South-Western Legal Studies in Business

Appraisal Clause in Contract Not the Same as Arbitration Clause
Description Appeals court held that a contract that calls for an appraisal to be made of the value of an asset in case of dispute is not the same as an arbitration clause. The appraisal value is incorporated into the terms of the contract; the appraiser does not dictate the legal outcome of the contract dispute.
Topic Contracts
Key Words Choice of Law; Appraisal; Arbitration; Option
C A S E   S U M M A R Y
Facts SLTCP has an option to purchase the Salt Lake Tribune newspaper from MediaNews after five years. Under the agreement, the purchase price would be the fair market value of the newspaper's assets. If the parties could not agree on the price, each side was to appoint an appraiser to determine fair market value. If the appraisers differed by more than ten percent in their estimates, they would jointly select a third appraiser and the price would equal the average of the two closest appraisal values. That process was followed and MPI was hired to do an appraisal. SLTCP did not like the results and sued MPI and MediaNews on numerous grounds. The district court dismissed the suit, holding that MPI was an arbitrator and so immune from suit. SLTCP appealed.
Decision

Reversed. The role of MPI to provide an appraisal is not the same as the role of an arbitrator, so this matter is to be resolved under contract law in court, not by arbitration. The issue is if the appraisal was proper and the contract properly interpreted. Utah courts apply the most significant relationship approach in determining which state's laws should apply to a given circumstance. Resolving choice-of-law issues in contract disputes where there is no choice-of-law provision means the courts consider: 1) the place of contracting; 2) the place of negotiation of the contract; 3) the place of performance; 4) the location of the subject matter of the contract, and 5) the domicile, residence, nationality, place of incorporation and place of business of the parties. Application of these factors means that New Jersey law governs interpretation of the agreement at trial.

Citation Salt Lake Tribune Publishing Co. v. Management Planning, Inc., 390 F.3d 684 (10th Cir., 2005)

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