Alliance Platforms, Inc. v. Behrens

1

No. 108,345

IN THE COURT OF APPEALS OF THE STATE OF KANSAS

ALLIANCE PLATFORMS, INC.,
Appellee,

v.

BRIAN BEHRENS, et al., Defendants,
(Moxy Solutions, LLC),
Appellant.


SYLLABUS BY THE COURT

1.

When a district court vacates an arbitrator's award based on its interpretation of the
contract that initially compelled the arbitration, we review the decision de novo.

2.
A broad arbitration clause in a contract gives the arbitrator an expansive scope of
authority to decide the issues involved in a case, and any doubts concerning the scope of
the arbitration provision should be resolved in favor of arbitration.

3.
A reviewing court must respect that the parties to an arbitration agreement
contractually agreed to be bound by an arbitrator's decision.

4.
Reviewing courts presume that an arbitrator's decision is valid. Even errors of law
or fact are generally insufficient to overturn the decision unless the arbitrator acted in bad
faith or took actions so unreasonable as to amount to affirmative misconduct.
2


5.
Only in extraordinary circumstances is an arbitrator's interpretation of a contract
so irrational or unreasonable as to be a sufficient basis to vacate an award.

6.
Where both parties are afforded partial relief, an arbitrator has not exceeded his or
her power and discretion in concluding that neither party is entitled to attorney fees under
a contractual prevailing party provision.

Appeal from Johnson District Court; KEVIN P. MORIARTY, judge. Opinion filed June 14, 2013.
Reversed and remanded with directions.

Neil L. Johnson and Sharon A. Stallbaumer, of Berkowitz Oliver Williams Shaw & Eisenbrandt,
LLP, of Kansas City, Missouri, for appellant.

Lewis M. Galloway, of LG Law LLC, of Kansas City, Missouri, for appellee.

Before BRUNS, P.J., GREEN and BUSER, JJ.

BRUNS, P.J.: This appeal arises out of a Services Agreement entered into by
Alliance Platforms, Inc. (Alliance) and Moxy Solutions, LLC (Moxy). Alliance sued
Moxy and several other defendants in Johnson County District Court. In response, Moxy
filed a counterclaim and successfully sought to compel arbitration under the terms of the
Services Agreement. At the conclusion of the arbitration, the arbitrator found that neither
Alliance nor Moxy were entitled to attorney fees under the "prevailing party" provision of
the Services Agreement. Although the district court confirmed the arbitrator's award
regarding the substantive claims asserted by the parties, it vacated the arbitrator's decision
on attorney fees. Specifically, the district court found that Alliance was the prevailing
party in the arbitration and remanded the matter to the arbitrator for a determination of
3

the amount of attorney fees to be awarded. On appeal, we conclude that the district court
erred in finding that the arbitrator exceeded his power when he determined that neither
party was entitled to attorney fees under the terms of the Services Agreement. Thus, we
reverse the district court's decision regarding attorney fees, and we remand the case to the
district court for it to confirm the arbitrator's original award in its entirety.

FACTS AND PROCEDURAL HISTORY

Moxy entered into a Services Agreement with Alliance in September 2008 for
variable data printing services. The initial term of the Services Agreement was for 3
years, but it was not exclusive. In addition, the Services Agreement provided that either
party could terminate the agreement due to a material breach, after giving the other party
30 days' written notice to cure the alleged breach.

In July 2009, Moxy sent an e-mail to Alliance stating that it was terminating the
agreement due to an alleged material breach of contract. Although the Services
Agreement stated that the parties agreed to arbitrate any disputes arising out of or related
to the terms of the agreement, on December 9, 2009, Alliance filed a suit against Moxy—
as well as several other defendants who are not parties to this appeal—alleging a variety
of claims. In response, Moxy asserted several counterclaims against Alliance and filed a
motion to compel arbitration under the terms of the Services Agreement. But the parties
agreed to defer a hearing on the motion to compel arbitration in order to complete
discovery.

