2017 UT App 73

THE UTAH COURT OF APPEALS

JOSEPH EDWARDS,

Appellee,

v.

MICHAEL CAREY AND WENDY CAREY,

Appellants.

Opinion

No. 20151096-CA

Filed May 4, 2017

Third District Court, Salt Lake Department

The Honorable Mark S. Kouris

No. 150905215

Andrew G. Deiss, Diana F. Bradley, Shannon Z. 

Peterson, and Alejandro E. Moreno, Attorneys

for Appellants

Peter W. Billings, Timothy K. Clark, Richard F. 

Ensor, and Michael C. Barnhill, Attorneys

for Appellee

JUDGE STEPHEN L. ROTH authored this Opinion, in which JUDGES

GREGORY K. ORME and J. FREDERIC VOROS JR. concurred.

ROTH, Judge:

¶1 Michael Carey and Wendy Carey (collectively, the 

Careys)1 appeal the district court’s order denying their motion to 

compel Joseph Edwards to arbitrate his claims against them. We 

affirm.

 

1. When referring to the Careys individually, we use their first 

names for clarity.
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20151096-CA 2 2017 UT App 73

¶2 In 1985, Edwards and Michael founded Seirus Innovative 

Accessories Inc. (Seirus). Each owned fifty percent of the 

company’s stock. And since 1985, Edwards, Michael, and Wendy 

served together as the only members of the Seirus Board of 

Directors (the Board).

¶3 Each of the three directors also served as officers of the 

company. Michael was the president and, later, chief executive 

officer; Wendy served as its chief operations officer, and, later, 

its chief financial officer, secretary, and treasurer; and Edwards 

appears to have been the co-president, secretary, and treasurer. 

As officers of the company, each signed an employment 

agreement with Seirus. The employment agreements contained 

an arbitration provision:

Employer and Employee agree that any dispute or 

controversy arising out of or relating to any 

interpretation, construction, performance, or 

breach of this Agreement shall be settled and 

decided by arbitration conducted by the American 

Arbitration Association . . . . 

Michael’s agreement also expressly stated that his ‚duties as 

CEO are independent and in addition to any other position 

[Michael] may hold with Employer from time to time.‛

¶4 In 2015, disputes arose between the parties regarding the 

interest rates on certain shareholder promissory notes Edwards 

held representing his loans to the company, which culminated 

with Edwards filing suit against Seirus to recover interest he 

alleged was due under the notes. Subsequently, Michael 

determined, ‚in his business judgment as President and CEO,‛ 

that Edwards’ actions rendered him incapable of ‚neutrally 

serving as an Officer of *Seirus+‛ and recommended to the Board 

that Edwards be removed from his positions as co-president and 

secretary. In a board meeting on July 27, 2015 (the Meeting), 

Michael, the Board’s chair, proposed that Edwards be removed 

as an officer of Seirus. Michael and Wendy voted to approve the 
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20151096-CA 3 2017 UT App 73

proposal, while Edwards voted to oppose it. The proposal was 

therefore approved by a majority of the Board, and Edwards was 

removed from management. Nonetheless, Edwards remained a 

director and member of the Board.

¶5 During the Meeting, Michael also proposed that the Board 

approve an Equity Exchange Offering (the Equity Exchange) 

through which the shareholders—Michael and Edwards—could 

choose to convert the debt Seirus owed them into equity shares 

in the company. As of the date of the Meeting, Seirus owed its 

two shareholders over $6.8 million, and Michael advised the 

Board that the exchange plan would ‚allow Seirus to capitalize 

itself without having to raise funds to repay the debt, increasing 

cash flow, decreasing expenses and increasing profits by 

eliminating interest payments.‛ Again, Michael and Wendy 

voted in favor, while Edwards voted against, and the proposal 

was thereby approved. Subsequently, Michael, acting as a 

shareholder, elected to cancel nearly $4 million of debt owed to 

him by Seirus, which increased his shares in the company. 

