeds under Utah law.” The Estate argued at
length that P&S should have been awarded the policy proceeds
under various theories. And in June 2015, the Estate submitted a
motion for summary disposition to First Arbitrator in which it
incorporated the “facts and arguments already presented” in its
arbitration brief. Among the issues the Estate identified in this
motion was “[a] determination that at all relevant times P&S . . .
had an insurable interest in the life of John Peterson.” Moreover,
in other pleadings filed with the arbitrator, the Estate
consistently maintained that Shipp was named as the
beneficiary of the insurance policy in his representative capacity
for P&S, and not individually.
20190203-CA 11 2021 UT App 25Shipp v. Peterson
¶20 In his arbitration filings to First Arbitrator, Shipp also
acknowledged that whether P&S was the proper recipient of the
insurance proceeds was an issue to be settled by First Arbitrator.
He even addressed that issue on its merits, arguing that “[the
Estate’s] assertion that P&S was the owner of the policy and
that . . . Shipp was merely the agent and manager is in error.”
Shipp went on to argue that P&S was not entitled to the
insurance proceeds even though Shipp used both P&S’s address
on the application and P&S’s funds to pay the premiums. To be
sure, Shipp argued strongly that he was entitled to the insurance
proceeds due to his individual designation as owner and
beneficiary in the application and on the policy. But the fact that
Shipp explicitly and forcefully rejected the notion that he
executed the insurance application as manager and on behalf of
P&S indicates his recognition that if the arbitrator rejected his
position, proper distribution of the proceeds was still required.
Put another way, in arguing that he and only he was entitled to
the insurance proceeds, Shipp—at the very least—tacitly
acknowledged that how the proceeds were to be distributed was
an issue to be resolved by First Arbitrator. Thus, far from
showing that First Arbitrator exceeded the scope of his
authority, the parties’ arbitration filings indicate that the issue to
be resolved by First Arbitrator was whether Shipp was entitled
to the proceeds individually or whether those proceeds needed
to first be routed through P&S and thereby shared with the
Estate. And once First Arbitrator decided that issue against
Shipp by concluding that Shipp had acted in his capacity as
manager of P&S when he executed the insurance application,
First Arbitrator had no choice, given how the parties had framed
the issue, but to award those proceeds to P&S.
¶21 In sum, the Arbitration Clause in P&S’s Operating
Agreement both required the arbitration proceedings and
defined their parameters. Viewed through this lens, it is evident
that P&S was a party to the arbitration and that the issue of
whether it (or Shipp) was entitled to the insurance proceeds was
squarely presented to First Arbitrator. Thus, the district court
20190203-CA 12 2021 UT App 25Shipp v. Peterson
erred in focusing only on the Arbitration Document as defining
the scope of arbitration when it should have acknowledged and
considered the Operating Agreement’s Arbitration Clause as
establishing the scope of arbitration.
II. The first arbitration award was founded in reason and fact.
¶22 First Arbitrator’s decision awarding P&S the insurance
proceeds had a “foundation in reason [and] fact.” See Duke v.
Graham, 2007 UT 31, ¶ 8, 158 P.3d 540 (quotation simplified).
First Arbitrator was presented with the question of whether
Peterson and Shipp intended that P&S own the insurance policy
or whether Shipp was the beneficiary because he was
individually designated as such in the policy. As First Arbitrator
pointed out in his findings of fact, several circumstances
indicated that the insurance policy was purchased and
maintained for the benefit of P&S: Shipp’s actions relative to the
insurance policy were conducted in his capacity as manager of
P&S, P&S made all premium payments on the policy, and Shipp
did not show any “personal insurable interest” in Peterson’s life.
Thus, First Arbitrator could have reasonably concluded that the
individual naming of Shipp in the policy as beneficiary was not
dispositive with regard to the award of the insurance proceeds.
In other words, First Arbitrator had room to conclude that the
designation of Shipp as the beneficiary was in his role as agent
and manager of P&S and that the intended beneficiary was P&S. 4
4. Indeed, the district court acknowledged that “this was not an
open and shut case involving an indisputably unambiguous
contract, and . . . [Shipp did] not even come close to showing an
obvious error regarding the interpretation of contracts, or that no
reasonable person could have concluded that . . . Shipp took out
the policy in his capacity as manager for P&S and in behalf of
P&S, and that P&S was the owner of the policy through its
manager . . . Shipp.” (Quotation simplified.)
20190203-CA 13 2021 UT App 25Shipp v. Peterson
CONCLUSION
¶23 We conclude that First Arbitrator did not act outside the
scope of his authority and that, consequently, the district court
erred in vacating the first arbitration award. Accordingly, we
reverse and remand with the instruction that the Second
Arbitrator’s award be vacated and the First Arbitrator’s award
be reinstated.
20190203-CA 14 2021 UT App 25