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«Appeal by defendant from order entered on 20 August 2014 by Judge Elaine M. Bushfan in Superior Court, Wake County. Heard in the Court of Appeals on ...»

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IN THE COURT OF APPEALS OF NORTH CAROLINA

No. COA15-9

Filed: 15 December 2015

Wake County, No. 14 CVS 4465

RICARDO L. BAILEY, Plaintiff,

v.

FORD MOTOR COMPANY, FORD MOTOR CREDIT COMPANY, LLC, and

KATHLEEN BURNS, individually, Defendants.

Appeal by defendant from order entered on 20 August 2014 by Judge Elaine

M. Bushfan in Superior Court, Wake County. Heard in the Court of Appeals on 4 June 2015.

Sharpless & Stavola, P.A., by Pamela S. Duffy, for plaintiff-appellee.

Kilpatrick Townsend & Stockton LLP, by Adam H. Charnes and Chris W. Haaf, and Williams Mullen, by M. Keith Kapp, for defendant-appellant.

STROUD, Judge.

Ford Motor Company (“defendant”) appeals from an order denying its motion to compel arbitration and dismiss. Defendant specifically argues that the trial court erred in concluding that (1) the Federal Arbitration Act (“FAA”) did not apply to this dispute; (2) the parties had agreed that a court, instead of an arbitrator, would decide the arbitrability of plaintiff’s claims; and (3) that plaintiff’s claims were not arbitrable. We reverse.

I. Background

BAILEY V. FORD MOTOR CO.

Opinion of the Court In February 2003, Ricardo L. Bailey (“plaintiff’), an employee of defendant, moved to Sanford to operate and invest in a car dealership. Plaintiff and defendant executed a Stock Redemption Plan Dealer Development Agreement (“the Dealer Development Agreement”) in which plaintiff invested $180,000 in exchange for 1,800 shares of common stock in the dealership and defendant invested $1,080,000 in exchange for 10,800 shares of preferred stock in the dealership. Under the agreement, defendant also loaned $540,000 to the dealership.

Under article 10 of the Dealer Development Agreement, plaintiff and defendant agreed to arbitrate any dispute “arising out of or relating to” the

agreement:

10.01. Resolution of Disputes. If a dispute arises between [plaintiff] and [defendant] arising out of or relating to this Agreement, the following procedures shall be implemented in lieu of any judicial or administrative

process:

(a) Any protest, controversy, or claim by [plaintiff] (whether for damages, stay of action or otherwise) with respect to any termination of this Agreement, or with respect to any other dispute between [plaintiff] and [defendant] arising out of or relating to this Agreement shall be appealed by [plaintiff] to the Ford Motor Company Dealer P

–  –  –

pursue any other remedy available under this Agreement or otherwise available under law.

[Defendant], but not [plaintiff], shall be bound by the decision of the Policy Board.

(b) If appeal to the Policy Board fails to resolve any dispute covered by this Article 10 within 180 days after it was submitted to the Policy Board, or if [plaintiff] shall be dissatisfied with the decision of the Policy Board, the dispute shall be finally settled by arbitration in accordance with the rules of the CPR Institute for Dispute Resolution (the “CPR”) for Non-Administered Arbitration for Business Disputes, by a sole arbitrator, but no arbitration proceeding may consider a matter designated by this Agreement to be within the sole discretion of one party (including without limitation, a decision by such party to make an additional investment in or loan or contribution to [the dealership]), and the arbitration proceeding may not revoke or revise any provisions of this Agreement. Arbitration shall be the sole and exclusive remedy between the parties with respect to any dispute, protest, controversy or claim arising out of or relating to this Agreement.

(c) Arbitration shall take place in the City of Dearborn, Michigan unless otherwise agreed by the parties. The substantive and procedural law of the State of Michigan shall apply to the proceedings.

Equitable remedies shall be available in any arbitration. Punitive damages shall not be awarded.

This Section 10.01(c) is subject to the Federal Arbitration Act, 9 U.S.C.A. § 1 et seq., and any judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction thereof.

(d) Any arbitration decision or award shall be final and binding on all parties and shall deal with the question of costs of arbitration, including

–  –  –

(Portion of original in bold.) On 17 April 2009, defendant sent a letter (“Dollar Buyout Offer”) to plaintiff in which it offered to “waive the repayment of the outstanding balance of preferred stock and note associated with” the Dealer Development Agreement in exchange for one dollar, provided plaintiff satisfied all of the offer’s conditions by 30 September 2009.

