                    United States Court of Appeals
                          FOR THE EIGHTH CIRCUIT
                                    ___________

                                    No. 06-1777
                                    ___________

Twin Cities Galleries, LLC, Larry        *
J. Digiovanni, Susan M. Digiovanni,      *
                                         *
            Plaintiffs/Appellees,        *
                                         *
      v.                                 *
                                         *
Media Arts Group, Inc., Lightpost        *
Publishing, Inc., Magi Sales, Inc.,      *
Richard F. Barnett, Thomas Kinkade,      *   Appeal from the United States
Kenneth E. Raasch,                       *   District Court for the
                                         *   District of Minnesota.
            Defendants/Appellants,       *
                                         *
Pebble Beach Financial Services, Inc.,   *
Bud Petersen, Bob Martin, Craig          *
Fleming, John R. Lackner, Anthony        *
D. Thomopoulos,                          *
                                         *
            Defendants.                  *

                                    ___________

                            Submitted: October 18, 2006
                               Filed: February 9, 2007
                                ___________

Before SMITH, BOWMAN, and COLLOTON, Circuit Judges.
                           ___________

COLLOTON, Circuit Judge.
       Media Arts Group, Inc., and several affiliated parties (collectively, “Media
Arts”) appeal the district court’s order vacating an arbitration award. The arbitrator
dismissed claims made under the Minnesota Franchise Act against Media Arts by
Twin Cities Galleries, LLC, and Larry and Susan DiGiovanni. The district court
concluded that the panel’s decision violated Minnesota’s fundamental public policy
of protecting its franchisees, and granted a motion to vacate the arbitrator’s award.
The court directed that the claims under the Minnesota Franchise Act be submitted to
the arbitrator for decision. We reverse and remand with directions to confirm the
arbitrator’s final award.

                                          I.

        Between 1998 and 2002, Twin Cities Galleries, LLC, and the DiGiovannis
owned and operated four galleries featuring the art of Thomas Kinkade, a prominent
artist from California. For each gallery, the DiGiovannis and Twin Cities entered into
“Dealer Agreements” with Media Arts Group, Inc., the exclusive manufacturer,
marketer, and distributor of reproductions of Kinkade’s original art. These
agreements bound Twin Cities to purchase a minimum inventory for each of the
galleries.

       By 2002, the galleries had failed to generate the anticipated earnings, and Twin
Cities fell behind in paying for inventory. Twin Cities and the DiGiovannis then sued
Media Arts in federal court, alleging that they were fraudulently induced to open the
galleries. The complaint asserted that the relationship between Twin Cities and Media
Arts was an unregistered franchise, and that Twin Cities, as a purported franchisee,
was entitled to the protections of the Minnesota Franchise Act (“MFA”).

       In September 2002, Media Arts commenced binding arbitration proceedings
pursuant to the Dealer Agreements, and Twin Cities submitted its claims to the
arbitration tribunal. The arbitration panel dismissed Twin Cities’ claims under the

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MFA, concluding that California law applied to the parties’ relationship. On February
22, 2005, the panel denied all of Twin Cities’ claims, including those made under the
California Franchise Investment Law (“CFIL”). The panel found that Twin Cities and
the DiGiovannis had not paid a “franchise fee” under the CFIL, and that the
relationship was thus not subject to the provisions of the statute. On May 3, 2005, the
panel issued a final award in favor of Media Arts.

        Twin Cities moved in the district court to vacate the award, and Media Arts
moved to confirm it. The district court vacated the award on the ground that it
violated Minnesota’s fundamental public policy of protecting its franchisees. The
court reasoned that the Minnesota Franchise Act prohibits a franchisee from waiving
its rights under the statute, see Minn. Stat. § 80C.21, and that applying California law
to the parties’ relationship effected a waiver of Twin Cities’ rights. Believing that the
Minnesota Franchise Act established “an explicit, well defined, and dominant public
policy to protect Minnesota franchisees,” the court concluded that the parties’
agreement to apply California law violated Minnesota’s public policy. (Add. at 13).
Accordingly, the district court decided that the arbitration panel could not give effect
to the parties’ choice of California law without violating a fundamental public policy
of Minnesota. On this basis, the court vacated the arbitration award and directed that
the matter be returned for the arbitrator for a decision on Twin Cities’ claims under
the MFA.

