Court Opinion

ID: 8407058
Source: CourtListenerOpinion
Date Created: 2022-11-01 12:05:14.151316+00
Date Added: 2024-06-11T16:47:23.543641
License: Public Domain

IN THE COURT OF APPEALS OF NORTH CAROLINA

                                      2022-NCCOA-707

                                       No. COA22-116

                                   Filed 1 November 2022

     Catawba County, No. 20 CVS 2090

     TOD COLES, Plaintiff,

                 v.

     SUGARLEAF LABS, INC. (formerly known as Neptune Acquisition USA, Inc.), and
     NEPTUNE WELLNESS SOLUTIONS, INC., Defendants.

           Appeal by Plaintiff from an order entered 17 August 2021 by Judge Gregory

     Hayes in Catawba County Superior Court.         Heard in the Court of Appeals 6

     September 2022.

           Law Offices of Matthew K. Rogers, PLLC, by Matthew K. Rogers, for Plaintiff-
           Appellant.

           Jackson Lewis P.C., by H. Bernard Tisdale, III, and Janean B. Dunn, for
           Defendants-Appellees.

           INMAN, Judge.

¶1         Plaintiff-Appellant Tod Coles (“Plaintiff”) appeals from an order compelling

     arbitration and dismissing his complaint with prejudice. The parties dispute whether

     this Court has jurisdiction over this appeal. Orders compelling arbitration are

     interlocutory and are generally not immediately appealable, but a dismissal of a

     complaint with prejudice ordinarily operates as a final judgment from which a party
                                 COLES V. SUGARLEAF LABS, INC.

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     may immediately appeal. After careful review, we hold that the trial court’s dismissal

     with prejudice was in error under North Carolina law, vacate that portion of the trial

     court’s order, and remand for entry of a stay. But, because we would otherwise lack

     jurisdiction to consider Plaintiff’s appeal, we dismiss Plaintiff’s appeal without

     consideration of its merits and leave undisturbed the remainder of the trial court’s

     order compelling arbitration.

                    I.   FACTUAL AND PROCEDURAL HISTORY

¶2         The record below discloses the following:

¶3         In 2018, Plaintiff was employed as the president of Sugarleaf Labs, LLC and

     Forest Remedies, LLC, two entities involved in the processing and sale of hemp

     products.   The following year, Defendant Neptune Wellness Solutions, Inc.

     (“Neptune”) purchased Sugarleaf Labs, LLC, and Forest Remedies, LLC, through a

     newly-formed subsidiary, Defendant Sugarleaf Labs, Inc. (“Sugarleaf,” together with

     Neptune as “Defendants”).

¶4         Neptune’s purchase of Plaintiff’s employers was memorialized in an Asset

     Purchase Agreement (“APA”).       The APA required Sugarleaf to enter into new

     employment agreements with certain key employees, including Plaintiff. It also

     required that any disputes relating to the APA and its “Ancillary Documents”—

     defined to include Plaintiff’s employment agreement with Sugarleaf—must be

     resolved through arbitration.
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¶5          On 24 July 2019, after the APA was executed, Plaintiff and Sugarleaf entered

     into the contemplated employment agreement; this agreement did not include an

     arbitration provision, and Plaintiff was not a signatory to the earlier APA. However,

     the employment agreement did expressly state that it was a condition of the APA and

     that the employment agreement “include[ed] . . . the agreements and other documents

     referenced in this Agreement.”

¶6          Sugarleaf eventually terminated Plaintiff’s employment, leading him to sue

     Defendants for: (1) breach of contract; (2) fraud; (3) negligent misrepresentation; (4)

     Wage & Hour Act violations; (5) injunctive relief; and (6) unfair and deceptive trade

     practices. Defendants filed an answer and subsequently moved “to compel arbitration

     and dismiss, or in the alternative, stay pending arbitration.” Defendants premised

     their motion to compel arbitration on Plaintiff’s admission in his complaint that he

     was a third-party beneficiary under the APA and argued that Plaintiff could only

     enforce the employment agreement consistent with the APA’s mandatory arbitration

     provision. The motion included several exhibits, namely pertinent portions of the

     executed APA, Plaintiff’s employment agreement with Sugarleaf, and emails showing

     Plaintiff’s refusal to arbitrate.
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¶7          Both parties submitted briefs to the trial court in advance of the hearing.

