Plaintiff, Dr. Sillins, is a plastic surgeon. While she was
completing a fellowship at UCLA, Dr. Ness, the president of
Piedmont Plastic Surgery Center ("Piedmont"), recruited her to move
from California to Asheville to work for Piedmont. On 21 May 1999,
plaintiff entered into an employment contract with Piedmont. The
employment contract contained the following arbitration clause:
17. Arbitration. Any controversy or
claim arising out of, or relating to this
Agreement, or the breach thereof (except for
the Employer's right to enforce the
restrictive covenant and seek remedies
pursuant to paragraph 13 above) shall be
settled by arbitration in Gaston County, North
Carolina, in accordance with the arbitration
rules and procedures of the American
Arbitration Association.
Dr. Sillins was employed by Piedmont from 2 August 1999 until
approximately 23 September 2001, when she was fired.
Dr. Sillins filed suit in Gaston County Superior Court
asserting various claims arising out of her employment and her
termination. Defendants moved to dismiss the complaint, to compel
arbitration of any actionable claims, and for sanctions. After
plaintiff voluntarily dismissed certain claims, the trial court
entered an order denying defendants' motion. Defendants filed a
motion for reconsideration of that order, which the court also
denied.
Defendants assigned error only to the trial court's denial of
their motion to compel arbitration.
Although that order is
interlocutory, it is immediately appealable as it affects asubstantial right.
Howard v. Oakwood Homes Corp., 134 N.C. App.
116, 118, 516 S.E.2d 879, 881 ("The right to arbitrate a claim is
a substantial right which may be lost if review is delayed, and an
order denying arbitration is therefore immediately appealable."),
disc. review denied, 350 N.C. 832, 539 S.E.2d 288 (1999),
cert.
denied, 528 U.S. 1155, 145 L. Ed. 2d 1072, 120 S. Ct. 1161 (2000).
Plaintiff contends that the arbitration clause is
unenforceable under the North Carolina Uniform Arbitration Act
("UAA"). N.C. Gen. Stat. § 1-567.2(b)(2) (2003) provides that the
UAA does not apply to "[a]rbitration agreements between employers
and employees or between their respective representatives, unless
the agreement provides that this Article shall apply."
(See footnote 1)
Before,
however, a court may consider whether the UAA would render the
parties' arbitration agreement unenforceable, it must determine
whether the Federal Arbitration Act ("FAA") applies. That question
is critical because the FAA preempts conflicting state law,
including any state statutes that render arbitration agreements
unenforceable.
Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265,
272, 130 L. Ed. 2d 753, 763, 115 S. Ct. 834, 838 (1995) (because
the FAA preempts state law, "state courts cannot apply state
statutes that invalidate arbitration agreements"). Plaintiff does
not dispute that if the FAA applies, then the parties' arbitration
agreement is enforceable.
The FAA provides: A written provision in any maritime
transaction or a contract evidencing a
transaction involving commerce to settle by
arbitration a controversy thereafter arising
out of such contract or transaction, or the
refusal to perform the whole or any part
thereof, or an agreement in writing to submit
to arbitration an existing controversy arising
out of such a contract, transaction, or
refusal, shall be valid, irrevocable, and
enforceable, save upon such grounds as exist
at law or in equity for the revocation of any
contract.
9 U.S.C. § 2 (1994). The FAA includes within its scope employment
contracts with the exception of those covering workers engaged in
transportation.
EEOC v. Waffle House, Inc., 534 U.S. 279, 289, 151
L. Ed. 2d 755, 765-66, 122 S. Ct. 754, 761 (2002).
In deciding the applicability of the FAA, the dispositive
question is whether the employment agreement at issue is a
"contract evidencing a transaction involving commerce[.]" 9 U.S.C.
§ 2.
Eddings directs that the trial court must specifically make
this determination.
356 N.C. at 286, 569 S.E.2d at 645,
adopting
per curiam, 147 N.C. App. 375, 386, 555 S.E.2d 649, 656 (2001)
(Greene, J., dissenting). This Court may not resolve the question
for the first time on appeal.
Id.
In
Eddings, the plaintiff was a Tennessee physician who moved
to Asheville and signed an employment agreement containing an
arbitration clause with the defendant medical group. He sued the
medical group seeking rescission of the agreement. The trial court
denied the medical group's motion to compel arbitration, and the
group appealed. A divided panel of this Court held that because
the agreement evidenced a transaction in which the plaintiff
crossed state lines to begin practicing in North Carolina, thearbitration clause was governed by the FAA.
Id. at 383, 555 S.E.2d
at 654.
Judge Greene dissented on the ground that it was impossible
for this Court to make the initial determination whether the
transaction in the case involved interstate commerce and,
therefore, fell within the scope of the FAA.
Id. at 385, 555
S.E.2d at 656. Judge Greene observed that whether a contract
evidenced "
a transaction involving commerce
" within the meaning of
the FAA is a question of fact that an appellate court should not
initially decide.
