SkyTech, Inc., et al., Appellants, vs. Scientific Learning Corporation, Respondent.

SkyTech, Inc., et al., Appellants, vs. Scientific Learning Corporation, Respondent. A06-269, Court of Appeals Unpublished, December 5, 2006.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A06-269

 

SkyTech, Inc., et al.,

Appellants,

 

vs.

 

Scientific Learning Corporation,

Respondent.

 

Filed December 5, 2006

Affirmed as modified

Stoneburner, Judge

 

Hennepin County District Court

File No. 27-CV-05-011485

 

Wayne G. Popham, Popham Law Office, 33 South Sixth Street, Suite 4100, Minneapolis, MN 55402 (for appellants)

 

Charles F. Webber, Lianne C. Knych, Faegre & Benson LLP, 2200 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402 (for respondent)

 

            Considered and decided by Shumaker, Presiding Judge; Peterson, Judge; and Stoneburner, Judge.

U N P U B L I S H E D  O P I N I O N

STONEBURNER, Judge

On this appeal from a judgment of dismissal, appellants challenge the district court's rulings granting respondent's motion to compel arbitration in California, dismissing appellants' claims, and ordering appellants to pay the district court filing fee.  Appellants also challenge the district court's implication that counsel's conduct in filing a complaint as well as cross-claims between plaintiffs was unethical.  Because we clarify that the dismissal of SkyTech's claims was without prejudice, but otherwise observe no error in the district court's rulings, we affirm as modified.

FACTS

Appellant SkyTech, Inc. contracted to sell respondent Scientific Learning Corporation's (SLC) computer software to churches and community organizations providing after-school tutoring services.  Appellant SkyLearn, LLC was organized to be a supplemental provider and to act as an independent contractor for SkyTech, and appellant HEK, Inc. d/b/a SkyLearn Digital Systems (HEK) contracted with SkyTech to be a supplemental service provider in California.  Appellants allege that SLC blocked their efforts to sell the software and then used appellants' resulting failure to meet sales quotas to terminate first appellants' exclusive representative status and later, the contract itself.  The parties' contract contains an arbitration provision covering "[a]ny controversy or claim arising out of or relating to the terms of [the] Agreement, or the breach thereof."  The parties agreed that California law governs the agreement, that binding arbitration would be conducted by a single arbitrator in Oakland, California in accordance with the rules of the American Arbitration Association (AAA), and that the arbitrator may award costs and reasonable attorneys' fees to the prevailing party. 

In May 2005, appellants submitted an arbitration claim to the Dallas AAA office and requested a hardship waiver of fees.  In June 2005, the AAA deferred the $10,000 administrative fee, but indicated that arbitrator fees could not be waived or deferred.  AAA told appellants that failure to respond within seven days would result in the AAA returning all of the paperwork and treating the matter as "not properly filed."  Appellants did not pursue the arbitration claim.  Instead, they brought suit in Hennepin County in July 2005, alleging the same claims made in the arbitration, including breach of contract, fraud, and tortious interference with contract.  SLC filed an arbitration claim with the Fresno, California AAA office and moved in Hennepin County to compel arbitration.  By order on December 6, 2005, the district court granted SLC's motion to compel arbitration, dismissed the Hennepin County action, denied SkyTech's motion to stay the California arbitration proceedings, dismissed the purported cross-claims of SkyLearn and Digital Systems as improperly filed, and ordered SkyLearn and Digital Systems to pay filing fees.  This appeal followed.

D E C I S I O N

I.

Respondent SLC argues that an order compelling arbitration is not appealable.  Ordinarily, an order compelling arbitration is not appealable because it is not final, and the issue of arbitrability must be raised on appeal from the final judgment confirming or vacating the arbitrator's award.  See Minn. Stat. § 572.26 (2004); see also Eckblad v. Farm Bureau Mut. Ins. Co., 371 N.W.2d 78, 80 (Minn. App. 1985), review denied (Minn. Sept. 26, 1985).  But this order compelling arbitration does finally determine the proceedings in Minnesota.  Because appellants did not obtain a stay pending appeal, the entire order became immediately enforceable.  There will be no later review of the arbitrator's award in this state, and no future opportunity to challenge the decision to compel arbitration.  Accordingly, this is an appeal from a final judgment of dismissal, and not from a preliminary order compelling arbitration.  Therefore, the district court's order to compel arbitration is properly before this court for review.  See Minn. R. Civ. App. P. 103.04 (stating that on appeal from a judgment the appellate courts may review any order involving the merits or affecting the judgment).

