An unpublished opinion of the North Carolina Court of Appeals does not constitute controlling legal authority. Citation is disfavored, but may be permitted in accordance with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure.

NO. COA05-1429

NORTH CAROLINA COURT OF APPEALS

Filed: 20 June 2006

HARCO NATIONAL INSURANCE
COMPANY
        

v .                         Wake County
                            No. 05 CVS 2299

BDO SEIDMAN, LLP

        

    Appeal by defendant from order filed 24 August 2005 by Judge Wade Barber in Wake County Superior Court. Heard in the Court of Appeals 13 April 2006.

    Ragsdale Liggett, P.L.L.C., by Mary Hulett and Jessica C. Tyndall, for plaintiff-appellee.

    Parker, Poe, Adams & Bernstein L.L.P., by Irvin W. Hankins III, Regina W. Swinea and Melanie Black Dubis, for defendant- appellant.

    STEELMAN, Judge.

    Capital Bonding Corporation (Capital), which is not a party to this action, sold bail bonds throughout the United States. Because these bonds are a form of insurance, and because Capital was not a licensed insurance company, Capital was required to affiliate with licensed insurance companies (fronting companies) in order to engage in this business.
    Plaintiff is in the business of selling property and casualty insurance, and in 2002 Capital solicited plaintiff to become a fronting company for its bond program. Capital presented businessand financial documents to plaintiff in order to demonstrate the financial viability of its bond program. Plaintiff and Capital entered into a Program Administrator Agreement (PAA) effective 1 January 2003 which detailed the rights and obligations of the parties. Under the PAA, Capital was required to maintain sufficient assets to cover all forfeited bonds, and was further required to provide plaintiff with yearly consolidated financial statements prepared by an independent certified public accountant. Breach of the agreement by Capital allowed immediate withdrawal from the PAA by plaintiff. The PAA included an arbitration clause stating that any dispute or difference between the parties which is not resolved in non-binding mediation “shall be submitted to binding arbitration....”
    On 22 April 2003, Capital executed an engagement letter (engagement agreement) with defendant, an independent certified public accounting firm, whereby defendant agreed to perform an audit of Capital's consolidated financial statements for the year ending 31 December 2002. Defendant performed the audit, which stated Capital was profitable and had substantial assets. The engagement agreement also contained an arbitration clause. No agreements were executed between plaintiff and defendant, including agreements mandating arbitration of disputes.
    Plaintiff was called upon to make substantial payments on forfeited bonds in the Spring of 2004, but when they approached Capital, they discovered that Capital was insolvent and unable tomeet its obligations. Plaintiff further determined that Capital had been insolvent at the time defendant conducted its 2002 audit.
    Plaintiff filed this action on 23 February 2005 alleging negligence and negligent misrepresentation on the part of defendant. In its complaint, plaintiff alleged defendant was negligent in conducting its audit of Capital's 2002 financial statements, and that had defendant performed its job in a reasonable manner, plaintiff would have been appraised of Capital's dire financial situation, and would have withdrawn from its agreement with Capital prior to the Spring of 2004.
    Defendant filed a motion to dismiss plaintiff's claim, and an alternative motion to compel arbitration, on 21 April 2005. The trial court denied both motions by order filed 24 August 2005. Defendant does not appeal the denial of its motion to dismiss, but does appeal the denial of its motion to compel arbitration.
    In defendant's only argument, it contends that the trial court erred in denying defendant's motion to compel arbitration because plaintiff is estopped from avoiding the arbitration requirements of the agreements that form the basis of its claims against defendant. We disagree.
        At the outset, we note that “an order denying arbitration, although interlocutory, is immediately appealable because it involves a substantial right which might be lost if appeal is delayed.” “The first task of a court asked to compel arbitration of a dispute is to determine whether the parties agreed to arbitrate that dispute.”

Revels v. Miss Am. Org., 165 N.C. App. 181, 186, 599 S.E.2d 54, 57- 58, rev. denied 359 N.C. 191, 605 S.E.2d 153 (2004) (citations omitted). “ '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.' Brown v. Centex Homes, __ N.C. App. __, __, 615 S.E.2d 86, 87 (2005) (citations omitted).
    In the instant case, no arbitration agreement was ever executed between plaintiff and defendant. Defendant seeks to compel arbitration based upon two agreements which contain arbitration clauses, the PAA, executed by plaintiff and Capital, and the engagement agreement between Capital and defendant. Defendant contends plaintiff should be equitably estopped from denying arbitration because plaintiff's claims against defendant are ultimately based upon these agreements.
    “'Equitable estoppel precludes a party from asserting rights “he otherwise would have had against another” when his own conduct renders assertion of those rights contrary to equity.'” Ellen v. A.C. Schultes of Md., Inc., __ N.C. App. __, __, 615 S.E.2d 729, 732 (2005) (citations omitted).
        In the arbitration context, the doctrine recognizes that a party may be estopped from asserting that the lack of his signature on a written contract precludes enforcement of the contract's arbitration clause when he has consistently maintained that other provisions of the same contract should be enforced to benefit him. “To allow [a plaintiff] to claim the benefit of the contract and simultaneously avoid its burdens would both disregard equity and contravene the purposes underlying enactment of the Arbitration Act.”
Id.(citations omitted).
    When a plaintiff has executed a contract with a third party, then attempts to rely upon provisions of that contract in its claims against a defendant, plaintiff may be estopped from denying enforcement of an arbitration clause in that contract. Id. In Ellen, plaintiffs were shareholders in a construction company that entered into agreements with defendant for the construction of sewer and water projects. All of these agreements included clauses mandating arbitration of disputes. Plaintiffs alleged that defendant conspired to damage their business and reputations. Defendant attempted to compel arbitration based upon the agreements executed by defendant and plaintiffs' construction company. Because the agreements were executed on behalf of plaintiffs' company, and not plaintiffs individually, the trial court ruled that no binding arbitration agreement existed between plaintiffs and defendant, and denied defendant's motion to compel arbitration.
    This Court affirmed the trial court, even though the contracts including the arbitration clauses between plaintiffs' company and defendant constituted part of the “factual basis” of plaintiff's complaint against defendant. This court held that plaintiffs were not seeking any direct benefit from any provisions in the contracts in their suit against defendant, and none of plaintiffs' claims against defendant depended upon the contract. For these reasons, the Ellen Court held “that the doctrine of equitable estoppel cannot be used to force plaintiffs to arbitrate their individual claims.” Id. at __, 615 S.E.2d at 733.    In the instant case, though the contracts including the arbitration clauses form part of the factual basis of plaintiff's complaint, plaintiff does not seek any direct benefit from any provisions of these contracts in its suit against defendant. Plaintiff's complaint only includes claims for negligence and negligent misrepresentation, and does not include any contract claims. Therefore, “defendants' liability will be determined by its duties under North Carolina statutory and common law, not by its duties under the contracts . . . .” Id. These facts do not support any basis to equitably estop plaintiff from denying the existence of a binding arbitration agreement, and we hold that no such agreement exists between the parties. Because we hold that no arbitration agreement exists between the parties, we further hold that the trial court did not err in dismissing defendant's motion to compel arbitration. This argument is without merit.
    AFFIRMED.
    Judges McCULLOUGH and CALABRIA concur.
    Report per Rule 30(e).

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