Kramlich v. Hale

• Decision Date: 29 August 2017
• Docket Number: No. 20160386.,20160386.
• Citation: 901 N.W.2d 72
• Parties: Gary KRAMLICH and Glory Kramlich, Plaintiffs, Appellants and Cross–Appellees v. Robert HALE and Susan Hale, Individually, Defendants, Appellees and Cross–Appellants and Somerset Court Partnership, LP, Somerset–Minot, LLC, Vision Management Services, LLC, and Bullwinkle Builders, LLC, Defendants
• Court: North Dakota Supreme Court

901 N.W.2d 72

Gary KRAMLICH and Glory Kramlich, Plaintiffs, Appellants and Cross–Appellees

v.Robert HALE and Susan Hale, Individually, Defendants, Appellees and Cross–AppellantsandSomerset Court Partnership, LP, Somerset–Minot, LLC, Vision Management Services, LLC, and Bullwinkle Builders, LLC, Defendants

No. 20160386.

Supreme Court of North Dakota.

Filed August 29, 2017

Michael Ward, Minot, ND, for plaintiffs, appellants and cross-appellees.

Lynn M. Boughey, Bismarck, ND, for defendants, appellees and cross-appellants.

Crothers, Justice.

[¶ 1] Gary and Glory Kramlich appeal, and Robert and Susan Hale cross-appeal, from an order dismissing the Kramlichs' lawsuit against the Hales and various entities, and directing the parties to submit their disputes to binding arbitration. We conclude the district court correctly ordered arbitration of the Kramlichs' claims relating to the operating agreement for Somerset–Minot, LLC, but erred in ordering arbitration of claims relating to Somerset Court Partnership. We affirm in part, reverse in part, and remand for further proceedings.

I

[¶ 2] Somerset Court Partnership owns the land on which an assisted living facility is located in Minot. Its partners include the Kramlichs and the Hales. The Kramlichs have a 25 percent interest in the partnership. The Hales have a 62 percent interest in the partnership. Somerset–Minot, LLC, formerly known as Spectrum Care, LLC, operates the facility. Its members include Gary Kramlich and Robert Hale, but not Glory Kramlich or Susan Hale. Robert Hale owns 2,850 and Gary Kramlich owns 950 of the LLC's 4,000 voting shares. The operating agreement for Somerset–Minot, then Spectrum Care, was executed on May 28, 1999, and contains an arbitration clause. The partnership agreement for Somerset Court was executed on July 24, 2000, and does not contain an arbitration clause.

[¶ 3] The Hales sought to buy out Gary Kramlich's shares in the LLC and the Kramlichs' interest in the partnership. The Kramlichs declined the offer and brought this action. The Kramlichs sued the Hales, the partnership, the LLC, and other entities not relevant to this appeal, alleging breach of contract, fraud and misrepresentation, "attempt at purchase," embezzlement and fraud, "failure of equal distribution," "misrepresentation in corporate documents," and "Robert Hale was acting attorney for all parties."

[¶ 4] In a pretrial order addressing numerous motions, the district court denied the Hales' motion to dismiss the case as moot after they withdrew their offer to buy out the Kramlichs. The court, however, dismissed the action and ordered the parties to submit their disputes to arbitration based on the "broad" arbitration provision in the LLC operating agreement, which provides:

"Any dispute, claim, or controversy arising out of or relating to this agreement or the breach thereof shall be settled by arbitration in accordance with the then current rules of the American Arbitration Association. Judgment upon the award rendered by said arbitration may be entered in any court having jurisdiction. Costs of arbitration shall be borne equally."

[¶ 5] The district court explained:

"In the end, the Court's decision rests on the strong state and federal policy favoring the arbitration process, and any doubt the Court may have concerning the scope of arbitrable issues in the instant case is decided in favor of arbitration.

"Furthermore, the Complaint in this action is not a model of clarity. The causes of action included in the Complaint are a mix of allegations, some of which sound pertinent to the identified cause of action and some of which do not, and it is often difficult to determine which of the entities involved in this action are implicated in the various causes of action. The Kramlichs, as plaintiffs, were responsible for formulating the issues, and any lack of clarity in the Complaint and any confusion of issues falls squarely at the feet of the Plaintiffs.

"As a result, the issues raised by the Kramlichs in their Complaint are as interwoven as the entities upon which they are based. Combining the lack of clarity with the inter-relatedness of the issues and entities, the Court finds that the arbitration clauses in the two Operating Agreements are sufficient to send all of the issues to arbitration."

II

[¶ 6] The Kramlichs argue the district court erred as a matter of law in ordering arbitration because the partnership agreement did not contain an arbitration clause.

