Link to original WordPerfect file
Link to PDF file
How to access the above link?
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.
NORTH CAROLINA COURT OF APPEALS
Filed: 19 July 2005
JAMES S. BROWN, JR. & JACKY
No. 03 CVS 1909
CENTEX HOMES; MARY KATHRYN
KROENING; DODD & ASSOCIATES,
INC.; and JERRY OWENS,
Appeal by defendants Centex Homes and Mary Kathryn Kroening
from order entered 11 May 2004 by Judge Wade Barber in Orange
County Superior Court. Heard in the Court of Appeals 21 April
Law Office of Robert B. Jervis, P.C., by Robert B. Jervis, for
John T. Benjamin, Jr., and William E. Hubbard, for defendant-
appellant Centex Homes.
Manning Fulton & Skinner, P.A., by William C. Smith, Jr., for
defendant-appellant Mary Kathryn Kroening.
No brief filed for defendant-appellees Dodd & Associates, Inc.
and Jerry Owens.
Centex Homes (Centex) and Mary Kathryn Kroening (Kroening)
(collectively, defendants) appeal order entered 11 May 2004
granting Centex's motion to stay and compel arbitration and denying
Kroening's motion to stay and compel arbitration. We reverse and
On 21 January 2002, James S. Brown, Jr., and Jacky A. Rosati
(plaintiffs) met with Kroening at a sales office owned by Centex
located in the Becket's Ridge Subdivision in Hillsborough, North
Carolina. Plaintiffs looked at a home located adjacent to a wooded
piece of property. Plaintiffs asked Kroening about future plans
for the adjacent land. She replied that there were no current
plans, but if the property were developed, the construction would
be residential. Plaintiffs executed a contract to purchase the
home (the Contract) and paid Centex a deposit. At this time, the
Town of Hillsborough had approved construction of a shopping center
anchored by a Wal-Mart store on the adjacent wooded tract.
On 22 October 2003, plaintiffs filed a complaint against
defendants alleging fraud and unfair and deceptive trade practices
and requesting punitive damages. Defendants filed: (1) a motion
to stay and compel arbitration; (2) a motion to dismiss under N.C.
Gen. Stat. § 1A-1, Rule 12(b); and (3) an answer and affirmative
defenses. Defendants' motion to stay and compel arbitration was
heard in Orange County Superior Court on 3 May 2004. The trial
court considered the pleadings, motions, and affidavits submitted
by the parties and heard arguments by counsel. On 11 May 2004, the
trial court entered an order granting Centex's motion to stay and
compel arbitration and denying Kroening's motion to stay and compel
arbitration. Defendants Centex and Kroening appeal.
The issue on appeal is whether the arbitration clause included
in the Contract between plaintiffs and Centex extends to Kroening.
III. Interlocutory Appeal
This Court has repeatedly held that an order denying
arbitration, although interlocutory, is immediately appealable
because it involves 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) (citations omitted). Pursuant to
Rule 28(b)(4) of the North Carolina Rules of Appellate Procedure,
defendants properly recognized the interlocutory nature of their
appeal and argued the grounds for immediate appellate review.
N.C.R. App. P. 28(b)(4) (2004); see also Chicora Country Club,
Inc., et al. v. Town of Erwin, 128 N.C. App. 101, 105, 493 S.E.2d
797, 800 (1997).
IV. Standard of Review
This Court recently outlined the appropriate standard of
review for considering the applicability of an arbitration
The question of whether a dispute is subject
to arbitration is an issue for judicial
determination. This determination involves a
two-step analysis requiring the trial court to
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.
A dispute can only be settled by arbitration
if a valid arbitration agreement exists. The
party seeking arbitration must show that the
parties mutually agreed to arbitrate their
disputes. The trial court's findings
regarding the existence of an arbitration
agreement are conclusive on appeal wheresupported by competent evidence, even where
the evidence might have supported findings to
the contrary. However, the trial court's
determination of whether a dispute is subject
to arbitration is a conclusion of law that is
reviewable de novo on appeal.
