Jackson State Bank v. Homar

• Decision Date: 28 August 1992
• Docket Number: No. 91-134,91-134
• Citation: 837 P.2d 1081
• Parties: JACKSON STATE BANK, a Wyoming Banking Corporation, Appellant (Plaintiff), v. Frank A. HOMAR; Sally Homar; Paul Homar; and Linda Martin, d/b/a Flat Creek Holdings, Appellees (Defendants).
• Court: Wyoming Supreme Court

Page 1081

837 P.2d 1081

JACKSON STATE BANK, a Wyoming Banking Corporation, Appellant (Plaintiff), v. Frank A. HOMAR; Sally Homar; Paul Homar; and Linda Martin, d/b/a Flat Creek Holdings, Appellees (Defendants).

No. 91-134.

Supreme Court of Wyoming.

Aug. 28, 1992.

Mayo Sommermeyer, Timothy J. Dow, Thomas K. Higley of Anderson, Sommermeyer, Wick & Dow, Fort Collins, Colo., and David K. Larson of Mullikin, Larson & Swift, Jackson, for appellant.

Robert B. Ranck and William P. Schwartz of Ranck & Schwartz, Jackson, for appellee.

Before MACY, C.J., and THOMAS, CARDINE, URBIGKIT ^* and GOLDEN, JJ.

GOLDEN, Justice.

Appellant Jackson State Bank appeals the district court's denial of its motion to stay proceedings and for arbitration in a dispute concerning an arbitration clause in a lease agreement involving appellees Frank A. Homar, Sally Homar, Paul Homar and Linda Martin, d/b/a Flat Creek Holdings and Chad R. Budge.

We reverse the lower court's denial and remand this case for arbitration.

ISSUES

Appellant presents the following issues on appeal:

I. Whether § 1-36-104(a) W.S.1977, as amended, requires a plaintiff to allege in his complaint that the opposing party has refused to arbitrate.

II. Whether a plaintiff waives the right to arbitrate by filing a lawsuit to compel arbitration and to obtain a declaration with respect to the rights of the parties.

III. Whether actions indicating a possible intention to waive a right to arbitrate constitute an effective waiver absent a showing of prejudice to the party seeking to avoid arbitration.

IV. Whether a broadly worded arbitration agreement can be avoided by means of counterclaims which are based nominally on fraud, negligent misrepresentation or other non-contractual theories.

Appellees present the issues for review quite simply as:

I. Whether the District Court properly denied the Bank's motion to stay proceedings and to compel arbitration.

FACTS

On June 1, 1975, Flat Creek Enterprises entered into a lease agreement with Jackson Food Market, Inc., (Market), a grocery business operated by Brent and Kathy Morris. Flat Creek leased to Market certain property owned by Flat Creek in Teton County for a period of fifteen years with two options to extend the lease for two successive periods of five years each. Now doing business as Flat Creek Holdings, this Wyoming general partnership includes Frank A. Homar, Sally Homar, Linda Martin, and Paul Homar. The lease agreement was modified in 1976 with respect to the property description only. In 1977, the Market borrowed money from Jackson State Bank (Bank), secured partially by assignment of its leasehold interest in the Flat Creek property, through a pledge of lease, to which Flat Creek gave its consent. The principals of the grocery business, Brent and Kathy Morris, died in an airplane crash in 1979, and the Market ceased doing business. With the loan to the Market in default, the Bank looked to the lease as security on the note and became the successor in interest to the Market on the lease.

In 1980, the Bank subleased the Flat Creek property previously occupied by the Market to Chad R. and Cynthia M. Budge. An addendum was executed by Flat Creek and the Bank in 1981 to modify the 1975 lease, adjusting the rent and changing the use of the premises. In 1990, at the expiration of the original fifteen-year lease term, a dispute arose between the Bank and Flat Creek concerning the rental amount due for the renewal term and negotiations ensued. The Budges continued to occupy the premises and, with the Bank, became holdover tenants beyond the lease expiration date. In the original 1975 lease, paragraphs 4(b) and 29 contain provisions requiring the parties to arbitrate any dispute over the amount of the renewal rent or rights, duties or liabilities of either party. Six letters changed hands between the parties from June 11 to December 4, 1990, concerning arbitration of the parties' disputes under the lease.

