26th St. Hospitality, LLP v. Real Builders, Inc.

• Decision Date: 26 May 2016
• Docket Number: No. 20150259.,20150259.
• Citation: 879 N.W.2d 437
• Parties: 26TH STREET HOSPITALITY, LLP, Plaintiff and Appellant v. REAL BUILDERS, INC.; Joel J. Feist, individually and as Managing Partner of 26th Street Hospitality, LLP; Joeleon Holdings, LLP ; and Solid, LLC, Defendants. Real Builders, Inc.; Joel J. Feist, individually and as Managing Partner of 26th Street Hospitality, LLP; Joeleon Holdings, LLP, Appellees.
• Court: North Dakota Supreme Court

879 N.W.2d 437

26TH STREET HOSPITALITY, LLP, Plaintiff and Appellant

v.REAL BUILDERS, INC.; Joel J. Feist, individually and as Managing Partner of 26th Street Hospitality, LLP; Joeleon Holdings, LLP ; and Solid, LLC, Defendants.

Real Builders, Inc.; Joel J. Feist, individually and as Managing Partner of 26th Street Hospitality, LLP; Joeleon Holdings, LLP, Appellees.

No. 20150259.

Supreme Court of North Dakota.

May 26, 2016.

Randall J. Bakke (argued) and Bradley N. Wiederholt (appeared), Bismarck, N.D., for plaintiffs and appellants.

Matthew T. Collins (argued), Minneapolis, MN, and Julia J. Douglass (on brief), Minneapolis, MN, for defendants and appellees Real Builders, Inc.; Joel J. Feist, individually and as Managing Partner of 26th Street Hospitality, LLP; and Joeleon Holdings, LLP.

KAPSNER

, Justice.

[¶ 1] 26th Street Hospitality, LLP (“Partnership”) appeals from the district court's order granting a motion to compel arbitration; order lifting a stay in the proceedings, confirming the arbitration award, and awarding post-judgment interest; and final judgment. The Partnership argues the district court erred in ordering arbitration because the court was required to determine the validity of the contract before arbitration could be ordered and not all of the claims and parties were subject to arbitration. We affirm.

I

[¶ 2] The Partnership was created to acquire, build, own, and operate a hotel in Williston. In 2011, the partners signed the Partnership Agreement setting the terms and conditions of their agreement. Joeleon Holdings was one of the partners, and Joel Feist signed the Partnership Agreement on behalf of Joeleon Holdings. Feist was a managing partner of Joeleon Holdings and was named one of the Partnership's managing partners. Feist was also the President and principal owner of Real Builders, Inc., which provided construction services to the Partnership for the construction of the hotel.

[¶ 3] In November 2013, the Partnership sued Joeleon Holdings, Feist, and Real Builders (collectively “Feist defendants”). The Partnership alleged that Feist, on behalf of the Partnership, entered into a construction contract with Real Builders, that Feist signed the contract on behalf of both the Partnership and Real Builders, and that the construction contract was invalid because it was executed without the knowledge and authority of the Partnership or a majority of the partners or managing partners as the Partnership Agreement requires. The Partnership requested the district court declare the construction contract invalid and sought damages for numerous claims, including breach of contract, negligence, fraud, conversion, unjust enrichment, and breach of statutory and other duties.

[¶ 4] The Feist defendants answered and counterclaimed, seeking damages for claims of breach of contract and unjust enrichment. The Feist defendants also moved to stay proceedings and for an order compelling arbitration, arguing arbitration of any dispute was required under the Partnership Agreement.

[¶ 5] After a hearing, the district court granted the Feist defendants' motion compelling arbitration, concluding the Partnership Agreement contained a general arbitration clause requiring arbitration for “any claim or controversy arising out of or relating to” the Partnership Agreement, the Partnership's complaint contained allegations related to or arising out of the Partnership Agreement, and arbitration was required under the arbitration clause of the Partnership Agreement. The court stated aspects of the litigation that cannot be resolved in arbitration would be stayed pending resolution of the arbitration.

[¶ 6] The Partnership moved for clarification or reconsideration, arguing the court should clarify which claims and parties were subject to arbitration, which claims were stayed pending arbitration, and whether nonsignatory, nonparty strangers to the Partnership Agreement can have their claims arbitrated without a separate arbitration agreement. After a hearing, the district court denied the Partnership's request, ruling arbitration was ordered and anything that cannot be arbitrated was stayed pending the ordered arbitration.

[¶ 7] Arbitration proceedings were completed, and an arbitration award was entered. The arbitrator found Feist had actual and inherent authority as a managing partner to enter into the construction contract with Real Builders for construction of the hotel and awarded the Feist defendants $681,687.78 in damages and $253,144.23 in interest for the period of February 16, 2013, to March 11, 2015. The arbitrator awarded the Partnership $576,757.95 in damages for its claims against the Feist defendants.