On March 10, 2011, the district court granted Moxy's motion to compel
arbitration. The arbitrator, Robert W. Cotter, conducted a final hearing from September
13 to 15, 2011. Following posthearing briefing by the parties, the arbitrator issued an
award on November 3, 2011. The arbitrator concluded that Moxy technically violated the
Services Agreement by failing to give Alliance 30 days' written notice to cure the alleged
4

material breach. But because the agreement did not require Moxy to make minimum
monthly purchases—or any purchases for that matter—the arbitrator concluded that this
technical violation of the Services Agreement's notice provision resulted in no damages
to Alliance. Moreover, as to Alliance's seven other claims against Moxy, the arbitrator
decided each of them in Moxy's favor.

In addition, the arbitrator granted Moxy's counterclaim seeking an injunction
against Alliance for use of Moxy's contract forms, graphics, and artwork. The arbitrator
did, however, deny the other three counterclaims asserted by Moxy. Finally, because the
arbitrator found neither Alliance nor Moxy to be the prevailing party in the arbitration, at
the end of the award, the arbitrator decided "[e]ach party is to pay their own attorneys'
fees."

Alliance filed a motion for reconsideration with the arbitrator, contending that the
Services Agreement required the arbitrator to award attorney fees. In an order dated
December 19, 2011, the arbitrator denied Alliance's motion. In doing so, the arbitrator
explained that he found neither party to be the prevailing party under Section 16.7 of the
Services Agreement because no damages were awarded on Alliance's claims or on
Moxy's counterclaims.

On January 30, 2012, the district court confirmed the arbitrator's award regarding
Alliance's claims and Moxy's counterclaims. Notwithstanding, the district court found
that the arbitrator exceeded his power in determining that neither party had prevailed in
the arbitration. The district court also found that the arbitrator should have deemed
Alliance the prevailing party and should have awarded attorney fees. Accordingly, the
district court vacated the arbitrator's decision on attorney fees and remanded the case to
the arbitrator to determine the reasonable amount of attorney fees to which Alliance was
entitled. On remand, the arbitrator concluded that Alliance's reasonable attorney fees
5

were $51,521.81, and the district court confirmed the supplemental award in a journal
entry filed on May 22, 2012.

ANALYSIS

Issue Presented

The sole issue presented in this appeal is whether the district court erred in
vacating the arbitrator's decision to not award attorney fees to either party under a
contractual prevailing party provision.

Standard of Review

Because the issue presented involves an interpretation of the Services Agreement
entered into between Alliance and Moxy, our standard of review over the district court's
decision to vacate the arbitrator's award is unlimited. See Shamberg, Johnson &
Bergman, Chtd. v. Oliver, 289 Kan. 891, 900, 220 P.3d 333 (2009). But in reviewing the
arbitrator's original award, we must give great deference to his factual findings and his
legal conclusions. See Rural Water Dist. No. 6 v. Ziegler Corp., 9 Kan. App. 2d 305, 309,
677 P.2d 573 ("[T]he [Kansas Uniform Arbitration] Act does not impose restrictions on
this court's power to review the district court's decision, but it does restrict the district
court's review of the arbitrator's decision."), rev. denied 235 Kan. 1042 (1984). Hence,
"[m]aximum deference is owed to the arbitrator's decision, and the standard of review is
among the narrowest known to law." Moreland v. Perkins, Smart & Boyd, 44 Kan. App.
2d 628, Syl. ¶ 8, 240 P.3d 601 (2010).

A reviewing court must respect that the parties contractually agreed to be bound
by an arbitrator's decision. "Once the parties have decided to settle their dispute through
arbitration and once they have chosen a mutually acceptable arbitrator, the courts have
6

only disturbed an award for the most egregious of breaches by the arbitrator." City of
Coffeyville v. IBEW Local No. 1523, 270 Kan. 322, Syl. ¶ 2, 14 P.3d 1 (2000). Even
errors of law or fact are insufficient to overturn an award unless it can be shown that the
arbitrator acted in bad faith or took actions "so gross as to amount to affirmative
misconduct." Neighbors Construction Co. v. Woodland Park at Soldier Creek, 48 Kan.
App. 2d 33, Syl. ¶¶ 1, 2, 5, 284 P.3d 1057 (2012).

