2011-318, Lebanon Hangar Associates, Ltd. v. City of Lebanon

Schuster, Buttrey & Wing, P.A.

has leased property at the Lebanon Airport from the City, the owner of the

No. 2011-318 Grafton

The arbitrator found, or the record supports, the following facts. LHA

, of Lebanon (Adele M. Fulton

agreement with the defendant, the City of Lebanon. We reverse and remand. decision that the plaintiff was not required to pay taxes under a lease the decision of the Superior Court (Vaughan, J.) vacating an arbitrator’s LYNN, J. The plaintiff, Lebanon Hangar Associates, Ltd. (LHA), appeals

brief and orally), for the defendant. ___________________________ Gardner Fulton & Waugh, P.L.L.C. on the THE SUPREME COURT OF NEW HAMPSHIRE G. Derry on the brief, and Mr. Schuster orally), for the plaintiff.

reporter@courts.state.nh.us to press. Errors may be reported by E-mail at the following address:

editorial errors in order that corrections may be made before the opinion goes Hampshire, One Charles Doe Drive, Concord, New Hampshire 03301, of any Readers are requested to notify the Reporter, Supreme Court of New

page is: http://www.courts.state.nh.us/supreme. a.m. on the morning of their release. The direct address of the court's home

well as formal revision before publication in the New Hampshire Reports. NOTICE: This opinion is subject to motions for rehearing under Rule 22 as concluding that LHA “is not and has not been obligated to pay real estate taxes

p. 2 evidence, the arbitrator issued a second, and final, decision in March 2010,

the meaning of the four corners of the lease agreement. After reviewing the City, which contended that the arbitrator’s authority was limited to deciding next hearing, LHA asserted its reformation argument over the objections of the

serve as the basis for reforming the lease based upon mutual mistake. At the

upon the value of LHA’s leased land, other evidence submitted by LHA could that, while the written lease unambiguously allows the City to assess a tax In April 2009, the arbitrator issued the first of two decisions, concluding

since 1996, and that LHA paid the tax during that time. extrinsic evidence purporting to show that it had taxed LHA on the leased land even if the arbitrator disagreed with its first argument, the City also presented

written lease itself. To support its alternative argument that it should prevail

that requires LHA to pay taxes on the land, the City presented a copy of the

both points. To support its argument that the lease is an integrated agreement did not tax LHA on the leased land. The City presented contrary evidence on “no real estate taxes on City owned land”; and (2) from 1991 to 2006, the City

contemporaneously with the 1991 lease agreement stating that there would be

presented evidence that: (1) the City’s attorney wrote a letter assessing real estate taxes on the land. In support of its argument, LHA arbitration, LHA argued that the lease unambiguously forbids the City from

The parties then proceeded to arbitration. During the first stage of

concerning the controversies arising out of the Lease.” also stated: “[T]he parties shall undertake arbitration of the matters

arranging arbitration to address the controversies arising out [of] the Lease.” It

stated: “The City has . . . requested arbitration and the parties are currently

indicating that they had agreed to proceed to arbitration. The stipulation Thereafter, the parties filed a stipulation with the court in October 2008

settled through arbitration.”

City argued that “if there is a controversy about the lease itself, it must be relating to this lease or the breach thereof shall be settled by arbitration.” The arbitration clause in the lease that states, “Any controversy arising out of or

the lease by demanding the payment of taxes. In response, the City invoked an

subsequently moved to amend its petition to add a claim that the City breached pursuant to RSA 76:17 (2003), to rule that the leasehold is not taxable. LHA requesting an abatement from the City, LHA petitioned the superior court,

taxation from $77,400 in 2005 to $360,400 in 2006. After unsuccessfully

upon the value of the land, thereby increasing the total valuation subject to taxes to the value of the buildings. In October 2006, the City assessed a tax City did not tax LHA on the value of the land itself, limiting its assessment of

. . . lawfully levied or assessed,” between 1991 and the first half of 2006, the land, since 1991. Although the terms of the lease require LHA to pay “taxes intend to arbitrate. See

p. 3 well as the stipulation to the court describing the scope of issues the parties reviewing court to consider both the contract and the arbitral submission, as exceeded his powers. A judicial challenge to arbitral authority requires the

or modify an award on one of several grounds, including that the arbitrator has

allows a party to arbitration to apply to the superior court to confirm, correct, Judicial review of an arbitrator’s decision is limited. RSA 542:8 (2007)

land is taxable under the parties’ lease agreement.

