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An unpublished opinion of the North Carolina Court of Appeals does not constitute controlling legal authority.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. COA06-746


Filed: 17 July 2007


v .                         Mecklenburg County
                            No. 05 CVS 5035



        Third Party Defendant.

    Appeal by Defendant from order entered 27 February 2006 by Judge Albert Diaz in Mecklenburg County Superior Court. Heard in the Court of Appeals 24 January 2007.

    DeVore, Acton, & Stafford, PA, by Fred W. DeVore, III, for Defendant-Appellant.

    Sellers, Hinshaw, Ayers, Dortch & Lyons, P.A., by Michelle Price Massingale, for Plaintiffs-Appellees.

    STEPHENS, Judge.

    By a complaint filed 16 March 2005, Plaintiffs   (See footnote 1)  alleged causes of action against Defendant   (See footnote 2)  on grounds of negligence and breach of the implied warranty of habitability with regard to Defendant's construction of certain “dwelling units” in two “exclusive residential communit[ies] of single-family attached residential units[,]” named University Heights and University Townes (“the Communities”). Pursuant to N.C. Gen. Stat. § 1A-1, Rule 12(b)(6), on 20 May 2005, Defendant moved to dismiss Plaintiffs' complaint alleging that “(1) the HOA [Homeowners Association] is without standing to bring the matter and (2) the sole remedy for the HOA is binding arbitration.” Defendant asserted that binding arbitration was mandatory under a third-party warranty allegedly provided to each homeowner in the Communities and under the “Declaration of Covenants, Conditions and Restrictions” (“Declarations”) applicable to each Plaintiff. Defendant's motion came on for hearing on 5 October 2005, and, by order filed 7 November 2005, the Honorable Albert Diaz denied the motion. Prior to entry of this order, on 4 November 2005, Defendant filed a third-party complaint against “Chang Brothers Contractors, Inc. and/or Chang Brothers Construction, Inc.” (“Chang Brothers”) alleging the right toindemnification or contribution from Chang Brothers   (See footnote 3)  in the event of a determination that Defendant was liable to Plaintiffs.
    Following this Court's decision in a companion case, Pineville Forest Homeowners Ass'n v. Portrait Homes Constr. Co., 175 N.C. App. 380, 623 S.E.2d 620 (2006), (“Pineville Forest I”),   (See footnote 4)  and with “the consent of the parties[,]” on 27 February 2006, Judge Diaz amended his initial order denying Defendant's motion to dismiss to include specific findings of fact and conclusions of law, as required by Pineville Forest I. From this order, Defendant appeals.   (See footnote 5)  We affirm the decision of the trial court.