Edwards did not elect to cancel any debt. As a result, Michael’s 

shareholder interest in the company increased to 55.44%, while 

Edwards’ interest decreased proportionally to 44.56%.

¶6 Edwards filed suit two days after the Meeting. In his 

complaint, as later amended, Edwards alleged that the Careys 

‚engaged in efforts to remove *him+ from the Company’s 

management and to minimize his ownership position in the 

Company.‛ Edwards identified two corporate actions in 

particular that led to his removal and minimized his ownership 

position—that during the Meeting, the Careys proposed and 

voted to terminate him as an officer and employee, ‚provid*ing+ 

false reasons . . . and purported reasons that were over fifteen 

years old and had never been raised and discussed with *him+,‛ 

and that they also proposed and voted to approve the Equity 

Exchange, which was ultimately exercised by Michael in his 

shareholder capacity to reduce Edwards’ ownership in the 

company’s stock.
Edwards v. Carey

20151096-CA 4 2017 UT App 73

¶7 Edwards’ claims for relief focused on these two corporate 

actions. He claimed that Michael and Wendy, acting as directors, 

had conflicts of interest that justified setting aside the actions 

they took by vote in the Meeting; that Michael and Wendy 

breached the fiduciary duties they owed to Seirus and to 

Edwards as a shareholder; that removal of Michael and Wendy 

as directors was ‚in the best interest of the Company‛; and that 

Michael and Wendy, as directors, did not provide him with a 

fair opportunity to ‚exercise his preemptive rights‛ related to 

acquisition of stock shares, which resulted in a dilution of ‚his 

percentage ownership of the Company’s outstanding shares.‛ In 

his prayer for relief, Edwards requested that the court declare 

void his termination and the adoption of the Equity Exchange as 

well as ‚any other stock issuances‛; that Michael and Wendy be 

removed as directors; and that he be awarded a monetary 

judgment on his breach of fiduciary duty claims.

¶8 Michael and Wendy filed a motion to compel arbitration 

and stay the proceeding in the district court. They claimed 

arbitration was mandatory because ‚Edwards’ claims against the 

Careys relate directly to the performance of their duties as 

officers and employees of Seirus‛ and were therefore governed 

by the arbitration clauses in Michael’s and Wendy’s employment 

agreements. Recognizing that the arbitration provisions applied 

only to disputes between Seirus and the Careys and that 

Edwards was not a party to their employment agreements, the 

Careys asserted that Edwards’ claims against them were 

‚derivative claims belonging to Seirus‛ and not to Edwards 

individually.

¶9 The district court denied the Careys’ motion. It identified 

two questions essential to the determination of whether 

Edwards’ claims were subject to mandatory arbitration: 

(1) whether the Careys’ actions were ‚within the scope of the 

employment agreements,‛ and, if so, (2) whether Edwards’ 

claims were derivative claims belonging to Seirus rather than to 

Edwards himself. The court determined that, while ‚the 

management structure and *the Careys’+ overlapping roles as 
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20151096-CA 5 2017 UT App 73

directors and officers‛ may at times make it ‚difficult to 

precisely determine which hat they were wearing at different 

times,‛ Edwards’ claims ‚are primarily asserted against the 

Careys for actions they took as directors of the Company,‛ not as 

officers. The court also noted that ‚Edwards has affirmatively 

stated that he is only pursuing claims against the Careys for their 

actions as directors.‛ The court then concluded that ‚the 

employment agreements do not govern Edwards’ claims‛

because ‚the Careys concede*d+ that the employment 

agreements only ‘govern the performance of their duties as 

officers’‛ of Seirus and ‚the allegations of the Amended 

Complaint clearly focus on the Careys’ actions as directors.‛ 

Because the court decided that Edwards’ claims were not subject 

to the arbitration provisions of the employment agreements, it 

determined that the subsidiary question of whether Edwards’

claims belonged to the corporation need not be addressed.