     Plaintiff argued that there was no evidence1 he had agreed to arbitrate any claims

     because he did not sign the APA, and any attempt to enforce the APA’s arbitration

     provision against him would be contrary to North Carolina public policy.

¶8          Defendants’ brief asserted that under either the Federal Arbitration Act

     (“FAA”) or the North Carolina Revised Uniform Arbitration Act (“RUAA”), the trial

     court was required to stay the proceeding and compel arbitration. They argued that

     regardless of which statute applied, North Carolina contract and agency law requires

     a third-party beneficiary seeking to enforce a contract with a mandatory arbitration

     provision to do so through arbitration.          Defendants’ brief also included several

     additional documentary exhibits showing Plaintiff’s agency/third-party beneficiary

     relationship to the APA and its signatories.

¶9          The trial court heard Defendants’ motion via Webex on 25 January 2021. It

     allowed Defendants’ motion from the bench, concluding that the employment

     agreement was part of the APA (and vice-versa). The trial court did not, however,

            1 Plaintiff challenged the competency and sufficiency of the evidence presented below
     concerning the existence of an agreement to arbitrate, and he maintains that challenge on
     appeal. Because we dismiss his appeal without addressing its substance, we do not purport
     to decide whether the record includes sufficient admissible evidence to compel arbitration or
     support the trial court’s findings of fact to that effect. Goetz v. N.C. Dept. of Health & Human
     Svcs., 203 N.C. App. 421, 433, 692 S.E.2d 395, 403 (2010) (holding that appeals dismissed as
     interlocutory contain “no rulings of law which could become the law of the case”).
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       expressly indicate whether it was staying the action, which typically occurs when a

       motion to compel arbitration is granted, or dismissing the action, as requested by

       Defendants’ motion.

¶ 10          After the parties submitted dueling proposed orders, the trial court entered a

       written order compelling arbitration and dismissing Plaintiff’s complaint with

       prejudice. Plaintiff now appeals, arguing that the dismissal with prejudice is a final

       judgment or, if interlocutory, affects a substantial right. Failing that, he requests

       this Court treat his brief as a petition for writ of certiorari.

                                         II.     ANALYSIS

¶ 11          Plaintiff asserts on appeal that the trial court’s order is immediately

       appealable as a final judgment because it dismissed his complaint with prejudice.

       Defendants maintain that the order is interlocutory, does not affect a substantial

       right, and is thus not subject to immediate appeal. See, e.g., C. Terry Hunt Indus.,

       Inc. v. Klausner Lumber Two, LLC, 255 N.C. App. 8, 12, 803 S.E.2d 679, 682 (2017)

       (holding an order compelling arbitration is not immediately appealable for these

       reasons).

¶ 12          Both parties are correct to some extent: a dismissal with prejudice is a final

       judgment, but an order compelling arbitration—properly entered—is interlocutory

       and not subject to immediate appeal as of right. Thus, by compelling arbitration and

       dismissing Plaintiff’s complaint with prejudice, the trial court entered something
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                                            Opinion of the Court

       akin to Schrodinger’s cat: an appealable unappealable order, an interlocutory final

       judgment.

¶ 13          Faced with this quantum-state quandary, and reviewing the relevant statutes

       and caselaw, we hold that the trial court erred in dismissing Plaintiff’s complaint

       with prejudice. After compelling arbitration, the trial court was required to stay

       proceedings based on the mandatory language of the RUAA, which supplies the

       applicable procedural law in this case. We therefore vacate that portion of the order

       and remand for entry of an order staying the action pending arbitration.

