Ellsworth v. American Arbitration Ass'n

• Decision Date: 05 December 2006
• Docket Number: No. 20050371.,20050371.
• Citation: 2006 UT 77,148 P.3d 983
• Parties: Stanford M. ELLSWORTH, Plaintiff and Appellant, v. The AMERICAN ARBITRATION ASSOCIATION, a New York corporation; Lowell Construction Company, a Utah corporation, and Carol Lee Fairbanks Naylor, Defendants and Appellees.
• Court: Utah Supreme Court

148 P.3d 983

2006 UT 77

Stanford M. ELLSWORTH, Plaintiff and Appellant, v. The AMERICAN ARBITRATION ASSOCIATION, a New York corporation; Lowell Construction Company, a Utah corporation, and Carol Lee Fairbanks Naylor, Defendants and Appellees.

No. 20050371.

Supreme Court of Utah.

December 5, 2006.

COPYRIGHT MATERIAL OMITTED

D. Scott Crook, Scott M. Ellsworth, Salt Lake City, for plaintiff.

Robert F. Babcock, Kent B. Scott, Shawn W. Potter, Salt Lake City, Evan A. Schmutz, Curtis R. Hussey, Provo, for defendants.

DURHAM, Chief Justice:

INTRODUCTION

¶ 1 This case involves a dispute over whether Plaintiff Stanford M. Ellsworth is bound by the arbitration provision of a construction and remodeling contract. The district court granted summary judgment in favor of Defendant Lowell Construction Company (Lowell), finding that Mr. Ellsworth was bound by the arbitration provision and dismissing Mr. Ellsworth's suit for declaratory relief. Mr. Ellsworth appealed, arguing that: (1) the district court erred in granting Lowell's motion for summary judgment because of disputed material facts; and (2) the district court erred by dismissing Mr. Ellsworth's action rather than issuing a stay pending the conclusion of the arbitration proceedings as required by Utah Code section 78-31a-108(7) (2002). We hold that the district court erred in entering summary judgment in favor of Lowell because, as a matter of law, the facts of this case do not amount to direct and specific evidence of an agreement to arbitrate.¹ Because our holding is dispositive of this appeal, we do not address whether the district court should have stayed the proceedings.

BACKGROUND

¶ 2 "When reviewing a district court's grant of summary judgment, we view the facts and all reasonable inferences drawn therefrom in the light most favorable to the nonmoving party, here the plaintiff. We recite the facts accordingly." Wayment v. Clear Channel Broad., Inc., 2005 UT 25, ¶ 3, 116 P.3d 271 (citation and internal quotation marks omitted).

¶ 3 In 1997, Mr. Ellsworth married Carol Lee Fairbanks Naylor. Prior to marriage, Ms. Naylor owned a house and property located in Salt Lake City, and the couple resided in Ms. Naylor's home throughout their marriage.² During the marriage, Ms. Naylor remained the sole legal owner of the house. In April 2002, a tree fell on Ms. Naylor's home. Shortly thereafter, Ms. Naylor began planning for repairs to the damaged house; the repairs were to be paid for by an insurance policy.³

¶ 4 Ms. Naylor negotiated the terms of a contract to repair the home with Gary Evershed, with the work to be completed by Lowell.⁴ Mr. Ellsworth was present during conversations Ms. Naylor had with Mr. Evershed but never represented that he intended to be a party to the agreement, that he had any ownership interest in the house, or that Ms. Naylor had authority to act as his agent. On June 11, 2002, Mr. Evershed presented a contract (the June 11 Agreement), prepared by Lowell, to Ms. Naylor. On the June 11 Agreement's cover page, both Ms. Naylor and Mr. Ellsworth were listed as "Owners," and the "Project" was identified as the "Naylor/Ellsworth Residence."⁵ However, the signature page had only one signature line, labeled "Owner." Ms. Naylor signed the June 11 Agreement's signature page as "Owner"; Mr. Ellsworth did not.

¶ 5 After the June 11 Agreement was entered, Ms. Naylor and Lowell began negotiating for Lowell to perform additional remodeling work on the home. The circumstances surrounding Mr. Ellsworth's involvement in those negotiations are substantially similar to those of the June 11 Agreement. A contract for that project (the June 20 Agreement), prepared by Lowell, was presented to Ms. Naylor on June 20, 2002. As with the June 11 Agreement, the cover page of the June 20 Agreement listed both Ms. Naylor and Mr. Ellsworth as "Owners" and identified the "Project" as the "Naylor/Ellsworth Residence Remodel." The June 20 Agreement's signature page also had only one signature line, underscored by the word "Owner," and the contract was signed only by Ms. Naylor.

¶ 6 The terms of the June 11 Agreement and the June 20 Agreement are nearly identical, particularly the provisions relevant to this appeal.⁶ The arbitration provision at issue here, found at item 10.8 of the June 11 Agreement and item 15.8 of the June 20 Agreement, provides as follows: "All claims or disputes between the Contractor and the Owner arising out of or relating to the Contract Documents, or the breach thereof, shall be decided by arbitration."