    As a threshold matter, we note that “[a]n interlocutory order that denies arbitration affects a substantial right, and thus thisCourt has jurisdiction over an appeal from such an order.” King v. Owen, 166 N.C. App. 246, 248, 601 S.E.2d 326, 327 (2004) (citations omitted). Accordingly, although the order appealed from is interlocutory, we “review the [o]rder to the extent it involves a decision concerning the applicability of arbitration[.]” See Pineville Forest I, 175 N.C. App. at 385, 623 S.E.2d at 624. Moreover, although the record demonstrates that Defendant made only a Rule 12(b)(6) motion to dismiss before the trial court, the trial court's order and the parties' arguments to this Court treat Defendant's motion to dismiss as a motion to compel arbitration. Therefore, on review we will also treat Defendant's motion to dismiss as a motion to compel. See Novacare Orthotics & Prosthetics E., Inc. v. Speelman, 137 N.C. App. 471, 478, 528 S.E.2d 918, 922 (2000) (A motion to dismiss under Rule 12(b)(6) may be treated as “an application to stay litigation and compel arbitration pursuant to section 1-567.3(a) of the General Statutes[.]”).
    Public policy in North Carolina favors settling disputes through arbitration. Routh v. Snap-On Tools Corp., 108 N.C. App. 268, 423 S.E.2d 791 (1992). “However, before a dispute can be settled in this manner, there must first exist a valid agreement to arbitrate.” Id. at 271, 423 S.E.2d at 794 (citation omitted). “The party seeking arbitration bears the burden of proving the parties mutually agreed to the arbitration provision.” King, 166 N.C. App. at 248, 601 S.E.2d at 327 (citation omitted). When determining whether the parties mutually agreed to the arbitrationprovision, the law of contracts governs. Burgess v. Jim Walter Homes, Inc., 161 N.C. App. 488, 588 S.E.2d 575 (2003).
    “The question of whether a dispute is subject to arbitration is a question of law for the trial court, and its conclusion is reviewable de novo.” Pineville Forest I, 175 N.C. App. at 385-86, 623 S.E.2d at 624 (citing Raspet v. Buck, 147 N.C. App. 133, 554 S.E.2d 676 (2001)). To make this determination, this Court “must 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.” Raspet, 147 N.C. App. at 136, 554 S.E.2d at 678 (quotations and citation omitted).
    Defendant first contends that by allegedly accepting a third- party warranty in lieu of all other warranties, Plaintiffs, through the individual homeowners, agreed to submit the disputes at issue to binding arbitration. We disagree.
    Assuming arguendo that the acceptance of a third-party warranty by the individual homeowners would require Plaintiffs to participate in arbitration, Defendant has made no showing that the individual homeowners accepted a third-party warranty, and thus, there is no evidence that a valid agreement to arbitrate exists. In the Record on Appeal, Defendant included an affidavit from Scott Sokoloski, a company manager for Defendant, averring that “all homeowners were provided with a copy of the [third-party] warranty at the time of purchase.” Defendant has also included a copy of the third-party warranty that was allegedly provided to theindividual homeowners. However, there is no evidence in the record before this Court that any homeowner agreed, by a contract with Defendant or with the third-party warranty company, to accept a third-party warranty in lieu of all other warranties. In the absence of evidence that the individual homeowners agreed to accept the alleged third-party warranty in lieu of all other warranties, including the implied warranty of habitability on which Plaintiffs' lawsuit is based, Defendant has failed to prove the existence of an agreement to arbitrate pursuant to the alleged third-party warranty. Therefore, the trial court did not err in denying Defendant's motion to compel arbitration. See Raspet, supra. This argument is overruled.
    Defendant next argues the trial court erred in denying its motion to dismiss because Plaintiffs must participate in binding arbitration as required by their respective Declarations. Again, we disagree.
    In the case at bar, the second prong of the Raspet test is determinative. That is, assuming arguendo that Plaintiffs and Defendant agreed by their respective Declarations to resolve certain disputes through arbitration, under the unambiguous terms of their agreements, their dispute here is outside the scope of arbitrable issues.
    Section 12.2(e) of each Declaration provides that “any suit in which all parties are not Bound Parties” shall be exempt from the provision requiring binding arbitration. “Bound Parties” isdefined by Section 12.1 as the “Association, Declarant [(Defendant)], all Persons subject to this Declaration, and any Person not otherwise subject to this Declaration who agrees to submit to this Article[.]”
    In this case, by a complaint filed 4 November 2005, Defendant added Chang Brothers as a third-party defendant to this litigation. Chang Brothers is not listed as a “Bound Party” in the alleged agreement nor does the record reflect that Chang Brothers agreed to subject itself to the article governing arbitration. Therefore, under section 12.2(e) of the alleged arbitration agreement, the addition of Chang Brothers to the suit exempts the parties from the requirement of participation in binding arbitration. We also note that Defendant, the party seeking to enforce the arbitration clause, is the party who brought Chang Brothers into this case, thus exempting the case from arbitration. Accordingly, this assignment of error is overruled.
    For the reasons stated, the order of the trial court denying Defendant's motion to dismiss is affirmed.
    Judges TYSON and STROUD concur.
    Report per Rule 30(e).

Footnote: 1
    Plaintiffs are two individual homeowners associations for residential communities in Charlotte, North Carolina, and are “non profit corporation[s] organized and existing under the laws of” this State.
Footnote: 2
    Defendant “is an Illinois corporation organized and existing in . . . North Carolina with one of its principal places of business in Mecklenburg County, North Carolina.” Defendant developed the residential communities which are the subject of Plaintiffs' lawsuit.
Footnote: 3
    Chang Brothers “is a North Carolina corporation with its principal place of business in Mecklenburg County, North Carolina[,]” and is a “subcontractor” that Defendant engaged to complete some of the construction in the Communities.
Footnote: 4
    After this Court issued its opinion in Pineville Forest I, the Honorable W. Robert Bell issued an amended order containing specific findings of fact and conclusions of law in that case. Defendant appealed Judge Bell's amended order and that appeal (Pineville Forest II) is a companion case to the case decided in this opinion.
Footnote: 5
    Plaintiffs contend that Defendant's appeal should be dismissed pursuant to Rule 3 of the North Carolina Rules of Appellate Procedure because Defendant's notice of appeal was not timely filed. Specifically, Plaintiffs argue that because Defendant did not give notice of appeal from the trial court's initial order denying its Rule 12(b)(6) motion to dismiss, Defendant lost the right to appeal from the trial court's amended decision. However, Defendant did timely give notice of appeal from Judge Diaz's amended order which replaced and superceded the initial order. Accordingly, Defendant's notice of appeal from Judge Diaz's amended order vested this Court with jurisdiction to review that order.

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