T.M.C.S., INC. d/b/a TM CONSTRUCTION, INC., Plaintiff, v. MARCO CONTRACTORS, INC., Defendant.
No. COA15-354
IN THE COURT OF APPEALS OF NORTH CAROLINA
1 December 2015
Forsyth County, No. 13 CVS 6669
CALABRIA, Judge.
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., by Clint S. Morse, for plaintiff-appellee.
Bell, Davis & Pitt, P.A., by D. Anderson Carmen, for defendant-appellant.
CALABRIA, Judge.
Defendant Marco Contractors, Inc. (“Marco“) appeals from an order denying its motion to compel arbitration. For the reasons that follow, we affirm.
Background
This case arises from a construction contract for the renovation of a Wal-Mart, Inc. (“Wal-Mart“) retail store. Marco, a construction management company based in Pennsylvania, regularly performs construction work for Wal-Mart. Plaintiff TM Construction, Inc. (“TM“) is a licensed North Carolina general contractor. On 18 April 2013, John Yenges (“Yenges“) of Marco contacted TM‘s president, Thomas Malone
On or about 23 April 2013, Yenges approached Malone with a written contract (“the contract“)1 to be executed between Marco and TM. While reviewing the contract, Malone noticed that the total amount, $79,638.00, matched the total recited in the quotations for labor and equipment, but the contract obligated TM to provide all necessary materials for the construction project. After Malone pointed out this discrepancy in the scope of work, Yenges agreed that some of the new terms were incorrect and indicated that the contract was Marco‘s standard form agreement. Significantly, the contract contained an arbitration provision, which stated that any
About six weeks later, in a letter dated 3 June 2013, James Good (“Good“) of Marco demanded that TM cease work on the project, claiming that Marco had no signed construction contract from TM on file. After Malone explained that Yenges had not finished the previously agreed-upon revisions, Good asked Malone to send Marco a signed copy of the contract that was to be amended. Since Good indicated the quotations’ terms would be incorporated into the agreement, Malone signed and initialed the contract and back-dated it to 24 April 2013, the approximate date Yenges and Malone identified and discussed the discrepancies. Malone then faxed the document to Good, who signed for Marco on 10 June 2013.
Subsequently, Marco employee Mary Crawford asked TM to provide a quotation for additional work on the Wal-Mart‘s nursery area, and Malone complied with the request. In a separate communication, Good called Malone and asserted that Marco would hold TM to the original terms of the contract, which did not conform to the quotations. Although Malone responded that TM would not work under those terms, Marco accepted TM‘s proposal for the nursery job as additional work that was not included in the original quotations. TM completed the original project as well as the additional nursery work, and last furnished labor or materials on 14 August 2013.
Both during and after TM‘s performance, Marco issued several “change orders” which reflected additions to and deductions from the contract price. Most of the change orders reduced the contract price, that is, the amount Marco would pay for TM‘s services. For example, Marco issued three change orders reducing the scope of TM‘s work and two change orders reflecting deductions for paint and other materials Marco had provided. In July and August 2013, TM sent Marco three invoices totaling $101,780.00, but Marco agreed to pay only $38,833.94, the “revised contract total” as determined by the change orders.