[¶ 7] The parties do not dispute that North Dakota's Uniform Arbitration Act, N.D.C.C. ch. 32–29.3, applies in this case. Under N.D.C.C. § 32–29.3–06(2), "[t]he court shall decide whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate." When a court is requested to determine the applicability of an arbitration clause, the court conducts a summary proceeding based on the parties' pleadings, discovery, affidavits, and other evidence, documentary or oral, if necessary. See, e.g. , 1 Thomas H. Oehmke, Commercial Arbitration § 20:10 (3d ed. 2017) ; Howard v. Ferrellgas Partners, L.P. , 748 F.3d 975, 984 (10th Cir. 2014) ; Hutton & Hutton Law Firm, LLC, v. Girardi & Keese , 96 F.Supp.3d 1208, 1230–31 (D. Kan. 2015) ; Giuliano v. Inland Empire Pers., Inc. , 149 Cal.App.4th 1276, 58 Cal.Rptr.3d 5, 11 (2007) ; Nitro Distrib., Inc. v. Dunn , 194 S.W.3d 339, 351–52 (Mo. 2006) ; Estate of Guerrero , 465 S.W.3d 693, 700–01 (Tex. Ct. App. 2015). "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." 26th Street Hosp., LLP v. Real Builders, Inc. , 2016 ND 95, ¶ 11, 879 N.W.2d 437 ; see also Schwarz v. Gierke , 2010 ND 166, ¶ 11, 788 N.W.2d 302.

[¶ 8] Although this Court has not decided whether an arbitration clause in one agreement may be applied to disputes arising under another agreement that lacks an arbitration clause, a substantial body of case law addresses the issue. "A broadly-worded agreement in one contract can require arbitration of disputes arising under related contracts." 4 Thomas H. Oehmke, Commercial Arbitration § 140:3 (3d ed. 2016). To determine whether an arbitration provision in one agreement should be applied to other agreements, "[i]n addition to the relationship between two or more agreements and their subject matter, courts consider whether the parties to the separate agreements are identical, whether the underlying agreements were executed closely in time, and the breadth of the language used in the arbitration clause." Teel v. Aaron's, Inc. , No. 3:14-cv-640-J-32PDB, 2015 WL 1346846, at *5 (Dist. Ct. M.D. Fla. March 24, 2015) (footnotes omitted).

[¶ 9] A review of case law addressing the issue is helpful. In Blinco v. Green Tree Servicing, LLC , 400 F.3d 1308, 1310 (11th Cir. 2005), a husband and wife executed a mortgage and the husband alone executed a promissory note. Both documents were signed on the same day, but only the promissory note contained an arbitration clause providing: "All disputes, claims or controversies arising from or relating to this contract or the relationships which result from this contract ... shall be resolved by binding arbitration." Id. The court concluded the arbitration provision in the promissory note was broad enough to require arbitration of the couple's putative class action alleging failure to provide notice of the transfer of the servicing of their loan. Id. at 1310–11. The court further held that the wife was equitably estopped from relying upon her non-signatory status on the promissory note to bar invocation of the arbitration clause against her because she was claiming the benefit derived from her status as a borrower under the note. Id. at 1312.

[¶ 10] In ARW Expl. Corp. v. Aguirre , 45 F.3d 1455, 1458 (10th Cir. 1995), five of six joint venture agreements between the parties contained arbitration clauses providing in part: "Any matter in dispute which is not provided for in this agreement or in the Joint Operating Agreement shall be settled by arbitration." Disputes arose relating to the agreement containing no arbitration clause. Id. at 1461. The court concluded the arbitration clauses in the other agreements were broad enough to cover disputes arising under the agreement containing no arbitration clause. Id. at 1462. In Associated Brick Mason Contractors of Greater New York, Inc. v. Harrington , 820 F.2d 31, 35–36 (2d Cir. 1987), a collective bargaining agreement provided that not only would arbitration be required for disputes involving "interpretation or application of any clause" of the agreement, but also "any acts, conduct or relations between the parties ... directly or indirectly, claiming to be aggrieved." The court held the arbitration agreement was broad enough to include disputes arising under a separate memorandum of understanding containing no arbitration clause. Id. at 36. In Consol. Brokers Ins. Servs., Inc. v. Pan–Am. Assurance Co., Inc. , 427 F.Supp.2d 1074, 1083 (D. Kan. 2006), a contract between the parties provided "any disputes between the parties shall be resolved by arbitration." The court held this provision was broad enough to extend to disputes arising under another contract with no arbitration clause where both contracts were executed on the same day. Id.

[¶ 11] Courts have reached contrary results in cases involving narrower arbitration agreements even though the contracts were related. In Breaker v. Corrosion Control Corp. , 23 P.3d 1278, 1281 (Colo. Ct. App. 2001), the parties entered into a purchase agreement which contained an arbitration clause providing: "Any controversy or claim arising out of or relating to this Agreement, or breach thereof, shall be settled by arbitration." The purchase agreement further required the parties to enter into an employment agreement, which they subsequently executed but which did not contain an...