Stephen Skalnek v. Richard Skalnek ( 2017 )


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  •                            STATE OF MICHIGAN
    COURT OF APPEALS
    STEPHEN SKALNEK, and                                              UNPUBLISHED
    SKALNEK FORD INC.,                                                October 26, 2017
    Plaintiffs-Appellees,
    v                                                                 No. 333085
    Oakland Circuit Court
    RICHARD SKALNEK, and                                              LC No. 2016-152352-CB
    CLEAN CARS COMPANY INC.,
    Defendants-Appellants,
    and
    CLEAN CARS FINANCE COMPANY INC.,
    Defendant.
    Before: SHAPIRO, P.J., and HOEKSTRA and M. J. KELLY, JJ.
    PER CURIAM.
    In this action alleging shareholder oppression, defendants appeal from the trial court’s
    order denying summary disposition pursuant to MCR 2.116(C)(7) (claim is subject to an
    agreement to arbitrate). Because the parties’ agreement did not provide for mandatory
    arbitration, we affirm the trial court’s order granting summary disposition. 1
    1
    This Court reviews de novo a lower court’s decision on a motion for summary disposition,
    Cuddington v United Health Servs, Inc, 
    298 Mich. App. 264
    , 270; 826 NW2d 519 (2012).
    Additionally, the existence and enforceability of an arbitration agreement is a question of law
    that this Court determines de novo. Michelson v Voison, 
    254 Mich. App. 691
    , 693-694; 658
    NW2d 188 (2003).
    -1-
    Plaintiff Stephen and Defendant Richard are brothers and the sole shareholders, officers,
    and directors of plaintiff Skalnek Ford, Inc.,2 which was founded by the parties’ parents in the
    mid-1960s. Both parties began working in the dealership as young teenagers. When the parties’
    parents retired from the business in 1995, they transferred the stock owned by them to Stephen
    and Richard. At the time of the transfer, Richard owned 7,201 shares and Stephen owned 6,199
    shares. In 2002, a stock certificate was issued to the parties, through their trust, giving Richard
    16,001 shares (50.003% of the company), and Stephen 15,999 shares (49.997% of the company).
    In 2008, a dispute arose between the parties which resulted in filing of a lawsuit by
    Stephen. While the lawsuit was pending, the parties entered into an agreement in August 2010
    titled, “Agreement regarding retention by Skalnek Ford, Inc. of third party to resolve certain
    disputes” (hereinafter, “Dispute resolution agreement). The dispute resolution agreement
    provides in relevant parts as follows:
    1. Retention of Robert Weller. The parties agree that Robert Weller will
    be retained by Skalnek Ford, Inc. (“SFI” or the “Company”) as the initial third
    party to assist the Parties in resolving certain disputes in the event that the Parties
    are unable to agree on important issues affecting SFI or the Parties’ interests as
    shareholders or employees.
    2. Submission of dispute. Either party may submit a dispute for resolution
    by Weller or subsequently-named third party only after the party had made a good
    faith effort to resolve the dispute with the other party. The dispute must be
    submitted to the third party in writing with a copy delivered contemporaneously
    to the other party either by hand-delivery or mail.
    3. Facilitation or Determination of outcome. Weller or subsequently-
    named third party is empowered to resolve the dispute either through facilitating a
    resolution or, if necessary, determining how the dispute will be resolved.
    Paragraph 6 of the dispute resolution agreement gave the parties the right to appeal Weller’s
    decision through binding arbitration and provides as follows:
    Right to Appeal. If Weller, or subsequently-named third party, determines
    the outcome of the dispute, the decision can be appealed through binding
    arbitration. The appeal must be initiated within three (3) business days of each
    party having received the decision by sending to Weller or subsequently named
    third party and the other party a Notice of Appeal which is to be hand-delivered or
    sent by e-mail. The arbitration will be conducted by a single arbitrator in a
    private arbitration proceeding and will be completed in thirty (30) days of the
    appointment of the arbitrator unless a longer time is agreed to by the parties. The
    cost of the arbitrator will be the responsibility of SFI unless other directed by the
    2
    Skalnek Ford, Inc. operates as a Ford Motor company authorized dealership engaged in the
    business of automobile sales and services.
