COURT OF APPEALS DECISION DATED AND RELEASED January 9, 1996 |
NOTICE |
A party may file with the
Supreme Court a petition to review an adverse decision by the Court of
Appeals. See § 808.10 and
Rule 809.62, Stats. |
This opinion is subject to
further editing. If published, the
official version will appear in the bound volume of the Official Reports. |
No. 94-1735
STATE
OF WISCONSIN IN COURT OF
APPEALS
DISTRICT I
GREGORY J. GRAMBOW,
Claimant-Respondent-Cross Appellant,
v.
ASSOCIATED DENTAL
SERVICES, INC.,
DR. ROBERT F.
CHOJNACKI,
DR. JOHN SEBANC,
DR. DAVID H. ERICKSON,
DR. STEPHEN F.
FROEHLICH,
DR. JESLEY C. RUFF and
DR. GERALD D.
PATTERSON,
Respondents-Appellants-Cross Respondents.
APPEAL and CROSS-APPEAL
from a judgment of the circuit court for Milwaukee County: GEORGE A. BURNS,
JR., Judge. Affirmed.
Before Sullivan, Fine
and Schudson, JJ.
PER CURIAM. Associated Dental Services, Inc., (ADS Inc.)
appeals from a judgment confirming an arbitration award in favor of Gregory J.
Grambow, ADS Inc.'s former president and stockholder. Grambow cross-appeals from the judgment which also denied his
motion for frivolous fees and costs.
ADS Inc. advances two
arguments for review. It contends:
(1) that the determination of the value of Grambow's shares under a
post-employment stock redemption plan is not subject to arbitration and,
therefore, the arbitrators exceeded their authority when they determined the
value of the shares; and (2) that the arbitration award in which Grambow
received $608,231 was a perverse usurpation of the arbitrators' concerted
authority and a manifest disregard of the law.
We reject ADS Inc.'s arguments and affirm.
Grambow argues in his
cross-appeal that the trial court erred in denying his motion for frivolous
fees and costs. He also moves this
court for costs and fees for what he alleges is ADS Inc.'s frivolous
appeal. We reject his argument and
affirm the trial court judgment denying his motion. We further deny his motion on appeal for frivolous fees and
costs.
I. BACKGROUND
Grambow was president of
ADS Inc. from 1982 until his termination in 1992. In January 1991, ADS Inc. and its shareholders entered into a
stock redemption and purchase agreement, the relevant portions of which are
discussed below. In February 1992, ADS
Inc. terminated Grambow's employment with the company. In April 1992, ADS Inc. notified Grambow
that, according to its calculations, Grambow's twenty percent stock interest in
ADS Inc. had a book value of $169,818.34, and formula value under the agreement
of $118,508. In May 1992, Grambow
notified ADS Inc. of his election of the formula value for stock valuation as
required under the agreement, but he also demanded arbitration on the
determination of the stock value pursuant to the agreement.
In October 1993, a panel
of three arbitrators conducted a evidentiary hearing and received expert
evidence concerning the stock redemption plan.
In December 1993, the panel unanimously awarded Grambow $608,231 for his
shares of ADS Inc. stock. ADS Inc. then
appealed the arbitration decision to the circuit court, seeking an order to
vacate or modify the award. Grambow
counterclaimed for confirmation of the award and moved the court for frivolous
fees and costs. On May 18, 1994, the
trial court entered a judgment confirming the arbitration award, but denying
Grambow's motion for frivolous fees and costs.
The appeal and cross-appeal both arise out of this judgment.
II. ANALYSIS
Because the resolution
of this appeal turns on the language of the agreement executed between ADS Inc.
and Grambow, we first set forth the relevant provisions of the agreement. The stock redemption and purchase agreement
contained the following provisions concerning the stock valuation
determination:
5. Redemption
or Purchase Price.
The price per share of
any share of stock to be redeemed or purchased pursuant to this Agreement shall
be its proportionate share (i.e., a ratio of one to the total shares
outstanding) of: (a) the total book value of “stockholder's equity” in the
Corporation as of the end of the fiscal year preceding the date of discharge,
disability, death or delivery of an offer to have shares redeemed hereunder, as
the case may be; or (b) at the offeree Shareholder's option, pursuant to
written notice given to the Corporation within ten (10) days of the
determination of book value, as provided above, the value determined in
accordance with the formula attached as Exhibit A. The determination of the price per share
whether made pursuant to (a) or (b) above shall be made by the Corporation in
accordance with historical accounting practices followed by the Corporation.