¶ 7 The dispute in this case arises specifically from the events following the signing of the contract, which are hotly debated by the parties. From the facts in the record, it appears that Mr. Evershed approached Mr. Ellsworth on several occasions, outside the presence of Ms. Naylor, in order to talk about the project. Mr. Ellsworth claims that, on all of these occasions, he deferred making any decisions about the project until he could speak with Ms. Naylor. On the other hand, Lowell claims that on certain occasions Mr. Evershed discussed costs of the project with Mr. Ellsworth, and Mr. Ellsworth asked him not to tell Ms. Naylor about the total costs of some parts of the work. Mr. Ellsworth denies this. In April 2003, Lowell represented that it had completed the work and sent a final bill to Ms. Naylor.

¶ 8 Following the completion of the project, a dispute arose between Ms. Naylor and Lowell concerning unperformed work that was nevertheless billed to the insurance company, disputed costs, undelivered invoices, and a lack of supporting documentation of the costs of the project.⁷ Through their attorneys, Ms. Naylor and Lowell exchanged a series of correspondence regarding their disputes.

¶ 9 In June 2004, Lowell filed a Demand for Arbitration with the American Arbitration Association (AAA) against both Mr. Ellsworth and Ms. Naylor. Mr. Ellsworth objected to the jurisdiction of the arbitrator, claiming that he was not party to either the June 11 Agreement or the June 20 Agreement, which contain the arbitration clauses on which Lowell based its demand. In September of that year, Mr. Ellsworth also filed a complaint naming the AAA, Lowell, and Ms. Naylor as defendants. In his complaint, Ellsworth asked for (1) a declaratory judgment that he is not a party to the June 11 Agreement or the June 20 Agreement and is therefore not subject to the agreements' arbitration clauses, and (2) a stay of the arbitration proceedings and a permanent injunction prohibiting Lowell and the AAA from proceeding against him through methods of dispute resolution that he did not bargain for. Ms. Naylor answered Mr. Ellsworth's complaint and made counterclaims and cross-claims against the other parties.⁸ She also moved to stay the arbitration proceedings.⁹ Lowell opposed that motion and moved to dismiss all claims against it and to compel arbitration.

¶ 10 A hearing concerning Ms. Naylor's motion to stay arbitration and Lowell's motion to dismiss the complaint and compel arbitration was held before the district court on January 31, 2005. After the hearing, the court granted Lowell's motion to dismiss Mr. Ellsworth's action, denied Ms. Naylor's motion for a stay of the arbitration proceedings, and ordered the parties to arbitrate. Mr. Ellsworth appealed to this court on April 11, 2005. We originally transferred the case to the Utah Court of Appeals pursuant to Utah Code section 78-2-2(4) (2002). We then recalled the case on February 21, 2006, after briefs had been filed but before the court of appeals had heard oral argument. We have jurisdiction over this matter pursuant to Utah Code section 78-2-2(3)(j) (2002).

STANDARD OF REVIEW

¶ 11 While Lowell moved to dismiss Mr. Ellsworth's complaint pursuant to rule 12(b)(6) of the Utah Rules of Civil Procedure, when "matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56." Utah R. Civ. P. 12(b) (2006). Because "affidavits or other evidence" were presented to, and not excluded by, the district court, we review that court's decision as a summary judgment. DOIT, Inc. v. Touche, Ross & Co., 926 P.2d 835, 839 (Utah 1996).

¶ 12 "[A] challenge to a summary judgment presents for review only conclusions of law because, by definition, cases decided on summary judgment do not resolve factual disputes." Schurtz v. BMW of N. Am., Inc., 814 P.2d 1108, 1111 (Utah 1991). We review the district court's legal conclusions for correctness, without according deference to the district court. Id.

ANALYSIS

¶ 13 Mr. Ellsworth appeals the judgment and order of the district court on two grounds. First, he argues that the district court erred by granting summary judgment in favor of Lowell. Second, he argues that the district court was required, under Utah law, to stay the judicial proceeding pending the outcome of the arbitration instead of dismissing his suit. We agree with Mr. Ellsworth that the district court's grant of summary judgment in favor of Lowell was improper and erroneous. Moreover, under the facts of this case, we do not believe that direct and specific evidence of an assent to arbitrate by Mr. Ellsworth exists. Accordingly, we hold, as a matter of law, that Mr. Ellsworth is not bound by the arbitration clause. We reverse and remand to the district court with instructions to enter declaratory relief and grant an injunction in favor of Mr. Ellsworth. Because our holding disposes of Mr. Ellsworth's appeal, we do not address whether the district court should have stayed the proceedings.

¶ 14 Arbitration is a matter of contract law, Cade v. Zions First Nat'l Bank, 956 P.2d 1073, 1076 (Utah Ct.App.1998), and state-law principles of contract formation apply, id. at 1077 (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995)). In order to require a party to submit to...