¶ 14          As for Plaintiff’s substantive arguments contending the trial court erred in

       compelling arbitration, we dismiss that portion of the appeal because our precedents

       establish that such orders are neither final judgments nor interlocutory orders

       affecting a substantial right subject to immediate appeal. Lastly, we decline in our

       discretion to treat Plaintiff’s brief as a petition for writ of certiorari on this issue.

       A. Appellate Jurisdiction Generally

¶ 15          Appellate jurisdiction is a threshold issue that we must consider sua sponte.

       Akers v. City of Mount Airy, 175 N.C. App. 777, 778, 625 S.E.2d 145, 146 (2006).

       Whether this Court has jurisdiction turns largely on the nature—interlocutory or

       final—of the order from which the parties appeal. A party may always appeal from

       a final judgment, Embler v. Embler, 143 N.C. App. 162, 164, 545 S.E.2d 259, 261

       (2001), which our caselaw defines as “one which disposes of the cause as to all the
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       parties, leaving nothing to be judicially determined between them in the trial court[,]”

       Veazey v. City of Durham, 231 N.C. 357, 361-62, 57 S.E.2d 377, 381 (1950). Stated

       differently, “[a] final judgment generally is one which ends the litigation on the

       merits.” Duncan v. Duncan, 366 N.C. 544, 545, 742 S.E.2d 799, 801 (2013) (cleaned

       up).

¶ 16          Interlocutory orders differ substantially from final judgments both in their

       character and their appealability. Such orders are made “during the pendency of an

       action, which do[] not dispose of the case, but leave[] it for further action by the trial

       court in order to settle and determine the entire controversy.” Veazey, 231 N.C. at

       362, 57 S.E.2d at 381. In layperson’s terms, an interlocutory order is entered during

       an ongoing court case, while a final judgment ends a lawsuit. And, unlike a final

       judgment, an interlocutory order is only appealable if the order “is final as to some

       but not all of the claims or parties, and the trial court certifies the case for appeal

       pursuant to N.C. Gen. Stat. § 1A-1, Rule 54(b),” N.C. Dept. of Transportation v. Page,

       119 N.C. App. 730, 734, 460 S.E.2d 332, 334 (1995), or if it “affects a substantial right

       of the appellant that would be lost without immediate review.” Embler, 143 N.C.

       App. at 165, 545 S.E.2d at 261 (citations omitted). This important limitation serves

       to “prevent fragmentary and premature appeals that unnecessarily delay the

       administration of justice and to ensure that the trial divisions fully and finally
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       dispose of the case before an appeal can be heard.” Bailey v. Gooding, 301 N.C. 205,

       209, 270 S.E.2d 431, 434 (1980).

       B. Appealability of Orders Compelling Arbitration and Dismissals with
          Prejudice

¶ 17         Our caselaw concerning the appealability of orders compelling arbitration

       establishes two key points: (1) “[a]n order compelling the parties to arbitrate is an

       interlocutory order,” Bluffs, Inc. v. Wysocki, 68 N.C. App. 284, 285, 314 S.E.2d 291,

       293 (1984); and (2) “an order compelling arbitration affects no substantial right that

       would warrant immediate appellate review,” C. Terry Hunt Indus., Inc. 255 N.C. App.

       at 12, 803 S.E.2d at 682. Thus, as an ordinary matter, a party may not immediately

       appeal an order compelling arbitration. Id.

¶ 18         Equally ordinary, however, is the principle that dismissals of lawsuits with

       prejudice are immediately appealable as final judgments adjudicating matters on the

       merits. See Doe v. Roman Catholic Diocese of Charlotte, 2022-NCCOA-288, ¶ 13

       (noting a summary judgment order dismissing a complaint with prejudice was

       immediately appealed as a final judgment); Clements v. Southern Ry. Co.¸179 N.C.

