Court Opinion

ID: 3025122
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:33:05.337407+00
Date Added: 2024-06-11T12:23:25.128245
License: Public Domain

United States Court of Appeals
                          FOR THE EIGHTH CIRCUIT
            ___________

            No. 98-4027
            ___________

Hugs & Kisses, Inc., a Minnesota         *
corporation,                             *
                                         *
      Plaintiff - Appellee,              *
                                         *
      v.                                 *
                                         *
Mario H. Aguirre, an individual; Intexa, *
S.A. de C.V., a Mexican corporation;     *
Mina Group, a Mexican business           *
organization,                            *
                                         *
      Defendants - Appellants.           *

            ___________
                                             Appeals from the United States
      No. 98-4028                            District Court for the
            ___________                      District of Minnesota.

Hugs & Kisses, Inc., a Minnesota         *
corporation,                             *
                                         *
      Plaintiff - Appellant,             *
                                         *
      v.                                 *
                                         *
Mario H. Aguirre, an individual; Intexa, *
S.A. de C.V., a Mexican corporation;     *
Mina Group, a Mexican business           *
organization,                            *
                                         *
      Defendants - Appellees.            *
                                    ___________

                              Submitted: February 14, 2000

                                   Filed: August 11, 2000
                                    ___________

Before BEAM and JOHN R. GIBSON, Circuit Judges, and PRATT,* District Judge.
                            ___________

JOHN R. GIBSON, Circuit Judge.

       Mario H. Aguirre (a resident of Mexico), Intexa, S.A. de C.V. (a Mexican
corporation), and the Mina Group (a Mexican business organization) appeal from the
district court’s confirmation of an arbitration award entered in favor of Plaintiff Hugs
& Kisses, Inc.1 Appellants contend that the arbitration award should be vacated,
because there was no consent to the arbitrator. Hugs & Kisses cross-appeals, arguing
that the court should have postponed confirmation of the portion of the arbitration
award denying it lost profits damages. Because we conclude the arbitrator exceeded
his powers, we order the district court to vacate the arbitration award pursuant to 9
U.S.C. § 10(a)(4) (1994) and conduct further proceedings consistent with this opinion.

      *
        The Honorable Robert W. Pratt, United States District Judge for the Southern
District of Iowa, sitting by designation.
      1
       The district judge adopted the magistrate judge’s Report and Recommendation
confirming the award.
                                          -2-
      The relevant facts are not in dispute. Aguirre entered into an agreement dated
October 6, 1993 to manufacture children’s clothing for Hugs & Kisses in Mexico.2 The
contract contained the following language regarding resolution of disputes:

             17. The law of the United States of America, State of Minnesota
      shall govern the Agreement. . . . This agreement shall be specifically
      enforceable in any court of general jurisdiction in Hennepin County,
      Minnesota, USA.

             .   .   .

             All parties agree not to sue or bring to arbitration any other for any
      breach or alleged breach of the Agreement, until the aggrieved party has
      notified the other party in writing, specifying in detail the breach alleged
      to have occurred. The aggrieved party shall name at least one
      representative, fully authorized to settle in all respects, available to the
      other party for at least two (2) full hours at a reasonable time within three
      (3) weeks of the date of the notice, at the request of the other party. If the
      parties shall not have settled their differences within sixty (60) days after
      the notice is given, the aggrieved party may then, and only then, bring an
      action in arbitration.

       Eventually, each side accused the other of breaching the agreement. Hugs &
Kisses claimed that Aguirre failed to timely manufacture clothing from the fabric it sent
to Mexico. Aguirre asserted that Hugs & Kisses had not sent the quantities of cloth
agreed upon, which made it unfeasible for Aguirre to perform. Hugs & Kisses filed a
complaint in district court, and appellants moved to stay the proceedings pending
arbitration.3