Revels v. Miss Am. Org., 165 N.C. App. 181, 188-89, 599 S.E.2d 54,
59 (quoting Slaughter v. Swicegood, 162 N.C. App. 457, 461, 591
S.E.2d 577, 580 (2004)) (internal citations and quotations
omitted), disc. rev. denied, 359 N.C. 191, 605 S.E.2d 153 (2004).
Defendants argue the scope of the arbitration agreement
included in the Contract between Centex and plaintiffs also extends
to Kroening and her relationship with plaintiffs. We agree.
A. Valid Agreement
North Carolina recognizes a strong public policy in favor of
arbitration. Johnston County v. R. N. Rouse & Co., 331 N.C. 88,
91, 414 S.E.2d 30, 32 (1992). However, before a dispute can be
ordered resolved through arbitration, there must be a valid
agreement to arbitrate. LSB Fin. Servs., Inc. v. Harrison, 144
N.C. App. 542, 547, 548 S.E.2d 574, 577-78 (2001) (citations
omitted). The law of contracts governs the issue of whether an
agreement to arbitrate exists. Routh v. Snap-On Tools Corp., 108
N.C. App. 268, 271, 423 S.E.2d 791, 794 (1992) (citing Southern
Spindle and Flyer Co., Inc. v. Milliken & Co., 53 N.C. App. 785,
281 S.E.2d 734 (1981), disc. rev. denied, 304 N.C. 729, 288 S.E.2d
Both our research and that of the parties fail to disclose
precedent established by our State appellate courts addressing theissue at bar. We turn our attention to federal decisions and
opinions drafted by other jurisdictions. Although we are not bound
by federal case law, we may find their analysis and holdings
persuasive. Huggard v. Wake County Hospital System, 102 N.C. App.
772, 775, 403 S.E.2d 568, 570 (1991) (As an interpretation of
state law by a federal court, this holding is not binding on us;
however, we find its analysis persuasive.), aff'd, 330 N.C. 610,
411 S.E.2d 610 (1992); Trust Co. v. R.R., 209 N.C. 304, 308, 183
S.E. 620, 622 (1936) (It may not be amiss to say that the
decisions of other jurisdictions are persuasive, but not binding on
us.); Giles v. First Virginia Credit Servs., Inc., 149 N.C. App.
89, 99, 560 S.E.2d 557, 564 (2002) (While cases from other
jurisdictions are not binding on our courts, they provide insight
. . . and therefore are instructive.), disc. rev. denied and
appeal dismissed, 355 N.C. 491, 563 S.E.2d 568 (2002).
In Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, the
Third Circuit Court of Appeals considered application of an
arbitration clause between the employee of a corporation and a
suing client. 7 F.3d 1110 (3rd Cir. 1993). The client alleged
mishandling of its accounts by the corporation and its employee.
Id. at 1113. Prior to opening the investment account, the client
had signed an agreement with the corporation which included an
arbitration clause. Id. at 1112. One of the central issues was
whether the arbitration agreement extended to the corporation's
employee. Id. at 1121. The court held, [u]nder traditional
agency theory, [the employee] is subject to contractual provisionsto which [the employer] is bound . . . . Because a principal is
bound under the terms of a valid arbitration clause, its agents,
employees, and representatives are also covered under the terms of
such agreements. Id. (citing Arnold v. Arnold Corp., 920 F.2d
1269, 1281-82 (6th Cir. 1990); Letizia v. Prudential Bache
Securities, 802 F.2d 1185, 1187-88 (9th Cir. 1986)). The Third
Circuit noted, [a]n entity . . . can only act through its
employees . . . . Id. at 1122 (citing Trott v. Paciolla, 748 F.
Supp. 305, 309 (E.D. Pa. 1990)).
The United States District Court for the Middle District of
North Carolina addressed this issue in Collie v. Wehr Dissolution
Corp., 345 F. Supp. 2d 555 (M.D.N.C. 2004). The plaintiff filed a
complaint against the defendants, a corporation, its majority
shareholder, and general manager, for causes of action arising from
his termination of employment. Id. at 557. The latter two
defendants were individuals. Id. at 561. A dispositive issue was
whether an arbitration clause in an employment contract signed by
the plaintiff and the defendant corporation precluded subject
matter jurisdiction for the two individual defendants who did not
sign the contract. Id.
