APPEAL
FROM THE PULASKI COUNTY CIRCUIT COURT, FIFTH DIVISION [NO.
60CV-18-754] HONORABLE WENDELL GRIFFEN, JUDGE
Davidson Law Firm, by: Stephen L. Gershner, for appellants.
Danny
R. Crabtree, for appellee.
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, 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 injunctive
relief and the prevailing party would be entitled to costs
and fees.
This
appeal followed.
Our
jurisdiction is pursuant to Arkansas Rule of Appellate
Procedure-Civil 2(a)(12), which provides that a circuit court
order denying arbitration is immediately appealable. We
review a circuit court's order denying a motion to compel
arbitration de novo on the record. Asset Acceptance, LLC
v. Newby, 2014 Ark. 280, at 5, 437 S.W.3d 119, 122. We
decide the issues on appeal using the record developed in the
circuit court without deference to the circuit court's
ruling. Madison Cos., LLC v. Williams, 2016 Ark.App.
610, at 5, 508 S.W.3d 901, 905. We are not bound by the
circuit court's decision, but in the absence of a showing
that the circuit court erred in its interpretation of the
law, we will accept its decision as correct on appeal.
Id. Further, we recognize that arbitration is
strongly favored in Arkansas. Id.
On
appeal, appellants contend that appellee's claims should
be arbitrated based on the arbitration provision in the
operating agreements. Appellants concede that the Mutual
Release Agreement gives appellee a right to be paid the value
of his capital accounts; but the value of those capital
accounts is disputed. Appellants assert that the term
"capital account" as used in the Mutual Release
Agreement is vague and that the only way to explain this term
is through admitting parol evidence of the operating
agreements, which call for a dispute like this to be
arbitrated.
When a
court is asked to compel arbitration, it is limited to
deciding two threshold questions: (1) Is there a valid
agreement to arbitrate between the parties? and (2) If such
an agreement exists, does the dispute fall within its scope?
LegalZoom.com, Inc. v. McIllwain, 2013 Ark. 370, 429
S.W.3d 261. Our supreme court has held that arbitration is
simply a matter of contract between parties. Courtyard
Gardens Health & Rehab., LLC v. Quarles, 2013 Ark.
228, at 6, 428 S.W.3d 437, 442. Whether a dispute should be
submitted to arbitration is a matter of contract
construction, and we look to the language of the contract
that contains the agreement to arbitrate and apply state-law
principles. Id. We have further held that the same
rules of construction ...