Court Opinion

ID: 2728090
Source: CourtListenerOpinion
Date Created: 2014-09-08 21:28:58.301035+00
Date Added: 2024-06-11T09:28:42.997317
License: Public Domain

An unpublished opinion of the North Carolina Court of Appeals does not constitute
controlling legal authority. Citation is disfavored, but may be permitted in accordance
with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure.

                                NO. COA13-1420
                       NORTH CAROLINA COURT OF APPEALS

                                Filed: 1 July 2014

ELJ, INC.,
     Plaintiff,

      v.                                      Onslow County
                                              No. 13-CVS-2383
WILLIAM J. JEFFERYS AND A.C.
SCHULTES OF CAROLINA, INC.,
     Defendants.

      Appeal by defendants from Order entered 10 September 2013

by   Judge   Gary    E.   Trawick    in   Superior     Court,    Onlsow    County.

Heard in the Court of Appeals 24 April 2014.

      Harris, Creech, Ward & Blackerby, P.A., by Luke A. Dalton
      and Jay C. Salsman, for plaintiff-appellee.

      Bugg & Wolf, P.A., by William R. Sparrow, for defendants-
      appellants.

      STROUD, Judge.

      William     Jefferys     and    A.C.    Schultes     of   Carolina,      Inc.

(“defendants”) appeal from an order entered 10 September 2013

denying their motion to compel arbitration. We affirm.

                                I.     Background

      On 24 June 2013, ELJ, Inc. (“plaintiff”) filed a complaint

in superior court, Craven County, against defendants. It alleged
                                         -2-
that   defendant      Jefferys,       president     of   A.C.   Schultes,        made    a

number of derogatory statements about ELJ while the parties were

competing for construction bids in Pamlico County and Lenoir

County. It alleged that these statements were defamatory per se

and that they constituted unfair and deceptive trade practices.

With consent of both parties, venue was moved to Onslow County.

       The    parties        had     previously      worked     together          on    a

construction project in Farmville, North Carolina. A.C. Schultes

was    the    prime     contractor      on   the     project     and       ELJ   was     a

subcontractor.        The    subcontract     they    signed     for    that      project

included an arbitration provision that required arbitration of

“[a]ny claim arising out of or related to this Subcontract . . .

.” Defendants filed a motion to compel mediation and arbitration

on the basis of this provision.

       The superior court heard defendants’ motion on 3 September

2013. By order entered 10 September 2013, the superior court

denied defendants’ motion to compel mediation and arbitration.

Defendants timely filed written notice of appeal to this Court.

                            II.    Appellate Jurisdiction

       Defendants appeal from an interlocutory order denying their

motion   to    compel       arbitration.     An   order   denying      a    motion      to

compel arbitration affects a substantial right. Sillins v. Ness,
                                      -3-
164 N.C. App. 755, 756, 596 S.E.2d 874, 875 (2004). Therefore,

it is immediately appealable and this Court has jurisdiction to

consider the appeal. Id.

                     III. Motion to Compel Arbitration

    Defendants        argue   that   the   trial    court    erred    in   denying

their   motion   to    compel    arbitration       because   the     parties   had

entered   into   a    contract   with      an   arbitration    provision       that

covers plaintiff’s defamation claim. We disagree.

           As a general matter, public policy favors
           arbitration. However, before a dispute can
           be ordered resolved through arbitration,
           there   must   be  a   valid    agreement  to
           arbitrate.   Thus,  whether   a   dispute  is
           subject to arbitration is a matter of
           contract law. Parties to an arbitration must
           specify clearly the scope and terms of their
           agreement to arbitrate. Moreover, a party
           cannot be forced to submit to arbitration of
           any dispute unless he has agreed to do so.

           The question of whether a dispute is subject
           to arbitration is an issue for judicial
           determination. . . . [T]he 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.    [The determination of]
           [w]hether   a    dispute   is    subject   to
           arbitration involves a two pronged analysis;
           the 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.
                                            -4-
Raspet v. Buck, 147 N.C. App. 133, 135-36, 554 S.E.2d 676, 678

(2001) (citations and quotation marks omitted).

    “The     determination         of       whether     a     particular        claim    is

arbitrable     is     controlled       by    the   language          of   the    parties’

agreement.” Ruffin Woody And Associates, Inc. v. Person County,

92 N.C. App. 129, 133, 374 S.E.2d 165, 168 (1988), disc. rev.

denied, 324 N.C. 337, 378 S.E.2d 799 (1989).

           Other courts have generally agreed that
           whether a claim falls within the scope of an
           arbitration clause and is thus subject to
           arbitration      depends    not     on   the
           characterization of the claim as tort or
           contract, but on the relationship of the
           claim   to   the    subject  matter   of the
           arbitration clause.

Rodgers Builders, Inc. v. McQueen, 76 N.C. App. 16, 24, 331

S.E.2d 726, 731 (1985), disc. rev. denied, 315 N.C. 590, 341

S.E.2d 29 (1986).

    Here, it is undisputed that the parties signed a contract

with an arbitration clause. The only dispute concerns whether

the tort claims fall within its scope.                        The primary contract

between the Town of Farmville and A.C. Schultes concerned the

construction     of    water   transmission           lines    for    Farmville.        A.C.

