Court Opinion

ID: 1043884
Source: CourtListenerOpinion
Date Created: 2013-10-08 01:22:30.815273+00
Date Added: 2024-06-11T13:02:22.250331
License: Public Domain

IN THE SUPREME COURT OF TENNESSEE
                              AT JACKSON
                                November 7, 2012 Session

          GLASSMAN, EDWARDS, WYATT, TUTTLE & COX, P.C.
                       v. B. J. WADE ET AL.

          Appeal by Permission from the Court of Appeals, Western Section
                        Chancery Court for Shelby County
                   No. CH10775      Walter L. Evans, Chancellor

                  No. W2012-00321-SC-S10-CV - Filed April 30, 2013

A law firm filed suit against a former partner and a former paralegal. Both former employees
filed motions to compel arbitration. The trial court consolidated the cases and stayed
discovery except as to the issue of whether the cases were subject to arbitration.
Subsequently, the trial court ordered the parties to engage in mediation and to disclose “all
necessary documents to conduct a meaningful attempt at resolution” despite the prior order
limiting discovery. After the trial court denied their motion to vacate the order, the former
partner and paralegal sought an extraordinary appeal to the Court of Appeals under Rule 10
of the Tennessee Rules of Appellate Procedure, which was denied. We granted extraordinary
appeal. We hold that the trial court erred in ordering discovery without limiting the scope
of discovery to the issue of arbitrability, in contravention of the unambiguous language of
the Tennessee Uniform Arbitration Act, and erred in referring the parties to mediation in an
effort to resolve all issues. We vacate the order of the trial court, and we remand the case to
the trial court for a determination on the motions to compel arbitration.

              Tenn. R. App. P. 10 Extraordinary Appeal by Permission;
                     Judgment of the Chancery Court Vacated;
              Case Remanded to the Chancery Court for Shelby County

J ANICE M. H OLDER, J., delivered the opinion of the Court, in which G ARY R. W ADE, C.J., and
C ORNELIA A. C LARK, W ILLIAM C. K OCH, J R., and S HARON G. L EE, JJ., joined.

Adam Jacob Eckstein, David Clark Wade, and Matthew Paul Gabriel, Memphis, Tennessee,
for the appellants, B. J. Wade and Shannon Crowe.

John A. Day and R. Burke Keaty II, Brentwood, Tennessee, for the appellee, Glassman,
Edwards, Wyatt, Tuttle & Cox, P.C.
                                               OPINION

                                   I. Facts and Procedural History

        Glassman, Edwards, Wyatt, Tuttle & Cox, P.C. (“the Firm”) filed two separate
lawsuits alleging fraud and breach of fiduciary duty against its former partner, B. J. Wade,
and a former paralegal, Shannon Crowe, in the Chancery Court for Shelby County. Mr.
Wade and Ms. Crowe each filed a motion to dismiss or, in the alternative, to compel
arbitration as required by an agreement between the parties in accordance with the Tennessee
Uniform Arbitration Act (“the TUAA”). See Tenn. Code Ann. §§ 29-5-301 to -320 (2012).
Both Mr. Wade and Ms. Crowe attached an unsigned employment agreement, and Mr. Wade
attached an executed Shareholder’s Agreement to the motions. Mr. Wade and Ms. Crowe
contend that both agreements compel arbitration. The Firm, however, contends that the
Shareholder’s Agreement is void based on lack of mutual assent and fraud in the inducement
and that the validity of the agreement must first be determined. In addition, the Firm
contends that the employment agreements, which also require arbitration, cannot be enforced
because neither Mr. Wade nor Ms. Crowe have produced an executed agreement. The parties
did participate in mediation as a condition precedent to arbitration, but the mediation was
unsuccessful.

       Mr. Wade and Ms. Crowe also filed motions to stay discovery pending the resolution
of the motions to dismiss or compel arbitration. The Chancery Court consolidated the two
cases and ordered that discovery be stayed except as to the issue of whether the cases were
subject to arbitration.

        During the discovery process, the parties disagreed as to the scope of discovery, and
the Firm filed a motion to compel discovery of certain documents and information. The
Chancery Court conducted a hearing and ordered the parties to disclose “all necessary
documents to conduct a meaningful attempt at resolution of this matter in accordance with
. . . Rule 31” without limiting discovery to the issue of arbitrability and further ordered the
parties to engage in mediation as to all aspects of their dispute.1

       1
           Tennessee Supreme Court Rule 31, section (b) provides in pertinent part:

       Upon motion of either party, or upon its own initiative, a court, by Order of Reference, may
       order the parties to an Eligible Civil Action to participate in a Judicial Settlement
       Conference or Mediation.