contends that the arbitrator properly resolved the broader issue of whether the

The trial court agreed with the City’s position. LHA, on the other hand, affirmative, the arbitrator lacked power to adjudicate the dispute any further. concluded that the written lease terms answered that question in the

lease terms required LHA to pay taxes on the value of the land; having

the voluntary agreement of the parties. See 3

that the issue submitted to the arbitrator was limited to whether the written authority by reforming the lease based upon mutual mistake. The City argues

authority is a question of contract interpretation, we review that decision de Because the trial court’s conclusion as to the scope of the arbitrator’s

(quotation omitted)). An arbitrator’s jurisdiction over an issue depends upon

(2010). Moreover, an arbitrator’s view of the scope of the issue is entitled to the novo The issue on appeal is whether the arbitrator exceeded the scope of his. Cf. Sabinson v. Trustees of Dartmouth College, 160 N.H. 452, 458

Appeal of Merrimack County II

land. This appeal followed. whether the contracting parties intended to arbitrate a particular dispute. Rochester, 149 N.H. 528, 534 (2003). Accordingly, the overriding concern is U.S.N.H., 129 N.H. 632, 635 (1987); Appeal of Police Comm’n of City of

and to the submission of the issue to the arbitrator to determine his authority.” actually submitted an issue to an arbiter, we must look both to their contract (“Once the parties have gone beyond their promise to arbitrate and have Intern. Broth. Teamsters v. Cargill, Inc., 66 F.3d 988, 991 (8th Cir. 1995)

court, be considered an agreement in writing to submit to arbitration . . . .”); attorneys agree to submit the case to arbitration, shall, upon approval of the for the finding that the written lease terms required payment of taxes on the any civil case pending in the superior court, in which all of the parties or their

superior court agreed with the City and vacated the arbitrator’s decision except to confirm the decision in superior court, and the City moved to vacate it. The first arose – thus rejecting the City’s evidence to the contrary. LHA then moved

did not tax LHA on the value of the land until 2006, when the dispute at issue to the City” under the lease. The arbitrator found, in particular, that the City authority in this case. p. 4 underlying question of whether the City is permitted to impose a tax upon the

We agree with LHA that the arbitrator did not exceed the scope of his the Lease.” Both documents contain broad language encompassing the III

light of other evidence. scope of his authority when he decided that the lease should be reformed in required the payment of taxes on the land, and that the arbitrator exceeded the

undertake arbitration of the matters concerning the controversies arising out of arbitration.” Similarly, the stipulation to arbitrate states that “the parties shall arising out of or relating to this lease or the breach thereof shall be settled by

arbitrator’s authority was limited to whether the terms of the written lease

arbitrator’s authority, the City’s motion is denied as moot.

a broad scope of authority. The written lease states that “[a]ny controversy

the authority to rule as he did. Because we make no judgment about any issue beyond the scope of the confirmed the broad scope of the matters submitted. The City argues that the

necessarily must consider the arbitrator’s actions in the arbitration proceedings to determine whether he had of his authority. While we agree that the merits of the arbitrator’s decision are not before us as such, we only issue on appeal, i.e., whether the trial court correctly determined that the arbitrator exceeded the scope the written lease and the stipulation to arbitrate contain language suggestive of 1 The City filed a motion to strike two portions of LHA’s brief, arguing that they go beyond the scope of the

the Lease”; and (3) the parties’ conduct during the arbitration proceedings agreeing to arbitrate “the matters concerning the controversies arising out of the stipulation agreement submitted to the court stated that the parties were

ultimately decided by the arbitrator. The City apparently recognizes that both stipulation to determine whether the parties intended to resolve the question examine the submission agreement together with the contract and the

relating to this lease or the breach thereof” is to be submitted to arbitration; (2)

John A. Cookson Co. v. New Hampshire Ball Bearings

because: (1) the lease itself provides that “[a]ny controversy arising out of or LHA argues that the arbitrator did not exceed the scope of his authority