                                           II.

       The Federal Arbitration Act authorizes a district court to vacate an arbitration
award in four limited circumstances. 9 U.S.C. § 10(a). In addition, however, we have
said that an award may be vacated on the non-statutory basis that it is contrary to a
“well-defined and dominant” public policy embodied in laws and judicial precedent.
PaineWebber, Inc. v. Agron, 49 F.3d 347, 350 (8th Cir. 1995). We have relied on the
Supreme Court’s observation in United Paperworkers Int’l Union, AFL-CIO v. Misco,

                                          -3-
Inc., 484 U.S. 29 (1987), that this exception to the enforcement of arbitral awards is
a “specific application of the more general doctrine, rooted in the common law, that
a court may refuse to enforce contracts that violate law or public policy.” Id. at 42;
see also W.R. Grace Co. v. Local Union 759, Int’l Union of United Rubber, Cork,
Linoleum and Plastic Workers, 461 U.S. 757, 766 (1983). In considering a district
court’s refusal to enforce an arbitral award, we review the court’s legal conclusions
de novo, and accept the facts as found by the arbitration panel. Iowa Elec. Light &
Power Co. v. Local Union 204 of IBEW, 834 F.2d 1424, 1427 (8th Cir. 1987).

       The parties dispute whether the “public policy exception” to enforcement of
arbitral awards applies in a situation where the arbitration panel itself considered the
public policies of Minnesota and California in determining which State’s law should
apply to the issues before it. Assuming for the sake of argument that a public policy
of Minnesota may potentially override the arbitration panel’s choice-of-law decision,
the public policy exception will apply only if the application of California law is
contrary to a fundamental public policy of Minnesota. To make this showing, Twin
Cities must demonstrate, at a minimum, that California law is materially different
from Minnesota law, such that the arbitrator’s use of California law actually
undermined the asserted Minnesota public policy to protect franchisees. See Tele-
Save Merch. Co. v. Consumers Distrib. Co., Ltd., 814 F.2d 1120, 1123 (6th Cir. 1987)
(holding that party invoking public policy exception must show “that there are
significant differences in the application of the law of the two states”). We conclude
that no such difference exists.

       For a relationship to be governed by franchise law, both States require that a
distributor pay a “franchise fee.” See Minn. Stat. § 80C.01(4)(a)(1)(iii); Cal. Corp.
Code § 31005(a)(3). Media Arts argues that Twin Cities has failed to make the
threshold showing that it paid a “franchise fee,” so it is immaterial that the MFA
provides broader remedies for franchisees than does the California statute. If the
inquiry concerning what is a “franchise fee” is identical under Minnesota and

                                          -4-
California law, then the arbitration panel’s finding that the distributorship was not a
franchise under California law would dictate the same result under Minnesota law, and
it would preclude a finding that the application of California law frustrated a
fundamental policy of Minnesota.

       Twin Cities urges a subtle difference between California and Minnesota law
defining franchises. The California statute declares that a commitment to purchase
inventory is a “franchise fee” when the distributor must buy “a quantity of the goods
in excess of that which a reasonable businessperson normally would purchase by way
of a starting inventory or supply or to maintain a going inventory or supply.” Cal.
Corp. Code § 31011(a) (emphasis added). The text of the Minnesota statute does not
address this possibility, but the Minnesota Court of Appeals has stated that a
commitment to purchase inventory can be a franchise fee “if the distributors were
required to purchase amounts or items that they would not purchase otherwise.”
Upper Midwest Sales Co. v. Ecolab, Inc., 577 N.W.2d 236, 242 (Minn. Ct. App.
1998); see also Hogin v. Barnmaster, 2003 WL 21500044, at *5 (Minn. Ct. App. July
1, 2003); Banbury v. Omnitron Int’l, Inc., 533 N.W.2d 876, 882 (Minn. Ct. App.
1995).