      2
      The agreement does not mention Intexa, S.A. de C.V., and mentions the Mina
Group only as part of Aguirre’s address.
      3
      The complaint names not only Aguirre but also Intexa, S.A. de C.V., and the
Mina Group as defendants. Pleadings, including a stipulation, were filed by lawyers
                                           -3-
       In accordance with the parties’ stipulation, the court stayed the litigation
“pending the parties’ arbitration and/or mediation of their disputes in accordance with
the terms of their Agreement . . . .” The stipulation provided, “The parties shall
negotiate in a good faith effort to reach an agreement on (a) the arbitrator who shall
preside over their arbitration, (b) the date, time, and location of their arbitration, and
(c) all other procedural matters concerning their arbitration.” Pursuant to the
stipulation, the court scheduled two settlement conferences. However, Aguirre was
unable to appear for either conference, which he explains was due to his need to be
with his wife as she fought cancer. He contends that he was available to attend via
teleconference, but that the court was unwilling to make that allowance. The court then
issued a pretrial schedule, ordering the parties to complete arbitration by April 1, 1998,
but also ordering them to be ready for trial no later than January 1, 1999.

        On February 26, 1998, Hugs & Kisses informed Aguirre by letter that it had filed
an arbitration claim against him with the National Arbitration Forum. Aguirre replied
in a letter of March 31, 1998, stating that he was outraged by “the ridiculous
accusations” and that it was his “intention not to spend money to defend against such
. . . charges.” Hugs & Kisses proceeded to arbitrate the dispute before the Forum in
Aguirre’s absence, and an award was entered against appellants. Hugs & Kisses then
petitioned the district court to confirm the award, which it did by order of October 19,
1998. Appellants ask that the arbitration award be vacated. Hugs & Kisses cross-
appeals, claiming the district court erred in failing to postpone confirmation of that part
of the arbitration award denying Hugs & Kisses lost profit damages.

as “Attorneys for Defendants.” Aguirre stated in an affidavit that he was an officer and
shareholder in Intexa and that Mina Group was not a legal entity but was a name he
used to do business. The parties have not made an issue of these organizational
niceties, and we need say no more.
                                            -4-
       “We review a district court's judgment on a motion to vacate, modify, or confirm
an arbitration award under familiar standards, accepting findings of fact that are not
clearly erroneous and deciding questions of law de novo.” UHC Management Co. v.
Computer Sciences Corp., 148 F.3d 992, 998 (8th Cir. 1998) (citing First Options of
Chicago, Inc. v. Kaplan, 514 U.S. 938, 947-48 (1995)).

     The district court summarily affirmed the magistrate judge’s Report and
Recommendation, which reasoned as follows:

      The Defendants had an opportunity to participate in the choice of an
      arbitrator. The Plaintiff informed the Defendants via letter on February
      26, 1998 that it submitted the matter to the NAF for arbitration. The
      Defendants had the opportunity to object to the choice of arbitrator at that
      point in the proceedings. Instead of objecting to the choice of arbitrator
      and the conditions of the arbitration and offering an alternative, the
      Defendants instead stated that they no longer intended to defend against
      the plaintiff’s allegations. By refusing to cooperate in selecting an
      arbitrator, the Defendants waived their right to object to the arbitrator
      chosen by the Plaintiff.

(citations to record omitted). Our decision in Food Handlers Local 425, Amalgamated
Meat Cutters v. Pluss Poultry, Inc., 260 F.2d 835 (8th Cir. 1958), convinces us that the
arbitration award is void as a matter of law.

       In Food Handlers, a labor union obtained an ex parte arbitration award against
the defendant company. See id. at 836-37. The parties’ collective bargaining
agreement stated that in the event a dispute could not be resolved through a specified
grievance procedure, either party could request that it be submitted to a Board of
Arbitrators, consisting of three arbitrators. See id. at 836. Each party was to select an
arbitrator, and those two arbitrators were to select a third. See id. The union selected
an arbitrator, but the company refused to do so. See id. at 837. Thereafter, the Federal
Mediation and Conciliation Service chose an arbitrator who arbitrated the dispute

