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All opinions are subject to modification and technical correction prior to official publication in the North Carolina Reports and North Carolina Court of Appeals Reports. In the event of discrepancies between the electronic version of an opinion and the
print version appearing in the North Carolina Reports and North Carolina Court of Appeals Reports, the latest print version is to be considered authoritative.
TALLY EDDINGS, M.D., Plaintiff, v. SOUTHERN ORTHOPAEDIC AND
MUSCULOSKELETAL ASSOCIATES, P.A., Defendant
Filed: 21 December 2004
1. Arbitration and Mediation_-employment agreement--interstate commerce--Federal
The trial court did not err by concluding that the employment agreements and transactions
between the parties involved interstate commerce and therefore require the application of the
Federal Arbitration Act, because: (1) the trial court's findings of fact are sufficient to support its
conclusion; and (2) defendant employer provided evidence to demonstrate that it treats patients
who live in other states, receives payments from insurance carriers outside of North Carolina, and
receives goods and services from out-of-state vendors.
2. Arbitration and Mediation_-employment agreement--compelling arbitration of
The trial court erred by failing to dismiss plaintiff's complaint and compel arbitration as
to the entire dispute regarding the validity of an employment contract, because: (1) arbitration is
the forum to which both plaintiff and defendant consented to hear any dispute surrounding the
contract; and (2) claims such as rescission, no meeting of the minds, and quantum meruit directly
challenge the validity of the contract, and therefore, such claims are within the jurisdiction of the
Appeal by plaintiff and defendant from judgment filed 23 June
2003 by Judge Philip Ginn in Buncombe County Superior Court. Heard
in the Court of Appeals 16 June 2004.
Kelly & Rowe, P.A., by E. Glenn Kelly, for plaintiff-
McGuire, Wood & Bissette, P.A., by T. Douglas Wilson, Jr., for
On 16 November 1997, Tally Eddings, M.D. (Dr. Eddings or
plaintiff) and Southern Orthopaedic and Musculoskeletal Associates,
P.A. (SOMA) entered into a contract of employment. On 1 January
1998, Dr. Eddings and SOMA subsequently entered into a non-
shareholder physician employment agreement which replaced the
earlier contract of employment. Plaintiff signed both SOMA
agreements which contained the following arbitration provision:
(10) Dispute Resolution by Arbitration. Any
controversy, dispute, or disagreement arising
out of or relating to the Agreement, including
the breach thereof, shall be settled
exclusively by binding arbitration, which
shall be conducted in a location to be
mutually agreed upon by the parties, or at the
principal office of the corporation, in
accordance with the [American] Health Lawyers
Association Alternative Dispute Resolution
Service Rules of Procedure for Arbitration,
and which to the extent of the subject matter
of the arbitration, shall be binding not only
on all parties to this Agreement, but on any
other entity controlled by, in control of, or
under common control with the party to the
extent that such affiliate joins in the
arbitration, and judgment on the award
rendered by the arbitrator may be entered in
any court having jurisdiction thereof. Any
arbitrator so appointed shall have the express
authority, but not the obligation, to award
attorney's fees and expenses to the prevailing
party in any such proceeding.
Dr. Eddings subsequently moved from Tennessee to Buncombe
County, North Carolina. From 17 August 1998 until 4 January 2000
he worked as an orthopaedic surgeon for SOMA pursuant to the SOMA
employment contract. The SOMA employment contract required awritten six month notice of termination of employment by Dr.
Eddings. Further, the agreement required Dr. Eddings to give
preliminary notice of resignation twelve months prior to the
effective date of termination. Dr. Eddings was also bound by a
'covenant not to compete' provision in his employment contract
which prevented him from practicing orthopaedic medicine within a
50-mile radius of SOMA for five years after termination of
With insufficient notice, Dr. Eddings terminated his
employment effective immediately in a 4 January 2000 letter of
resignation to SOMA, citing employment concerns. Following his
resignation from SOMA, Dr. Eddings began practicing with another
orthopaedic practice in Asheville in violation of the 'covenant not
to compete' provision of the employment contract.