    -2-
    arbitrator in the arbitration award and the arbitrator may award sanctions in
    accordance with paragraph 5 of this Agreement. The arbitrator will be chosen as
    follows:
    (a) The party seeking the appeal will submit the manes of three proposed
    arbitrators to the other party at the same time the notice of the appeal is provided.
    (b) The other party may either accept one of the arbitrators, or submit his
    own list if three arbitrators within two (2) business days. If the other party does
    neither, Weller or subsequently-named third party will choose the arbitrator from
    the three proposed arbitrators submitted by the appealing party.
    (c) If an alternative list is provided by the other party within two (2)
    business days, each party will rank all six (6) arbitrators and submit the ranking to
    Weller. The arbitrator with the lowest composite score will be deemed chosen.
    In the event of a tie, Weller or subsequently-named third-party will choose the
    arbitrator from the two persons receiving a tied vote.
    Thereafter, the issues in the pending lawsuit were referred to arbitration resulting in a partial
    award, followed by a final arbitration award, which was confirmed by the circuit court.
    Stephen alleged that after he filed suit in 2008, Richard refused to speak with him or
    include him in management meetings, ostracized him, “repeatedly sought to take advantage of
    virtually any opportunity to benefit himself financially at Stephen’s expense,” and engaged in
    conduct that violated his rights at the business, contrary to the arbitration award. He stated that
    he was then compelled to file a Notice of Dispute (NOD), where the issues were submitted to
    Weller for resolution. According to Stephen, even after Weller issued his rulings, Richard
    routinely violated the rulings and used his two-share majority in the company to abuse Stephen.
    In 2016, Stephen, individually and derivatively in the name of Skalnek Ford, Inc., filed a
    six count-complaint against defendants alleging shareholder oppression, breach of fiduciary
    duties, unjust enrichment, and usurpation of corporate opportunity. Plaintiffs asked the court to
    issue a preliminary and permanent injunction against defendants, and to enter a declaratory
    judgement for damages and equitable relief, plus costs and attorney fees. Stephen asked the
    court to order Richard to purchase his shares in Skalnek Ford, Inc. at fair value.
    Defendants moved for summary disposition pursuant to MCR 2.116(C)(7) asking the
    court to dismiss plaintiffs’ claim and to compel arbitration. Defendants asserted that the parties’
    dispute resolution agreement established a two-step arbitration process, which compelled
    arbitration in situations where the disputes arose out of the parties’ status as shareholders or
    employees of Skalnek Ford, Inc. According to defendant, the allegations contained in plaintiffs’
    complaint show that the dispute was subject to mandatory arbitration. In response, plaintiffs
    argued that the plain language of the dispute resolution agreement established that the process
    was not mandatory as demonstrated by the use of the word “may.” The trial court agreed and
    denied defendant’s motion for summary disposition.
    The trial court correctly held that the parties’ dispute resolution agreement was
    discretionary. The interpretation of the dispute resolution agreement is controlled by principles
    -3-
    of contract interpretation. “ ‘Arbitration is a matter of contract.’ ” Altobelli v Hartmann, 
    499 Mich. 284
    , 295; 884 NW2d 537 (2016) (citation omitted). Therefore, this Court must apply
    contract interpretation legal principles when interpreting an arbitration agreement. 