                                                    -2-
       Mr. Wade and Ms. Crowe moved the Chancery Court to vacate its order2 or, in the
alternative, to grant them permission to file an interlocutory appeal under Tennessee Rule of
Appellate Procedure 9. The Chancery Court denied the motion. Mr. Wade and Ms. Crowe
sought an extraordinary appeal to the Court of Appeals under Rule 10 of the Tennessee Rules
of Appellate Procedure, which was denied. We granted extraordinary appeal.3

                                                II. Analysis

       At issue in this case is whether the trial court erred in ordering discovery as to all
aspects of the parties’ disputes and in referring the parties to mediation prior to ruling on the
motions to compel arbitration filed by Mr. Wade and Ms. Crowe.

        Arbitration agreements are favored in Tennessee by both statute and case law. Benton
v. Vanderbilt Univ., 137 S.W.3d 614, 617 (Tenn. 2004). The TUAA governs the extent of
judicial involvement in the arbitration process. See Arnold v. Morgan Keegan & Co., 914
S.W.2d 445, 447-48 (Tenn. 1996). The interpretation of the TUAA and its application to the
facts of this case are issues of law, which we review de novo. See Larsen-Ball v. Ball, 301
S.W.3d 228, 232 (Tenn. 2010). Our role in interpreting a statute is to give the statute the
effect the legislature intended without expanding or restricting the intended scope. City of
Harriman v. Roane Cnty. Election Comm’n, 354 S.W.3d 685, 689 (Tenn. 2011). If the
statutory language is unambiguous, we will interpret the words according to their plain and
ordinary meaning. State v. Marshall, 319 S.W.3d 558, 561 (Tenn. 2010).

       The TUAA establishes that written agreements to arbitrate are “valid, enforceable and
irrevocable save upon such grounds as exist at law or in equity for the revocation of any
contract.” Tenn. Code Ann. § 29-5-302(a). By enacting the TUAA, the legislature has
adopted a policy favoring the enforcement of arbitration agreements. Buraczynski v. Eyring,
919 S.W.2d 314, 317-18 (Tenn. 1996).

       2
           Rule 31, section 3(c) provides in pertinent part:

        Any Order of Reference made on the court’s own initiative shall be subject to review on
        motion by any party and shall be vacated should the court determine in its sound discretion
        that the referred case is not appropriate for [Alternative Dispute Resolution] or is not likely
        to benefit from submission to [Alternative Dispute Resolution].
       3
         Rule 10 of the Tennessee Rules of Appellate Procedure provides that an extraordinary appeal may
be granted when “the lower court has so far departed from the accepted and usual course of judicial
proceedings as to require immediate review” or if review is “necessary for complete determination of the
action on appeal as otherwise provided in these rules.”

                                                      -3-
        The parties disagree as to whether arbitration should be enforced in this case. The
TUAA provides instruction to the trial court when an “opposing party denies the existence
of the agreement to arbitrate.” Tenn. Code Ann. § 29-5-303(a). The statute requires the
court to “proceed summarily” to a determination of whether arbitration is required. Tenn.
Code Ann. § 29-5-303(a), (b). The TUAA also provides that when an application to enforce
arbitration has been made, the trial court must issue a stay for “any action or proceeding
involving an issue subject to arbitration.” Tenn. Code Ann. § 29-5-303(d).4

       The purpose of arbitration is to promote the settlement of disputes without judicial
involvement. Arnold, 914 S.W.2d at 448 n.2. The TUAA effectuates this purpose by
limiting the authority of a trial court to conduct proceedings on the merits prior to
determining whether arbitration should be enforced. The language of the TUAA clearly and
unambiguously instructs courts to determine whether arbitration is required before delving

      4
          Tennessee Code Annotated section 29-5-303 provides in its entirety:

       (a) On application of a party showing an agreement described in § 29-5-302, and the
       opposing party’s refusal to arbitrate, the court shall order the parties to proceed with
       arbitration, but if the opposing party denies the existence of the agreement to arbitrate, the
       court shall proceed summarily to the determination of the issue so raised and shall order
       arbitration if found for the moving party; otherwise, the application shall be denied.

       (b) On application, the court may stay an arbitration proceeding commenced or threatened
       on a showing that there is no agreement to arbitrate. Such an issue, when in substantial and
       bona fide dispute, shall be forthwith and summarily tried and the stay ordered if found for
       the moving party. If found for the opposing party, the court shall order the parties to proceed
       to arbitration.

       (c) If an issue referable to arbitration under the alleged agreement is involved in an action
       or proceeding pending in a court having jurisdiction to hear applications under subsection
       (a), the application shall be made therein. Otherwise and subject to § 29-5-318, the
       application may be made in any court of competent jurisdiction.

