CONSIDERED ON BRIEFS ON OCTOBER 3, 2016
FROM THE CIRCUIT COURT OF THE FIRST JUDICIAL CIRCUIT
HUTCHINSON COUNTY, SOUTH DAKOTA THE HONORABLE PATRICK T.
T. KONRAD of dinger, Lovald, McCahren, Van Camp & Konrad,
PC Pierre, South Dakota Attorneys for plaintiff and appellee.
R. SWIER MICHAEL A. HENDERSON of Swier Law Firm, Prof. LLC
Avon, South Dakota Attorneys for defendants and appellants.
In this appeal of the circuit court's confirmation of an
arbitration award, we determine whether the arbitrator
exceeded his powers. We affirm.
Thomas Konrad and Myron and Patricia Stoebner entered into a
contract for the sale of real property on December 30, 2002.
They amended that agreement and executed a second contract in
2011 (Contract). Under the Contract, the Stoebners agreed to
sell to Konrad nine parcels of real estate in Hutchinson and
Charles Mix counties. The sales were set to occur on specific
dates over the course of several years. The Contract set
forth the purchase price for each parcel.
After the Stoebners sold Konrad Parcel 8 in January 2014, but
before the parties closed on the sale of the last parcel,
Parcel 7, the Stoebners learned that Konrad had executed a
mortgage on Parcel 8 prior to becoming the record owner of
that parcel. In the Stoebners' view, Konrad's
execution of a mortgage before he owned Parcel 8 constituted
a breach of contract. The Stoebners sent Konrad a notice of
default and refused to close on the sale of Parcel 7, which
was scheduled to occur on January 9, 2015. In response, on
January 9, 2015, Konrad sent the Stoebners a notice of
default for the Stoebners' failure to sell Konrad Parcel
The Contract contains an arbitration clause. On February 10,
2015, Konrad sent the Stoebners a demand for arbitration. In
March 2015, after the Stoebners did not consent to
arbitration, Konrad brought suit in circuit court for
injunctive relief, requesting that the court enter an order
compelling the Stoebners to sell and transfer Parcel 7 to
Konrad. The Stoebners answered and requested that the court
compel arbitration. Konrad did not object, and the parties
retained James McMahon to serve as the arbitrator.
On May 18, 2015, the arbitrator sent the parties a letter
setting forth the agreed-to rules to govern the arbitration.
In particular, the parties agreed that the arbitrator was to
resolve the dispute between the parties and "that the
decision or award of the arbitrator [would] be final."
The parties further agreed that the arbitrator would issue a
written decision. In a subsequent letter, the arbitrator
identified the parties' claims as follows: Konrad alleged
the Stoebners breached the Contract when they refused to
close on the sale of Parcel 7, and the Stoebners alleged that
Konrad breached the Contract when he gave CorTrust Bank a
mortgage on Parcel 8. In the Stoebners' view, the
mortgage constituted a "transfer" as defined by the
Contract, which is an incurable "event of default"
under the Contract.
The arbitrator held a hearing on August 4, 2015. The
arbitrator identified the primary issue to be decided:
"whether a mortgage on Parcel 8, which was given by
Konrad to CorTrust Bank and recorded by CorTrust on January
7, 2014 was an incurable default under the Master
Contract." The arbitrator noted that the evidence
demonstrated that Konrad signed a promissory note, commercial
loan and agreement, and mortgage in favor of CorTrust in
December 2013. The mortgage listed Parcel 8 as collateral.
CorTrust was not to record the mortgage until Konrad closed
on the sale of Parcel 8. (The Stoebners did not dispute that
CorTrust was not to record the mortgage.) CorTrust, however,
mistakenly recorded the mortgage on January 7, 2014, three
days prior to the sale of Parcel 8 to Konrad. After the
closing on Parcel 8, the Stoebners and Konrad learned that
CorTrust recorded the mortgage early. Ultimately, Konrad and
CorTrust executed a partial release of the mortgage. The
Stoebners stipulated that they suffered no harm as a result
of CorTrust recording the mortgage three days early. However,
they argued that Konrad's execution of a mortgage on
Parcel 8 while the Stoebners still owned Parcel 8 constituted
a "transfer" in violation of Section 7.1 D of the
Contract. Konrad, in response, asserted that the execution of
the mortgage did not constitute a transfer because he did not
transfer or intend to transfer his interest in Parcel 8;
CorTrust mistakenly recorded the mortgage.
The arbitrator issued a written decision on August 12, 2015.
The arbitrator identified that Article 7.3 provided that
Konrad did "not have the right to cure any Event of
Default under Sections 7.1 A, 7.1 B, or 7.1 E." There is
no section 7.1 E in the Contract. The arbitrator concluded
that Section 7.3's reference to Section 7.1 E was
"clearly supposed to be 7.1 D." Section 7.1 D
provided that a default occurs when Konrad transfers his
"interest in any Parcel other than in accordance with
the requirements of Article 8." The arbitrator held,
therefore, that "a transfer in violation of 7.1 D would
be incurable." A "Transfer" is defined in
Section 8.1 as "any assignment, conveyance, transfer,
lease, sublease, or mortgage of this Master Contract or any
interest in any Parcel."
Based on his view of the evidence, the arbitrator concluded
that Konrad's execution of a mortgage on Parcel 8 did not
constitute a transfer in violation of 7.1 D. "[T]here is
no question a mortgage was not to be filed on Parcel 8 prior
to the closing. Consequently, Konrad did not transfer or
intend to transfer his interest in Parcel 8 prior to the
closing." In the arbitrator's view, what happened
"was not an Event of Default under the Master Contract
and was not a legitimate basis for the Stoebners to refuse to
transfer Parcel 7 or to invalidate the transfer of Parcel
8." The arbitrator regarded it "[i]llogical to
believe that the language in Article 7.1 D of the Master
Contract was intended to preclude Konrad from obtaining a
loan and giving a mortgage to a lender as he closed on a
parcel." Alternatively, the arbitrator indicated that
even if the Contract could be construed in this manner, it
would have been "unreasonable for Stoebners to refuse a
request by Konrad to give a mortgage to a financing
institution loaning Konrad ...