Yost v Westchester Specialty Ins. Svcs., (02-883) 08/05/2003

Appeal by defendants from order entered 8 May 2002 by Judge Robert P. Johnston in Mecklenburg County Superior Court. Heard in the Court of Appeals 19 February 2003.

Giordano, Gordon and Burns, PLLC, by William F. Burns, Jr., for plaintiff appellee.

Morris York Williams Surles & Barringer, LLP, by Gregory C. York and Keith B. Nichols, for defendant appellants.

    McCULLOUGH, Judge.

    Plaintiff Michael S. Yost purchased a used 1994 Land Rover from an automobile dealer on 23 August 2000. In addition, plaintiff purchased a vehicle service contract (the Elite Plus) from defendant Westchester Specialty Insurance Services, Inc. (Westchester Specialty). Defendant Westchester Fire Insurance Company (Westchester Fire) is the guarantor of defendant Westchester Specialty. The vehicle service contract was to cover certain repairs and parts to the covered vehicle. The policy contained the following provision:        10. ARBITRATION

        If You or We fail to agree on any matter concerning this Contract, each must demand in writing from the other that the matter be arbitrated.

         You and We shall each select an arbitrator and the two arbitrators shall select a third arbitrator. The decisions of any two of the three arbitrators is final and will be binding upon You and Us.

    On 8 April 2001, plaintiff was driving the Land Rover when it suddenly lost power. Plaintiff alleges in his complaint that he immediately pulled over. The vehicle was towed back to the dealership where it was determined that a radiator hose had failed. After replacing the hose and coolant, the engine still failed to perform. Plaintiff alleges that as a result of the failed radiator hose, a head gasket failed and the engine is now seriously damaged, and needs full replacement. Plaintiff further alleges that he kept the vehicle properly maintained during the relevant times.
    After finding that a new engine would cost approximately $5,700 and that the vehicle service contract was still in effect, plaintiff attempted to make a claim under the policy.
    Defendant Westchester Specialty had a company by the name of Dimension administrate its policies. Dimension had an adjuster inspect the vehicle on 12 April 2001, and notified plaintiff on 16 April 2001 that his claim was denied. The following events took place in wake of that denial:
            5. From April 17, 2001 through May 24, 2001, the Plaintiff called and faxed DIMENSION repeatedly to protest DIMENSION'S denial of coverage and to inquire as to how to resolvethe impasse. DIMENSION'S legal counsel, Philip Willette, offered nothing until May 24, 2001 at which time he told the Plaintiff he could arbitrate if he, the Plaintiff, chose.

            6. That following Mr. Willette's advice that the Plaintiff could arbitrate, the Plaintiff set about the task of trying to arbitrate. His efforts over the next four weeks included contacting no less than 5 Charlotte area attorney-arbitrators to see if they would serve as his arbitrator. The Plaintiff also repeatedly reported to Mr. Willette that no one was willing to serve due to the lack of procedures or rules governing any such arbitration. Mr. Willette restated to the Plaintiff that the Plaintiff had to give him a name, address and phone number of Plaintiff's arbitrator.

            7. That on or about June 6, 2001, the Plaintiff faxed a note to Mr. Willette requesting that the AAA arbitrate the disagreement since he, the Plaintiff, was getting nowhere in attempting to get someone to serve as his arbitrator. Mr. Willette rejected that suggestion on June 18, 2001.

            8. That in late June, being completely frustrated and exhausted from his efforts to “arbitrate” the dispute with DIMENSION, the Plaintiff gave up and hired counsel.

            9. That on or about June 26, 2001, the Plaintiff retained counsel to assist him in connection with the resolution of his dispute with the Defendants.

            10. That on or about June 27, 2001, Plaintiff's newly retained counsel faxed a letter to Mr. Willette informing him that he represented the Plaintiff and providing him with the name, address, telephone number and curricula vitae of Jeff Garis, a local attorney, to serve as Plaintiff's arbitrator.

            11. That on or about July 11, 2001, Plaintiff's counsel sent another message by fax to Mr. Willette confirming that two (2) weeks earlier he had informed Mr. Willette of plaintiff's designated arbitrator andinquiring as to the identity of Defendants' arbitrator.

            12. That over the course of the next nearly 3 weeks, Plaintiff's counsel attempted several fax communications with Mr. Willette and left at least three voice mail messages for Mr. Willette inquiring about the identity of Defendants' arbitrator and stressing that much time had passed and that the Plaintiff wanted to move matters along. Having received no reply by July 31, 2001, suit was filed by Plaintiff's counsel that date.

            13. Near or during mid-August, 2001, Plaintiff's counsel received a letter dated August 2, 2001 from Mr. Willette designating an individual from Virginia to serve as Defendants' arbitrator.

    Defendants answered plaintiff's complaint on 21 September 2001 and included within it a motion to compel arbitration. This motion was heard on 23 April 2002 before The Honorable Robert P. Johnston during a Civil Session of Mecklenburg County Superior Court. In its order filed 8 May 2002, the trial court denied defendants motion to compel arbitration, stating that “although DIMENSION asked the Plaintiff several times to name his arbitrator, it was not until after suit was filed that DIMENSION demanded arbitration in writing. A written demand for arbitration by both parties is required by the Vehicle Service Contract which is the subject of this action.” The trial court concluded that defendants had waived their right to demand arbitration. Defendants appeal.
    Defendants make several assignments of error, and present the following question on appeal: Did the trial court err as a matter of law in denying their motion to compel arbitration?    We note that denial of a motion to compel arbitration is immediately appealable. Martin v. Vance, 133 N.C. App. 116, 119, 514 S.E.2d 306, 308 (1999).