The Bank filed a complaint in district court on December 3, 1990, and an amended complaint on December 21, 1990, referencing the arbitration provisions in the lease and seeking to compel arbitration of the renewal rent amount and issues of breach or default of the modified June 1, 1975 lease. The complaint sought a judgment declaring and adjudicating the respective rights of the parties concerning the pledge of lease as collateral and the June 1, 1975 lease, including its modifications and addenda and declaring appellant entitled to continued possession and sublease of the premises. The complaint also sought a judgment against Chad R. Budge declaring the renewal rent owed to be determined by arbitration. Appellees presented counterclaims and crossclaims seeking rescission of the lease for material breaches by appellant; damages as a result of appellant's breach of the pledge of lease as collateral; damages including punitive damages for negligent misrepresentation, fraud, constructive fraud, breach of fiduciary duty, negligence, and bad faith; conversion and wrongful detainer against the Bank and Budges; declaratory relief adjudging that the Bank and Budges have no rights under the lease and injunctive relief ordering the Bank and Budges to relinquish the Flat Creek property; and costs associated with this suit. Appellees did not assert the right to arbitrate issues under the lease.

Appellees demanded a jury trial of all issues on January 2, 1991, and served upon appellant interrogatories and request for production of documents. On January 18, 1991, appellant filed a reply to appellees' counterclaims which asserted that all claims should be arbitrated, requested the dismissal of the counterclaims pending arbitration, and demanded a jury trial on the issue. Appellant served upon appellees interrogatories and a request for production of documents. On February 13, 1991, appellant filed a motion for stay of proceedings and for arbitration. Appellant's motion for protective order regarding appellees' discovery requests was filed on February 15 and denied by the trial court. A later motion for stay of discovery and protective order was filed by appellant on March 29, 1991, also denied by the trial court. Upon stipulation by the parties the district court dismissed, with prejudice, all claims against Chad R. Budge. Appellant's motion for stay of proceedings and arbitration was denied on May 1, 1991. The district court determined appellant's complaint and amended complaint to be deficient under Wyo.Stat. § 1-36-104 (June 1988) for failure to show appellees' refusal to arbitrate and surmised that the act of filing the complaint waived appellant's right to arbitrate its claim. The district court stated, in pertinent part:

It appears to this Court that the Plaintiff's Complaint and Amended Complaint were deficient in raising the arbitration issue in that they did not allege a refusal of the Defendants to arbitrate.

* * * * * *

Filing suit certainly evidences an intention not to rely on redress on the agreement to arbitrate. Even if a plaintiff does intend to rely on arbitration, filing such a complaint amounts to an attempt to preserve two inconsistent remedies. When a prospective plaintiff is aware of his arbitration rights, he should be required to choose between arbitration and litigation as a forum for resolving his grievances. This position does not take from the plaintiff either his arbitration rights or his opportunity to attempt to shift the dispute to a judicial forum; it merely requires him to do one or the other at the outset of the dispute. Southern California Law Review, Vol. 52; 1513 at Pg. 1545.

The Plaintiff seeks to avail itself of two inconsistent remedies in this matter; arbitration and litigation. By filing the lawsuit in this matter in the fashion it did, and proceeding to litigate this matter for two and one-half months, the Plaintiff has now waived its right to arbitration.

Considering the order denying motion to stay proceedings and compel arbitration appealable as a final order under Wyo.Stat. § 1-36-119(a)(i), appellant filed this appeal.

DISCUSSION

I. Failure to allege opposing party's refusal to arbitrate under Wyo.Stat. § 1-36-104(a)

The original 1975 lease between Flat Creek and the Market contained the following clauses:

4(b) Extended Term. In the event the Tenant exercises his options to extend the term of this lease as hereinabove set forth, the rental for each such extended term shall be agreed upon by the parties, or if there is a dispute with respect to the fixing of such rental, then the issue with respect thereto shall be determined by arbitration as provided for in this lease. It is understood and agreed that each extended term shall be upon the same terms and covenants and conditions as provided herein except for the rental.

29. ARBITRATION. In the event the parties are unable to agree to the rental for extended terms of this lease as provided above, or in the event of any controversy which shall arise between the Landlord and the Tenant regarding the right[s], duties, or liabilities hereunder of either party, the same shall be submitted to arbitration and settled thereby pursuant to the provisions of the Uniform Arbitration Act of the State of Wyoming.

Appellant's complaint sought to compel arbitration of the renewal rent amount and issues of breach or default under the lease and also sought a declaratory judgment concerning the respective rights of the parties involving the pledge of lease as collateral and the original lease.

Wyoming arbitration statutes contain procedural provisions regarding the duty of the court when presented with application of a party to arbitrate. In pertinent part, one statutory provision provides:

(a) On application of a party showing an arbitration agreement and the opposing party's refusal to arbitrate, the court shall order the parties to proceed with arbitration. If the opposing party denies the existence of the agreement to arbitrate, the...