Scope of Arbitrator's Power

On appeal, Alliance argues the district court correctly determined that the
arbitrator exceeded his power under K.S.A. 5-412(a)(3) by refusing to declare a
prevailing party in the arbitration and thereby not awarding attorney fees to either party.
On the other hand, Moxy argues the district court erred by failing to give appropriate
deference to the arbitrator's decisions. As the party arguing for vacating the arbitrator's
award, Alliance bore "the burden of proving a basis for setting aside the award."
Neighbors, 48 Kan. App. 2d 33, Syl. ¶ 6; see also Heartland Surgical Specialty Hospital
v. Reed, 48 Kan. App. 2d 237, Syl. ¶ 6, 287 P.3d 933 (2012). We find that the district
court failed to give the arbitrator's award proper deference, and it thus erred in finding
that Alliance had met its burden.

The Services Agreement entered into by Alliance and Moxy states:

"In the event of the failure of any such mediation, the dispute shall be submitted to the
American Arbitration Association, in Kansas City, MO, in accordance with the then
prevailing rules of that Association. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof. In any arbitration or litigation
under this Agreement, the prevailing party shall be entitled to recover from the other
party any and all costs reasonably incurred by the prevailing party in such arbitration or
litigation, including, without limitation, reasonable attorneys' fees." (Emphasis added.)

7

In the original award, the arbitrator found that because each party prevailed on one
claim and lost all its other claims, neither was the prevailing party in the arbitration. As
such, the arbitrator concluded that neither party was entitled to attorney fees. In vacating
the arbitrator's decision on attorney fees, the district court found that "the arbitrator
exceeded his power by failing to determine the prevailing party and award reasonable
attorney's fees and costs." The district court further found that "the arbitrator must award
[Alliance] its reasonable attorneys' fees and costs as the prevailing party . . . under a
theory of breach of the Services Agreement." Thus, the district court remanded the case
to the arbitrator with the specific instruction to determine "a reasonable amount of
attorney's fees and costs to be awarded to [Alliance] with respect to its claim for breach
of the Services Agreement."

A broad arbitration clause in a contract gives the arbitrator an expansive scope of
authority to decide the issues involved in a case. Neighbors, 48 Kan. App. 2d at 46.
Likewise, "any doubts concerning the scope of arbitrable issues should be resolved in
favor of arbitration." Moses H. Cone Hospital v. Mercury Const. Corp., 460 U.S. 1, 24-
25, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983) (interpreting the federal Arbitration Act that
has language similar to K.S.A. 5-401(a), which governs the validity of arbitration in
Kansas). Here, the arbitration provision was broad. It had no limitations. And it expressly
stated that the arbitrator would decide costs, which included attorney fees. Accordingly,
we find the issue of attorney fees to have been within the arbitrator's power.

Because attorney fees were an issue within the arbitrator's power to decide, a
reviewing court must give the arbitrator's decision the appropriate level of deference. In
finding that "the arbitrator exceeded his powers by not following the contract," the
district court found that the arbitrator interpreted the contract incorrectly. Yet even if the
arbitrator did commit an error of law in interpreting the contract, an error of law is
generally not a sufficient reason to vacate an arbitrator's decision. Moreland, 44 Kan.
App. 2d 629, Syl. ¶ 6.
8

Only in extraordinary circumstances is an arbitrator's interpretation of a contract
so irrational or unreasonable as to be a sufficient basis to vacate an award. Neighbors, 48
Kan. App. 2d at 51-52. The contract stated that "the prevailing party shall be entitled to
recover . . . reasonable attorney fees." The Services Agreement did not, however, define
"prevailing party." The arbitrator concluded that neither Alliance nor Moxy was a
prevailing party because each won one claim and lost all others and, as a result, neither
party was entitled to attorney fees. We do not find that decision to be irrational or
unreasonable. Likewise, we do not find that the arbitrator committed an error of law.

