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Trepanier MacGillis Battina P.A. 8000 Flour Exchange Building 310 Fourth Avenue South Minneapolis, MN 55415 612.455.0500

Minnesota Arbitration Law – Recent Decisions Clarify Role of District Court

Arbitration is intended to avoid traditional courtroom experiences. At times, however, courts become involved if parties must be compelled into the arbitration process.  At other times, courts become involved to confirm an arbitration award after the arbitration process has concluded.  A pair of recent decisions from U.S. District Court of Minnesota help to clarify the role that the court system can play both at the beginning and at the end of the arbitration process.  

Arbitration in Federal Court

In Mitschele
v. Municipal Parking Services
, No. 18-878, 2019 WL 1915796 (D. Minn. April
30, 2019), the issue was whether certain claims related to shareholder rights
and the use of patented solar-powered parking meter technology should be
subject to arbitration,  where the plaintiffs
had reached an agreement to sell their interest in the parking meter technology
to Municipal Parking Services (“MPS”) in exchange for stock in MPS and a share
of profits.

In sum, the Agreement provided that any
dispute arising between the parties would be subject to arbitration and
determined by a single arbitrator.  The
Agreement also controlled the applicable law, stating that the Agreement would
be construed under the laws of British Columbia, Canada under the provisions of
the Commercial Arbitration Act of British Columbia.

Plaintiffs claimed breach of the Agreement and filed an arbitration action
in British Columbia, Canada. Plaintiffs separately filed a lawsuit in U.S.
District Court in Minnesota alleging shareholder claims under Minnesota
Statutes Sections 302A.471 and 302A.751. MPS moved to compel arbitration of the
Minnesota claims.

The Court started its analysis by noting that pursuant to the Federal Arbitration Act (“FAA”), a court must grant a motion to compel arbitration if the parties agreed to a valid arbitration provision. In a motion to compel arbitration, the court stated that it must determine whether: (1) a valid agreement to arbitrate exists between the parties; and (2) whether the specific dispute is within the scope of that agreement. The Court then cited precedent for the proposition that an order to compel arbitration should be granted unless it may be said with positive assurance that the arbitration clause is not susceptible to an interpretation that covers the asserted dispute.

Next the Court sought to determine whether the arbitration clause was broad
or narrow. If the clause is broad, the Court explained, the presumption in
favor of arbitration applies, and the court is required to send the claim to
arbitration as long as the underlying factual allegations simply touch matters
covered by the arbitration provision. However, if the clause is narrow, the
presumption of arbitrability is lessened. Ultimately, the Court held that the
arbitration clause was broad, that the claims were very similar if not
intertwined, and granted the motion to compel arbitration.

Confirming an Arbitration Award in Federal Court

Federated Mut. Ins. Co.
v. Federated Nat’l Holding Co.
(D. Minn. June 22, 2018) grew out of a lawsuit by an
insurance company based in Owatonna, Minnesota (Federal Mutual Insurance Company
or “Petitioner”) to enforce its trademarks against another insurance company in
Florida (Federated National Holding Company, Inc. or “Respondent”).  Petitioner alleged Respondent was using a
confusingly similar corporate name.

The parties settled their original lawsuit with a Co-Existence Agreement (“Agreement”) which contained an arbitration clause. After Petitioner claimed that Respondent was not complying with the Agreement, it initiated arbitration through the American Arbitration Association.  The arbitrator issued an award concluding that Respondent breached the Agreement and ordered Respondent and its affiliates to cease using the term “Federated” in trade names, marketing, advertising, websites, stationery, email, contracts, polices, and riders within 90 days of the award. Ultimately, Petitioner filed a petition in U.S. District Court to enforce the arbitration award under Sections 9 and 10 of the FAA.  Respondent moved to dismiss based on lack of jurisdiction.

The FAA does not, itself, confer subject matter jurisdiction. To enforce an arbitration award in federal court, the petitioner must show an independent jurisdictional basis such as a federal question jurisdiction or diversity of citizenship jurisdiction. The issue in Federated was whether the court should assess jurisdiction based on the face of the Petition or if it should “look through” the Petition to the underlying arbitration to determine whether federal question jurisdiction exists.

As the Eighth Circuit Court of Appeals had yet to address the issue, the District Court turned to the First and Second Circuit Courts (applying the look-through approach to Sections 9 and 10) and the Third and Seventh (refusing to apply the look-through approach to Sections 9 and 10) to determine if it was likely the Eighth Circuit would follow a similar approach as that in Vaden v. Discover Bank, 556 U.S. 49, 62 (2009) and allow a “look through.” The Vaden decision by the U.S. Supreme Court held that the “look-through” approach applies in context to Section 4 of the FAA which considers petitions to compel arbitration, however,  the decision did not address whether the look through approach applied to actions brought under Sections 9 and 10 which includes petitions to confirm or vacate an arbitration award. The court in the Federated case determined that that the look-through approach was also appropriate in petitions to confirm or vacate under Sections 9 and 10 of the FAA.

The District Court granted Petitioner’s motion to confirm the arbitration award because under the FAA a court must grant a motion to confirm an arbitration award unless the award is vacated, modified, or corrected.  The District Court did not find reason to vacate the award and highlighted that a court has “no authority to reconsider the merits of an arbitration award even when the parties allege that the award rests on factual errors or on a misinterpretation of the underlying contract.” Med. Shoppe Int’l Inc. v. Turner Invs, Inc., 614 F.3d 485, 488 (8th Cir. 2010).

In a twist, the Eighth Circuit reversed the District Court’s decision in an opinion dated June 27, 2019. In Federated Mutual Ins. Co. v. FedNat Holding Co., No. 18-2430, the Appellate Court found that the District of Minnesota lacked specific personal jurisdiction over Respondent FedNat because FedNat does not conduct business in the state of Minnesota. It therefore remanded the case for dismissal without addressing the question of federal subject matter jurisdiction.


Bryan R. Battina is a Minnesota arbitration attorney and also serves as an arbitrator. He can be reached at 612.455.0505 or Trepanier MacGillis Battina P.A. is an arbitration, litigation, and business law firm based in Minneapolis, Minnesota.