1. Appeal and Error--denial of arbitration_immediately appealable
An order denying a demand for arbitration affects a
substantial right which might be lost if the appeal is delayed and
is thus immediately appealable.
2. Arbitration and Mediation--arbitration enjoined_multiple
business dealings--dispute not within arbitration clause
The trial court correctly granted plaintiff's motion for a
permanent injunction staying arbitration in that the dispute
between the parties did not fall within the arbitration clause in
the operating agreement of a limited liability company formed by
the parties. Plaintiff and defendant had several business
connections over a period of years, but there is no evidence that
this dispute concerned the affairs, conduct, or operation of the
limited liability company. Indeed, there was no evidence that the
company became operational after its initial creation.
Appeal by defendant from order entered 22 May 2000 by Judge
William H. Freeman in Guilford County Superior Court. Heard in the
Court of Appeals 23 May 2001.
Gordon Law Offices, by Harry G. Gordon, for plaintiff-
appellee.
Matthew E. Bates, P.A., for defendant-appellant.
BIGGS, Judge.
Timothy Buck (defendant) appeals from the trial court's order
permanently enjoining him from proceeding with arbitration. We
affirm.
Rebecca Raspet (plaintiff), and defendant were both employed
as investment representatives with Metropolitan Life Insurance Co.
in 1995. Later that year, each separately left the company,
although they continued to work as investment representatives. Plaintiff was based in Durham, while defendant operated out of
Asheboro. At some point in 1995, desiring to handle certain
clients jointly, plaintiff and defendant created a limited
liability company, titled Plan First, LLC. (Plan First). Each
signed an Operating Agreement which contained an arbitration
clause. The two jointly rented an office in Reidsville, while
retaining their separate offices and accounts. Between 1995 and
1997 both plaintiff and defendant became employed by Mariner
Financial Services, and later by Select Capital Corporation. While
employed with Select Capital, plaintiff was defendant's supervisor.
They also managed some Select Capital accounts jointly.
On 9 September 1997, Select Capital terminated defendant with
thirty days notice. The company instructed defendant to transfer
his clients to another broker no later than 120 days after 10
October 1997. In early February 1998, Select Capital wrote
defendant to reiterate that the deadline for his transfer of
clients to another broker would be 10 February 1998. Select
Capital also directed plaintiff to cease any business relationship
with defendant, and not to divide any commissions with defendant.
Following defendant's dismissal, his name was removed from jointly
held client accounts, which then were changed to reflect that
plaintiff had become the sole representative for those accounts.
In July 1998, plaintiff and defendant signed Articles of
Dissolution formally dissolving Plan First. Approximately eighteen
months later, on 3 January 2000, defendant filed a Demand for
Arbitration. Defendant alleged that he and plaintiff had an oral
buy-out agreement, under which plaintiff owed him money for clientaccounts they had previously managed jointly, and that he had not
received this buy-out money. Defendant based his demand for
arbitration upon an arbitration clause contained in the Operating
Agreement for Plan First, which had been signed by both parties
when Plan First was formed.
On 6 April 2000, plaintiff filed suit against defendant,
seeking damages for slander and defamation, sexual harassment,
negligent and intentional infliction of emotional distress,
harassment by telephone, breach of contract, indemnity, and unfair
and deceptive trade practices. On 6 April 2000, plaintiff also
filed a separate motion for a temporary restraining order (TRO) and
for a permanent injunction staying arbitration. Plaintiff obtained
a TRO the same day, 6 April 2000. This order was replaced by a
permanent injunction on 22 May 2000. In its order granting a
permanent injunction staying arbitration, the trial court concluded
that no valid, applicable arbitration agreement exists that binds
plaintiff to arbitrate the current dispute between plaintiff and
defendant. Defendant appeals from this order.
[1]Defendant's appeal from the trial court's order staying
arbitration is interlocutory in that plaintiff's claims remain
unresolved. Miller v. Two State Construction Co., 118 N.C. App.
412, 455 S.E.2d 678 (1995). Interlocutory orders are not usually
appealable; however, this Court has held that the denial of a
demand for arbitration is an order that affects a substantial
right which might be lost if appeal is delayed, Prime South Homes
v. Byrd, 102 N.C. App. 255, 258, 401 S.E.2d 822, 825 (1991), andthus is immediately appealable. CIT Grp./Sales Fin., Inc. v. Bray
i>,
141 N.C. App. 542, 539 S.E.2d 690 (2000); Martin v. Vance, 133 N.C.
App. 116, 514 S.E.2d 306 (1999).
[2]Defendant argues that his dispute with plaintiff is
subject to mandatory arbitration under the arbitration clause in
Plan First's Operating Agreement. We disagree.
As a general matter, public policy favors arbitration. See,
e.g., Moses H. Cone Hospital v. Mercury Constr., 460 U.S. 1, 74 L.
Ed. 2d 765 (1983) (ambiguities or doubts as to the scope of
arbitrable disputes are to be resolved in favor of arbitration);
Johnston County v. R.N. Rouse & Co., 331 N.C. 88, 91, 414 S.E.2d
30, 32 (1992) (noting North Carolina's strong public policy in
favor of resolving disputes by arbitration). However, before a
dispute can be ordered resolved through arbitration, there must be
a valid agreement to arbitrate. United Steelworkers v. Warrior &
G. Nav. Co., 363 U.S. 574, 4 L. Ed. 2d 1409 (1960); LSB Financial
Services, Inc. v. Harrison, 144 N.C. App. 542, 548 S.E.2d 574
(2001). Thus, whether a dispute is subject to arbitration is a
matter of contract law. Ragan v. Wheat First Sec., Inc., 138 N.C.
