North Carolina Lawyers Weekly
Ellison v. Alexander. (Lawyers Weekly No. 10-07-1005, 22 pp.) (Sam Ervin IV, J.) Appealed from Mecklenburg County Superior Court (Linwood O. Foust, J.) N.C. App. Click here to read the full text of the opinion.
Holding: Even though defendant did not sign plaintiffs’ shareholder agreements with The Elevator Channel, since he made the representations about which plaintiffs complain while he was convincing them to invest in The Elevator Channel, he made those representations as an agent of The Elevator Channel. The plaintiffs’ claims are inextricably entwined with the provisions of their shareholders agreements, so the defendant is entitled to enforce the arbitration clause in the shareholders agreements.
Therefore, the trial court’s order denying the defendant’s motion to compel arbitration is reversed and the 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.
Facts
The plaintiffs filed a complaint against the defendant seeking compensatory and punitive damages for fraud, constructive fraud, breach of fiduciary duty and unfair and deceptive trade practices.
The plaintiffs’ claims against the defendant stemmed from allegations that he had induced them to invest in The Elevator Channel by misrepresenting certain material facts about his personal background and other matters. The plaintiffs claimed to have “justifiably relied on the defendant’s misrepresentations of material facts to their detriment” and to have “suffered damages in excess of $10,000” as a result of the defendant’s conduct.
The defendant filed an answer in which he denied the material allegations of the plaintiffs’ complaint, sought dismissal of the plaintiffs’ claims and asserted that, if the proceedings that the plaintiffs had initiated were not dismissed, they should be stayed, pending arbitration of the plaintiffs’ claims pursuant to an arbitration clause contained in the shareholder agreement signed by the plaintiffs when they purchased shares in The Elevator Channel.
The trial court denied the defendant’s motions to dismiss and to stay and compel arbitration. The defendant appealed.
Analysis
The order from which the defendant appealed is interlocutory in nature. As a general rule, interlocutory orders are not immediately appealable. Immediate appeal of interlocutory orders and judgments is available when the interlocutory order or judgment affects a substantial right.
An order denying arbitration is immediately appealable because it involves a substantial right, the right to arbitrate claims, which might be lost if appeal is delayed. The defendant’s challenge to the denial of his motion to stay the proceedings and compel arbitration is properly before us despite its interlocutory nature.
The issue raised by the defendant’s appeal is whether the trial court erred by denying the defendant’s motion to compel arbitration. The plaintiffs’ claims for fraud, breach of fiduciary duty and constructive fraud stem from the defendant’s individual actions and do not involve a claim against the corporation or its officers.
Thus, the ultimate issue is the extent, if any, to which the trial court erred by denying the defendant’s motion to compel the arbitration of claims that the plaintiffs have attempted to assert against the defendant in his individual capacity.
At the time that the defendant made the representations upon which the plaintiffs’ claims for fraud, breach of fiduciary duty and constructive fraud, the allegations of the complaint indicate that he was acting in his capacity as a director and officer of The Elevator Channel given that he was inducing the plaintiffs to invest in that entity. Thus, we conclude that the allegations of the plaintiffs’ complaint, if taken as true, amount to a contention that the defendant’s liability stemmed from conduct undertaken in his corporate, rather than his personal, capacity.
Whether 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.
The shareholder agreements spell out the terms and conditions under which the plaintiffs purchased shares in The Elevator Channel. Plaintiffs’ claims are clearly “connected” with the shareholder agreements, since the execution of those agreements was the vehicle by which the plaintiffs effectuated their decision to invest in The Elevator Channel.
We conclude that the defendant may properly invoke the arbitration clause of the shareholder agreements despite the fact that he was not, individually, a signatory to that document. Well-established common-law principles dictate that in an appropriate case a non-signatory can enforce, or be bound by, an arbitration provision within a contract executed by other parties.
We conclude, based on the allegations set out in the complaint that the defendant was acting as an agent of The Elevator Channel at the time that the conduct upon which the plaintiffs’ claims are predicated occurred, so that the plaintiffs’ claims are inextricably entwined with the provisions of the agreements, entitling the defendant to enforce the arbitration provision therein.
We conclude that the plaintiffs’ claims arose in connection with the shareholder agreements and that the defendant was acting in his capacity as a representative of The Elevator Channel when he allegedly made the misrepresentations upon which the plaintiffs’ claims rest. Therefore, the defendant is entitled to enforce the arbitration clause in the agreements, so that the trial court’s order denying the defendant’s motion to compel arbitration should be, and hereby is, 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 in accordance with the relevant provision of the SSAs.
Reversed and remanded.