¶10 The Careys appeal, asking that we reverse the district 

court’s decision and order the case to arbitration. ‚Whether a 

trial court correctly decided a motion to compel arbitration is a 

question of law which we review for correctness, according no 

deference to the district judge.‛ MacDonald Redhawk Investors v.

Ridges at Redhawk, LLC, 2006 UT App 491, ¶ 2, 153 P.3d 787 

(brackets, citation, and internal quotation marks omitted).

¶11 The arbitration provision of the Careys’ employment 

agreements provides that ‚any dispute or controversy arising 

out of or relating to any interpretation, construction, 

performance, or breach of this Agreement shall be settled and 

decided by arbitration.‛ Thus, as the district court recognized, 

for Edwards’ claims to be subject to arbitration, (1) the Careys 

must demonstrate that the actions Edwards complains of fell 

within the scope of their employment as corporate officers, and

(2) because the agreements were between Seirus and Michael 

and Wendy as employees and officers of the company, the

Careys must show that Edwards’ claims belong to the 

corporation rather than Edwards himself. We agree with the 

district court that Edwards’ claims are not subject to the 
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20151096-CA 6 2017 UT App 73

arbitration provision, and as a result, like the district court, we 

do not reach the question of whether the claims belong to 

Edwards or Seirus.

¶12 The Careys essentially contend that they acted as both 

officers and directors in the Board actions of which Edwards 

complains. For example, they assert that Michael, acting in his 

role as CEO and president, ‚decided to recommend that Seirus 

terminate Edwards as an officer only after repeatedly observing 

Edwards put his own self-interest ahead of the interests of the 

company.‛ And they allege that, in the same capacity, Michael 

also ‚determined it was necessary for the company to retire its 

debts to the stockholders,‛ and therefore recommended the 

Equity Exchange to the Board. Similarly, the Careys assert that 

Wendy, acting as secretary, treasurer, and CFO, was ‚intimately 

involved in the details‛ of the Equity Exchange, which involved 

‚issu*ing+ additional stock to any stockholder electing to 

participate‛ in the plan; ‚updat*ing] and manag[ing] the 

company’s stock ledger after Michael elected to convert the 

entirety of the debt owed to him by the company into equity‛;

and ‚act*ing] as the face of the company in its interactions with 

its primary banker.‛ They therefore argue that Edwards’ claims 

of wrongdoing, and the allegations and facts supporting them,

necessarily relate to their conduct as officers as well as directors

and board members. And, they assert, because the claims and 

allegations necessarily relate to their conduct as officers, the 

policy favoring arbitration ‚compels the conclusion that 

Edwards’ claims must be arbitrated.‛

¶13 The Careys are correct that there is a strong policy 

favoring arbitration. See, e.g., Mariposa Express, Inc. v. United 

Shipping Solutions, LLC, 2013 UT App 28, ¶¶ 16–17, 295 P.3d 

1173. However, because ‚‘[a]rbitration is a matter of 

contract[,] . . . a party cannot be required to submit to arbitration 

any dispute which he has not agreed so to submit.’‛ Cade v. Zions 

First Nat’l Bank, 956 P.2d 1073, 1076–77 (Utah Ct. App. 1998)

(quoting AT & T Tech., Inc. v. Communications Workers of America,

475 U.S. 643, 648 (1986)). Thus, ‚the presumption in favor of 
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20151096-CA 7 2017 UT App 73

arbitration does not create a presumption in favor of finding that 

an agreement to arbitrate actually exists.‛ Kenny v. Rich, 2008 UT 

App 209, ¶ 28, 186 P.3d 989. Rather, ‚policies supporting liberal 

enforcement of arbitration agreements inhere only once the 

arbitration agreement is established.‛ Id. (citation and internal 

quotation marks omitted). In other words, ‚*o+nly when such 

[an] agreement on arbitration exists may we encourage 

arbitration by liberal interpretation of the arbitration provisions 

themselves.‛ Cade, 956 P.2d at 1077 (citation and internal 

quotation marks omitted); cf. Howard v. Ferrellgas Partners, LP, 

748 F.3d 975, 977 (10th Cir. 2014) (‚Everyone knows the Federal 

Arbitration Act favors arbitration. But before the Act’s heavy 

hand in favor of arbitration swings into play, the parties 

themselves must agree to have their disputes arbitrated.‛).