On 4 September 2013, TM filed a claim of lien on the real property in Forsyth County and served Marco with a claim of lien on funds. TM then filed a complaint in Forsyth County Superior Court seeking judgment on its claim of lien in the amount of $101,780.00. TM‘s complaint also alleged that the quotations represented the
When TM filed a second motion for sanctions, Marco responded by filing a motion for summary judgment. As an alternative form of relief, Marco also filed a motion to compel arbitration proceedings in Pennsylvania. After conducting a hearing in Forsyth County, the trial court entered an October 2014 order denying both of Marco‘s motions. The trial court denied Marco‘s summary judgment motion because “genuine issues as to material facts” remained. As for the motion to compel arbitration, the trial court expressly declined “to decide the issue of whether the . . . [c]ontract (and its arbitration provision) [was] valid and enforceable.” The trial court concluded that even if a valid and enforceable agreement existed, Marco failed to demand arbitration within the time limit set forth in the contract. In addition, as “an independent reason” to deny the motion to compel, the trial court concluded that TM had been prejudiced by Marco‘s “failure to timely seek arbitration.” Finally, the trial court ordered Marco to produce certain internal e-mails or provide affidavits that the
Analysis
A. Grounds For Appellate Review
As an initial matter, we note that an order denying a motion to compel arbitration, although interlocutory, is immediately appealable. Moose v. Versailles Condo. Ass‘n, 171 N.C. App. 377, 381, 614 S.E.2d 418, 422 (2005). This is so because “‘the right to arbitrate a claim is a substantial right which may be lost if review is delayed[.]‘” Boynton v. ESC Med. Sys., Inc., 152 N.C. App. 103, 106, 566 S.E.2d 730, 732 (2002) (citation omitted).
B. Choice Of Law
While both Marco and TM acknowledge the choice of law issue lurking in the background of this case, neither party makes a satisfactory attempt to resolve it. Marco argues in a footnote that
provision in any contract, subcontract, or purchase order for the improvement of real property in this State, or the providing of materials therefor, is void and against public policy if it makes the contract, subcontract, or purchase
order subject to the laws of another state, or provides that the exclusive forum for any litigation, arbitration, or other dispute resolution process is located in another state.
Since the contract involved providing labor and materials for the improvement of a Wal-Mart retail store (real property) located in North Carolina, it appears that section 22B-2 should apply. Marco insists, however, that Pennsylvania law applies because section 22B-2 is preempted by the Federal Arbitration Act (“FAA“), thus rendering the contract‘s choice of law provision enforceable. As recognized by this Court, the FAA applies when a contract calling for arbitration “evidences a transaction involving interstate commerce.” Hobbs Staffing Servs., Inc. v. Lumbermens Mut. Cas. Co., 168 N.C. App. 223, 226, 606 S.E.2d 708, 711 (2005). “‘Whether a contract evidence[s] a transaction involving commerce within the meaning of the [FAA] is a question of fact’ for the trial court[,]” King v. Bryant, 225 N.C. App. 340, 344, 737 S.E.2d 802, 806 (2013) (citation omitted), and this Court “cannot make that determination in the first instance on appeal[.]” Cornelius v. Lipscomb, 224 N.C. App. 14, 18, 734 S.E.2d 870, 872 (2012). More importantly, neither the FAA nor its potential application to this case was ever mentioned at the
Even if Marco had argued below that the FAA preempts North Carolina law, its assertion that Pennsylvania law categorically applies here is incorrect. “The [FAA] was designed to overrule the judiciary‘s longstanding refusal to enforce agreements to arbitrate, and place such agreements upon the same footing as other contracts.” Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 474 (1989) (internal citations and quotation marks omitted). As the United States Supreme Court has recognized, “[t]he FAA contains no express pre-emptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration.” Id. at 477. Furthermore, in a case where the validity and enforceability of an arbitration provision is disputed, general principles of state contract law must be applied to determine these threshold issues. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (“When deciding whether the parties agreed to arbitrate a certain matter[,] courts generally . . . should apply ordinary state-law
The trial court denied Marco‘s summary judgment motion since genuine issues as to material facts regarding the renovation contract‘s enforceability remain. Therefore, we cannot and need not decide the choice of law issue because such a determination is not necessary to resolve this appeal. Moreover, the relevant laws of Pennsylvania and North Carolina are substantially the same, and they do not conflict with the FAA. Park, 159 N.C. App. at 122, 582 S.E.2d at 378 (“The FAA only preempts state rules of contract formation which single out arbitration clauses and unreasonably burden the ability to form arbitration agreements . . . with conditions on (their) formation and execution . . . which are not part of the generally applicable contract law.” (internal citations and quotation marks omitted)); Gaffer Ins. Co. v. Discover Reinsurance Co., 936 A.2d 1109, 1114 (Pa. Super. Ct. 2007) (“[R]egardless of whether the contract is governed by federal or state arbitration law, we apply general principles of Pennsylvania contract law to interpret the parties’ agreement.“). We
C. Sufficiency Of The Trial Court‘s Order
Marco also argues that the trial court‘s order lacks sufficient findings of fact. According to Marco, “[b]ecause the trial court here failed and in fact refused to decide the validity and enforceability of the [c]ontract and its arbitration provision, its denial of Marco‘s motion to compel arbitration must be reversed and remanded on this ground alone.” Based on the circumstances of this case, we disagree.