Generally, one who is not a party to an
arbitration agreement lacks standing to compel
arbitration. Non-signatories to an
arbitration agreement may be bound by or
enforce an arbitration agreement executed by
other parties under theories arising out of
common law principles of contract and agency
law. Under the theory of agency, an agent can
assume the protection of the contract which
the principal has signed. Courts have applied
this principle to allow for non-signatoryagents to avail themselves of the protection
of their principal's arbitration agreement.
Id. at 561-62 (internal citations and quotations omitted). The
court held that although the two individual defendants did not sign
the employment contract containing the arbitration clause, their
status as agents of the Corporate Defendant enables them to use the
[arbitration clause] to compel arbitration. Id. at 562.
Here, there is no dispute an agreement to arbitrate exists
between plaintiffs and Centex. Plaintiffs did not appeal the trial
court's order staying their claims against Centex and compelling
them to submit their disputes against Centex to binding
arbitration. Rather, the issue concerns whether that arbitration
agreement extends to Centex's agent, Kroening.
Kroening did not sign the Contract which included the
arbitration clause. However, her status as an agent of Centex
affords her the right of arbitration. Id. The basis for
plaintiffs' claims derive from Kroening's representation as an
agent for Centex. Plaintiffs' complaint alleges: At all times
relevant to the issues involved in this action, Defendant Kroening
was an employee, agent and representative of Defendant Centex and
all of Defendant Kroening's acts and omissions complained of herein
were committed by her in the course and scope of her employment
with Defendant Centex. Plaintiffs' claims against Centex are
based exclusively upon the conduct of its employee, Kroening, under
vicarious liability. In order to reach Centex, plaintiffs must
show Kroening was acting as its agent in furtherance of its
business goals during the times at issue. As the Third Circuitnoted in Pritzker, An entity . . . can only act through its
employees . . . . 7 F.3d at 1122 (citing Trott, 748 F. Supp. at
309). Plaintiffs cannot circumvent the arbitration agreement with
Centex by seeking damages from Centex's individual employee. We
hold the arbitration clause in the Contract between plaintiffs and
Centex extends to Kroening.
B. Dispute at Issue
Arbitration is contractually agreed to and 'only those
disputes which the parties have agreed to submit to arbitration may
be so resolved.' Collie, 345 F. Supp. 2d at 562 (quoting Rodgers
Bldrs., Inc. v. McQueen, 76 N.C. App. 16, 23, 331 S.E.2d 726, 731
(1985), disc. rev. denied, 315 N.C. 590, 341 S.E.2d 29 (1986)).
Courts look to the language of an agreement to determine whether
the parties agreed to submit a particular dispute or claim to
arbitration . . . and ascertain[s] whether the claims fall within
its scope[.] Id. (internal quotations omitted).
The Contract included the following language concerning the
Arbitration of disputes following closing:
Seller prides itself on having many satisfied
customers. In the unlikely event that a
dispute relating to the marketing, sale,
design, construction or conveyance of the
residence arises between them after closing of
the residence purchase, including a claim for
personal injury or misrepresentation,
Purchaser and Seller agree to resolve the
dispute exclusively through binding
arbitration. The arbitration will be
conducted by the American Arbitration
Association, in accordance with its Commercial
Arbitration Rules . . . .
(Emphasis supplied). The basis for plaintiffs' claims is Kroening's alleged
misrepresentation concerning the future development and use of
adjoining property. Under the terms of the arbitration clause,
this dispute clearly falls within the scope of the agreement and is
subject to arbitration. See Revels, 165 N.C. App. at 188-89, 599
S.E.2d at 59.
This interlocutory appeal is properly before us due to
defendants' assertion of the substantial right at issue. The
arbitration agreement entered into by plaintiffs and Centex
extended to Centex's agent, Kroening. This dispute is covered by
the arbitration clause. The trial court's order is reversed and
this matter is remanded.
Reversed and Remanded.
Chief Judge MARTIN and Judge LEVINSON concur.
*** Converted from WordPerfect ***