Dispute Resolution § 61, at 122 (2007). the policy of deciding disputes by arbitration . . . .” 4 Am. Jur. 2d Alternative not required and submissions are given a liberal construction in furtherance of (2001) (quotations omitted). “Technical precision in making a submission is

allowed in the framing of an award and fashioning of an appropriate remedy.” “In the absence of clearly restrictive language, great latitude must be

contract. Appeal of Merrimack County, 156 N.H. at 40. same deference normally accorded to the arbitrator’s interpretation of the controversy arising out of or relating to the lease or the breach thereof p. 5 superior court against the City, “where the lease agreement requires that any pay taxes; and (3) that LHA breached the agreement when it filed suit in

the lease agreement is integrated; (2) that the lease agreement requires LHA to

accurate. wrote to LHA that the arguments it would make to the arbitrator were: (1) that

rather than the lease agreement 5 implies that the scope of the issue was limited to the terms contained within the four corners of the lease, occurrence will serve to highlight the importance of ensuring that factual references to the record are

in this case – the scope of the arbitrator’s authority. The language in the misquoted versions arguably These erroneous references to the record are troubling because they go to the very heart of the issue reformation of the lease in light of a mutual mistake. In June 2008, the City the land LHA leases from the City.” provided accurate copies of the letters in its appendix, we accept this representation. We hope that this the scope of his authority when he ultimately decided that the facts supported A review of these documents reveals that the arbitrator did not exceed “whether, under the terms of the lease

more generally, as “whether the City is permitted under the Lease to impose real estate taxes on the value of Based on the fact that the City accurately described the content of the letters elsewhere in its brief and represents that these erroneous quotations were done inadvertently and without any intent to mislead. stipulation filed with the court. In a motion for reconsideration filed with this court after this opinion was issued, counsel for the City expressly narrower than that contained in the written lease agreement or the Similarly, the City quotes the September 2008 letter from LHA to the City as formulating the issue as. discern with confidence that the issue submitted to the arbitrator was

the City.” real estate taxes for the City land leased to LHA.” (Emphasis in original.) In fact, that letter states the issue, the Lease to impose real estate taxes on the value of the land LHA leases from, the parties agreed that the City could assess and impose upon LHA issue to be presented to the arbitrator is “whether the City is permitted under “the lease agreement requires [LHA] to pay all taxes . . . on the leased premises and property it owns.” lease.” (Emphasis in original.) In fact, that letter states that the City intended to argue, more generally, that as stating that the issue was “whether LHA is liable for taxes on the leased land based on the terms of the 3 We note here that the City’s brief misquotes both letters. The City quotes its own June 2008 letter to LHA arbitrators in order to outline the dispute and the desired arbitration procedures”). Bacon, 562 F.3d 349, 351 (5th Cir. 2009) (“a document executed by both parties and presented to the bound.” 4 Am. Jur. 2d Alternative Dispute Resolution § 61, at 122; see Citigroup Global Markets, Inc. v. rights and duties by referring the disputed matters to a third party, by whose decision they agree to be 2 A submission agreement “is a contract, whereby two or more parties agree to settle their respective legal not create an integrated written submission agreement from which we might

3 And, in November 2008, after a conference call discussing the

issue submitted in light of an earlier conference call. and one from the arbitrator to the parties stating his understanding of the settled by arbitration.” In September 2008, LHA wrote to the City that the contained in three letters in the record: two between the parties themselves shall be

At the outset, it is important to observe that the parties to this case did

written lease.

only evidence regarding the scope of issues submitted to the arbitrator is

asked, in the parties’ “submission agreement,” to construe the terms of the value of the land. The City nonetheless contends that the arbitrator was only interpretation of [the contract].” Appeal of Merrimack County p. 6 entitled to the same deference normally accorded to the arbitrator’s evidence would be allowed.” His interpretation of the scope of his authority “is

the arbitrator describe the issue as whether the City is permitted under the upon the fact that there was an issue at the outset “of whether extrinsic

both the September 2008 letter from LHA and the November 2008 letter from “general explanation from counsel” about the submitted issue, and in part interpretation in part on the fact that he was relying in that letter upon a other evidence or remedy relating to the lease.” The arbitrator based that

tax upon the land – the arbitrator addressed that issue directly. Similarly, 1991 letter from the City attorney advising that LHA would not be assessed a during which the City assessed taxes on the buildings but not the land and a that he would consider “only the existing language of the lease and . . . no