       225, 102 S.E. 399, 400 (1920) (“[T]he allowance of a motion to dismiss is final, and of

       course appealable.”); cf. Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79, 79-

       80, 148 L. Ed. 2d 373 (2000) (holding that an order compelling arbitration under the

       FAA and dismissing the complaint with prejudice was a final decision subject to
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       immediate appellate review under federal law without deciding whether such a

       dismissal was actually proper under the statute).

¶ 19         The order before us places the above precepts in direct tension. Thankfully,

       North Carolina’s RUAA, the FAA, and our state’s caselaw provide a ready release: a

       North Carolina state trial court may not compel arbitration and dismiss a complaint

       with prejudice.

       C. The RUAA Does Not Allow for Dismissal

¶ 20         The plain text of the RUAA does not contemplate dismissal upon entry of an

       order compelling arbitration. To the contrary, it requires, in mandatory terms, that

       “the court on just terms shall stay any judicial proceeding that involves a claim

       subject to . . . arbitration.” N.C. Gen. Stat. § 1-569.7(g) (2021) (emphasis added); see

       also State v. Johnson, 298 N.C. 355, 361, 259 S.E.2d 752, 757 (1979) (“As used in

       statutes, the word ‘shall’ is generally imperative or mandatory.”). Consistent with

       this language, we have mandated stays when reversing and remanding orders

       denying arbitration under the RUAA.         See Fontana v. Southeast Anesthesiology

       Consultants, P.A., 221 N.C. App. 582, 592 729 S.E.2d 80, 88 (2012) (“[S]ince we have

       held the breach of the employment contract is subject to arbitration, the trial court

       must stay the proceedings with regard to that claim.” (emphasis added)); Ellison v.

       Alexander, 207 N.C. App. 401, 415, 700 S.E.2d 102, 112 (2010) (“[T]he trial court’s

       order denying Defendants’ motion to compel arbitration should be, and hereby is,
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       reversed and this matter is remanded to the trial court for the entry of an order

       staying all further proceedings and requiring the parties to proceed to arbitration.”).

¶ 21         Other analogous decisions further illustrate that a stay, and not dismissal, is

       the proper remedy under the RUAA. In Novacare Orthotics & Prosthetics East, Inc.

       v. Speelman, the trial court granted a defendant’s motion to dismiss on arbitrability

       grounds. 137 N.C. App. 471, 478, 528 S.E.2d 918, 922 (2000). We vacated that

       dismissal and remanded the matter for further proceedings, reasoning that

       “defendant’s motion was an application to stay litigation and compel arbitration

       pursuant to [the RUAA’s predecessor statute],” notwithstanding the fact that the

       motion sought outright dismissal of the plaintiff’s complaint. Id. And, in another

       case surveying arbitration caselaw, we described a stay as the “appropriate remedy”

       when compelling arbitration. Patel v. Scottsdale Ins. Co., 221 N.C. App. 476, 484, 728

       S.E.2d 394, 400 (2012) (“After reviewing the relevant decisions of this Court, we note

       that, in the event that a litigant initiates civil litigation on the basis of a claim that

       is subject to arbitration, the appropriate remedy is to order the parties to arbitrate

       their dispute and stay the litigation pending completion of the arbitration process.”).

       Indeed, Defendants’ own brief to the trial court in this matter acknowledged that the

       RUAA calls for a stay when compelling arbitration.

¶ 22         Reading the RUAA to require a stay rather than dismissal is also in keeping

       with the purposes and structure of the statute. There is “a strong public policy
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favoring the settlement of disputes by arbitration,” Johnston County, N.C. v. R.N.