[¶ 8] The Partnership moved for entry of judgment on the arbitration award. The Feist defendants responded, arguing judgment should be entered only after the stay was lifted and the arbitration award was confirmed. They further requested that the court's judgment reflect that all claims and counterclaims in the litigation between the Partnership and Feist defendants were fully resolved in arbitration and that the court award eighteen percent post-judgment interest. The Feist defendants later moved for an order lifting the stay and confirming the arbitration award, entering judgment, and awarding post-judgment interest.

[¶ 9] The district court entered an order lifting the stay, confirming the arbitration award, entering judgment, and awarding post-judgment interest. The court ruled the arbitration award fully resolved all of the claims and counterclaims between the Partnership and Feist defendants and no claims remained outstanding. The court ordered post-judgment interest at a rate of eighteen percent per annum because the arbitrator determined that to be the contractual rate of interest. A judgment dismissing the action with prejudice was entered.

II

[¶ 10] The Partnership argues the district court erred in granting the motion to compel arbitration because the court, rather than an arbitrator, should have determined whether the construction contract was valid, some of the claims were not subject to arbitration under the arbitration clause of the Partnership Agreement, and Real Builders was not a party to the Partnership Agreement.

[¶ 11] An order granting a motion to compel arbitration is reviewed de novo on appeal, unless the district court's decision was based on factual findings, which will only be reversed on appeal if they are clearly erroneous. See Schwarz v. Gierke, 2010 ND 166, ¶ 11, 788 N.W.2d 302

. In this case, the district court's decision does not rest upon any factual findings; rather, it is based on the court's interpretation of the Partnership Agreement. The interpretation of a written contract to determine its legal effect is a question of law, which is fully reviewable on appeal. Id. We have summarized the rules for construing contracts:

Contracts are construed to give effect to the mutual intention of the parties at the time of contracting. N.D.C.C. § 9–07–03

; Lire, [Inc. v.

Bob's Pizza Inn Restaurants, Inc., 541 N.W.2d 432, 433–34 (N.D.1995) ]. The parties' intention must be ascertained from the writing alone, if possible. N.D.C.C. § 9–07–04 ; Lire, at 434. A contract must be construed as a whole to give effect to each provision if reasonably practicable. N.D.C.C. § 9–07–06 ; Lire, at 434.... Words in a contract are construed in their ordinary and popular sense, unless used by the parties in a technical sense or given a special meaning by the parties. N.D.C.C. § 9–07–09. If the parties' intention in a written contract can be ascertained from the writing alone, the interpretation of the contract is a question of law for the court to decide. Ohio Farmers Ins. Co. v. Dakota Agency, Inc., 551 N.W.2d 564, 565 (N.D.1996).

State ex rel. Stenehjem v. Philip Morris, Inc., 2007 ND 90, ¶ 14, 732 N.W.2d 720

(quoting Grynberg v. Dome Petroleum Corp., 1999 ND 167, ¶ 10, 599 N.W.2d 261 ).

A

[¶ 12] The Partnership claims that the construction contract was fraudulently entered into and that the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1

–16, and North Dakota's Uniform Arbitration Act, N.D.C.C. ch. 32–29.3, require the court, not an arbitrator, determine the validity of the contract before arbitration can be ordered.

[¶ 13] Under the FAA, “[a] written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract ... shall be valid, irrevocable, and enforceable....” 9 U.S.C. § 2

; see also

Superpumper, Inc. v. Nerland Oil, Inc., 1998 ND 144, ¶ 14, 582 N.W.2d 647 (the FAA makes arbitration agreements valid, irrevocable, and enforceable). Upon the application of one of the parties, the court shall stay any suit or proceeding brought on an issue referable to arbitration under an arbitration agreement. 9 U.S.C. § 3. A party aggrieved by the failure or refusal of another to arbitrate under a written arbitration agreement may petition the court “for an order directing that such arbitration proceed in the manner provided for in such agreement.” 9 U.S.C. § 4. The FAA applies in both federal and state courts. See

Allied–Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 272, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995) ; Superpumper, at ¶ 14. The FAA “places arbitration agreements on an equal footing with other contracts and requires courts to enforce them according to their terms.” Rent–A–Center, West, Inc. v. Jackson, 561 U.S. 63, 67, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010) (citations omitted).

[¶ 14] The FAA governs all written arbitration agreements in contracts involving interstate commerce. Volt Info. Sci., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 476, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989)

; Superpumper, 1998 ND 144, ¶ 14, 582 N.W.2d 647. The term “involving commerce” has been interpreted as “the functional equivalent of the more familiar term ‘affecting commerce’—words of art that ordinarily signal the broadest...