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An unpublished opinion of the North Carolina Court of Appeals does not constitute controlling legal authority.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. COA06-790


Filed: 17 July 2007


v .                         Mecklenburg County
                            No. 04 CVS 14862


    Appeal by Defendant Portrait Homes Construction Company from order entered 7 March 2006 by Judge W. Robert Bell 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 Portrait Homes Construction Company.

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

    STEPHENS, Judge.
    By a complaint filed 9 September 2004, Plaintiff   (See footnote 1)  alleged causes of action against Portrait Homes Construction Company (“Defendant”)   (See footnote 2)  on grounds of negligence and breach of the implied warranties of habitability and quality and fitness with regard to Defendant's construction of certain “improvements” in Plaintiff's residential community of Pineville Forest (“the Community”). Pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure, on 28 September 2004, Defendant moved to dismiss Plaintiff's 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.” On 15 October 2004, Defendant moved to dismiss or stay Plaintiff's complaint pending binding arbitration. In its motion, Defendant asserted that each “member of the homeowners association purchased a home subject to the Covenants and Restrictions”   (See footnote 3)  and that “Article XII of the Covenants and Restrictions requires disputes pertaining to issues between the defendant and the plaintiff (and its members) to be adjudicated through binding arbitration[.]” In addition,Defendant argued that “the sales contract excludes all warranties except for the third party warranty provided to the homeowners[.]”
    On 3 November 2004, Plaintiff moved to amend its complaint and add as “John Doe” certain defendant subcontractors, alleging that Defendant “hired subcontractors to supply services and materials and to perform work on the Pineville Forest Community . . . [and that] Plaintiff has been unable to ascertain the identity of the defendant subcontractors[.]” On 20 December 2004, the Honorable W. Robert Bell allowed Plaintiff's motion to amend its complaint.   (See footnote 4)  That same day, Judge Bell denied Defendant's motion to dismiss and motion to stay and compel arbitration.
    On 13 January 2005, Defendant gave notice of appeal from Judge Bell's order. In an opinion filed 3 January 2006, this Court determined that portions of Defendant's appeal were interlocutory and not immediately appealable. Pineville Forest Homeowners Ass'n v. Portrait Homes Constr. Co., 175 N.C. App. 380, 623 S.E.2d 620 (2006) (“Pineville Forest I”). Additionally, this Court remanded the case for findings of fact “regarding the validity and applicability of the arbitration provisions” in the Covenants and Restrictions and the alleged third-party warranty. Id. at 387, 623 S.E.2d at 625 (citations omitted). Based on the direction provided by this Court, on 7 March 2006, Judge Bell entered an amended order containing specific findings of fact and conclusions of law, again denying Defendant's motions to dismiss Plaintiff's complaint orstay that action pending arbitration. From Judge Bell's amended order, Defendant appeals. For the reasons set out below, we affirm the order of the trial court.

    Defendant argues that the trial court erred in denying its motions to dismiss because Plaintiff must participate in binding arbitration as required by the third-party warranty allegedly accepted by the individual homeowners in the Community and by the Covenants and Restrictions applicable to the Community.
    “An interlocutory order that denies arbitration affects a substantial right, and thus this Court 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.
    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 asserts that the third-party warranty allegedly accepted by the individual homeowners requires Plaintiff to participate in arbitration. We disagree.
    Assuming arguendo that the acceptance of a third-party warranty by the individual homeowners would require Plaintiff 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 one “Land and Building Contract” signed by “Marilyn F. Kesler” (“Kesler”) as “Purchaser” which states: “Seller's warranties are solely in accordance with its limited warranty, a copy of which is available for inspection at Seller's office and will be delivered to Purchaser at closing. These provisions are incorporated herein and are in lieu of allother warranties, expressed or implied.” Defendant also included an application for a third-party warranty, again signed by Kesler. That application states in pertinent part that
        [t]his warranty is invalid until a valid sticker . . . is attached to the . . . warranty book . . . . Purchaser understands and agrees that, if the warranty is validated, it is provided by the Builder in lieu of all other warranties, . . . and Builder makes no warranty, express or implied as to [quality or] fitness for a particular purpose, merchantability, habitability or otherwise, except as expressly set forth in the Program.

(Emphasis added). Finally, Defendant included an example of the third-party warranty allegedly provided to all homeowners.
    There is no evidence in the documents provided by Defendant, however, that any homeowner, other than Kesler, signed a “Land and Building Contract,” signed an application for the third-party warranty, or was provided a copy of the third-party warranty. Furthermore, although Defendant provided the contract and application signed by Kesler, there is no evidence that the third- party warranty allegedly furnished to Kesler has the required validation sticker. Therefore, by the express terms of the warranty application it required, Defendant has failed to show that the warranty purportedly given to and accepted by Kesler is valid. Accordingly, Defendant has not proved the existence of an agreement to arbitrate pursuant to an alleged third-party warranty. See Raspet, supra. The trial court thus did not err in denying Defendant's motions to dismiss Plaintiff's complaint or to compel arbitration based on the alleged third-party warranty. This argument is overruled.
    With regard to Defendant's additional argument that the Covenants and Restrictions mandate binding arbitration, the second prong of the Raspet test determines the issue between the parties. That is, assuming arguendo that Plaintiff and Defendant agreed by their Covenants and Restrictions to resolve certain disputes through arbitration, under the unambiguous terms of the agreement, their dispute here is outside the scope of arbitrable issues.
    Section 12.2(e) of the Covenants and Restrictions provides that “any suit in which all parties are not Bound Parties” shall be exempt from the provision requiring binding arbitration. “Bound Parties” is defined 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 order entered 20 December 2004, Judge Bell granted Plaintiff's motion to amend its original complaint to add as unnamed defendants, subcontractors that supplied “services and materials . . . and perform[ed] work on” the Community. Additionally, by order entered 17 March 2005, Judge Bell granted Plaintiff's motion to substitute the names of the unnamed subcontractors in Plaintiff's complaint. These subcontractors are not listed as “Bound Part[ies]” in the alleged agreement nor does the record reflect that the subcontractors agreed to subject themselves to the article governing arbitration. Therefore, under section 12.2(e) of the alleged arbitration agreement, the additionof the subcontractors to the suit exempts the parties from the requirement of participation in binding arbitration. Accordingly, this assignment of error is overruled.
    For the reasons stated, the order of the trial court is affirmed.
    Judges TYSON and STROUD concur.
    Report per Rule 30(e).

Footnote: 1
    Plaintiff is a homeowners association for a residential community in Charlotte, North Carolina, and is “a non-profit corporation organized and existing under the laws of” this State.
Footnote: 2
    Defendant “is a corporation organized and existing under the laws of . . . Illinois which is authorized to conduct business in . . . North Carolina and which maintains a principal place of business in Mecklenburg County, North Carolina.” Defendant developed the residential community which is the subject of Plaintiff's lawsuit.
Footnote: 3
    The Covenants and Restrictions were drafted and recorded in the Mecklenburg County Register of Deeds by Defendant and govern various aspects of property rights, maintenance, insurance, and dispute resolution in the Community.
Footnote: 4
    On 17 March 2005, Judge Bell granted Plaintiff's motion to substitute for “John Doe” the names of the subcontractors that appear in the caption of this opinion.

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