    Defendants contend that the trial court erred by concluding as a matter of law that they had waived their right to demand arbitration in this matter.
    Recently, this Court laid out the applicable standards in this type of case in Douglas v. McVicker, 150 N.C. App. 705, 706-07, 564 S.E.2d 622, 623-24 (2002):
            The parties to a contract may agree to settle any dispute arising therefrom by way of mandatory arbitration, and such an agreement “shall be valid, enforceable, and irrevocable except with the consent of all the parties[.]” N.C. Gen. Stat. § 1-567.2(a) (1999). Since arbitration is a contractual right, it may be waived. Cyclone Roofing Co., Inc. v. David M. LaFave Co., Inc., 312 N.C. 224, 321 S.E.2d 872 (1984). Whether waiver has occurred is a question of fact. Id. at 229, 321 S.E.2d at 876. Factual findings made by the trial court are conclusive on appeal, if supported by the evidence. Humphries v. City of Jacksonville, 300 N.C. 186, 187, 265 S.E.2d 189, 190 (1980).

            We are mindful that North Carolina has a strong public policy favoring the settlement of disputes by arbitration. “Our Supreme Court has held that where there is any doubt concerning the existence of an arbitration agreement, it should be resolved in favor of arbitration. Martin, 133 N.C. App. at 119, 514 S.E.2d at 309 (citing Johnston County v. R.N. Rouse & Co., 331 N.C. 88, 91-92, 414 S.E.2d 30, 32 (1992)). Because North Carolina maintains a strong public policy in favor of arbitration, “courts must closely scrutinize any allegation of waiver of such a favored right.” Cyclone Roofing, 312 N.C. at 229, 321 S.E.2d at 876 (citations omitted).
            Our Supreme Court has also held that the party opposing arbitration must prove prejudice by its adversary's delay or by actions of the adversary which were incompatible with arbitration. Sturm v. Schamens, 99 N.C. App. 207, 208, 392 S.E.2d 432, 433 (1990) (citing Servomation Corp. v. Hickory Constr. Co., 316 N.C. 543, 544, 342 S.E.2d 853, 854 (1986); Cyclone Roofing, supra.). “A party may be prejudiced by his adversary's delay in seeking arbitration if (1) it is forced to bear the expense of a long trial, (2) it loses helpful evidence, (3) it takes steps in litigation to its detriment or expends significant amounts of money on the litigation, or (4) its opponent makes use of judicial discovery procedures not available in arbitration.” Servomation, 316 N.C. at 544, 342 S.E.2d at 854.

Id.
    Defendants claim that plaintiff can show no such prejudice. Defendants argue that the five-week delay between when plaintiff allegedly formally demanded arbitration, 27 June 2001, and the date defendants selected their arbitrator by letter, 2 August 2001, is not accompanied by any loss of evidence. Further, there is no evidence of defendants taking advantage of any judicial discovery procedures not available in arbitration. Defendants also point out that there is no evidence of substantial expense in the litigation process, as plaintiff hired counsel “to assist the plaintiff with the arbitration process.”
    Plaintiff contends that the trial court was correct in finding that defendants had waived their right to arbitrate. First of all, plaintiff disagrees with the characterization of the length of the delay by defendants. The letter may have been dated 2 August 2001, but plaintiff received Dimension's designation of arbitrator letterin mid-August of 2001, two weeks after suit had been filed. This was approximately four weeks after plaintiff's counsel had sent its designation of an arbitrator, and three months after plaintiff himself attempted to arbitrate the matter.
    According to plaintiff, the trial court's finding of waiver is supported by defendants' failure to make a written demand for arbitration coupled with their inaction during the entire span of time in which plaintiff sought relief. Plaintiff argues that the one thing clear about the arbitration clause is that each party must demand in writing from the other that the matter be arbitrated. This defendants did not do. It is because of this language in the arbitration clause that plaintiff contends that arbitration was not the sole means of settling disputes. Unless each demanded of the other to arbitrate, other means, such as filing suit, were proper. This is furthered, according to plaintiff, by Dimension's counsel's informing plaintiff that he could arbitrate if he chose to. Because defendants did not elect in writing, they have lost this option.
    As to inaction, the record shows that plaintiff made efforts to resolve this dispute via arbitration. His efforts to resolve this dispute were frustrated by representatives of Dimension and defendants. All calls, faxes, and correspondence were either unanswered or plaintiff was informed that he needed to name his arbitrator. The same occurred when plaintiff retained counsel.
    While public policy favors arbitration as Douglas makes clear, a party may waive its right to arbitrate and the trial court'sfinding of waiver may be upheld if there is evidence of record to support its determination. Here, defendants were well aware that plaintiff's vehicle was not drivable and in need of immediate repair. Despite plaintiff's naming of an arbitrator, defendants took no action until after plaintiff, having been ignored and rebuffed, filed suit.
    We believe that the trial court was justified in finding, on this record, that defendants' delay was such that a finding of waiver was warranted. The delay caused plaintiff sufficient prejudice in compliance with the ruling of Douglas. Having an arbitration clause in a contract does not allow a party to ignore a dispute, refuse to acknowledge same, or wait until the other party, in frustration, files suit.
    The denial of defendants' motion to compel arbitration is therefore
    Affirmed.
    Judges TYSON and CALABRIA concur.
    Report per Rule 30(e).

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