    Id. The “primary
    task in construing a contract is to give effect to the parties’ intentions at the time they
    entered into the contract, which requires an examination of the language of the contract
    according to its plain and ordinary meaning.” Beck v Park West Galleries, Inc, 
    499 Mich. 40
    , 45-
    46; 878 NW2d 804 (2016). “The existence of an arbitration contract and enforceability of its
    terms are judicial questions that cannot be decided by the arbitrator.” Huntington Woods v Ajax
    Paving Indus, Inc (After Remand), 
    196 Mich. App. 71
    , 74; 492 NW2d 463 (1992).3
    In the instant case, defendant argues that paragraph 2 of the parties’ dispute resolution
    agreement constitutes a mandatory arbitration provision. Paragraph 2 provides as follows:
    2. Submission of dispute. Either party may submit a dispute for resolution
    by Weller or subsequently-named third party only after the party had made a good
    faith effort to resolve the dispute with the other party. The dispute must be
    submitted to the third party in writing with a copy delivered contemporaneously
    to the other party either by hand-delivery or mail.
    Although the trial court and the parties treated this provision as an agreement to arbitrate,
    it is questionable whether this provision really constitutes an agreement to arbitrate as it lacks all
    the terms and structure of an arbitration agreement. Paragraphs 1-3 do not use the term
    arbitration. Instead, they refer to using Weller “to assist the parties in resolving certain disputes”
    and that he is “empowered to resolve the dispute either through facilitating a resolution or, if
    necessary, determining how the dispute will be resolved.” The only phrase in these paragraphs
    that suggest that Weller may conduct arbitration is the reference to “determining how the dispute
    will be resolved.”4 It is not even clear whether this empowered Weller to resolve the dispute and
    bind the parties to his resolution or merely to define a means of reaching resolution. Notably,
    arbitration is not mentioned until paragraph 6 which concerns the “appeal” of any decision by
    Weller. The only arbitration provision in the agreement is paragraph 6, the right-to-appeal
    provision. The use of the word “arbitration” in paragraph 6 shows that the parties knew what
    3
    Generally, “[a]n agreement contained in a record to submit to arbitration any existing or
    subsequent controversy arising between the parties to agreement is valid, enforceable, and
    irrevocable except on a ground that exists at law or in equity for the revocation of a contract.”
    MCL 691.1686(1). “The court shall decide whether an agreement to arbitrate exists or a
    controversy is subject to an agreement to arbitrate.” MCL 691.1686(2). On a motion to enforce
    an agreement to arbitrate, the trial court must, in the event a party opposes arbitration, order
    arbitration “unless it finds that there is no enforceable agreement to arbitrate.” MCL
    691.1687(1)(b).
    4
    Paragraph 3 of the parties’ dispute resolution agreement states that “Weller or subsequently
    named third party is empowered to resolve the dispute either through facilitation or, if necessary,
    determining how the dispute will be resolved.”
    -4-
    arbitration was, including the procedure; and could have used the terminology in paragraphs 1-35
    had they wished to define Weller’s role as that of an arbitrator.
    Moreover, to the degree the agreement provides for Weller to resolve disputes, its
    language demonstrates an intention to make the dispute resolution process permissive and not
    mandatory. First, the agreement stated that either party “may” submit a dispute for resolution
    regarding “important issues affecting [Skalnek Ford, Inc.] or the Parties’ interest as shareholders
    or employees.” A review of the parties’ pleadings leaves no doubt that the dispute between the
    parties involves important issues affecting Skalnek Ford, Inc. and the parties’ interests as
    shareholders and employees. Generally, the word “may” is “permissive rather than mandatory in
    contrast to the word ‘shall’ ” Perkovic v Zurich American Ins Co, 
    500 Mich. 44
    , 61-62; 893
    NW2d 322 (2017). Moreover, paragraph 2 demonstrates that the parties understood the
    difference between mandatory and permissive language as it provides that if either party choose
    to submit their dispute to Weller or a subsequently-named individual, that party “must” follow
    the procedure outlined in the preceding paragraph. According to the agreement, “[t]he dispute
    must be submitted to the third party in writing with a copy delivered contemporaneously to the
    other party either by hand-delivery or email.” The use of the word “may” in the context of
    submission of the dispute to arbitration, and the word “must” for the process of submission of the
    dispute, strongly supports the view that the arbitration provision is permissive.