Rouse & Co., Inc., 331 N.C. 88, 91, 414 S.E.2d 30, 32 (1992), and our arbitration

statutes serve “to provide and encourage an expedited, efficient, relatively

uncomplicated, alternative means of dispute resolution, with limited judicial

intervention or participation, and without the primary expense of litigation—

attorneys’ fees[,]” Nucor Corp. v. General Bearing Corp., 333 N.C. 148, 154, 423

S.E.2d 747, 750 (1992). Notably, the RUAA itself does not allow for appeals from

orders compelling arbitration; instead, a party contending he was wrongly ordered to

submit his claim to arbitration may only challenge such a ruling by moving to vacate

the award on that ground after said award has been rendered by the arbitrator and,

should the award nonetheless be confirmed, appealing the issue after entry of that

final judgment. N.C. Gen. Stat. §§ 1-569.28 & 1-569.23(a)(5) (listing the orders

appealable under the RUAA—omitting orders compelling arbitration—and instead

allowing a challenge to arbitrability by motion to vacate an award).2

       2   Orders denying arbitration are, by contrast, immediately appealable under the
RUAA. N.C. Gen. Stat. § 1-569.28(a)(1); see also Prime South Homes, Inc. v. Byrd, 102 N.C.
App. 255, 258, 401 S.E.2d 822, 825 (1991) (“[A]n order denying arbitration, although
interlocutory, is immediately appealable because it involves a substantial right which might
be lost if appeal is delayed.”). This is for good reason. See Katz v. Cellco P’ship, 794 F.3d 341,
346 (2nd Cir. 2015) (“[I]t would make little sense to receive a conclusive arbitrability ruling
only after a party has already litigated the underlying controversy.”).
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¶ 23         With these intentions in mind, it is evident that allowing orders compelling

       arbitration to be entered as final judgments would re-inject the appellate judiciary

       into the proceedings at the exact juncture that the court system is supposed to be

       stepping aside in favor of arbitration. See Henderson v. Herman, 104 N.C. App. 482,

       485, 409 S.E.2d 739, 741 (1991) (noting that, in passing the RUAA’s predecessor

       statute, “the legislature intended the courts to send certain predetermined issues to

       arbitration and then to step back until the arbitration proceeding is complete”). We

       therefore hold, consistent with the plain language and purposes of the RUAA, that a

       trial court must stay proceedings when compelling arbitration. It may not convert

       what is otherwise intended to be an unappealable interlocutory order into an

       appealable final judgment by dismissing a complaint with prejudice.

       D. The RUAA’s Procedural Law Applies Even If the FAA Governs the
          Substantive Law

¶ 24         Left unanswered by the above analysis is the FAA’s role in this appeal. That

       statute contains a substantively identical provision to our RUAA that, in apparently

       mandatory terms, requires the trial court to enter a stay of those claims subject to

       arbitration. 9 U.S.C. § 3 (2022) (“[T]he court . . . upon being satisfied that the issue

       involved in such suit or proceeding is referable to arbitration under such an

       agreement, shall on application of one of the parties stay the trial of the action until
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       such arbitration has been had . . . .”).3 Ultimately, what Section 3 of the FAA

       procedurally requires is immaterial, as this Court has held that “Section 3 of the FAA

       only applies in federal district court, not in state court.” Elliott v. KB Home North

       Carolina, Inc., 231 N.C. 332, 336, 752 S.E.2d 694, 697 (2013). And because the

       procedural provision of the RUAA compelling a mandatory stay furthers the purposes

       of the FAA by favoring arbitration, the RUAA’s procedural provisions back-fill the

       gap left by Section 3 of the FAA’s inapplicability. See Blow v. Shaughnessy, 68 N.C.

       App. 1, 313 S.E.2d 868 (1984) (holding the procedural stay provision of the RUAA’s

       predecessor statute, and not Section 3 of the FAA, provide the remedy when

       compelling arbitration pursuant to an agreement governed by the FAA).

¶ 25          The trial court’s order dismissing Plaintiff’s complaint does not comport with

       the law as set forth above. Under the RUAA, the trial court could only stay Plaintiff’s

       complaint, N.C. Gen. Stat. § 1-569.7(g), and that procedural remedy is the only one

       available even if the FAA substantively governs the arbitration agreement at issue.