¶14 We agree with the district court that no agreement to 

arbitrate applies to Edwards’ claims. In particular, we reject the 

Careys’ contention that, because they wear different hats within 

the company, it is not possible to distinguish their actions as 

directors from their actions as officers. Rather, we agree with the 

district court that a review of Edwards’ amended complaint 

demonstrates that it plainly focused on the Careys’ actions as 

directors of Seirus, not as officers and employees, and that, as a 

result, the arbitration provisions in the Careys’ employment 

agreements do not come into play.

¶15 The actions from which Edwards seeks relief are ‚the 

termination of Edwards as an employee and officer of the 

Company‛ and the adoption of ‚the plan to convert shareholder 

debt to additional shareholder equity (or any other stock 

issuances).‛ Edwards alleged in his amended complaint that 

these actions were taken at ‚the Company’s July 27 Board of 

Directors meeting‛ where Michael and Wendy ‚voted in favor of 

terminating Edwards as an employee and officer‛ and 

‚converting . . . shareholder debt to equity,‛ with only Edwards 

‚vot*ing+ against the proposed corporate action.‛ Thus, Edwards

challenges decisions the Careys made as members of the Board. 

Michael was elected Chairman of the Board for the Meeting, and 
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20151096-CA 8 2017 UT App 73

he proposed the allegedly wrongful actions to the Board in that 

capacity. Both actions were officially adopted only when 

Michael and Wendy, acting as directors and board members, 

out-voted Edwards.

¶16 And even if Michael made recommendations to the Board 

as CEO and president or Wendy took certain actions as 

treasurer, secretary, and CFO to bring the recommendations to 

the Board, the effect of any recommendation or employee action 

Michael or Wendy might have made to facilitate either action 

before the Meeting or to implement the changes after the 

Meeting depended entirely upon the Board’s decisions adopted 

on their majority votes as Board members. And Michael’s later 

decision to actually convert his loan to Seirus into shares of the 

company, which changed the relative percentages of share 

ownership to Edwards’ disadvantage, was necessarily a function 

of his position as a Seirus shareholder and creditor, not as 

president and CEO of the company.

¶17 Further, the amended complaint’s factual allegations 

focused on the Careys’ actions as directors (and, in Michael’s 

case, as a shareholder). Edwards alleged, for example, that the

Careys ‚engaged in efforts to remove *him+ from the Company’s 

management and to minimize his ownership position in the 

Company.‛ These efforts included calling the Meeting; 

proposing ‚corporate action‛ at the Meeting to oust him as an 

employee and an officer and to adopt the stock conversion plan; 

voting to approve both proposed actions; approving terms of the 

Equity Exchange that permitted Michael but not Edwards to 

gain more than 50% ownership in the company; and proposing 

and approving the challenged actions ‚to benefit themselves 

exclusively‛ in retaliation for Edwards’ past conduct.