....
SCHEDULE A
Price per Share = .80* x Value of Corporation
% of Outstanding Shares
Value =E (1 + g)
R - g
E = Base
Level Earnings
g = Annual
Rate of Growth
R = Discount
Rate of 28.4%
*This factor is included in the formula
only if the shares being valued constitute, in the aggregate, less than 51% of
the then outstanding shares.
The agreement also
contained an arbitration provision:
19. Arbitration. All controversies arising under and in
connection with or relating to the interpretation of this Agreement shall be
settled by arbitration in Milwaukee, Wisconsin in accordance with the then
existing rules of the American Arbitration Association, and the decision so
rendered shall be binding and conclusive on all parties concerned.
“[T]he role of a
reviewing court in the arbitration context is essentially supervisory, with the
goal of assuring that the parties are getting the arbitration” for which they
contracted. City of Madison v.
Madison Professional Police Officers Ass'n, 144 Wis.2d 576, 585‑86,
425 N.W.2d 8, 11 (1988) (citation omitted).
Thus, Wisconsin courts have “adopted a `hands off' approach to
arbitration awards.” Id.
at 587, 425 N.W.2d at 12 (citation omitted).
That being the case, we will not “overturn the arbitrator's decision for
mere errors of law or fact, but only when `perverse misconstruction or positive
misconduct [is] plainly established, or if there is a manifest disregard of the
law, or if the award itself is illegal or violates strong public policy.'” Id. at 586, 425 N.W.2d at 11
(citation omitted; bracketed materials in original); see also
§§ 788.10 & 788.11, Stats.
ADS Inc.'s first
argument implicates the agreement's construction and interpretation. ADS Inc. contends that “[t]he parties only
bargained to have controversies involving the `interpretation of the Agreement'
subject to arbitration; they did not bargain to have arbitrators make decisions
which were vested solely in the discretion of one or the other of such
parties.” Essentially ADS Inc. argues
that the determination of the stock value was not subject to arbitration, and
that the arbitration panel therefore exceeded its authority under the
arbitration provision of the agreement.
We disagree.
Arbitration is a matter
of contract and, as such, it is in the province of this court to ascertain
whether, on the basis of the parties' contract, ADS Inc. is bound to
arbitrate. See generally Atkinson
v. Sinclair Refining Co., 370 U.S. 238 (1962). Our scrutiny as to the arbitrability of
Grambow's claim is limited to a determination whether: (1) there exists a
construction of the Agreement's arbitration clause that would cover the
grievance on its face; and (2) whether any other provision of the contract
specifically excludes it. See Joint
Sch. Dist. Number 10 v. Jefferson Educ. Ass'n, 78 Wis.2d 94, 111, 253
N.W.2d 536, 545 (1977). We recognize
that “`[a]n order to arbitrate the particular grievance should not be denied
unless it may be said with positive assurance that the arbitration clause is
not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of
coverage.'” Id. at 112,
253, N.W.2d at 545 (citation omitted).
We believe a reasonable
interpretation of the agreement supports Grambow's claim for arbitration. The arbitration provision provides: “All controversies arising under and in
connection with or relating to the interpretation of the Agreement shall
be settled by arbitration.” (Emphasis
added.) The language unequivocally
affords arbitration in two instances—in the event that a dispute has arisen
under the Agreement—or where its interpretation is challenged. Consistent with this construction, a
controversy surrounding the shares' value is a matter appropriate for
arbitration. Thus, we reject ADS Inc.'s
argument that the arbitration panel exceeded its authority when it determined
the stock value.
Secondly, ADS Inc.
argues that the arbitrators' award was perverse and an utter disregard of the
law. ADS Inc., however, provides this
court with no reasonable basis from which we can reach this conclusion. We find no basis to suggest that the
arbitrators' award was without “foundation in reason.” Although ADS Inc. asserts that the valuation
was not made “in accordance with historical accounting practices,” there exists
no Generally Accepted Accounting Principle (“GAAP”) rule that defines variables
E or g under the Schedule A formula nor, as ADS Inc.'s experts conceded, could
these variables be obtained from the company's financial statements. As such, the arbitrators were guided by
their professional experiences and the agreement's underlying principles. Both parties received that for which they
contracted—the arbitrators accorded values to both variables E and g in
conformance to the agreement's arbitration clause. While Grambow's award was significantly greater than the value
under ADS Inc.'s computational method, we cannot say, given the great deference
due to the arbitrators' award, that it was without “foundation in reason.” It certainly does not rise to the level of a
perverse misconstruction.