Id. He then reasoned:
With the exception of the fact plaintiff was
in Tennessee before moving to Asheville to
join [the medical group], there is no evidence
in this case that the transaction involved
multiple states. Indeed, the record to this
Court is devoid of any evidence the
[employment agreement] or plaintiff's
employment "involve[d] interstate commerce and
[is] within the scope of the FAA." Although
this Court "may speculate on what may have
been the nature of the performance required by
the contract, it is impossible for us to
determine on appeal whether the [FAA] applies"
due to the contract in question involving
interstate commerce. Accordingly, I would
remand this case to the trial court for the
initial determination of whether the
[employment agreement] involved interstate
commerce.
Id. at 385-86, 555 S.E.2d at 656 (quoting
Merritt-Chapman & Scott
Corp. v. Pennsylvania Turnpike Comm'n, 387 F.2d 768, 772 (3d Cir.
1967)). The Supreme Court reversed the decision of this Court for
the reasons stated in Judge Greene's dissenting opinion.
Eddings,
356 N.C. at 286, 569 S.E.2d at 645
.
This case
is indistinguishable from
Eddings. While plaintiff
argues that defendants failed to request formal findings and,therefore, "it is presumed that the judge made the determination
based upon proper evidence[,]"
House Healers Restorations, Inc. v.
Ball, 112 N.C. App. 783, 786, 437 S.E.2d 383, 385 (1993),
Eddings
nonetheless appears to require an express determination by the
trial court of the applicability of the FAA.
Defendants have argued that no remand is necessary because the
arbitration agreement is enforceable under state law as well as
under the FAA. Defendants acknowledge that employment agreements,
such as the one at issue here, are excluded from the scope of the
UAA when the UAA is not specifically referenced within the
agreement. N.C. Gen. Stat. § 1-567.2(b)(2). Defendants urge,
however, that even if an arbitration agreement falls outside the
scope of both the FAA and the UAA a trial court is still required
to compel arbitration. North Carolina law holds otherwise. In
Skinner v. Gaither Corp., 234 N.C. 385, 386, 67 S.E.2d 267, 269
(1951), our Supreme Court first noted that when an arbitration
agreement is not a contract to arbitrate under the UAA, then "the
common law rule applies." Applying the common law rule, the Court
then held: "It is settled law in this jurisdiction, as in most
others, that when a cause of action has arisen, the courts cannot
be ousted of their jurisdiction by an agreement, previously entered
into, to submit the rights and liabilities of the parties to
arbitration or to some other tribunal named in the agreement."
Id.
at 386-87, 67 S.E.2d at 269. In short, if neither the FAA nor the
UAA (nor any other statutory provision) governs an arbitration
agreement, then a court has no authority to compel arbitration.
Id. at 387, 67 S.E.2d at 269 ("In an action on the [arbitrationagreement] the courts will not decree specific performance of the
agreement. Neither will they, by indirection, compel specific
performance by refusing to entertain a suit until after arbitration
is had under the agreement.").
See also Cyclone Roofing Co. v.
David M. LaFave Co., 312 N.C. 224, 232, 321 S.E.2d 872, 878 (1984)
("As long as the statutory requirements of the [UAA] have been met
. . ., a court must order arbitration on motion of a party to the
contract.").
Because the question whether the FAA or the UAA governs this
arbitration agreement determines whether the trial court properly
denied the motion to compel arbitration, we must, in accordance
with controlling precedent in
Eddings, reverse and remand the case
to the trial court to decide whether the employment agreement
evidenced a transaction involving interstate commerce. In making
that determination, the trial court must apply the principles
announced in
Allied-Bruce, 513 U.S. at 273-74, 130 L. Ed. 2d at
764, 115 S. Ct. at 839. Under
Allied-Bruce, the FAA's term
"involving commerce" is considered the functional equivalent of
"affecting commerce."
Id. It is broader than the term "in
commerce"
and "signals an intent to exercise Congress' commerce
power to the full."
Id. at 277, 130 L. Ed. 2d at 766, 115 S. Ct.
at 841. With respect to the meaning of "evidencing a transaction,"
the Court read the Act's language "as insisting that the
'transaction' in fact 'involv[e]' interstate commerce, even if the
parties did not contemplate an interstate commerce connection."
Id. at 281, 130 L. Ed. 2d at 769, 115 S. Ct. at 843. We observe that defendants have the burden of establishing
that the arbitration clause is enforceable.
Tohato, Inc. v.
Pinewild Mgmt., Inc., 128 N.C. App. 386, 393, 496 S.E.2d 800, 805
(1998) (when a party seeks to compel arbitration, he must first
establish his right to that remedy).
See also Slaughter v.
Swicegood, 162 N.C. App. 457, 461, 591 S.E.2d 577, 581 (2004)
("Defendants, as the parties seeking to compel arbitration, held
the burden of proof."). As a result, defendants were required to
submit sufficient evidence in support of their motion to compel
arbitration to establish that plaintiff's contract evidenced a
transaction involving interstate commerce.
See Am. Gen. Fin., Inc.
v. Morton, 812 So. 2d 282, 284-85 (Ala. 2001) ("The party seeking
to compel arbitration has the initial burden of proving the
existence of a contract calling for arbitration and proving that
the contract evidences a transaction substantially affecting
interstate commerce."). Here, defendants offered no evidence in
support of their motion to compel arbitration apart from the
employment agreement attached to plaintiff's complaint.
(See footnote 2)
Reversed and remanded.
Chief Judge MARTIN and Judge HUDSON concur.
Footnote: 1