Coles v. Sugarleaf Labs, Inc.
| Decision Date | 01 November 2022 |
| Docket Number | COA22-116 |
| Parties | Tod COLES, Plaintiff, v. SUGARLEAF LABS, INC. (formerly known as Neptune Acquisition USA, Inc.), and Neptune Wellness Solutions, Inc., Defendants. |
| Court | North Carolina Court of Appeals |
Law Offices of Matthew K. Rogers, PLLC, Hickory, by Matthew K. Rogers, for Plaintiff-Appellant.
Jackson Lewis P.C., by H. Bernard Tisdale, III, Charlotte, and Janean B. Dunn, Raleigh, for Defendants-Appellees.
¶ 1 Plaintiff-Appellant Tod Coles ("Plaintiff") appeals from an order compelling arbitration and dismissing his complaint with prejudice. The parties dispute whether this Court has jurisdiction over this appeal. Orders compelling arbitration are interlocutory and are generally not immediately appealable, but a dismissal of a complaint with prejudice ordinarily operates as a final judgment from which a party may immediately appeal. After careful review, we hold that the trial court's dismissal with prejudice was in error under North Carolina law, vacate that portion of the trial court's order, and remand for entry of a stay. But, because we would otherwise lack jurisdiction to consider Plaintiff's appeal, we dismiss Plaintiff's appeal without consideration of its merits and leave undisturbed the remainder of the trial court's order compelling arbitration.
¶ 2 The record below discloses the following:
¶ 3 In 2018, Plaintiff was employed as the president of Sugarleaf Labs, LLC and Forest Remedies, LLC, two entities involved in the processing and sale of hemp products. The following year, Defendant Neptune Wellness Solutions, Inc. ("Neptune") purchased Sugarleaf Labs, LLC, and Forest Remedies, LLC, through a newly-formed subsidiary, Defendant Sugarleaf Labs, Inc. ("Sugarleaf," together with Neptune as "Defendants").
¶ 4 Neptune's purchase of Plaintiff's employers was memorialized in an Asset Purchase Agreement ("APA"). The APA required Sugarleaf to enter into new employment agreements with certain key employees, including Plaintiff. It also required that any disputes relating to the APA and its "Ancillary Documents"—defined to include Plaintiff's employment agreement with Sugarleaf—must be resolved through arbitration.
¶ 5 On 24 July 2019, after the APA was executed, Plaintiff and Sugarleaf entered into the contemplated employment agreement; this agreement did not include an arbitration provision, and Plaintiff was not a signatory to the earlier APA. However, the employment agreement did expressly state that it was a condition of the APA and that the employment agreement "include[ed] ... the agreements and other documents referenced in this Agreement."
¶ 6 Sugarleaf eventually terminated Plaintiff's employment, leading him to sue Defendants for: (1) breach of contract; (2) fraud; (3) negligent misrepresentation; (4) Wage & Hour Act violations; (5) injunctive relief; and (6) unfair and deceptive trade practices. Defendants filed an answer and subsequently moved "to compel arbitration and dismiss, or in the alternative, stay pending arbitration." Defendants premised their motion to compel arbitration on Plaintiff's admission in his complaint that he was a third-party beneficiary under the APA and argued that Plaintiff could only enforce the employment agreement consistent with the APA's mandatory arbitration provision. The motion included several exhibits, namely pertinent portions of the executed APA, Plaintiff's employment agreement with Sugarleaf, and emails showing Plaintiff's refusal to arbitrate.
¶ 7 Both parties submitted briefs to the trial court in advance of the hearing. Plaintiff argued that there was no evidence1 he had agreed to arbitrate any claims because he did not sign the APA, and any attempt to enforce the APA's arbitration provision against him would be contrary to North Carolina public policy.
¶ 8 Defendants’ brief asserted that under either the Federal Arbitration Act ("FAA") or the North Carolina Revised Uniform Arbitration Act ("RUAA"), the trial court was required to stay the proceeding and compel arbitration. They argued that regardless of which statute applied, North Carolina contract and agency law requires a third-party beneficiary seeking to enforce a contract with a mandatory arbitration provision to do so through arbitration. Defendants’ brief also included several additional documentary exhibits showing Plaintiff's agency/third-party beneficiary relationship to the APA and its signatories.
¶ 9 The trial court heard Defendants’ motion via Webex on 25 January 2021. It allowed Defendants’ motion from the bench, concluding that the employment agreement was part of the APA (and vice-versa). The trial court did not, however, expressly indicate whether it was staying the action, which typically occurs when a motion to compel arbitration is granted, or dismissing the action, as requested by Defendants’ motion.