When, as here, one “party claims a dispute is covered by an agreement to arbitrate and the other party denies the existence of an arbitration agreement, the trial court must determine whether an arbitration agreement actually exists.” Moose, 171 N.C. App. at 381, 614 S.E.2d at 422 (citation and quotation marks omitted);
Our decisions in this context have consistently held that “an order denying a motion to compel arbitration must include findings of fact” regarding the validity and scope of an arbitration agreement. Griessel v. Temas Eye Ctr., P.C., 199 N.C. App. 314, 317, 681 S.E.2d 446, 448 (2009); see, e.g., Raspet, 147 N.C. App. at 136, 554 S.E.2d at 678 (adopting two-part test as to whether a dispute is subject to arbitration). Whenever a trial court has failed to include these findings in its order, this Court has routinely reversed and remanded for entry of an order that contains the necessary findings. See, e.g., Pineville Forest Homeowners Ass‘n v. Portrait Homes Constr. Co., 175 N.C. App. 380, 387, 623 S.E.2d 620, 625 (2006) (reversing order denying motion to compel arbitration and remanding for “a new order containing findings which sustain its determination regarding the validity and applicability of the arbitration provisions“); Cornelius, 224 N.C. App. at 16-17, 734 S.E.2d at 872 (reversing and remanding because the “order provides no findings and no explanation for the basis of the court‘s decision to deny the motion to compel arbitration“); Griessel, 199 N.C. App. at 317, 681 S.E.2d at 448 (because “the trial court made no finding of fact as to the existence of a valid agreement to arbitrate[,] . . . we must reverse the trial court‘s order and remand for entry of findings of fact“). Apparently, these cases were reversed and remanded because the trial court orders at issue did not the meet basic
Indeed, common threads run throughout our mandates reversing and remanding for failure to make the requisite findings regarding the validity and applicability of an arbitration agreement: in each case, the trial court‘s order was devoid of any meaningful findings and its rationale for denying the motion to compel arbitration could not be determined on appeal. For example, in Cornelius, the case upon which Marco relies, the trial court‘s order denying the defendant‘s motion to compel arbitration stated only that the court had considered all pleadings, materials, and briefs “submitted by the parties with regard to the motions” along with “the materials and testimony submitted at the hearing on the motions . . . [and the] arguments of counsel with regard to the motions.” 224 N.C. App. at 17, 734 S.E.2d at 871 (2012). Because “the order provide[d] no findings and no explanation for the basis of the [trial] court‘s decision to deny the motion to compel arbitration[,]” the Cornelius Court reversed and remanded so the requisite findings could be made. Id. at 17, 734 S.E.2d at 872. Similarly, in U.S. Trust Co. v. Stanford Grp. Co., the trial
In the instant case, the trial court explicitly stated its grounds for denying Marco‘s motion to compel arbitration. Based on nineteen detailed findings, the court concluded that “[e]ven if the [c]ontract was valid and enforceable,” (1) TM was prejudiced by Marco‘s delay in seeking arbitration such that Marco waived whatever right it may have had to arbitrate, and (2) Marco “failed to timely serve an arbitration demand” under the terms of the contract. While the court declined to decide whether the contract and the arbitration provision were valid and enforceable, this approach was eminently reasonable given the case‘s procedural posture. In its motion for summary judgment, Marco asked the trial court to conclude that the contract was enforceable and rule in its favor based on TM‘s purported violation of the agreement‘s terms, a request the court denied since genuine issues of material fact remained
D. Untimely Demand; Contractual Interpretation
Because “[t]he law of contracts governs the issue of whether there exists an agreement to arbitrate, . . . the party seeking arbitration must show that the parties mutually agreed to arbitrate their disputes.” Routh v. Snap-On Tools Corp., 108 N.C. App. 268, 271-72, 423 S.E.2d 791, 794 (1992) (internal citations omitted). “The trial court‘s determination of whether a dispute is subject to arbitration . . . is a conclusion of law reviewable de novo.” Moose, 171 N.C. App. at 382, 614 S.E.2d at 422 (citation omitted).