agreement in light of the other evidence – including fifteen subsequent years authority, the arbitrator stated at a later hearing that he did not mean to imply November 2008 letter explaining his understanding of the scope of his Moreover, to the extent the City rests its position upon the arbitrator’s

to the 1991 contract had made a mistake as to the terms of the written to pay real estate taxes on the value of the land. By concluding that the parties lease agreement” – not the four corners of the written contract – requires LHA

agreement. See 6 the agreement between the parties, not merely the written embodiment of that document, such a construction is inconsistent with the definition of a lease as the power to allow LHA to present its evidence as an argument for the equitable

authority. The June 2008 letter from the City frames the issue as whether “the integral part of, his duty of interpreting the meaning of the lease.

thus limiting the arbitrator’s authority to reviewing the four corners of the It is of no moment that the arbitrator entertained doubts about whether he had

argument that the arbitrator’s ultimate decision – that a mutual mistake reformed because of a mutual mistake was not separate from, but rather an arbitration clause would allow, the above exchanges do not support the City’s other words, the arbitrator’s decision to consider whether the lease should be right to use and occupy the property in exchange for consideration . . . .”). In

implies that a “lease” or “lease agreement” refers only to the written contract,

a narrower scope of issues to arbitration than that which the contractual “lease” as a “contract by which a rightful possessor of real property conveys the

, e.g., Black’s Law Dictionary 970 (9th ed. 2009) (defining

decision directly answers that question in the negative. Insofar as the City now lease to impose real estate taxes on the value of the land; the arbitrator’s final

While it is true, as the City contends, that the parties may freely submit

tax LHA for the use of City land.”

the issue to be “whether the lease between [LHA and the City] allows the City to arbitration, the arbitrator wrote to the parties, explaining that he understood or equity.” 4 Am. Jur. 2d Alternative Dispute Resolution p. 7 the case regardless of whether the remedy could [be] ordered by a court in law

“arbitrators are free to fashion forms of relief to suit the facts and equities of In addition, ample authority supports the general proposition that

extrinsic evidence.

the 1991 written lease, there would have been no need to present such

issue submitted to the arbitrator was limited to interpreting the four corners of

rejected based upon other evidence. Had the City actually believed that the between 1996 and 2006 – an assertion the arbitrator considered and expressly the land, including an assertion that LHA had in fact paid taxes on the land

proceeding.”). Any doubts held by a reviewing court concerning what the

can finally resolve their differences in an expeditious and economical

narrow set of circumstances. See

interpretation of the four corners of the lease agreement. The City itself argued parties did not understand that the issue to be arbitrated was limited to The parties’ conduct at the arbitration proceedings also confirms that the

arbitration is to provide an alternative procedure whereby two or more parties Nationwide Mut. Ins. Co., 383 A.2d 597, 599 (R.I. 1978) (“The whole purpose of

expeditiously, and that an arbitrator’s decision is therefore reviewable only in a we reaffirm that the primary purpose of arbitration is to resolve disputes concluding that the evidence supported the equitable remedy of reformation, By holding that the arbitrator did not exceed the scope of his authority in

parties.”). mistake, “an arbitrator may reform the contract to reflect the true intent of the (emphasis added); see also id. at 439 (In the “limited circumstance” of a mutual Elkouri & Elkouri, How Arbitration Works 1229 (Ruben ed., 6th ed. 2003) is well established and has been consistently recognized by arbitrators.” treatise: “The remedy of reformation to correct a mutual mistake in a contract interpretation of the written lease misses the mark. As noted in a prominent light of a mutual mistake is a different issue than the legal question about the regard, the trial court’s conclusion that the equitable remedy of reformation in

submission.” (citations and quotations omitted)). and must be upheld so long as it is rationally derived from the parties’ of the scope of the issue submitted to him is to be treated with great deference,

a reviewing court. See understanding of the scope of his authority that must be accorded deference by strayed from the question submitted, it is the arbitrator’s ultimate

332 (1st Cir. 2000) (“As other courts have noted, the arbitrator’s interpretation

agreement from which we might discern that the arbitrator impermissibly remedy of reformation; especially in the absence of a written submission p. 8 8

.

DALIANIS, C.J.