                                           -5-
without the company’s participation. See id. In affirming the district court’s dismissal
of the union’s action to confirm the award, we stated that “[t]here was no basis to
conclude that the company ever consented to any arbitration of disputes where it took
no part in the selection of any arbitrator,” and concluded that “[t]he award was
therefore void and unenforceable.” Id. In the case before us, appellants only consented
to arbitration where both sides negotiated in good faith regarding the choice of
arbitrator. Since there is nothing to indicate that appellants consented to arbitration
where Hugs & Kisses unilaterally chose the arbitrator, the award in favor of Hugs &
Kisses is also void. Food Handlers teaches that upon Aguirre’s failure to select an
arbitrator, Hugs & Kisses’ proper course was to attempt to reach agreement with
appellants as to the arbitrator, and, that failing, to move the district court to compel
arbitration under 9 U.S.C. § 4 (1994). See Food Handlers, 260 F.2d at 837-38.
Section 5 requires the court, upon application of either party, to “designate and appoint
an arbitrator” where a party has failed to adhere to the method provided in the parties’
agreement. 9 U.S.C. § 5 (1994).

       More recent cases are fully in accord with Food Handlers and our decision. In
Val-U Construction Co. v. Rosebud Sioux Tribe, 146 F.3d 573, 575 (8th Cir. 1998),
we upheld an arbitration award even though one party did not participate in the
arbitration. We distinguished Food Handlers, finding that the parties’ arbitration
agreement incorporated American Arbitration Association rules that allowed an
arbitration hearing to proceed in a party’s absence if that party is given notice of the
hearing and an opportunity to have it postponed. See Val-U Constr., 146 F.3d at 579.
Here, the parties adopted no such rules, so the case before us cannot be distinguished
from Food Handlers on that ground. Similarly, other circuits have held that arbitrators
are without authority where they are not chosen as provided in the parties’ arbitration
agreement. See R.J. O’Brien & Assocs., Inc. v. Pipkin, 64 F.3d 257, 263 (7th Cir.
1995) (arbitrator must be chosen in conformance with procedure in parties’ agreement
to arbitrate, as arbitrator’s powers are derived from that agreement; here, selection
conformed to agreement); Cargill Rice, Inc. v. Empresa Nicaraguense Dealimentos

                                           -6-
Basicos, 25 F.3d 223, 225-26 (4th Cir. 1994) (if parties’ method of choosing arbitrators
not followed, award must be vacated); Szuts v. Dean Witter Reynolds, Inc., 931 F.2d
830, 831 (11th Cir. 1991) (power and authority of arbitrators is dependent on
provisions of arbitration agreement); Avis Rent A Car Sys., Inc. v. Garage Employees
Union, Local 272, 791 F.2d 22, 25-26 (2d Cir. 1986) (arbitrator not appointed as
arbitration agreement required had no authority). Because the arbitrator in the present
case exceeded his authority, his decision must be vacated under 9 U.S.C. § 10(a)(4).

       The district court nevertheless found that appellants waived the right to
participate in selecting an arbitrator. We find no support in any statutes or case law for
this proposition. The case is indistinguishable from Food Handlers, where the party
challenging the arbitration award simply refused to select an arbitrator to serve on a
three-arbitrator panel, though the parties’ agreement required it to do so. See Food
Handlers, 260 F.2d at 837. Regardless of whether Aguirre breached the agreement
with Hugs & Kisses by failing to make a good faith effort to agree with Hugs & Kisses
on the arbitrator who would preside over their arbitration, appellants did not consent
to arbitration before an arbitrator unilaterally chosen by Hugs & Kisses.

      “[A]rbitration is a matter of consent, not of coercion.” Keymer v. Management
Recruiters Int’l, Inc., 169 F.3d 501, 504 (8th Cir. 1999). Because appellants did not
agree on the arbitrator or give Hugs & Kisses the power to unilaterally choose one, the
award must fall. Hugs & Kisses’ cross appeal is therefore moot. The district court is
ordered to vacate the award and conduct further proceedings consistent with this
opinion.

      A true copy.

             Attest:

                     CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.

                                           -7-