1999 -NMCA- 40, Monette v. Tinsley

• Decision Date: 20 January 1999
• Docket Number: No. 19310,K-B,19310
• Citation: 975 P.2d 361,126 N.M. 748,1999 NMCA 40
• Parties: 1999 -NMCA- 40 Charles MONETTE and Donald Monette, Plaintiffs-Appellees, v. Edward R. TINSLEY, III,ob's Capital Resource Group, Ltd., andob's USA, Inc., Defendants-Appellants.
• Court: Court of Appeals of New Mexico

Page 361

975 P.2d 361

1999 -NMCA- 40

Charles MONETTE and Donald Monette, Plaintiffs-Appellees, v. Edward R. TINSLEY, III, K-Bob's Capital Resource Group Ltd., and K-Bob's USA, Inc., Defendants-Appellants.

No. 19310.

Court of Appeals of New Mexico.

Jan. 20, 1999.

Mark A. Filosa, Filosa & Filosa, Truth or Consequences, for Appellees.

Joel T. Newton, Michael I. Garcia, Miller, Stratvert & Torgerson, P.A., Las Cruces, for Appellants.

OPINION

PICKARD, Judge.

¶1 Defendants appeal the trial court's denial of their motion to compel arbitration of Plaintiffs' contract claims against them. We affirm in part and reverse in part.

BACKGROUND

¶2 K-Bob's USA, Inc.; its president, Edward R. Tinsley, III; and K-Bob's Capital Resource Group, Ltd. (Defendants) sell and assist in the management of restaurant franchises. Defendants entered into a Manager-Proprietor Agreement with Plaintiff Donald Monette. Plaintiffs, Donald and Charles Monette, both signed a promissory note for $62,500 that was attached to the agreement. According to the agreement, Donald Monette would serve as manager and proprietor of a K-Bob's restaurant in Socorro, New Mexico.

¶3 Several months later, Donald Monette resigned, without notice, from his position as manager of the restaurant. Defendants then terminated the agreement with Donald Monette. According to Plaintiffs, however, Defendants had previously assured them that if Donald Monette did not work out as manager, another member of the Monette family would be allowed to take over for him.

¶4 Plaintiffs informed Defendants by letter of their intention to bring suit if the issues surrounding the termination of the contract could not be resolved. In that same letter, Plaintiffs also raised the arbitration issue, noted the contract provision that required disputes to be arbitrated, and indicated their hope to settle the matter. Initial settlement discussions were not successful.

¶5 Donald and Charles Monette filed a complaint against Defendants, alleging breach of contract, misrepresentation, and money due. They sought $62,500 that they had paid on the promissory note, plus interest, as well as damages, costs, and attorney fees. Specifically, Plaintiffs alleged that Defendants breached the contract by failing to provide them support, vacation time, and information, as well as failing to pay profits as agreed and failing to pay or provide an assistant manager. They included in their complaint the allegation that Defendants breached the contract by refusing to allow Donald Monette to return to work and by failing to abide by their pre-signing representation that, if necessary, a family member would be allowed to replace Donald Monette as manager.

¶6 Defendants then filed a motion to dismiss, abate, and compel arbitration, in lieu of filing an answer to Plaintiffs' complaint. The trial court denied the motion, and Defendants appeal.

DISCUSSION

¶7 This Court reviews conclusions of law de novo. See Strata Prod. Co. v. Mercury Exploration Co., 121 N.M. 622, 627, 916 P.2d 822, 827 (1996). We will reverse if the trial court's findings and conclusions cannot be sustained either by evidence or permissible inferences drawn therefrom. See Reichert v. Atler, 117 N.M. 628, 631, 875 P.2d 384, 387 (Ct.App.1992), aff'd, 117 N.M. 623, 875 P.2d 379 (1994). Absent ambiguity, a contract's meaning is a question of law, rather than a question of fact. See Carlsberg Management Co. v. State, Taxation & Revenue Dep't, 116 N.M. 247, 251, 861 P.2d 288, 292 (Ct.App.1993).

¶8 The trial court denied Defendants' motion to dismiss, abate, and compel arbitration based on its conclusions that: (1) Plaintiff Charles Monette was not bound to the arbitration provision of the contract, (2) the contract's arbitration provision was ambiguous and unfair and should be construed against Defendants, and (3) Plaintiffs' misrepresentation was not a dispute about the contract.

Charles Monette Was Not a Party To The Contract

¶9 The trial court properly concluded that Plaintiff Charles Monette was not a party to the contract. Charles Monette was a guarantor of the $62,500 promissory note that accompanied the contract, but a mere witness to the underlying contract itself. It is commonly held that a guarantor or surety is not a party bound to the terms of the underlying contract. See, e.g., Washington Int'l Ins. Co. v. Superior Court, 62 Cal.App.4th 981, 73 Cal.Rptr.2d 282, 285 (1998) (stating rule that surety is not bound to terms outside the surety agreement).