       (d) Any action or proceeding involving an issue subject to arbitration shall be stayed if an
       order for arbitration or an application therefor has been made under this section or, if the
       issue is severable, the stay may be with respect thereto only. When the application is made
       in such action or proceeding, the order for arbitration shall include such stay.

       (e) An order for arbitration shall not be refused on the ground that the claim in issue lacks
       merit or bona fides or because any fault or grounds for the claim sought to be arbitrated have
       not been shown.

                                                    -4-
into the merits of the case.5 Discovery is appropriate if it is limited to matters raised in the
motion to compel arbitration. The trial court, however, must stay all other proceedings,
including discovery unrelated to the issue of arbitrability.

        The TUAA also limits the trial court’s authority to order Rule 31 mediation on the
merits of an issue that is subject to an arbitration agreement. When the parties have deemed
arbitration to be the chosen method of alternative dispute resolution, the dispute is governed
by the TUAA rather than Tennessee Supreme Court Rule 31. See Tuetken v. Tuetken, 320
S.W.3d 262, 269 (Tenn. 2010). The TUAA explicitly confers jurisdiction on the trial court
to enforce the arbitration agreement and to enter judgment on the arbitration award. Tenn.
Code Ann. § 29-5-302(b). The rules of the Tennessee Supreme Court cannot expand the
scope of a trial court’s jurisdiction to permit adjudication of matters over which it has no
authority. See Haley v. Univ. of Tenn.-Knoxville, 188 S.W.3d 518, 522 (Tenn. 2006)
(“[J]urisdiction of the subject matter is conferred by the constitution and statutes”) (quoting
Kane v. Kane, 547 S.W.2d 559, 560 (Tenn. 1977)); see also Tenn. Code Ann. § 16-3-403
(2009) (“The rules prescribed by the supreme court . . . shall not abridge, enlarge or modify
any substantive right, and shall be consistent with the constitutions of the United States and
Tennessee.”).

        In this case, the trial court erred in ordering discovery on all aspects of the parties’
disputes and in further ordering the parties to mediation in an effort to resolve all disputes
between the parties. On the limited record before us, it is apparent that the parties dispute
the validity of the employment contracts and the Shareholder’s Agreement executed by Mr.
Wade.6 The Firm contends that neither party executed employment agreements and that the
arbitration clauses in those agreements are therefore unenforceable. The Firm also contends
that the Shareholder’s Agreement executed by Mr. Wade is not enforceable because it was

        5
           In support of their contention that the trial court must stay discovery unrelated to the issue of
arbitrability, Mr. Wade and Ms. Crowe have cited Benjamin K. Byrd et al., Recent Developments: The
Uniform Arbitration Act, 1998 J. Disp. Resol. 233, 245 (1998) (citing Southeast Drilling & Blasting Servs.,
Inc. v. BRS Constr. Co., No. 01A01-9706-CH-00272, 1997 WL 399387, at *2 (Tenn. Ct. App. July 16,
1997)). We note that Southeast Drilling is a “Memorandum Opinion” as described by Tennessee Court of
Appeals Rule 10. This rule allows the Court of Appeals, with the concurrence of all judges participating in
the case, to affirm, reverse, or modify the actions of the trial court by memorandum opinion when the Court
of Appeals concludes a formal opinion would have no precedential value. See Tenn. Ct. App. R. 10. Rule
10 provides that “[w]hen a case is decided by memorandum opinion it shall be designated
‘MEMORANDUM OPINION,’ shall not be published, and shall not be cited or relied on for any reason in
any unrelated case.” In accordance with Rule 10, we decline to cite or rely on Southeast Drilling in deciding
this case.
        6
         The “record” in this case consists of the briefs filed by the parties and appendices to those briefs,
in which copies of pleadings, deposition transcripts, hearing transcripts, and other documents are provided.

                                                     -5-
based on lack of mutual assent and fraud in the inducement. Mr. Wade, on the other hand,
contends that the Firm has participated in the mediation that was a condition precedent to
arbitration and therefore has acknowledged the validity of the Shareholder’s Agreement and
its arbitration provision. On remand, the trial court shall determine whether arbitration was
required of any dispute between the parties under any of the contracts that are at issue and
shall limit discovery to those issues.

                                      III. Conclusion

        We vacate the order of the Chancery Court. On remand, the trial court shall determine
whether one or more of the agreements at issue require arbitration and shall limit discovery
to the issue of whether the arbitration clause should be enforced. Costs of this appeal are
taxed to Glassman, Edwards, Wyatt, Tuttle & Cox, P.C., and its surety, for which execution
may issue if necessary.

                                                   _________________________________
                                                   JANICE M. HOLDER, JUSTICE

                                             -6-