473 P.3d 1177
Utah Ct. App.2020Background
- HITORQ LLC (sole member Lisa Pasquarello) owned 25% of a veterinary clinic LLC; Artz Vetmed Services (Artz) and TCC (Stiens) owned remaining interests. The Clinic's Operating Agreement includes an arbitration clause for disputes "regarding the enforcement or interpretation of this Agreement."
- Artz agreed to purchase HITORQ's membership interest in 2015 but the sale did not close; Plaintiffs allege Artz and Stiens barred Pasquarello from working and later voted to expel HITORQ.
- Plaintiffs sued alleging breach of the (oral/written) purchase agreement (Contract Claim), breach of the covenant of good faith and fair dealing (Good Faith Claim), and statutory dissolution under Utah Code §48‑3a‑701 (Dissolution Claim); they attached the Operating Agreement to the complaint.
- Defendants moved to compel arbitration under the Operating Agreement; the district court compelled arbitration for the three claims, appointed an arbitrator, and denied Plaintiffs’ later motion to stay arbitration to allow a court valuation under the statutory election-to-purchase procedure.
- The arbitrator ruled for Defendants on the Contract and Good Faith claims, declined dissolution but ordered a buyout/valuation; the district court denied Plaintiffs’ motion to vacate the award and confirmed the award. Plaintiffs appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Arbitrability of Contract Claim | Contract claim enforces an oral/purchase agreement separate from the Operating Agreement; purchase agreement has no arbitration clause. | Contract claim’s factual core implicates Operating Agreement terms (sale together with real estate membership, distributions/accounts receivable), so it falls under arbitration clause. | Claim is arbitrable—the dispute’s factual underpinnings require enforcing/interpreting the Operating Agreement. |
| Arbitrability of Good Faith Claim | Good faith breach stems from the purchase collapse, not enforcement of Operating Agreement terms. | Allegations (denial of Clinic Debt Payments; expulsion) require interpreting and enforcing Operating Agreement provisions. | Claim is arbitrable—resolution requires interpreting/enforcing Operating Agreement. |
| Arbitrability of Dissolution Claim | Dissolution is a statutory remedy under Utah law, independent of the Operating Agreement, so not subject to arbitration. | Plaintiffs grounded dissolution on being denied membership rights and distributions under the Operating Agreement, making the claim depend on interpretation/enforcement of that Agreement. | Claim is arbitrable—the factual basis for dissolution alleged denial of rights under the Operating Agreement. |
| Stay for statutory valuation/election to purchase | The court must stay arbitration and determine fair market value under Utah statutory election-to-purchase procedure. | The election-to-purchase is part of the dissolution remedy and, once dissolution was arbitrated, the arbitrator may adjudicate valuation/remedies in lieu of dissolution. | Denial of stay affirmed—the election/valuation issue was compelled into arbitration along with the Dissolution Claim. |
Key Cases Cited
- CardioNet, Inc. v. Cigna Health Corp., 751 F.3d 165 (3d Cir. 2014) (arbitrability depends on the factual underpinnings, not the pleaded theory)
- Central Fla. Invs., Inc. v. Parkwest Assocs., 40 P.3d 599 (Utah 2002) (Utah policy favors arbitration and contracts are interpreted in light of that policy)
- Mariposa Express, Inc. v. United Shipping Sols., LLC, 295 P.3d 1173 (Utah Ct. App. 2013) (summary court procedure to decide arbitrability)
- MacDonald Redhawk Invs. v. Ridges at Redhawk, LLC, 153 P.3d 787 (Utah Ct. App. 2006) (standard of review for motions to compel arbitration)
- Edwards v. Carey, 397 P.3d 797 (Utah Ct. App. 2017) (liberal interpretation of arbitration provisions favored)
- Buzas Baseball, Inc. v. Salt Lake Trappers, Inc., 925 P.2d 941 (Utah 1996) (looking to out-of-state and federal law where Utah law is sparse)
- Duke v. Graham, 158 P.3d 540 (Utah 2007) (discretionary fee awards on appeals of arbitration awards; balance policies when awarding fees)