Since the right to arbitration arises from contract, it may be waived in certain instances. Cyclone Roofing Co., Inc. v. David M. LaFave Co., Inc., 312 N.C. 224, 321 S.E.2d 872 (1984). Our Supreme Court has held that a party impliedly waives its contractual right to arbitrate a dispute “if by its delay or by actions it takes which are inconsistent with arbitration, another party to the contract [would be] prejudiced by [an] order compelling arbitration.” Id. at 229, 321 S.E.2d at 876. Some contracts, however, set a time limit for submitting a demand for arbitration, and failure to comply with such terms results in a party‘s forfeiture of its right to arbitrate. To that end, North Carolina law recognizes a distinction between an untimely demand for arbitration and a waiver of the right to arbitration. Adams v. Nelsen, 313 N.C. 442,
Whenever a party seeks to arbitrate a dispute outside the time specified by the arbitration agreement, it has made an untimely request and released—or forfeited—its contractual right to demand arbitration. See Adams, 313 N.C. at 448, 329 S.E.2d at 326; Dickens v. Pa. Tpk. Comm‘n, 40 A.2d 421, 423 (Pa. 1945) (“There being in the contract between the parties an arbitration agreement, its terms must be complied with as a prerequisite to the right to arbitrate. We hold that the provision in the contract that reference of question [sic] in dispute ‘must be made’ within 30 days ‘after final quantities have been determined’ is an express ‘condition precedent’ to such arbitration.“); see also Adams Cnty. Asphalt Co. Inc. v. Pennsy Supply Inc., 2 Pa. D. & C.4th 331, 335-36 (Com. Pl.) aff‘d sub nom. Adams Cnty. v. Pennsy, 570 A.2d 1084 (Pa. Super. Ct. 1989) (“[W]e can conceive of contract provisions which, by their clarity, would set out provisions that would show clearly that the contracting parties agreed
The arbitration provision at issue provides, in pertinent part, as follows:
All claims or disputes between the Subcontractor and the Contractor arising out of or related to this Subcontract or the breach thereof or either party‘s performance of their obligations under this Subcontract shall be decided by arbitration, at the option of the Contractor, in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association (“AAA“) currently in effect. Notice of the demand for arbitration shall be filed in writing with the other party to this agreement and, upon acceptance by the Contractor, if required, filed with the AAA. Such notice must be made within 30 days after the claim or dispute has arisen or within 30 days after the Subcontractor‘s work under this Subcontract has been completed, whichever is later. Arbitration under this paragraph, if involved, shall be held in Allegheny County, Pennsylvania, and shall be the Subcontractor‘s exclusive remedy, to the exclusion of all other remedies, including the filing of a mechanic‘s lien or construction lien, for any dispute within the scope of this paragraph.