Schultes   and      ELJ   signed   a    subcontract         that     required     ELJ    to

provide certain labor and material in connection to the project.

The subcontract contained the following arbitration provision:
                                         -5-
             6.2 ARBITRATION
             6.2.1 Any claim arising out of or related to
             this Subcontract, except claims as otherwise
             provided in Subparagraph 4.1.5[1] and except
             those waived in the Subcontract, shall be
             subject    to    arbitration.     Prior   to
             arbitration, the parties shall endeavor to
             resolve disputes by mediation in accordance
             with the provision of Paragraph 6.1.

      In    Rodgers    Builders,    Inc.       we    considered   an    arbitration

clause similar to the one here. In that case, the arbitration

clause provided: “‘All claims, disputes and other matters in

question     between    the    Contractor           [plaintiff]   and     the       Owner

[McQueen     Properties]      arising     out       of,   or   relating       to,    the

Contract Documents or the breach thereof, . . . shall be decided

by arbitration . . . .’” Id. at 18, 331 S.E.2d at 728.                                The

subsequent claims in that case were tort claims related to “a

dispute . . . concerning plaintiff’s alleged failure to complete

the   project   within      the   time    specified       in   the     contract      and

McQueen Properties’ subsequent refusal to pay a draw request in

the amount of $177,000 submitted by plaintiff.” Id. We observed

that the tort claims were subject to arbitration because “[t]he

actions which form the basis for the claims allegedly were taken

for   the   purpose    of     defeating    plaintiff’s         claim    for     damages

1
   This subparagraph concerned the authority of the prime
contractor and architect to reject any work performed by ELJ
that does not conform to the prime contract.
                                         -6-
arising   under      the   contract.”    Id.    at     25,   331    S.E.2d   at   732.

Therefore, we concluded that the “alleged tortious conduct on

the part of defendants . . . occurred in connection with, or as

a part of, the formation of, performance under, or breach of the

contract between plaintiff and McQueen Properties” and held that

the claims were subject to arbitration. Id.

      ELJ’s complaint alleged that the parties worked together on

a   project    for   the   Town   of    Farmville      in    2009   and   2010,    the

project covered by the subcontract discussed above. That project

“ended    up   in    litigation,       with    [A.C.    Schultes]      filing     suit

against ELJ.”        In 2012, a project in Grantsboro, Pamlico County,

was posted for bid. ELJ alleged that defendant Jefferys made a

number of defamatory statements to engineers for the Pamlico

County project in order to convince the County to award the

contract to A.C. Schultes instead of ELJ. There is no indication

on the face of the complaint that the project in Pamlico County

had anything to do with the Farmville project.

      Both parties also bid on a project in the Town of LaGrange,

Lenoir County. ELJ alleged that defendant Jefferys also called

an influential supplier on that project, the LaGrange mayor, and

the LaGrange public works director to make several derogatory

statements regarding ELJ’s past work. ELJ alleged that these
                                        -7-
statements were made in an attempt to dissuade LaGrange from

hiring ELJ to work on the project. There is no indication that

this   project    had   anything    to   do    with   the     Farmville   project

either.

       The only evident relevance of the Farmville project to the

present claims is to explain how the parties knew each other

prior to the later bids.           It is the conduct surrounding these

later bid contests that gave rise to plaintiff’s claims here,

not the performance or breach of the contract. Even assuming

that Jeffreys’ allegedly derogatory statements were about ELJ’s

performance of the Farmville project, we cannot say that these

claims    are    “arising   out    of    or    related   to    [the   Farmville]

Subcontract.”       See     Fontana       v.     Southeast       Anesthesiology

Consultants, P.A., ___ N.C. App. ___, ___, 729 S.E.2d 80, 87

(holding that a plaintiff’s tort claims were not covered by an

arbitration agreement where “the facts underlying plaintiff’s

allegations relating to the tort claims may have contributed to

creating the environment which led to plaintiff’s termination,

but they do not specifically pertain to a dispute concerning

plaintiff’s termination.”), disc. rev. denied, 366 N.C. 394, 732

S.E.2d 478 (2012).
                                         -8-
    The    alleged       defamatory      statements       were      made   after    the

project, as well as the related litigation, was complete.                          They

were not substantially related to the subcontract. Unlike in

Rodgers Builders, Inc., the conduct giving rise to plaintiff’s

tort claims did not occur “in connection with, or as a part of,

the formation of, performance under, or breach of the contract

between” the parties. 76 N.C. App. at 25, 331 S.E.2d at 732.

    Although defendants correctly observe that this arbitration

provision is broad, it is not quite so broad as to reach all

conduct   between       the   parties.      Given   the    lack      of    connection

between the claims under consideration here and the contract

containing   the        agreement     to     arbitrate,        we    conclude      that

plaintiff is not required to arbitrate these claims. Therefore,

we affirm the trial court’s denial of defendants’ motion to

compel arbitration.

                                IV.   Conclusion

    We conclude that the arbitration provision in the contract

between the parties does not cover the unrelated tort claims

later   brought    by    plaintiff.        Therefore,     we     affirm    the   trial

court’s order denying defendants’ motion to compel arbitration.

    AFFIRMED.

    Judges HUNTER, JR., Robert N. and DILLON concur.
                         -9-
Report per Rule 30(e).