Salt Lake Tribune Publishing Co. v. Management Planning, Inc.
2004 U.S. App. LEXIS 24701, 2004 WL 2712611, 390 F.3d 684 (2004)
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Rule of Law:
For a dispute resolution process to constitute an "arbitration" under the Federal Arbitration Act (FAA), it must be structured so that the third party's decision is intended to definitively settle the dispute between the parties. A process that merely provides a data point, such as an appraisal value that may or may not be used in the final calculation, does not qualify as an arbitration.
Facts:
- Shareholders of the Kearns-Tribune Corporation sold the company, which owned The Salt Lake Tribune newspaper, to a predecessor of MediaNews Group, Inc.
- The former shareholders formed Salt Lake Tribune Publishing Company, LLC (SLTPC) and acquired an option to repurchase the newspaper from MediaNews after five years under an 'Option Agreement'.
- The Option Agreement set the repurchase price at the newspaper's 'Fair Market Value' and provided a specific process if the parties could not agree on this value.
- The process required each party to appoint an appraiser; if their valuations differed by more than 10%, they would jointly select a third appraiser.
- The final exercise price would then be calculated as the average of the two closest of the three appraisals.
- After negotiations to set a price failed, SLTPC's appraiser valued the newspaper at $218 million, while MediaNews's appraiser valued it at $380 million, a difference exceeding 10%.
- The parties jointly selected Management Planning, Inc. (MPI) as the third appraiser and entered into an 'Appraisal Agreement' for its services.
- MPI issued a final report valuing the newspaper's assets at $331 million.
Procedural Posture:
- SLTPC sued MediaNews and MPI in the U.S. District Court for the District of Utah.
- SLTPC sought, among other things, a declaration that MPI's appraisal was invalid and damages from MPI.
- In an order on motions to dismiss, the district court concluded that MPI’s appraisal constituted an arbitration within the meaning of the FAA.
- SLTPC subsequently filed a motion to vacate the appraisal as an 'arbitration award' under the FAA.
- The district court denied SLTPC's motion to vacate.
- The district court then granted the defendants' motion to dismiss all of SLTPC's claims, reasoning that MPI, as an arbitrator, was entitled to immunity from civil liability.
- SLTPC, the appellant, appealed the dismissal to the U.S. Court of Appeals for the Tenth Circuit.
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Issue:
Does a contractual appraisal process constitute an 'arbitration' within the meaning of the Federal Arbitration Act when the appraiser's valuation does not definitively resolve the dispute but instead provides a value that may or may not be used to calculate a final price?
Opinions:
Majority - Lucero, Circuit Judge
No, the appraisal process did not constitute an arbitration. For a process to be considered an arbitration under the Federal Arbitration Act (FAA), its central feature must be that a third party is empowered to render a decision that definitively settles the dispute. The court first established that the definition of 'arbitration' under the FAA is a matter of federal, not state, law to ensure national uniformity. The court reasoned that the essence of arbitration is finality. In this case, MPI’s appraisal did not settle the dispute; it merely provided a data point. Under the Option Agreement's formula, a scenario existed where MPI's valuation could be disregarded entirely if the party appraisers' values were closer to each other. Furthermore, the parties' agreements and conduct did not demonstrate an intent to engage in arbitration, as they never used the term 'arbitration' and even contemplated seeking court guidance if conflicts arose. Therefore, the process was a contractual appraisal, not an arbitration, and MPI was not entitled to arbitral immunity.
Analysis:
This decision clarifies the distinction between appraisal and arbitration under the Federal Arbitration Act, emphasizing that the label used by the parties is not dispositive. By establishing that a mechanism must provide a definitive settlement to be considered arbitration, the court narrows the scope of the FAA. This prevents parties from retroactively seeking the benefits of arbitration, such as limited judicial review and arbitral immunity, for processes that were merely intended to provide valuation or expert analysis. The ruling reinforces that arbitration is a matter of contract and clear intent, ensuring that the highly deferential standards of the FAA are applied only to processes that truly function as a substitute for litigation.