Plaintiff attempted to satisfy all of the conditions necessary to effectuate his acceptance, but the parties dispute whether plaintiff was successful.

On 10 April 2014, plaintiff sued defendant for breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment, as well as Ford Motor Credit Company, LLC (“FMCC”) and Kathleen Burns, an employee of FMCC, for related claims. Plaintiff alleged that one of the conditions of the Dollar Buyout Offer was that he obtain a standby letter of credit for $300,000 and that he successfully obtained such a letter from Branch Banking & Trust Company (“BB&T”).





Plaintiff also alleged that he satisfied all of the offer’s conditions but that defendant later changed the offer’s conditions to require that his standby letter of credit “be converted to cash[.]” Plaintiff further alleged that he spoke with Burns about this new condition, that she agreed to contact BB&T, but that she never in fact contacted BB&T, which prevented plaintiff from satisfying the new condition by the offer’s

–  –  –

deadline. Plaintiff alleged that as a result, he was “immediately terminated” and “lost his home to foreclosure.” On 19 May 2014, defendant answered and moved to compel arbitration and dismiss plaintiff’s claims against it. After holding a hearing on 22 July 2014, the trial court denied the motion on 20 August 2014. On 4 September 2014, defendant gave timely notice of appeal.

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Although the trial court’s order is interlocutory, defendant contends that the order is immediately appealable because it affects a substantial right. “[T]he right to arbitrate a claim is a substantial right which may be lost if review is delayed, and an order denying arbitration is therefore immediately appealable.” Hobbs Staffing Servs., Inc. v. Lumbermens Mut. Cas. Co., 168 N.C. App. 223, 225, 606 S.E.2d 708, 710 (2005) (brackets omitted). Accordingly, we hold that this appeal is properly before us.

–  –  –

Defendant contends that the trial court erred when it denied its motion to compel arbitration and dismiss. Defendant specifically argues that the trial court erred in concluding that (1) the FAA did not apply to this dispute; (2) the parties had agreed that a court, instead of an arbitrator, would decide the arbitrability of

–  –  –

plaintiff’s claims; and (3) plaintiff’s claims were not arbitrable. Because we agree with defendant on issue (2), we do not reach issue (3).

A. Standard of Review “The trial court’s conclusion as to whether a particular dispute is subject to arbitration is a conclusion of law, reviewable de novo by the appellate court.” Sloan Fin. Grp., Inc. v. Beckett, 159 N.C. App. 470, 478, 583 S.E.2d 325, 330 (2003), aff’d per curiam, 358 N.C. 146, 593 S.E.2d 583 (2004). “[Q]uestions of contract interpretation are reviewed as a matter of law and the standard of review is de novo.” Price & Price Mech. of N.C., Inc. v. Miken Corp., 191 N.C. App. 177, 179, 661 S.E.2d 775, 777 (2008).

–  –  –

We preliminarily note that the trial court’s order suggests that it based its conclusion that the FAA did not apply to this dispute on its previous conclusion that the parties had not agreed to arbitrate disputes arising from the Dollar Buyout Offer.

But the trial court should have addressed the issue of choice of law before addressing any other legal issue. See King v. Bryant, 225 N.C. App. 340, 344, 737 S.E.2d 802, 806 (2013) (“[I]t is incumbent upon a trial court when considering a motion to compel arbitration to address whether the Federal Arbitration Act (‘FAA’) or the North Carolina Revised Uniform Arbitration Act (‘NCRUAA’) applies to any agreement to arbitrate.” (emphasis added and quotation marks and brackets omitted)). It is

–  –  –

undisputed that the parties agreed to arbitrate disputes “arising out of or relating to” the Dealer Development Agreement. Accordingly, we must first address whether the FAA applies to the Dealer Development Agreement. See id. at 344, 737 S.E.2d at 806.

If the parties affirmatively chose the FAA to govern an agreement to arbitrate, then the FAA will apply to that agreement. Id. at 345, 737 S.E.2d at 806-07; see also 9 U.S.C.A. ch. 1 (2009). Here, the parties affirmatively chose the FAA to govern the Dealer Development Agreement: “This Section 10.01(c) is subject to the Federal Arbitration Act, 9 U.S.C.A. § 1 et seq., and any judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction thereof.” Accordingly, we hold that the FAA applies to any dispute arising from the Dealer Development Agreement. See King, 225 N.C. App. at 345, 737 S.E.2d at 806-07.

