Arbitration – Standard of Review – No Waiver – Counterclaim Response – Discovery – New York Law

iPayment, Inc. v. Grainger (Lawyers Weekly No. 011-004-18, 19 pp.) (Lucy Inman, J.) Appealed from Union County Superior Court (Theodore Royster Jr., J.) N.C. App.

Holding: A review of our divergent case law leads to the conclusion that the issue of whether a party has waived the contractual right to arbitration is a mixed question of law and fact. Accordingly, we first review whether the trial court’s findings of fact are supported by competent evidence, and then examine de novo whether those findings, taken together, support the legal conclusion that plaintiff waived its right to compel arbitration.

Applying New York law, as required by the parties’ choice-of-law provision, we conclude that plaintiff did not waive its right to compel arbitration. We reverse the trial court’s ruling to the contrary.

Plaintiff’s initial claims against defendant Universal Finance & Leasing Corp. bore no relation to these parties’ split funding agreement. Rather, plaintiff alleged that Universal was a recipient of fraudulent transfers by the other defendants. However, Universal’s counterclaims are all related to the split funding agreement, which contains an arbitration agreement.

Plaintiff filed its first response to Universal’s counterclaims – a motion to dismiss or, in the alternative, to stay and compel arbitration – two less than months after Universal filed its counterclaims. In the interim, plaintiff deposed defendants Kelly and Jessica Grainger, whom plaintiff had sued in their individual capacities and not as officers or agents of Universal. Prior to questioning the witnesses, plaintiff reserved its right to argue that Universal’s counterclaim was subject to arbitration.

Both the timing of plaintiff’s motion to compel arbitration and its depositions of the Graingers were within the scope of discovery allowed by the split funding agreement’s arbitration clause. Beyond its motion to compel, plaintiff engaged in no motion practice related to the merits of the counterclaims.

Universal has failed to demonstrate any prejudice caused by the limited discovery taken prior to plaintiff’s motion to compel. Considering the record in light of the strong public policy favoring arbitration, we conclude that plaintiff did not waive its right to compel arbitration.

Reversed and remanded.