App. 453, 531 S.E.2d 874, disc. review denied, 353 N.C. 268, 546
S.E.2d 129 (2000). Parties to an arbitration must specify clearly
the scope and terms of their agreement to arbitrate. Futrelle v.
Duke University, 127 N.C. App. 244, 488 S.E.2d 635, disc. review
denied, 347 N.C. 398, 494 S.E.2d 412 (1997). See also Ruffin Woody
and Associates v. Person County, 92 N.C. App. 129, 374 S.E.2d 165
(1988), disc. review denied, 324 N.C. 337, 378 S.E.2d 799 (1989)
(court holds that dispute concerning architect's performance iswithin arbitration clause in construction contract, stating that
determination of arbitrability of specific claim is governed by
language of parties' contract). Moreover, a party cannot be forced
to submit to arbitration of any dispute unless he has agreed to do
so. AT&T Technologies v. Communications Workers, 475 U.S. 643, 89
L. Ed. 2d 648 (1986) (citation omitted). See also United
Steelworkers, 363 U.S. 574, 4 L. Ed. 2d 1409; LSB Financial
Services, 144 N.C. App. 542, 548 S.E.2d 574 (court finds that
securities transaction dispute is subject to arbitration clause,
noting that arbitration is required only when parties have
previously agreed to submit dispute to arbitration); Rodgers
Builders v. McQueen, 76 N.C. App. 16, 331 S.E.2d 726 (1985), disc.
review denied, 315 N.C. 590, 341 S.E.2d 29 (1986).
The question of whether a dispute is subject to arbitration is
an issue for judicial determination. AT&T Technologies, 475 U.S.
643, 89 L. Ed. 2d 648; and a trial court's conclusion as to whether
a particular dispute is subject to arbitration is a conclusion of
law, reviewable de novo by the appellate court. Tohato, Inc. v.
Pinewild Management, Inc., 128 N.C. App. 386, 496 S.E.2d 800
(1998). Whether a dispute is subject to arbitration involves a two
pronged analysis; the court must ascertain both (1) whether the
parties had a valid agreement to arbitrate, and also (2) whether
the specific dispute falls within the substantive scope of that
agreement." PaineWebber Inc. v. Hartmann, 921 F.2d 507, 511 (3d
Cir. 1990). This Court has adopted the PaineWebber analysis.
Ragan, 138 N.C. App. 453, 531 S.E.2d 874 (in considering a motion
to compel arbitration, the trial court should determine thevalidity of the contract to arbitrate, and whether the subject
matter of the arbitration agreement covers the matter in dispute);
Rodgers Builders, 76 N.C. App. 16, 331 S.E.2d 726 (arbitrability
is determined by relationship between claim and subject matter of
arbitration clause). In the case sub judice, the dispositive issue
involves the second prong of the analysis (whether the parties'
dispute falls within the purview of the arbitration clause).
The Operating Agreement signed by plaintiff and defendant upon
the formation of Plan First included an arbitration clause stating
in pertinent part the following:
The Members hereby agree to submit to
arbitration any and all matters in dispute and
in controversy between them and concerning,
directly or indirectly, the affairs, conduct,
operation and management of the LLC, to the
end that all such disputes and controversies
be resolved, determined and adjudged by the
arbitrators.
Defendant and plaintiff ended their professional relationship in
September 1997, when Select Capital terminated defendant's
employment with the company. Defendant contends that at that time,
plaintiff agreed to an oral buy-out agreement, requiring
plaintiff to pay him for the value of his share of jointly managed
accounts. Defendant further argues that this oral agreement is
subject to mandatory arbitration under the arbitration clause in
the Operating Agreement. Assuming arguendo, that such an oral
buy-out agreement does exist, to be subject to mandatory
arbitration, it must be concerning, directly or indirectly, the
affairs, conduct, operation and management of the LLC[.] The
record does not support such a finding.
Defendant has submitted no evidence that Plan First everbecame operational after its initial creation, and appears
to argue
that the creation of Plan First effectively converted all of the
parties' subsequent business dealings into Plan First affairs. The
record demonstrates that the parties had several business
connections over a period of years. Between 1995 and 1998, they
were employed by three investment firms, each being employed by the
same company for some period of time during the three year period.
As Select Capital employees, they appear to have jointly advised
several clients. For over a year, the parties rented an office
space together for part-time use, but also maintained their
separate offices at all times. When their business relationship
ended, there may have been various matters for the parties to
resolve. The record includes several memoranda pertaining to
defendant's exit from Select Capital; all are on Select Capital's
paper, and address issues pertaining to Select Capital's
termination of defendant's employment. The record does not support
defendant's contention that a dispute over fees or commissions
arose from the activities of Plan First.
The record further indicates that Plan First, was never
funded, did not own any assets, cash, or furniture, had no
employees, and paid no taxes. Moreover, Plan First did not have a
license to sell securities, and therefore had no customers or
clients, and no revenues or income. There is no evidence of any
joint transactions, other than investment accounts maintained and
supervised by Select Capital . The record does not include
documentation that Plan First had any joint bank accounts, jointly
assumed debts, jointly owned assets, or jointly undertaken sales orcontracts. Thus, we find no evidence that the dispute between the
parties concerned the affairs, conduct, operation [or] management
of Plan First.
We conclude that the trial court correctly granted plaintiff's
motion for a permanent injunction staying arbitration, in that the
subject dispute does not fall within the arbitration clause in Plan
First's Operating Agreement. Accordingly, we affirm the trial
court.
Affirmed.
Judges WYNN and CAMPBELL concur.
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