397 P.3d 797
Utah Ct. App.2017Background
- Edwards, Michael, and Wendy were the only Seirus directors; Michael and Wendy also served as officers and signed employment agreements with arbitration clauses covering disputes arising from performance of those agreements.
- In a July 27, 2015 Board meeting Michael (as Chair) and Wendy voted to remove Edwards from his officer positions and approved an Equity Exchange allowing shareholders to convert debt to equity; Michael subsequently converted nearly $4 million of his loan, increasing his ownership to 55.44%.
- Edwards sued the Careys alleging the Board actions were conflicted, breached fiduciary duties, diluted his ownership, sought to void the actions, remove the Careys as directors, and obtain monetary relief.
- Michael and Wendy moved to compel arbitration under their employment agreements, arguing Edwards’ claims arose from their officer conduct and/or were derivative claims belonging to Seirus.
- The district court denied the motion, concluding Edwards’ complaint focused on actions taken by the Careys as directors (and Michael as a shareholder), not as officers governed by the employment agreements; the court did not decide whether the claims were derivative.
- The Court of Appeals affirmed: arbitration did not apply because Edwards’ claims were directed at the Careys’ conduct as directors/shareholder rather than under their officer employment agreements.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Edwards’ claims fall within the scope of the Careys’ employment arbitration clauses | Edwards argued his claims target the Careys as directors/shareholder, not under employment agreements | Careys argued their Board actions flowed from officer roles and thus fall within arbitration clauses covering disputes about performance of the employment agreements | Held: Claims arise from director/shareholder actions at the Board meeting, not from duties under employment agreements; arbitration clause does not apply |
| Whether Edwards — not a signatory — can be compelled to arbitrate via derivative theory | Edwards contended his claims are individual (not derivative), and he only seeks relief for director actions | Careys argued the claims are derivative belonging to Seirus, so Seirus’ employment contracts require arbitration | Held: Court did not reach or decide derivative question because claims were not within the employment agreements' scope |
| Whether overlapping officer/director roles preclude distinguishing which "hat" defendants wore | Edwards: Complaint specifically challenges corporate actions taken by the Board majority | Careys: Overlapping roles make it impossible to disentangle officer conduct from director conduct, invoking strong arbitration policy | Held: Court can and did distinguish; complaint plainly targets director acts, so arbitration policy does not compel arbitration |
Key Cases Cited
- MacDonald Redhawk Investors v. Ridges at Redhawk, LLC, 153 P.3d 787 (Utah Ct. App. 2006) (standard of review for motion to compel arbitration)
- Kenny v. Rich, 186 P.3d 989 (Utah Ct. App. 2008) (presumption favoring arbitration does not create presumption that an arbitration agreement exists)
- Cade v. Zions First Nat’l Bank, 956 P.2d 1073 (Utah Ct. App. 1998) (arbitration is a matter of contract; parties cannot be forced to arbitrate disputes they did not agree to submit)
- Mariposa Express, Inc. v. United Shipping Solutions, LLC, 295 P.3d 1173 (Utah Ct. App. 2013) (recognizing strong public policy favoring arbitration)
- AT&T Tech., Inc. v. Communications Workers of America, 475 U.S. 643 (U.S. 1986) (parties cannot be required to arbitrate disputes absent agreement)
- Howard v. Ferrellgas Partners, LP, 748 F.3d 975 (10th Cir. 2014) (federal arbitration policy requires an underlying agreement to arbitrate before the FAA’s deference applies)