      Twin Cities contends that these standards are different, because California law
uses an objective standard involving a “reasonable businessperson,” while Minnesota
law applies a subjective standard based on what the specific purported franchisee
would have purchased for inventory in the absence of an agreement. Seizing on these
ostensibly different standards, Twin Cities argues that the minimum purchase
commitments in the Dealer Agreements forced it to buy more inventory than it
otherwise would have purchased, but not so much as to exceed what a “reasonable
businessperson” would buy. Thus, Twin Cities asserts that it should be given an
opportunity to prove to a new arbitration panel that it would have purchased less
inventory had it not been subject to the minimum purchase requirement of the Dealer
Agreements.

                                         -5-
      We disagree. A closer look reveals that the Minnesota decisions apply an
objective standard comparable to California’s in determining whether a minimum
purchase commitment is an indirect franchise fee. In Upper Midwest, the court
explained that the Minnesota standard required it to “consider whether the [minimum
purchase] requirements were unreasonable.” 577 N.W.2d at 242 (emphasis added).
                        , the court concluded that a commitment to purchase a
reasonable quantity of goods at a wholesale price was not a “franchise fee.” Id.
Similarly, the Minnesota Court of Appeals rejected a franchise claim when the
required purchases were “within the reasonable requirements of the business,” and
not “unreasonable.” Am. Parts Sys., Inc. v. T & T Auto., Inc., 358 N.W.2d 674, 677
(Minn. Ct. App. 1984) (emphasis added). To avoid creating a franchise relationship,
a minimum purchase requirement need only have a “valid business purpose.” OT
Indus., Inc. v. OT-Tehdas Oy Santasalo-Sohlberg AB, 346 N.W.2d 162, 166 (Minn.
Ct. App. 1984); see also Hogin, 2003 WL 21500044, at *5 (rejecting claim under
MFA where “the record does not support any claim that the required quantity was
unreasonable”). Thus, Minnesota law does not require a fact-intensive inquiry into
how much inventory a distributor would stock in the absence of a minimum purchase
commitment. Instead, courts look to whether the commitment was “unreasonable,”
which is the language of an objective standard.

       When we compare these decisions to the CFIL, we conclude that the inquiry
under Minnesota law does not differ materially from that required by California law.
In both States, courts look to whether the quantities purchased were so unreasonably
large that they acted as a fee to enter into the business. The arbitration panel found
that the Dealer Agreements did not require purchases beyond “that which a reasonable
businessperson would purchase by way of a starting inventory or to maintain a going
inventory or supply.” (Appellants’ App. at 190). This finding accommodates the
public policy of Minnesota that a minimum purchase commitment be “within the
reasonable requirements of the business,” Am. Parts, 358 N.W.2d at 677, not be
“unreasonable,” Upper Midwest, 577 N.W.2d at 242, and have “a valid business

                                         -6-
purpose.” OT Indus., 346 N.W.2d at 166. Because the Minnesota and California
standards are virtually identical, Twin Cities cannot demonstrate that the arbitrator’s
application of California law frustrated a fundamental policy of Minnesota.1

                                   *      *       *

     For the foregoing reasons, we reverse the judgment of the district court and
remand with directions to confirm the arbitration award.
                      ______________________________




      1
        At oral argument, Twin Cities suggested a second distinction, namely, that
payments required to continue a distributorship are “franchise fees” under Minnesota
law, Minn. Stat. § 80C.01(9), but not under California law. See Cal. Corp. Code
§ 31011 (referring to payments “to enter into” a business); but cf. “When Does an
Agreement Constitute a ‘Franchise?,’” Release 3-F (June 22, 1994), at ¶ 4(a),
available at http://www.corp.ca.gov/commiss/rel3f.htm (visited Jan. 31, 2007) (setting
forth administrative interpretation of statute to include “any fee or charge which the
franchisee is required to pay . . . for the right to engage in business.”) (emphasis
added). Because this point was raised for the first time at oral argument, and has not
been briefed, it is waived. United States v. Mitchell, 31 F.3d 628, 633 n.3 (8th Cir.
1994). We note, moreover, that if the inventory requirements were not unreasonably
large, then it does not matter whether the purchases were made “to enter into” a
business or “to continue” a business.

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