       We therefore vacate the portion of the order that dismisses the complaint with

              3 The federal circuits are presently split as to whether a trial court may dismiss a
       complaint in lieu of stay when compelling arbitration. See Katz, 794 F.3d at 345 (reviewing
       the circuit split before holding that a stay, and not dismissal, is the only appropriate
       disposition in an order compelling arbitration under the FAA). Different panels of the Fourth
       Circuit have rendered conflicting decisions on the matter. See Aggarao v. MOL Ship Mgmt.
       Co., Ltd., 675 F.3d 355, 376 n.18 (4th Cir. 2012) (noting that there is “some tension” between
       the Fourth Circuit’s various decisions regarding the availability of dismissal under Section 3
       of the FAA).
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       prejudice and remand the matter for entry of an order that stays the action.

       E. No Other Grounds Permit Appellate Review

¶ 26          Having held that the portion of the trial court’s order giving this Court

       jurisdiction was in error, we now dismiss the remainder of Plaintiff’s appeal. He has

       made no showing distinguishing this case from the decades of precedents holding

       orders compelling arbitration do not affect a substantial right, relying instead on

       entirely conclusory assertions without citation to caselaw or the record. See K2HN

       Construction NC, LLC v. Five D Contractors, Inc., 267 N.C. App. 207, 213-14, 832

       S.E.2d 559, 564 (2019) (observing that conclusory arguments are inadequate to raise

       an issue on appeal).

¶ 27          We also decline to treat Plaintiff’s brief as a petition for writ of certiorari. Not

       only is making such a request absent a proper petition under Rule 21 of the North

       Carolina Rules of Appellate Procedure disfavored, Doe v. City of Charlotte, 273 N.C.

       App. 10, 23, 848 S.E.2d 1, 11 (2020), but Plaintiff has not demonstrated any basis for

       discarding the two substantial public policy considerations at play in this appeal. See

       Embler, 143 N.C. App. at 165, 545 S.E.2d at 261-62 (discussing the policy behind the

       prohibition against fragmentary interlocutory appeals); Nucor Corp.¸333 N.C. at 154,

       423 S.E.2d at 750 (detailing the public policy rationale for favoring arbitration over

       traditional litigation).

                                      III.     CONCLUSION
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¶ 28         For the foregoing reasons, we hold the trial court erred in dismissing Plaintiff’s

       complaint with prejudice, vacate that limited portion of the order, and remand the

       matter for entry of an order that stays the litigation.       We do not address the

       substantive merits of the trial court’s order and pass no judgment as to whether

       arbitration was properly ordered in this case; Plaintiff may properly raise that issue

       before the trial court in the post-award proceedings authorized by statute and upon

       appeal of that interlocutory order from a final judgment confirming the award. See

       C. Terry Hunt Indus., Inc., 255 N.C. App. at 12, 803 S.E.2d at 682 (detailing post-

       award challenges to arbitration under the RUAA); In re Fifth Third Bank, Nat’l Ass’n,

       216 N.C. App. 482, 487, 716 S.E.2d 850, 854 (2011) (discussing the same under the

       FAA); N.C. R. App. P. 3 (2022) (allowing a party to designate an appeal from an order

       after judgment).

             VACATED AND REMANDED IN PART; APPEAL DISMISSED IN PART

             Judge DILLON concurs.

             Judge MURPHY concurs by separate opinion.
        No. COA22-116 – Coles v. Sugarleaf Labs, Inc.

              MURPHY, Judge, concurring.

¶ 29          I fully join the Majority in its result and its analysis. However, insofar as ¶¶

       22-23 or 27, supra, could be read as even tacitly endorsing our current system or

       supporting a policy favoring arbitration, I write separately to reiterate the

       observations and critiques made in AVR Davis Raleigh, LLC v. Triangle Constr. Co.,

       Inc., 260 N.C. App. 459, 463-66, 818 S.E.2d 184, 188-89 (2018) (Murphy, J.,

       concurring). To the extent that I am not bound to do so, I refuse to perpetuate the

       myth that it is the policy of the People of this state to favor arbitration over jury trials.