    In the context of statutory interpretation, this Court has held that generally, “the word
    ‘may’ will not be treated as a word of command unless there is something in the context or
    subject matter of the act to indicate that it was used in such a sense.” Mill Creek Coalition v
    South Branch of Mill Creek Intercounty Drainage Dist, 
    210 Mich. App. 559
    , 565; 534 NW2d 168
    (1995) (interpreting the Drain Code, MCL 280.122). This reasoning if applied to this context
    lends support to the conclusion that the parties intended the dispute resolution provision to be
    permissive. For instance, the parties’ agreement created a two-step dispute resolution process.
    The first step involves submission of the dispute to “Weller or a subsequently-named third party”
    for resolution. The agreement then provides a right-to-appeal provision from Weller or the third
    party’s decision. Not only is this two-step dispute resolution process unusual, it also goes
    against the strong public policy in favor of arbitration as a simple expeditious means of resolving
    disputes. Rooyakker & Sitz, PLLC v Plante & Moran, PLLC, 
    276 Mich. App. 146
    , 163; 742
    NW2d 409 (2007) (citation omitted). A determination that the provision is mandatory would
    compel the parties to seek resolution with Weller’s assistance and then appeal his “decision” if
    the unsuccessful party is dissatisfied with it, before recourse to court.
    5
    Having said that, it is important to note that plaintiff has not explicitly argued that the
    agreement does not provide for arbitration agreement. At the trial court, plaintiff argued it was a
    non-mandatory arbitration agreement. On appeal, plaintiffs refer to the agreement as an “open-
    ended process that does not have the necessary structure of arbitration, with all the specifics and
    procedural aspects provided by statute.”
    -5-
    Defendants rely primarily on this Court’s decision in Mollett v Taylor, 
    197 Mich. App. 328
    ; 494 NW2d 832 (1992), to argue that the word “may” in arbitration provisions should be
    construed as requiring arbitration. However, Mollet is readily distinguishable from the present
    case. In Mollett, the plaintiff, a former municipal firefighter, filed a constructive discharge
    lawsuit against defendant without pursuing administrative remedies available to him under the
    governing collective bargaining act or under the police and civil service act, MCL 38.501 et seq.
    
    Id. at 329.
    Section 14 of the civil service act provides in relevant part that:
    If the removing officer fails to make charges to the satisfaction of a
    member or members of a fire department in a city, village, or municipality, the
    member or members of the fire or police department may present the information
    to the civil service commission. [MCL 38.514(14)(1) (emphasis added).]
    The trial court dismissed the plaintiff’s claims holding that he was required to exhaust his
    administrative remedies under the act and the collective bargaining agreement before filing an
    action in the circuit court. 
    Mollett, 197 Mich. App. at 332
    . On appeal, plaintiff argued that the
    use of the word “may” in the statute meant that he could file his claim with the civil service
    commission or “proceed directly to the circuit court.” 
    Id. at 339.
    However, the Mollet decision
    rested on the well-settled principle that in civil service cases a plaintiff is required to exhaust
    administrative remedies, whatever they may be. This is mandated by MCL 24.301,6 and Mollet
    cited many cases that confirmed the need to exhaust administrative remedies in the context of
    action by a government agency. Given that by statute an aggrieved party must exhaust
    administrative remedies, the Mollet Court properly concluded that the use of “may” in MCL
    38.514(14)(1) meant that that “a discharged employee may present a claim to the civil service
    commission or choose to do nothing at all.” 
    Mollett, 197 Mich. App. at 339
    .