On 25 February 2000, SOMA requested arbitration through
American Health Lawyers Association for plaintiff's alleged breach
of the employment contract. On 9 March 2000, plaintiff filed a
complaint in the Superior Court of Buncombe County alleging fraud,
breach of fiduciary duty, and various other claims for relief
seeking (1) rescission of his employment contract with SOMA, (2) an
injunction enjoining SOMA's arbitration and (3) a declaratory
judgment that no enforceable contract existed between plaintiff and
SOMA. On 31 March 2000, plaintiff filed an amended complaint
pursuant to Rule 15(a) of the North Carolina Rules of CivilProcedure, adding a tenth claim for relief seeking a declaratory
judgment that plaintiff's non-shareholder physician employment
contract with defendant was against public policy, unconscionable,
On 28 March 2000, SOMA filed a motion to compel arbitration
and dismiss the complaint, seeking to enforce the arbitration
provision contained in plaintiff's employment agreement. On 31
March 2000, plaintiff filed a motion to stay the arbitration
scheduled for 26 April 2000. On 30 July 2000, the trial court
denied SOMA's motion to compel arbitration and granted plaintiff's
motion to stay arbitration. SOMA appealed the 30 July 2000 order
staying arbitration to this Court. On appeal, this Court reversed
the decision of the trial court, holding that (1) a valid agreement
to arbitrate exists between Dr. Eddings and SOMA; (2) the
arbitration provision is governed by the Federal Arbitration Act
(FAA), 9 U.S.C. §§ 1-16 (1999) and applicable federal law; and (3)
Dr. Eddings' claims for rescission and declaratory relief based on
fraud, unconscionability, and indefiniteness resulting in no
meeting of the minds should be submitted to the arbitrator,
pursuant to Prima Paint Corp. v. Flood & Conklin, 388 U.S. 395, 18
L. Ed. 2d 1270 (1967), because those claims were directed to the
entire employment agreement and not just the arbitration provision
itself. Eddings v. S. Orthopedic & Musculoskeletal Assocs., 147
N.C. App. 375, 555 S.E.2d 649 (2001) (hereinafter Eddings I). In a dissenting opinion in Eddings I, Judge Greene stated that
while he agreed with the majority that under the FAA, the claims at
issue should be referred to arbitration, the decision to apply the
FAA was a matter for the trial court to initially determine. The
North Carolina Supreme Court, agreeing with Judge Greene's dissent,
held that the trial court, not the Court of Appeals, must first
determine whether or not the FAA was applicable. Eddings v. S.
Orthopedic & Musculoskeletal Assocs.
, 356 N.C. 285, 569 S.E.2d 645
On remand, the Superior Court of Buncombe County issued an
order on 23 June 2003 which allowed in part and denied in part
defendant's supplemental motion to compel arbitration. Further,
some of plaintiff's claims were ordered to arbitration, while some
claims were reserved for the trial court. The trial court made the
following conclusions of law:
1. The transaction and Agreements between
parties involve interstate commerce and
are, therefore, controlled by the Federal
2. Plaintiff's Prayers for Relief No. 1
(rescission of the contract), No. 2 (no
meeting of the minds and unenforceable due to
the vagueness and uncertainty), and No. 9
(quantum meruit) are not arbitrable . . . .
3. Plaintiff's Prayers for Relief No. 3
(actual and punitive damages for alleged
fraud), No. 4 (G.S. 75-1.1[attorney fees]),
No. 7 (covenant not to compete), No. 8
(unconscionable as against public policy and
praying for rescission) and No. 10(unconscionable as against public policy and
praying for declaration as null and void), are
arbitrable . . . .
Also on remand, plaintiff was granted leave by the trial court
to amend his complaint to add: (1) that the Rules of the American
Health Lawyers Association Alternative Dispute Resolution Service
violate constitutional rights by prohibiting the arbitrator's award
of consequential, exemplary, incidental, punitive or special
damages and; (2) that plaintiff will be deprived of access to the
courts with respect to his claims for declaratory relief because
arbitrators may not grant such relief.
On 22 July 2003 plaintiff and defendant respectively filed
notices of appeal to this Court.
On appeal plaintiff and defendant raise two issues: whether
the trial court erred in: (I) concluding that the agreements and
transactions between Eddings and SOMA involved interstate commerce
and therefore require the application of the Federal Arbitration
Act and (II) compelling arbitration as to some, but not all the
 The first issue is whether the trial court erred in
concluding that the agreements and transactions between Eddings and
SOMA involved interstate commerce and therefore require theapplication of the Federal Arbitration Act.
In Eddings I, this Court applied the FAA to reach the
conclusion that a valid arbitration agreement existed between
Eddings and SOMA and that the issues before the Court were covered
by the language of the arbitration agreement and must be submitted
to an arbitrator for resolution. Eddings v. S. Orthopedic &
, 147 N.C. App. 375, 383, 555 S.E.2d 649,
In summary, we hold that a valid agreement to
arbitrate exists between plaintiff and SOMA
and that the grounds relied upon by the trial
court in refusing to enforce this arbitration
agreement are issues which are covered by the
language of the parties' agreement to
arbitrate and must be submitted to an
arbitrator . . . .