This court reviews de novo the district court's ruling on a motion to compel arbitration.  Johnson v. Piper Jaffray, Inc., 530 N.W.2d 790, 795 (Minn. 1995).  When considering a motion to compel arbitration, we must determine only (1) whether a valid arbitration agreement exists and (2) whether the dispute falls within the scope of the arbitration agreement.  Amdahl v. Green Giant Co., 497 N.W.2d 319, 322 (Minn. App. 1993).  An arbitration agreement in a contract is "valid, enforceable, and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract."  Minn. Stat. § 572.08 (2004).

It is undisputed that the parties' agreement contains an arbitration provision encompassing appellants' claims.  Both parties have attempted to pursue arbitration.  The district court found that appellants' initial demand for arbitration alleged the same claims asserted in the later district court action.  Appellants' attempt to file an arbitration demand and SLC's filing of an arbitration demand when appellants failed to perfect their filing support the district court's finding that the parties explicitly acknowledged the validity and applicability of the arbitration clause and the district court's conclusion to compel arbitration.

Appellants allege multiple errors in the district court's granting of the motion to compel: (1) appellants did not agree to file twice for arbitration; (2) appellants did not agree to arbitrate a claim when they were unable to pay the costs of arbitration; (3) it was reasonable to expect respondent to pay for the arbitration; (4) arbitration will impose "a series of burdens" on appellants; and (5) two respondents are not part of the arbitration so a separate action might be required.

Appellants provide no legal citation or authority to support their assertion that the district court cannot "require an adverse party that has once filed its claims in arbitration and offered to proceed in arbitration, to subsequently file its claims in arbitration more than once."  Appellants' claim ignores the fact that their attempted filing was treated by the AAA as "not properly filed."  And assignment of error in a brief based on "mere assertion" and not supported by argument or authority is waived.  State v. Modern Recycling, Inc., 558 N.W.2d 770, 772 (Minn. App. 1997). 

Other alleged errors are based on appellants' claim that they are unable to pay the costs of arbitration and that the arbitration agreement can only be enforced if respondent pays.  The parties' agreement is silent regarding initial payment of arbitration fees and costs in the event that one party is unable to pay.  Appellants assert that "the United States Supreme Court and other federal and state courts have recognized that a party cannot be required to arbitrate its claims if the party cannot afford the higher costs of arbitration," citing Green Tree Fin. Corp.Ala. v. Randolph, 531 U.S. 79, 121 S. Ct. 513 (2000).  In that case, the United States Supreme Court held that the plaintiff, a consumer seeking to vindicate statutory rights, was required to arbitrate her claims, but noted that "[i]t may well be that the existence of large arbitration costs could preclude a litigant such as Randolph from effectively vindicating her federal statutory rights in the arbitral forum."  Id. at 92, 121 S. Ct. at 522.  Randolph and all of the other cases relied on by appellants involved consumers in a contract of adhesion faced with the loss of the ability to vindicate statutory rights if not provided with the opportunity to pursue claims in court as opposed to arbitration required by the contracts.  Id.at 90, 121 S. Ct. at 522; Camacho v. Holiday Homes, Inc., 167 F. Supp. 2d 892, 895 (W. D. Va. 2001) (involving a consumer's claim under federal Truth in Lending Act); Phillips v. Assocs. Home Equity Servs. Inc., 179 F. Supp. 2d 840, 848 (N.D. Ill. 2001) (involving a consumer's claim under federal Truth in Lending Act); Mendez v. Palm Harbor Homes Inc., 45 P.3d 594, 599 (Wash. App. Ct. 2002) (involving consumer claims under state statutes).

In this case, the parties to the agreement are business entities.  SkyTech is not a consumer subjected to a take-it-or-leave-it contract.  Appellants could have contracted with a different provider of software but chose to work with SLC.  Both parties were represented by counsel, and the contract was negotiated among the attorneys and the principals, resulting in changes requested by appellants' counsel.  These facts support the district court's finding that this is an arms-length transaction.

Additionally, it was appellants' burden to show the likelihood of incurring prohibitive costs in the arbitral forum. See Randolph, 531 U.S. at, 92, 121 S. Ct. at 522.  In this case, the record does not support appellants' claim that arbitration costs would be "prohibitive" or that they are unable to pay.  Although the district court did not specifically find that appellants' proffered evidence was insufficient to show insolvency, it noted that the documentary evidence submitted to support appellants' financial hardship claim lacked indicia of authenticity and trustworthiness.  And appellants' stated ability to pay litigation costs is in sharp contrast to their claim of insolvency to arbitrate. 