Further, we decline to
express a preference for ADS Inc.'s accounting over Grambow's appraisal method
of applying the formula. The
arbitrators could properly give credence to Grambow's expert in the field of
valuation of closely-held corporations, who testified that there is no
recognized “accountancy” approach to valuation of a closely-held corporate
interest. Using ADS Inc.'s method, he
concluded that in 1990, Grambow's interest would be a negative $86,156; that in
1992, it would be worth $95; and that in 1993, it would be worth a negative
$41,013. Demonstrating the sensitivity
of the formula to use of arbitrary numbers, the expert calculated that if ADS
Inc.'s pre-tax earnings increased by $4,000 from 1992 to 1993, Grambow's 20.2%
share interest would have been worth $2,264,662 at the close of 1993.
ADS Inc.'s argument that
the arbitrators manifestly disregarded the law is largely a continuation of
their argument that they improperly used the appraisal method of calculation,
contrary to the express terms of paragraph 5 and Schedule A. They emphasize language that price
determination will be made in accord with “historical accounting practices made
by the Corporation.”
An award will be
overturned if it evidences a manifest disregard for the law. See Lukowski v. Dankert,
184 Wis.2d 142, 149, 515 N.W.2d 883, 886 (1994). If the law is not disregarded, however, we uphold the award if a
reasonable foundation exists for the interpretation of the contract. See id. at 153, 515
N.W.2d at 887. No disregard for the law
exists if substantial authority supports the arbitrators' assumption as to the
law. Id.
The arbitrators
determined that the agreement was valid and enforceable under Wisconsin
law. The arbitrators further utilized
methods to determine value as provided in the agreement. Finally, the arbitrators made no material
miscalculation of figures. See
§ 788.11(1)(a), Stats. They set an award within the range presented
by the parties. As such, the
arbitration award stands.
FRIVOLOUS COSTS
Grambow's cross-appeal
demands costs provided by § 814.025(1), Stats.,
which imposes costs as provided by § 814.04, Stats.,
including reasonable attorney fees, as a condition to a determination of
frivolousness. Section 314.025(3)(b)
requires the trial court to make findings as follows:
(b) The party of
the party's attorney knew, or should have known, that the action, special
proceeding, counterclaim, defense or cross complaint was without any reasonable
basis in law or equity and could not be supported by a good faith argument for
an extension, modification or reversal of existing law.
Also
pending before this court is Grambow's motion for frivolous appellate costs
under Rule 809.25(3), Stats.
Grambow argues that
although ADS Inc. was aware of the limited scope of an arbitration award action
in the circuit court, it nevertheless filed the action; that ADS Inc. did not,
and on appeal does not, seek an extension, modification or reversal of existing
law. He asserts that in filing the
circuit court action and in pursuing relief in this court, ADS Inc. chose to
ignore and obfuscate the law. The trial
court found that ADS Inc. did not seek extension or modification of existing
law, but found that its purposes were “well intentioned.”
Where the facts are undisputed,
whether filing of an action for review of an arbitration award violates §
814.025(3)(b), Stats., is a legal
question which we determine de novo.
First Federated Sav. Bank v. McDonah, 143 Wis.2d 429, 433,
422 N.W.2d 113, 115 (Ct. App. 1988). The
trial court found, at least by implication, that ADS Inc.'s action was not
frivolous. We agree with the trial
court.
ADS Inc.'s position
throughout this litigation was that the unambiguous terms of the agreement
vested the determination of stock value solely with ADS Inc., and that the
formula set forth in Schedule A left nothing for interpretation. In good faith it had advanced the argument
that application of the appraisal method to an accounting standard was
improper. We are satisfied that ADS Inc.,
in making this argument, sought a modification of arbitration law to impose a
limitation upon arbitrators' authority to evaluate variable factors in a
formula set forth in an agreement.
Accordingly, we affirm the trial court's denial of frivolous fees and
costs because its conclusion that ADS Inc.'s claim had a reasonable basis in
law is supported by the record. For the
same reason, we deny Grambow's motion for frivolous appellate fees and costs.
By the Court.—Judgment
affirmed.
This opinion will not be
published. See Rule 809.23(1)(b)5, Stats.