Crain v. Byrd

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          APPEAL FROM THE PULASKI COUNTY CIRCUIT COURT, FIFTH Division [NO. 60CV-18-754], HONORABLE WENDELL GRIFFEN, JUDGE

         Davidson Law Firm, Little Rock, by: Stephen L. Gershner, for appellants.

         Danny R. Crabtree, Little Rock, for appellee.

         OPINION

         MIKE MURPHY, Judge

          Appellants Larry Crain, Sr., and Crain Automotive Holdings, LLC,^[1] appeal from an order of the Pulaski County Circuit Court denying their motion to compel arbitration. On appeal, appellants argue that the circuit court erred by denying their motion to compel arbitration because certain operating agreements of the involved dealerships provide for arbitration. They also assert that they did not waive arbitration. We affirm.

          Appellee Christopher Byrd had been employed as chief financial officer of Crain Automotive Holdings for many years until his employment ceased on October 26, 2017. On November 13, appellee and appellants entered into an "Employer/Employee Mutual Release Agreement" (Mutual Release Agreement). By the terms of the agreement, appellants agreed to purchase appellee’s membership interest in the dealerships Crain Imports of Fayetteville, Crain K of Conway, and Crain Buick GMC of Springdale. Per the Mutual Release Agreement, the purchase price of appellee’s interest is the value of his capital accounts in the dealerships determined as of December 31, 2017. "Capital accounts" are also addressed in the individual operating agreements of the above-named dealerships.

          On February 7, 2018, appellee filed suit for fraud and breach of contract based on the Mutual Release Agreement. The complaint was sparse with details because the terms of the Mutual Release Agreement were confidential, but at the motion hearing, testimony revealed that appellee claimed that appellants fraudulently caused inventory of the dealerships to be liquidated and that they handled and accounted for a Volkswagen settlement incorrectly,

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adversely affecting the value of appellee’s capital accounts. Appellants answered and denied the claims, filed a motion to dismiss, and counterclaimed for attorney fees and costs in defending the claims.

          On June 8, appellants filed a motion to compel arbitration and for a stay of the case pending arbitration. The motion asserted that appellee’s claims arise from, and are related to, the operating agreements of the above-named dealerships and that the claims are subject to the arbitration provision in the operating agreements. Appellee objected, asserting that his claims are based on the Mutual Release Agreement, which does not contain an arbitration provision.

          On October 5, the circuit court conducted a motion hearing. After hearing arguments from both sides, it found that there was no valid agreement to arbitrate between the parties, and it denied the motion to compel arbitration. In reaching its decision, the court noted,

The Release Agreement does not reference or incorporate the operating agreement by way of an integration clause; the Release Agreement does not itself contain an arbitration clause; and the Agreement expressly contemplates litigation ("legal proceeding") whereby there is a designation of forum, waiver of jury trial, enforceable by ...