    Defendants briefly refer to out-of-state and federal cases. As the issue before us is to be
    determined by Michigan contract law, we are not bound by federal caselaw. Travelers Prop Cas
    Co of America v Peaker Servs, Inc, 
    306 Mich. App. 178
    , 188; 855 NW2d 523 (2014) (citation
    omitted) (stating that caselaw from sister states and federal courts are not binding but may be
    considered persuasive authority). Nevertheless, we have considered them and they do not lead
    us to a different result.
    6
    MCL 24.301 reads in pertinent part:
    When a person has exhausted all administrative remedies available within
    an agency, and is aggrieved by a final decision or order in a contested case,
    whether such decision or order is affirmative or negative in form, the decision or
    order is subject to direct review by the courts as provided by law. Exhaustion of
    administrative remedies does not require the filing of a motion or application for
    rehearing or reconsideration unless the agency rules require the filing before
    judicial review is sought.
    -6-
    Several of the cases such as Bonnot v Congress of Independent Unions, Local No, 14, 331
    F 2d 355, 359 (CA 8, 1964), Deaton Truck Line v Local Union 612, 314 F 2d 418, 422 (CA 5,
    1962), and Local 771 IATSE, AFL-CIO v RKO General, 546 F 2d 1107, 1116 (CA 2, 1977)
    involve collective bargaining agreements. We do not find them instructive because collective
    bargaining agreements are specialized documents that are obtained through legally defined
    negotiation processes. Alarcon v Fabricon Prods, Div of Eagle-Picher Co, 
    5 Mich. App. 25
    , 33;
    145 NW2d 816 (1966) (recognizing that collective bargaining agreements are unique and a class
    of its own). Moreover, underlying collective bargaining agreements are the duties of a union to
    its members. See Goolsby v Detroit, 
    419 Mich. 651
    ; 358 NW2d 856 (1984); Republic Steel Corp
    v Maddox, 
    379 U.S. 650
    , 653; 
    85 S. Ct. 614
    ; 
    13 L. Ed. 2d 580
    (1965) (stating that the union’s
    interest in prosecuting employees grievances “complements [its] status as exclusive bargaining
    representative by permitting it to participate actively in the continuing administration of the
    contract” and enhances its “prestige with employees”). The interpretation of collective
    bargaining agreements does not assist us with determining the parties’ intent in the instant
    setting.
    More generally, the cited cases, with one exception, turn on contracts that specifically
    define arbitration as the dispute resolution mechanism and many of these refer to statutory
    mechanisms or the rules of the American Arbitration Association. Others contain provisions or
    are subject to statutes requiring exhaustion of administrative remedies. As noted above, the
    contractual language in this case does not require exhaustion of administrative remedies and does
    not define Weller’s role as that of an arbitrator.7
    We conclude that the contract before us does not mandate arbitration and that, as the trial
    court concluded, plaintiffs were free to file suit. We emphasize however, that we are not setting
    forth a broad rule that “may” in an arbitration agreement is permissive. Rather, we are
    addressing the question in the context of the unique language of the subject contract.
    Affirmed. As prevailing party, plaintiff may tax costs. MCR 7.219A.
    /s/ Douglas B. Shapiro
    /s/ Joel P. Hoekstra
    /s/ Michael J. Kelly
    7
    The one exception is TM Delmarva Power, LLC v NCP of Virginia, LLC, 263 Va 116,123; 557
    SE2d 199 (2002), where the Virginia Supreme Court in a 4-3 decision considered a contract
    similar to the one before us and concluded that it provided for mandatory arbitration. We agree
    with the dissenting Justices in that case, who noted that “the parties were not subject to a
    collective bargaining agreement or any other separate agreement or clause requiring that dispute
    resolution mechanisms be exhausted prior to litigation. . . . The contract, as written . . . did not
    limit any party’s access to the courts.” 
    Id. at 124.
    -7-
    

Document Info

Docket Number: 333085

Filed Date: 10/26/2017

Precedential Status: Non-Precedential

Modified Date: 10/30/2017