Appellants also argue without citation or analysis that "numerous other errors" require that the district court order be vacated.  This court declines to address issues not supported by legal citation or analysis.  Ganguli v. Univ. of Minn., 512 N.W.2d 918, 919 n.1 (Minn. App. 1994). 

II.

Appellants contend that the provision in the agreement mutually limiting the liability of the parties is unconscionable.  The validity of contract terms other than the arbitration clause, however, is for the arbitrator to decide.  Buckeye Check Cashing, Inc. v. Cardegna, 126 S. Ct. 1204, 1210 (2006) (holding that "a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator"); see also Stahl v. McGenty, 486 N.W.2d 157, 159 (Minn. App. 1992) (stating that party to agreement with arbitration provision suing for damages on fraud claim "is affirming the contract rather than asking for rescission[,]" and claim should be submitted to arbitration).  Therefore, we do not reach the issue of unconscionability.

III.

The district court's dismissal of SkyTech's claims was silent as to prejudice.  Involuntary dismissals under rule 41.02 are generally adjudications on the merits unless the court specifies otherwise.  1A David F. Herr & Roger S. Haydock, Minnesota Practice § 41.23, at 348-49 (4th ed. 2003).  A dismissal on the merits could preclude arbitration, although SLC has stated that it would not assert collateral estoppel.  An exception to the general rule is a dismissal for forum non conveniens, which is presumed to be without prejudice.  Minn. R. Civ. P. 41.02.  The case at bar is analogous to a dismissal for forum non conveniens; the district court determined that the arbitral forum is the proper forum, not the district court. 

            This court has recognized that a district court's "designation of ‘with prejudice' or ‘without prejudice' must be viewed in light of the basis for the dismissal and is not automatically dispositive of whether a second suit is barred."  Unbank Co. v. Merwin Drug Co., 677 N.W.2d 105, 109 (Minn. App. 2004).  Amending the judgment to be without prejudice would reflect the actual judgment of the district court.  E.g., Fedie v. Mid-Century Ins. Co., 631 N.W.2d 815, 818 (Minn. App. 2001) (dismissal of lawsuit without prejudice after order compelling arbitration was not "involuntary dismissal" and was not adjudication on merits), review denied (Minn. Oct. 16. 2001).  Accordingly, we modify the judgment to clarify that the judgment of dismissal of SkyTech's claims is "without prejudice."

IV.

Appellants request that this court remand to the district court for consideration of SkyLearn and HEK's motion for leave to amend the complaint.  After the district court issued its final order and judgment dismissing appellants' claims and compelling arbitration in California, appellants filed their notice of appeal and then moved, in district court, to vacate the judgment and amend the complaint.

The filing of a proper and timely appeal suspends the authority of the trial court to make any order necessarily affecting the order or judgment appealed from.  Minn. R. Civ. App. P. 108.01.  An order amending the complaint that the court has already dismissed would necessarily affect the order and judgment of dismissal.  Id.; see also Spaeth v. City of Plymouth, 344 N.W.2d 815, 824 (Minn. 1984).  Thus, the district court did not have jurisdiction to decide the motion to amend, and this court has no district court ruling on the motion to review on this appeal.

V.

Appellant SkyTech contends on appeal that the district court improperly implied that appellants' attorney acted unethically in representing and appearing for all plaintiffs after filing the complaint and cross-claims between the plaintiffs.

The comment regarding counsel's possible conflict of interest followed the court's findings regarding appellants SkyLearn and HEK's third-party beneficiary and cross-claims against appellant SkyTech.  On appeal, appellant SkyTech asserts that SkyLearn and HEK are "not pursuing the theories of third-party beneficiary claims or cross-claims" against SkyTech.  Because appellants have now withdrawn the claims on which the conflict-of-interest comment was based, any challenge to the related comment is rendered moot. 

VI.

Appellants claim that the district court improperly ordered SkyLearn and HEK to pay the required filing fees or face further sanctions.  The claim is supported with only an affidavit filed after the final order of dismissal.  No legal citations or analysis are provided.  Because the order simply requires payment of "the required filing fees," we observe no error by the district court.  

            Affirmed as modified.