Id. at 384, 555 S.E.2d at 655.
The North Carolina Supreme Court in adopting the dissenting
opinion in Eddings I did not specifically address the Court of
conclusions as to the validity of the agreement or the
scope of the dispute. These conclusions, however, were dependant
upon a determination that the transaction involved interstate
commerce and therefore the FAA applied. In Eddings I the
dissenting opinion as adopted by the North Carolina Supreme Court
Before the FAA applies to a contract, the
contract must either relate to a maritime
transaction or evidence a transaction
involving commerce. 9 U.S.C. §2 (2000). Whether a contract evidenced 'a transaction
involving commerce' within the meaning of §2
of the [FAA] is a question of fact which an
appellate court should not initially decide.
Merritt-Chapman & Scott Corp. v. Pennsylvania
Turnpike Comm'n, 387 F.2d 768, 772 (3d Cir.
Id. at 385, 555 S.E.2d at 656.
On remand, the trial court made the following findings of fact
pertinent to evidencing interstate commerce and supporting the
determination that the FAA applied to this controversy:
2. Plaintiff traveled from. . . Tennessee
to . . . North Carolina to interview with
. . . [and accept] the offer of employment
with [SOMA]. . . .
3. SOMA treats patients that reside in a
number of different states . . . .
4. While employed by SOMA, Dr. Eddings
personally treated patients that reside in a
number of different states . . . .
5. A large portion of SOMA's physician fees
are paid on behalf of SOMA's patients by
medical insurance companies, including out-of-
state and multi-state insurance carriers
. . . located in a number of different states
. . . .
6. During the time that Dr. Eddings was
employed by SOMA, he personally treated
patients for whom SOMA received fee payments
for out-of-state and multi-state insurance
carriers. These insurance carriers are located
in a number of different states . . . .
7. SOMA purchases supplies and services
. . . from a variety of vendors located within
and without the state of North Carolina
. . . .
8. Dr. Eddings provided services and
generated revenue that facilitated SOMA's
various interstate activities . . . .
9. The American Health Lawyers Association
Alternative Dispute Resolution Service
(AHLAADRS) is the organization specified by
the parties' contracts as the organization to
arbitrate 'any dispute, controversy, or
disagreement arising out of or relating to
this Agreement, including the breach thereof
. . . .' Section 6.06 of the AHLAADRS rules
states that there is no claim available for
and the arbitrator 'may not award
consequential, exemplary, incidental, punitive
or special damages . . . ,'while at the same
time section 1.05 provides that the provisions
within the rules and any exceptions thereto
are subject to the applicable law, and if
there is a difference in interpretation among
the parties, the arbitrator shall interpret
and apply the rules.
The trial court's findings of fact are sufficient to support its
conclusion that the agreements and
between Dr. Eddings
and SOMA involve interstate commerce, and therefore the FAA
applied. See also, Whitley v. Carolina Neurological Assocs., P.A.,
No. 1:01-CV-00105, 2002 WL 1009721, at *2 (M.D.N.C. Feb. 6,
2002)(the transaction in fact involves interstate commerce when a
doctor from Louisiana moved to North Carolina and through the
medical practice treats patients from other states, accepts
payments from out-of-state and multi-state insurance carriers, and
receives goods from out-of-state vendors); Jones v. Tenet Health
Network, Inc., U.S. Dist. LEXIS 5037, 6 Am. Disabilities Cas. (BNA)
1307(1997) (motion to stay discrimination action pendingarbitration was granted in employer's favor pursuant to agreement
to arbitrate when (1) employer was engaged in interstate commerce,
(2) employee freely consented to agree to arbitrate, (3) employee
did not lack the capacity to consent to arbitration, and (4)
employee failed to show such agreement to arbitrate was for an
Crawford v. West Jersey Health Sys., 847 F.
Supp. 1232, 1240, 1994 U.S. Dist. LEXIS 4181, at *21 (D.N.J.
1994)(employer's motion to stay the wrongful discharge action was
granted in part
, pending arbitration of doctor's employment
, and denied in part as to the doctor's motion for leave
to amend the complaint).
SOMA's contract with Dr. Eddings involved interstate commerce.