¶18 Moreover, most of Edwards’ causes of action refer only to 

the Careys’ actions as directors. For example, the first cause of 

action asked the court to ‚void the July 27, 2015 corporate 

actions‛ terminating ‚Edwards as an officer and employee of the 

Company‛ and approving ‚the conversion of shareholder debt 
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20151096-CA 9 2017 UT App 73

to shareholder equity program‛ on the basis that Michael and 

Wendy had a conflict of interest as directors. The third cause of 

action sought to have Michael and Wendy removed ‚as directors 

of the Company,‛ due to their ‚dishonest conduct and/or . . .

gross abuse of discretion‛ ‚in regard to the Company and/or 

Edwards.‛ The fourth cause of action alleged that Utah law 

requires that ‚the board of directors must provide shareholders 

possessing preemptive rights with a ‘fair and reasonable 

opportunity’ to exercise‛ those rights and that the Careys ‚did 

not provide Edwards‛ with that opportunity. And the fifth claim 

requested a declaratory judgment that both the decision to oust 

Edwards as an officer and approve the Equity Exchange are ‚of 

no force and effect,‛ that ‚*a+ny action taken by *the Careys+ to 

take ownership or control over more than fifty percent (50%) of 

the stock of the Company is of no force and effect,‛ and that the 

Careys ‚are removed as Directors of the Company.‛ All of these 

claims requested relief on the basis of the Careys’ actions as 

directors of Seirus (or in Michael’s case as a shareholder and 

creditor), not as officers or employees.

¶19 Edwards’ second claim for relief—breach of fiduciary 

duty—began by asserting generally that Wendy and Michael, as 

Seirus’ ‚only officers and as directors, owe a fiduciary duty to 

*Seirus+ and its shareholders‛ and that ‚no director or officer can 

place himself or herself in a position that would subject him [or 

her] to conflicting duties or engage in self-dealing.‛ But when 

viewed in the context of the complaint as a whole, Edwards’

specific claims are limited to the Careys’ actions as directors and 

Michael’s decision as creditor and shareholder to convert the 

debt to equity. Cf. Geros v. Harries, 236 P. 220, 222 (Utah 1925) 

(explaining that, rather than considering certain paragraphs of a 

complaint in isolation, the complaint is to be construed ‚as a 

whole‛); McNair v. State, 2014 UT App 127, ¶ 14, 328 P.3d 874.

¶20 The second claim for relief was worded in broad, general 

terms—it stated that the Careys ‚breached their fiduciary duty 

to [Edwards] by repeatedly acting (in unison) in ways to 

intentionally damage [him], by actively utilizing their power on 
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20151096-CA 10 2017 UT App 73

the Company’s board of directors to gain an advantage over 

[him], and by together, refusing to act honestly and fairly with 

[him].‛ But Edwards specified only two corporate actions in the 

amended complaint from which he sought relief: the Careys’ 

decisions ‚to remove Edwards from the Company’s 

management and to minimize his ownership position in the 

Company‛ through the adoption of the Equity Exchange. Both of 

those decisions were made in the Meeting as a result of the 

Careys voting ‚in unison‛ as directors against Edwards. Thus, 

although the second claim for relief included generic references 

to fiduciary duties arising from the Careys’ roles as corporate 

officers, in the context of the amended complaint as a whole, the 

claim does not seek relief related to the Careys’ performance of 

their duties as corporate officers. 

¶21 In sum, even if the Careys wear different hats in the 

company, and even if as officers they made recommendations to 

the Board that led to the harm Edwards alleges, we agree with 

the district court that the Careys wore only the attire of corporate 

directors during the Meeting where they acted as a majority of 

the Board in deciding to terminate Edwards’ employment and 

adopt the Equity Exchange that resulted in a dilution of 

Edwards’ ownership interest in Seirus. As a result, this is not a 

case when the policy favoring arbitration comes into play. See 

Kenny v. Rich, 2008 UT App 209, ¶ 28, 186 P.3d 989 (‚*T]he 

presumption in favor of arbitration does not create a 

presumption in favor of finding that an agreement to arbitrate 

actually exists.‛). 

¶22 Accordingly, we affirm the district court’s denial of the 

motion to arbitrate. We conclude, as did the district court, that 

Edwards’ claims do not implicate the employment agreements,

and as a result, we need not reach the question of whether 

Edwards’ claims are derivative.