Arbitration – Domestic Relations – Equitable Distribution – Fraud Allegations – Discovery Motion – Appeals

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Stokes v. Crumpton (Lawyers Weekly No. 010-046-17, 15 pp.) (Cheri Beasley, J.) Appealed from Wake County District Court (Anna Worley, J.) On appeal from the Court of Appeals. N.C. S. Ct.

Holding: Where plaintiff filed a timely motion to vacate an arbitration award, alleging that defendant had committed fraud during their equitable distribution proceeding under the Family Law Arbitration Act, the trial court had discretion to allow plaintiff to conduct discovery into the alleged fraud, and the trial court’s denial of plaintiff’s discovery motion is immediately appealable, despite the lack of any provision in the FLAA allowing such an appeal.

We reverse the decision of the Court of Appeals and remand for further remand to the trial court for further consideration of plaintiff’s discovery motion.

During equitable distribution arbitration, defendant denied that she intended to sell her company or had any written offers for it, so plaintiff consented to an equitable distribution arbitration award pursuant to which he received only $1,650,000 as his share of the company’s value. Two months later, defendant sold the company and received approximately $14,000,000 for her shares.

Appeal

Plaintiff contends that the trial court’s interlocutory order may be appealed if it affects a substantial right, pursuant to G.S. § 7A-27(b)(3)(a), even if plaintiff has no right to appeal under the FLAA. We agree.

We take this opportunity to clarify the relationship between G.S. §§ 50-60 and 7A-27. As the Court of Appeals said in Bluffs, Inc. v. Wysocki, 68 N.C. App. 284, 314 S.E.2d 291 (1984), and its progeny, we hold that an appeal can be justified under § 7A-27 even if there is no right to appeal under the relevant arbitration statute. To the extent Bullard v. Tall House Building Co., 196 N.C. App. 627, 676 S.E.2d 96 (2009), suggests otherwise, it is abrogated.

In this case, plaintiff’s motion requested limited discovery in the form of information relating to the timeline, details, and discussions between defendant’s company and its purchaser regarding the sale. This information is highly material to a determination on plaintiff’s motion to vacate based on allegations that defendant fraudulently concealed the true value of her shares in the company.

Generally, a motion to vacate an arbitration award based on fraud must be proved by clear and convincing evidence. Due to the concealment and deception inherent in fraud, it is unlikely that plaintiff will be able to obtain information necessary to support his motion to vacate without conducting some limited discovery. Thus, because the limited discovery requested by plaintiff is highly material to a determination of the critical issue in his motion to vacate, the order denying discovery affects a substantial right justifying immediate appeal under § 7A-27(b)(3)(a).

Discovery

G.S. § 50-54 sets forth various reasons for which “the court shall vacate an award,” including that “[t]he award was procured by corruption, fraud, or other undue means.” A timely motion to vacate under § 50-54 predicated on corruption, fraud, or other undue means “shall be made within 90 days after these grounds are known or should have been known.” Plaintiff’s motion to vacate was timely filed, thus triggering the provisions of § 50-54.

G.S. § 50-53 explicitly provides an alternative, mandatory path for courts to take if a timely motion to vacate is filed, in which event the court shall proceed according to § 50-54. Here there is no debate that plaintiff timely filed his motion to vacate based on an allegation of fraud.

Under the FLAA, a motion to vacate based on allegations of fraud creates a vehicle by which confirmed awards can be vacated. Accordingly, a motion to vacate under § 50-54 is pending because it seeks a remedy made available by the FLAA related to the underlying arbitration, to which plaintiff has availed himself. Therefore, the motion to vacate was a pending action under which the trial court had the discretion to order discovery.

Reversed and remanded.