SOMA has provided evidence to demonstrate that it treats patients
who live in other states, receives payments from insurance carriers
outside North Carolina, and receives goods and services from out-
of-state vendors. Therefore, the trial court did not err in
determining Dr. Eddings and SOMA were engaged in interstate
commerce and the FAA applied.
 The next issue is whether the trial court erred by failing
to dismiss plaintiff's complaint and compel arbitration as to the
It is well settled under the FAA that a trial court has
jurisdiction to stay arbitration proceedings pursuant to contractonly upon grounds that relate specifically to the arbitration
clause and not just to the contract as a whole. Snowden v.
Checkpoint Check Cashing
, 290 F.3d 631, 636 (4th Cir.)(quoting
Hooters of Am., Inc. v. Phillips
, 173 F.3d 933, 938 (4th Cir.
1999)), cert. denied
, 537 U.S. 1087, 154 L. Ed. 2d 631 (2002).
Where a party challenges the enforceability or validity of the
contract containing the arbitration clause as a whole, it is within
the exclusive jurisdiction of the arbitrator to determine those
claims. Prima Paint Corp. v. Flood & Conklin Mfg. Co.
, 388 U.S.
395, 403-04, 18 L. Ed. 2d 1270, 1277 (1967)(holding pursuant to the
FAA arbitration clauses are severable from the contracts in which
they are included and thus, a broad arbitration clause encompasses
arbitration of claims that the contract itself is not
See also Keel v. Private Bus., Inc.
, 163 N.C. App.
703, 708, 594 S.E.2d 796, 798 (2004). The 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. Raspet v. Buck,
147 N.C. App. 133, 136, 554
S.E.2d 676, 678 (2001), citing PaineWebber Inc. v. Hartmann,
F.2d 507, 511 (3d Cir. 1990).
Our Court has adopted the
analysis with respect to whether a dispute is subject
to arbitration. The determination of 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 toarbitrate, and (2) whether the specific dispute falls within the
substantive scope of that agreement. Raspet
, 147 N.C. App.
The first prong of the analysis is satisfied as
clearly have an agreement to arbitrate pursuant to the SOMA
As to the second prong, we must determine
whether the claims fall within the scope of the agreement. In
reviewing plaintiff's complaint, the trial court compelled to
arbitration the following claims: actual and punitive damages for
alleged fraud; attorney's fees; covenant not to compete; the
contract was unconscionable as against public policy and praying
for rescission; the contract was unconscionable as against public
policy and praying for declaration as null and void.
Plaintiff argues that because the trial court compelled to
arbitration these disputes, he will be deprived of substantial
rights such as due process because an arbitrator, rather than a
court of law will adjudicate this dispute. However, in the
agreement between plaintiff and defendant, both parties mutually
consented to arbitration. Agreeing to arbitration does not, by
itself, prejudice plaintiff or prevent plaintiff from being heard
in the appropriate forum. In this case,
arbitration is the forum
to which both plaintiff and defendant consented to hear any dispute
surrounding the contract. As stated in the parties' agreement:
Any controversy, dispute, or disagreement arising out of orrelating to the Agreement . . . shall be settled exclusively
binding arbitration . . . .
(emphasis added). To that end, there
is no indication as to how the arbitrator will resolve the
substantive issues in controversy or whether the remedies that
plaintiff seeks apply.
Despite the agreement to arbitrate, however, the trial court
did not compel to arbitration plaintiff's prayers for relief:
rescission of the contract; no meeting of the minds; and quantum
meruit. Clearly the agreement to arbitrate the instant case is a
broad one. Accordingly, based on Prima Paint,
claims such as
rescission, no meeting of the minds, and quantum meruit directly
challenge the validity of the contract. Therefore such claims are
within the jurisdiction of the arbitrator. This does not diminish
the superior court's jurisdiction as to any claims unresolved
through arbitration. See Adams v. Nelson
, 313 N.C. 442, 446, 329
S.E.2d 322, 324 (1985)
(holding an agreement to arbitrate does not
cut off a party's access to the courts and further [holding] that
the court that compels arbitration does not lose jurisdiction.);
See also Henderson v. Herman
, 104 N.C. App. 482, 409 S.E.2d 739
Based on the trial court's determination that the
agreement and transactions between plaintiff and defendant involve
, failure to send all issues in controversy to
arbitration was error. Therefore the decision of the trial court
as to those claims not sent to arbitration
must be reversed.
We affirm in part and reverse in part.
Judges TYSON and STEELMAN concur.
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