C. Arbitrability Defendant next argues that the trial court erred in concluding that the parties had agreed that a court, instead of an arbitrator, would decide the arbitrability of plaintiff’s claims.

i. Substantive Arbitrability vs. Procedural Arbitrability “The twin pillars of consent and intent are the touchstones of arbitrability analysis. Arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” Peabody Holding

–  –  –

Glass v. Kidder Peabody & Co., Inc., 114 F.3d 446, 453-54 (4th Cir. 1997) (citations, quotation marks, brackets, and footnotes omitted); see also 9 U.S.C.A. §§ 3, 4.

Here, defendant argues that the trial court erred in concluding that plaintiff’s claims did not fall within the scope of the arbitration clause of the Dealer Development Agreement. This issue is a question of substantive arbitrability. Glass, 114 F.3d at 453; BG Group, ___ U.S. at ___, 188 L. Ed. 2d at 228. Therefore, as an initial matter, we presume that the parties intended that the trial court decide this issue of substantive arbitrability. Glass, 114 F.3d at 454; BG Group, ___ U.S. at ___, 188 L. Ed. 2d at 228.

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A party can overcome this presumption if it shows that the parties “clearly and unmistakably” intended for an arbitrator, instead of a court, to decide issues of substantive arbitrability. See AT&T Technologies v. Communications Workers, 475 U.S. 643, 649, 89 L. Ed. 2d 648, 656 (1986); Peabody Holding, 665 F.3d at 102.

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Carson v. Giant Food, Inc., 175 F.3d 325, 330-31 (4th Cir. 1999).

At least eight federal appellate courts have held that the parties’ express adoption of an arbitral body’s rules in their agreement, which delegate questions of substantive arbitrability to the arbitrator, presents clear and unmistakable evidence that the parties intended to arbitrate questions of substantive arbitrability. See Petrofac, Inc. v. DynMcDermott Petroleum, 687 F.3d 671, 675 (5th Cir. 2012) (holding that the parties’ express adoption of the American Arbitration Association rules in their agreement constituted clear and unmistakable evidence); Fallo v. High-Tech Institute, 559 F.3d 874, 878 (8th Cir. 2009) (same); Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1373 (Fed. Cir. 2006) (same); Terminix Intern. v. Palmer Ranch Ltd.

Partnership, 432 F.3d 1327, 1332-33 (11th Cir. 2005) (same); Contec Corp. v. Remote

–  –  –

Solution, Co., Ltd., 398 F.3d 205, 208 (2d Cir. 2005) (same); Chevron Corp. v. Ecuador, 795 F.3d 200, 207-08 (D.C. Cir. 2015) (same result under the United Nations Commission on International Trade Law rules); Oracle America, Inc. v. Myriad Group A.G., 724 F.3d 1069, 1074-75 (9th Cir. 2013) (same); Apollo Computer, Inc. v. Berg, 886 F.2d 469, 473-74 (1st Cir. 1989) (same result under International Chamber of Commerce rules).

We note that three federal appellate courts have held that the parties had not delegated issues of substantive arbitrability to the arbitrator despite their express adoption of an arbitral body’s rules in their agreement. See Quilloin v. Tenet HealthSystem Philadelphia, Inc., 673 F.3d 221, 225-26, 229-30 (3rd Cir. 2012); Oblix, Inc. v. Winiecki, 374 F.3d 488, 490 (7th Cir. 2004); Riley Mfg. Co. v. Anchor Glass Container Corp., 157 F.3d 775, 777 n.1, 780-81 (10th Cir. 1998). But in each of these cases, the court did not specifically address whether the parties’ express adoption of these rules constituted clear and unmistakable evidence that they intended to arbitrate questions of substantive arbitrability, nor did the court examine the rules to determine if they delegated questions of substantive arbitrability to the arbitrator.

Quilloin, 673 F.3d at 229-30; Oblix, 374 F.3d at 490; Riley, 157 F.3d at 780-81.

Accordingly, we hold that Quilloin, Oblix, and Riley are inapposite.

Plaintiff argues that while the Fourth Circuit Court of Appeals “has not ruled explicitly” on this issue, two cases from that Court suggest that parties’ express

–  –  –

adoption of an arbitral body’s rules does not constitute “clear and unmistakable” evidence that the parties intended to arbitrate questions of substantive arbitrability.

See Cathcart Properties, Inc. v. Terradon Corp., 364 F. App’x 17, 18 (4th Cir. Feb. 4, 2010) (per curiam) (unpublished); Central West Virginia Energy v. Bayer Cropscience, 645 F.3d 267, 273-74 (4th Cir. 2011). But neither case stands for this proposition or even addresses this issue.



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