¶10 A guarantor who is not a signatory to a contract is generally not bound by that contract's arbitration clause. See, e.g., Asplundh Tree Expert Co. v. Bates, 71 F.3d 592, 595 (6th Cir .1995); see generally 1 Domke on Commercial Arbitration § 10:07 (Gabriel M. Wilner & Nuzhat Hafeez, eds., rev. ed.1998) (discussing the effect of arbitration provisions on guarantors and sureties).

¶11 There are, however, exceptions to the general rule when the note or guaranty incorporates the underlying contract by reference. See United States Fidelity & Guar. Co. v. West Point Constr. Co., 837 F.2d 1507, 1508 (11th Cir.1988) (holding incorporation by reference sufficient to bind surety); see also Grundstad v. Ritt, 106 F.3d 201, 204-05 (7th Cir.1997) (concluding that absent language in the guaranty specifically stating that the guarantor would be bound to arbitration, he was not to be bound as a matter of law). The note in this case bears no indication that the contract was incorporated by reference or otherwise suggested that Charles Monette, as guarantor, intended to be bound to arbitration. Some cases also make reference to the "inextricably interwoven" approach, pursuant to which a guarantor may be required to arbitrate if the guarantee is inextricably interwoven with the underlying contract. See Scinto v. Sosin, 51 Conn.App. 222, 721 A.2d 552, 559 (1998). Even assuming that extrinsic evidence could show the requisite degree of interweave, Defendants presented no evidence to the trial court from which it could have found the two documents inextricably interwoven. Defendants presented only the two documents, and no testimony concerning the circumstances of their negotiation or their signing.

¶12 Admittedly, the result that Charles Monette is free to proceed in litigation against Defendants while his brother is bound to arbitrate the same claims is awkward. However, Defendants offer no reason why this case is so exceptional that Charles Monette should be bound by the arbitration provision, although he may in fact be bound by any arbitration award. See Domke, supra. Therefore, the remaining issues in this opinion about the application of the arbitration provision impact only Donald Monette's remedy in this case.

The Arbitration Provision Was Not Ambiguous or Unfair

¶13 A contract is ambiguous if it is reasonably and fairly susceptible to different constructions. See Mark V, Inc. v. Mellekas, 114 N.M. 778, 781, 845 P.2d 1232, 1235 (1993). Absent the presentation of other evidence, the trial court resolves ambiguity by interpreting the contract using accepted canons of construction and traditional rules of grammar and punctuation. See id. at 782, 845 P.2d at 1236.

¶14 The trial court concluded that the arbitration provision was ambiguous. In support of this conclusion, Plaintiffs claim that "[t]he ambiguities in the contract speak for themselves," and argue that, under the arbitration provision, it is unclear whether Plaintiffs initiated arbitration proceedings. We disagree.

¶15 The arbitration provision, Paragraph 7.4 of the contract, reads, in pertinent part:

All disputes between the parties which are not settled amicably are to be resolved by binding arbitration. Such arbitration shall be submitted to arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA"), and judgment upon the award rendered by a single arbitrator may be entered in any court having jurisdiction over the matter.... The failure of MANAGER to initiate arbitration proceedings within thirty (30) days after the sending of a notice of termination by K-BOB'S shall be deemed a waiver of MANAGER's right to arbitration.

¶16 Plaintiffs contend that the provision was ambiguous as to how the arbitration process was to be initiated. Plaintiffs also argue that the provision was ambiguous because it did not set out the procedure for arbitration. However, the provision referenced the Commercial Arbitration Rules of the American Arbitration Association as the guiding substantive and procedural rules for the arbitration. Not only is this reference not ambiguous, but such references appear to be commonplace in arbitration provisions. See, e.g., Board of Educ., Taos Mun. Schs v. The Architects, Taos, 103 N.M. 462, 464, 709 P.2d 184, 186 (1985) (quoting arbitration provision that referenced the Construction Industry Arbitration Rules); see also 16 Samuel Williston, A Treatise on the Law of Contracts § 1918B (Walter H.E. Jaeger, 3d ed. 1976 & Supp.1998) (including the governing arbitration rules in corresponding form for drafting an arbitration provision).

¶17 By focusing on the contract specifics, however, the parties fail to address the dispositive issue. Paragraph 7.4 sufficiently evinces the intent of the parties to submit disputes to arbitration. That intent is undisputed by the parties. Even if there were ambiguity in the specific rules by which arbitration was to be initiated or conducted, it would not render the arbitration provision inapplicable, but merely subject to interpretation in accordance with the customary practices of the industry. See Mark V, Inc., 114 N.M. at 781, 845 P.2d at 1235 (applying a contextual approach to contract interpretations); C.R. Anthony Co. v. Loretto Mall Partners, 112 N.M. 504, 511-12, 817 P.2d 238, 245-46 (1991) (holding that contract ambiguities can be interpreted in light of relevant trade usage and practices). Although these terms are...