(emphasis added). Marco argues the provision “requires the party asserting a claim arising or related to the [c]ontract to submit to the other party a written notice of demand for arbitration, rather than the converse.” According to Marco, “[f]or a claim by [TM], such notice would activate Marco‘s ‘option’ to ‘accept’ the demand, or to
General principles of state contract law govern the interpretation of an arbitration agreement‘s terms. Trafalgar House Constr., Inc. v. MSL Enters., Inc., 128 N.C. App. 252, 256, 494 S.E.2d 613, 616 (1998); Gaffer Ins. Co., 936 A.2d at 1113. In construing the terms of a contract, courts “must give ordinary words their ordinary meanings.” Internet E., Inc. v. Duro Commc‘ns, Inc., 146 N.C. App. 401, 405, 553 S.E.2d 84, 87 (2001) (citation omitted). When the language of an arbitration clause is “clear and unambiguous,” we may apply the plain meaning rule to interpret its terms. See Ragan v. Wheat First Sec., Inc., 138 N.C. App. 453, 459, 531 S.E.2d 874, 878 (2000) (applying the plain meaning rule to interpret the scope of an arbitration clause).
“Where the language of a contract is plain and unambiguous, the construction of the agreement is a matter of law; and the court may not ignore or delete any of its provisions, nor insert words into it, but must construe the contract as written, in the light of the undisputed evidence as to the custom, usage, and meaning of its terms.” . . . If the plain language of a contract is clear, the intention of the parties is inferred from the words of the contract.”
The prefatory phrase found in the arbitration provision plainly states that all claims or disputes between the parties “shall” be arbitrated, “at the option” of Marco, “in accordance with the [applicable rules] of the American Arbitration Association (“AAA“).” By including this language in the contract, Marco stacked the deck in its favor by reserving a unilateral right to decide whether any potential dispute would be arbitrated. But the demand obligations imparted by the notice language in the arbitration provision are clearly bilateral in nature. According to the arbitration provision‘s terms, if either Marco or TM wished to arbitrate a dispute, written “[n]otice of the demand for arbitration” had to be filed “with the other party to” the agreement “within 30 days after the claim or dispute [arose] or within 30 days after” TM completed its work under the contract, whichever was later. Despite this clear language, Marco insists that it never had cause to demand arbitration because such a demand “should already have been [made] by” TM. Rather conveniently, however, Marco fails to explain what portion of the provision gave it the right to demand arbitration nearly a year after TM filed its claim of lien. Furthermore, it is illogical
Marco also has nothing to say about the option language included in the provision, which requires notice of an arbitration demand to be filed with the AAA “upon acceptance by [Marco], if required.” Pursuant to the plain meaning of this language, if TM demanded arbitration, Marco could either accept the demand or reject it and proceed to utilize the litigation machinery. As TM points out, notice would only be filed with the AAA upon Marco‘s acceptance of an arbitration demand. Yet if Marco exercised its option to demand arbitration, notice would promptly be sent to the AAA. In other words, Marco, as the initiating party, would not be “required” to accept a demand made by itself. Again, Marco was in the driver‘s seat, but if it wished to arbitrate the dispute, Marco had the responsibility to make a timely demand to that effect in light of TM‘s refusal to do so.
Finally, Marco drafted the contract and arbitration provision contained within it. “Pursuant to well settled contract law principles, the language of the arbitration clause should be strictly construed against the drafter of the clause.” Harbour Point Homeowners’ Ass‘n, Inc. ex rel. its Bd. of Dirs. v. DJF Enters., Inc., 201 N.C. App. 720, 725, 688 S.E.2d 47, 51 (2010). Based on the language drafted by Marco, TM and Marco were both subject to the 30-day time limit placed on arbitration demands related to disputes under the contract. Since TM filed a claim of lien on the real
Conclusion
Given our holding that Marco forfeited its purported right to demand arbitration, we need not address Marco‘s additional argument that the trial court erred by ruling that its delay in demanding arbitration prejudiced TM and constituted a waiver of its right to arbitrate. Because the trial court‘s order contained detailed findings which support its conclusions, we are not required to remand this case for a determination of whether a valid and enforceable arbitration agreement existed between the parties. Whether Pennsylvania or North Carolina contract law is applied, under the plain language of the allegedly enforceable agreement, Marco made an untimely demand for arbitration. Accordingly, we affirm the trial court‘s order denying Marco‘s motion to compel arbitration.
AFFIRMED.
Judges STROUD and INMAN concur.