We find the Washington Court of Appeals' decision in Morrell v. Wedbush
Morgan Sec., 143 Wash. App. 473, 486, 178 P.3d 387 (2008), to be persuasive and
provide guidance in this case. In Morrell, the court recognized that "where both parties to
an action are afforded some measure of relief, neither party may be entitled to attorney
fees" under a prevailing party provision. 143 Wash. App. at 486. Likewise, we find this
statement to be consistent with cases from jurisdictions across the United States. See
Taylor v. Moutrie-Pelham, 246 P.3d 927, 929-30 (Alaska 2011) (holding, in landlord-
tenant case, that the court has discretion to characterize neither party as prevailing where
each party prevailed on a main issue); Smith v. Mitton, 140 Idaho 893, 903, 104 P.3d 367
(2004) (noting that "[w]hen both parties are partially successful, it is within the court's
discretion to decline an award of attorney fees to either side"); Purcell v. Smith, 23 Misc.
3d 944, 946, 874 N.Y.S.2d 877 (2009) (setting aside cost award in battery case because
both parties partially prevailed, but neither was the prevailing party). Accordingly, we
conclude that when both parties obtain some measure of relief, it is within an arbitrator's
power and discretion to conclude that neither party is entitled to attorney fees under
similar contractual prevailing party provisions.

In support of its argument that the arbitrator was required to declare a prevailing
party, Alliance cites the case of Agnew v. Lacey Co-Ply, 33 Wash. App. 283, 287-88, 654
P.2d 712 (1982). The Agnew case, however, is distinguishable from the present case
9

because one of the parties prevailed on all of its claims. Moreover, Alliance fails to
recognize Morrell, which was decided 26 years after Agnew. In its analysis in Morrell,
the Washington Court of Appeals specifically found that the reasoning in Agnew was
strained because the issue of attorney fees was within the arbitrator’s power to decide—
even if he decided it incorrectly. 143 Wash. App. at 487.

Alliance also points us to a Colorado case, Magenis v. Bruner, 187 P.3d 1222,
1224 (Colo. App. 2008), in support of its argument that the arbitrator exceeded his power.
Once again, Magenis is distinguishable because the arbitrator in that case resolved all
claims in favor of the plaintiff. As such, unlike the present case, there was no question in
Magenis regarding which party prevailed. 187 P.3d at 1223-24; see also Agnew, 33
Wash. App. at 287-88. Here, however, both parties won—at most—one claim and lost on
all other claims.

We pause to note that although the arbitrator found that Moxy technically violated
the contract, Alliance actually failed to prove all of the elements of a breach of contract
claim. In Kansas, "[t]he elements of a breach of contract claim are: (1) the existence of a
contract between the parties; (2) sufficient consideration to support the contract; (3) the
plaintiff's performance or willingness to perform in compliance with the contract; (4) the
defendant's breach of the contract; and (5) damages to the plaintiff caused by the breach."
(Emphasis added.) Stechschulte v. Jennings, 297 Kan. __, __, 298 P.3d 1083 (2013). In
the present case, Alliance failed to prove the damages element. In fact, the arbitrator
specifically found that Alliance suffered no damage as a result of Moxy's technical
violation of the Services Agreement. Thus, it is questionable whether Alliance prevailed
on any of its claims.

In Kansas, K.S.A. 5-412(a) states "the fact that the relief was such that it could not
or would not be granted by a court of law or equity is not ground for vacating or refusing
to confirm [an arbitration] award." Here, in vacating the award, the district court rested its
10

decision—at least in part—on the belief that when faced with a similar provision, it could
not have made the same decision as the arbitrator. Even if that were true, "very odd
arbitration awards [that] might cause cold shivers to go down the spines of reviewing
courts" must be confirmed. Moreland, 44 Kan. App. 2d at 636.

Because we do not find that the arbitrator exceeded his power in requiring each
party to pay its own attorney fees, we conclude that the district court's decision partially
vacating the arbitrator's initial award should be reversed. Furthermore, we remand this
case to the district court with directions to confirm the original arbitration award entered
on November 3, 2011, in its entirety.

Reversed and remanded with directions.