Opinion
No. COA06-746
Filed 5 June 2007 WITHDRAWN BY THE COURT: 21 June 2007.
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.
Mecklenburg County No. 05 CVS 5035.
By a complaint filed 16 March 2005, Plaintiffs alleged causes of action against Defendant 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 to indemnification or contribution from Chang Brothers in the event of a determination that Defendant was liable to Plaintiffs.
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.
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.
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.
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"), 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. We affirm the decision of the trial court.
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, discussed in relevant part infra. Defendant appealed Judge Bell's amended order and that appeal (Pineville Forest II) is a companion case to the case decided in this opinion.
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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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. Because a previous panel of this Court determined that the same issue was interlocutory, and thus, not immediately appeal able, we dismiss this assignment of error.
In Pineville Forest I, 175 N.C. App. at 384-85, 623 S.E.2d at 624, the same Defendant, represented by the same attorney, argued to this Court that a trial judge erred in failing to dismiss a homeowners association's causes of action against it for identical construction defects because of an "alleged acceptance of a third-party warranty [that] . . . [barred the] suit." Relying on North Carolina Consumers Power, Inc. v. Duke Power Co., 285 N.C. 434, 206 S.E.2d 178 (1974), Defendant argued in Pineville Forest I, as in the case at bar, that "`the [warranty] issue is so intertwined with the motion to arbitrate,' this Court should exercise its `supervisory jurisdiction' to hear defendant's appeal on this issue." Pineville Forest I, 175 N.C. App. at 385, 623 S.E.2d at 624. Distinguishing our Supreme Court's rationale in North Carolina Consumers Power, this Court held that because the order of the trial court "addressed neither the justiciability of the warranty issue between the parties nor the merits of their respective claims thereon . . . immediate examination of defendant's warranty claims on the merits would [not] `expedite the administration of justice.'" Id. (citations omitted). Accordingly, this Court "dismiss[ed] as interlocutory defendant's argument that a third-party warranty bars plaintiff's suit." Pineville Forest I, 175 N.C. App. at 385, 623 S.E.2d at 624. After comparing the claims, defenses, and procedural posture of Pineville Forest I to the case currently before this Court, we are persuaded by the rationale of Pineville Forest I and conclude that the case sub judice is governed by its holding. Therefore, we conclude that Defendant's argument based on an alleged third-party warranty raises an interlocutory issue which is not immediately appealable. Accordingly, this assignment of error is dismissed.
In addition, we note that because this Court has previously rejected this same argument of this Defendant, represented by the same appellate counsel, in a decision filed more than six months before Defendant filed its brief in this case, and because the impetus for the amended order from which Defendant appeals is the Pineville Forest I decision, this portion of Defendant's brief violates Rule 34 of the North Carolina Rules of Appellate Procedure. See N.C. R. App. P. 34(a)(1) (appeals should not be taken which are "not well grounded in fact and warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law"). Furthermore, we are troubled that Defendant's counsel was keenly aware of our decision in Pineville Forest I, yet made no effort to address or distinguish that case in his brief. Rather, Defendant's counsel was content to advance the same argument that had already been soundly rejected by this Court. For these reasons, we conclude that sanctions against Defendant's attorney are appropriate. See N.C. R. App. P. 34(a) (allowing an appellate court, "on its own initiative . . . [to] impose a sanction against a[n] . . . attorney . . . when the court determines that an appeal or any proceeding in an appeal was frivolous"). Accordingly, we "remand the matter to the trial court for the determination of an appropriate sanction within the scope of Rule 34(b)(2) (3) of the North Carolina Rules of Appellate Procedure." McGowan v. Argo Travel, Inc., 131 N.C. App. 694, 695, 507 S.E.2d 601, 602 (1998) (citing N.C. R. App. P. 34(c)).
Our decision in Pineville Forest I was filed 3 January 2006, Pineville Forest I, 175 N.C. App. at 380, 623 S.E.2d at 620, and Defendant's brief in this case was filed in this Court on 21 July 2006.
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Defendant next argues that the trial court erred in denying its motion to dismiss because Plaintiffs must participate in binding arbitration as required by their respective Declarations. We disagree.
As a threshold matter, we note that "[a]n 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. 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 arbitration provision, 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).
In the case at bar, the second prong of this 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" 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 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, Defendant's appeal is dismissed in part, the order of the trial court denying Defendant's motion to dismiss is affirmed, and this case is remanded to the trial court for determination of an appropriate sanction.
APPEAL DISMISSED IN PART, AFFIRMED IN PART, AND REMANDED.
Judges TYSON and STROUD concur.
Report per Rule 30(e).