¶ 10 After the parties submitted dueling proposed orders, the trial court entered a written order compelling arbitration and dismissing Plaintiff's complaint with prejudice. Plaintiff now appeals, arguing that the dismissal with prejudice is a final judgment or, if interlocutory, affects a substantial right. Failing that, he requests this Court treat his brief as a petition for writ of certiorari.
¶ 11 Plaintiff asserts on appeal that the trial court's order is immediately appealable as a final judgment because it dismissed his complaint with prejudice. Defendants maintain that the order is interlocutory, does not affect a substantial right, and is thus not subject to immediate appeal. See, e.g., C. Terry Hunt Indus., Inc. v. Klausner Lumber Two, LLC , 255 N.C. App. 8, 12, 803 S.E.2d 679, 682 (2017) ().
¶ 12 Both parties are correct to some extent: a dismissal with prejudice is a final judgment, but an order compelling arbitration—properly entered—is interlocutory and not subject to immediate appeal as of right. Thus, by compelling arbitration and dismissing Plaintiff's complaint with prejudice, the trial court entered something akin to Schrodinger's cat: an appealable unappealable order, an interlocutory final judgment.
¶ 13 Faced with this quantum-state quandary, and reviewing the relevant statutes and caselaw, we hold that the trial court erred in dismissing Plaintiff's complaint with prejudice. After compelling arbitration, the trial court was required to stay proceedings based on the mandatory language of the RUAA, which supplies the applicable procedural law in this case. We therefore vacate that portion of the order and remand for entry of an order staying the action pending arbitration.
¶ 14 As for Plaintiff's substantive arguments contending the trial court erred in compelling arbitration, we dismiss that portion of the appeal because our precedents establish that such orders are neither final judgments nor interlocutory orders affecting a substantial right subject to immediate appeal. Lastly, we decline in our discretion to treat Plaintiff's brief as a petition for writ of certiorari on this issue.
¶ 15 Appellate jurisdiction is a threshold issue that we must consider sua sponte. Akers v. City of Mount Airy , 175 N.C. App. 777, 778, 625 S.E.2d 145, 146 (2006). Whether this Court has jurisdiction turns largely on the nature—interlocutory or final—of the order from which the parties appeal. A party may always appeal from a final judgment, Embler v. Embler , 143 N.C. App. 162, 164, 545 S.E.2d 259, 261 (2001), which our caselaw defines as "one which disposes of the cause as to all the parties, leaving nothing to be judicially determined between them in the trial court[,]" Veazey v. City of Durham , 231 N.C. 357, 361-62, 57 S.E.2d 377, 381 (1950). Stated differently, "[a] final judgment generally is one which ends the litigation on the merits." Duncan v. Duncan , 366 N.C. 544, 545, 742 S.E.2d 799, 801 (2013) (cleaned up).
¶ 16 Interlocutory orders differ substantially from final judgments both in their character and their appealability. Such orders are made "during the pendency of an action, which do[ ] not dispose of the case, but leave[ ] it for further action by the trial court in order to settle and determine the entire controversy." Veazey , 231 N.C. at 362, 57 S.E.2d at 381. In layperson's terms, an interlocutory order is entered during an ongoing court case, while a final judgment ends a lawsuit. And, unlike a final judgment, an interlocutory order is only appealable if the order "is final as to some but not all of the claims or parties, and the trial court certifies the case for appeal pursuant to N.C. Gen. Stat. § 1A-1, Rule 54(b)," N.C. Dept. of Transportation v. Page , 119 N.C. App. 730, 734, 460 S.E.2d 332, 334 (1995), or if it "affects a substantial right of the appellant that would be lost without immediate review." Embler , 143 N.C. App. at 165, 545 S.E.2d at 261 (citations omitted). This important limitation serves to "prevent fragmentary and premature appeals that unnecessarily delay the administration of justice and to ensure that the trial divisions fully and finally dispose of the case before an appeal can be heard." Bailey v. Gooding , 301 N.C. 205, 209, 270 S.E.2d 431, 434 (1980).
¶ 17 Our caselaw concerning the appealability of orders compelling arbitration establishes two key points: (1) "[a]n order compelling the parties to arbitrate is an interlocutory order," Bluffs, Inc. v. Wysocki , 68 N.C. App. 284, 285, 314 S.E.2d 291, 293 (1984) ; and (2) "an order compelling arbitration affects no substantial right that would warrant immediate appellate review," C. Terry Hunt Indus., Inc., 255 N.C. App. at 12, 803 S.E.2d at 682. Thus, as an ordinary matter, a party may not immediately appeal an order compelling arbitration. Id.
¶ 18 Equally ordinary, however, is the principle that...
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