Klopfer v. Queens Gap Mountain, LLC

• Decision Date: 15 September 2011
• Docket Number: Civil Case No. 1:10cv155.
• Citation: 816 F.Supp.2d 281
• Court: U.S. District Court — Western District of North Carolina
• Parties: Frank E. KLOPFER and wife Kathy M. Klopfer; and Dustin P. Swartz and wife Kristin H. Swartz, Plaintiffs, v. QUEENS GAP MOUNTAIN, LLC, a North Carolina limited liability company; Devinshire Land Development, LLC, a North Carolina limited liability company; Queens Gap Acquisition, LLC, a Delaware limited liability company; Cove Creek, LLC, a North Carolina limited liability company; D.F. McCarthy Investments XVIII, LLC, an Ohio limited liability company; Queens Gap Holding Company, LLC, an Ohio limited liability company; Devin McCarthy, individually and as Trustee of the Devin F. McCarthy Revocable Trust, dated September 14, 1994; Janis L. McCarthy, individually and as Trustee of the Devin F. McCarthy Revocable Trust, dated September 14, 1994; and Keith Vinson, individually, Defendants.

816 F.Supp.2d 281

Frank E. KLOPFER and wife Kathy M. Klopfer; and Dustin P. Swartz and wife Kristin H. Swartz, Plaintiffs,

v.QUEENS GAP MOUNTAIN, LLC, a North Carolina limited liability company; Devinshire Land Development, LLC, a North Carolina limited liability company; Queens Gap Acquisition, LLC, a Delaware limited liability company; Cove Creek, LLC, a North Carolina limited liability company; D.F. McCarthy Investments XVIII, LLC, an Ohio limited liability company; Queens Gap Holding Company, LLC, an Ohio limited liability company; Devin McCarthy, individually and as Trustee of the Devin F. McCarthy Revocable Trust, dated September 14, 1994; Janis L. McCarthy, individually and as Trustee of the Devin F. McCarthy Revocable Trust, dated September 14, 1994; and Keith Vinson, individually, Defendants.

Civil Case No. 1:10cv155.

United States District Court, W.D. North Carolina,Asheville Division.

Sept. 15, 2011.

Robert Edward Dungan, Alicia Gaddy Vega, Dungan & Associates, P.A., Asheville, NC, for Plaintiffs.

Gene Benton Johnson, Johnson Law Firm, P.A., Arden, NC, Richard B. Fennell, James, McElroy & Diehl, Charlotte, NC, Wyatt S. Stevens, Ann–Patton Hornthal, Roberts & Stevens, P.A., Asheville, NC, for Defendants.

MEMORANDUM OF DECISION AND ORDER

MARTIN REIDINGER, District Judge.

THIS MATTER is before the Court on the following:

1. The Motion to Compel Arbitration and to Stay Proceedings [Doc. 24] of the Defendants D.F. McCarthy Investments XVIII, LLC; Queens Gap Holding Company, LLC; and Devin McCarthy (the McCarthy Defendants);

2. The Motion to Stay this Action and Compel Arbitration [Doc. 29] of the Defendants Queens Gap Mountain, LLC; Devinshire Land Development, LLC; Queens Gap Acquisition, LLC; Cove Creek, LLC; and Keith Vinson (the Queens Gap Defendants); and

3. The Motion to Reconsider of Defendants D.R. McCarthy Investments XVIII, LLC; Queens Gap Holding Company, LLC; Devin McCarthy and Janis L. McCarthy or, in the alternative, Defendant Janis L. McCarthy's Motion to Dismiss [Doc. 44].

PROCEDURAL AND FACTUAL BACKGROUND

This action was initiated on July 27, 2010 and, by leave of Court, an Amended Complaint was filed on February 28, 2011.¹ [Doc. 39]. In the Amended Complaint, it is alleged that in 2007 the Plaintiffs purchased lots from the Defendants in the Queens Gap Subdivision, a luxury planned community in Rutherford and McDowell Counties, North Carolina. [ Id.]. Each of the Lot Purchase Agreements entered into by the parties included a section entitled “Subdivison Improvements” in which the Seller, Queens Gap Mountain, LLC (Queens Gap), agreed to make certain subdivision improvements which would provide the infrastructure necessary for the construction of residences, such as water and sewer, as well as a golf course and other amenities. [ Id.]. The infrastructure required for the Plaintiffs to construct residences on their lots and these amenities have never been completed and the Plaintiffs claim that this constitutes default by the Defendants under the terms of the contracts. [ Id.]. The Plaintiffs also claim that as a result of the default, the value of the lots has decreased. [ Id.]. In the Amended Complaint, the following causes of action are alleged: (1) fraudulent inducement to purchase the lots; (2) fraud; (3) breach of the implied warranty that the lots would be suitable for use for residential purposes; (4) violations of the Interstate Land Sales Full Disclosure Act (ILSFDA), 15 U.S.C. §§ 1701, et seq.; (5) unfair and deceptive trade practices in violation of N.C. Gen.Stat. § 75–1.1; and (6) unjust enrichment and constructive trust. [ Id.]. In their Answers, the Defendants plead the mandatory arbitration clauses in the Lot Purchase Agreements and based thereon have moved to stay this action and to compel arbitration. [Doc. 46 at 34; Doc. 47 at 31–32].

The parties agree that the relevant contracts are the Lot Purchase Agreements entered into by the Plaintiffs with the Defendant Queens Gap. [Doc. 25 at 1; Doc. 28 at 6]. They also agree that the relevant language of these contracts is as follows:

18. Defaults and Remedies.

...

b. By Seller. If Seller defaults under this Agreement, Purchaser, at its election, may: (i) avail itself of the arbitration rights contained herein below ... [.] Purchaser hereby waives the right to exercise any and all remedies at law or in equity except as expressly stated in this subsection.

c. Arbitration. At the option of Seller or Purchaser, any dispute relating to a default under the terms of this Agreement may be submitted to arbitration.

...

(5) In the event an arbitration demand is elected, Purchaser agrees that it shall refrain from commencing any action at law or in equity against Seller pursuant to a default by Seller under the terms of this Agreement, including but not limited to, the commencement of an action for specific performance [.] If Purchaser maintains such an action at law or in equity, ... Seller shall be entitled to go before the presiding judge of a court of competent jurisdiction, ex parte, and obtain an immediate order dismissing the action[.]

NOTICE TO PURCHASER

THIS AGREEMENT PROVIDES THAT DISPUTES BETWEEN PURCHASER AND SELLER MAY BE RESOLVED BY BINDING ARBITRATION. THIS MEANS THAT PURCHASER AND SELLER GIVE UP THE RIGHT TO GO TO COURT TO ASSERT OR DEFEND RIGHTS UNDER THIS AGREEMENT. THE RIGHTS OF THE PARTIES WILL BE DETERMINED BY A NEUTRAL ARBITRATOR AND NOT BY A JUDGE AND JURY. SELLER AND PURCHASER ARE ENTITLED TO A FAIR HEARING, BUT THE ARBITRATION PROCEDURES ARE SIMPLER AND MORE LIMITED THAN THE RULES FOLLOWED IN A COURT. ARBITRATOR DECISIONS ARE AS ENFORCEABLE AS ANY COURT ORDER AND ARE SUBJECT TO VERY LIMITED REVIEW BY A COURT.

[Doc. 25–1 at 11–12; Doc. 28–1 at 1–2] (bold in original).

Each of the Plaintiffs in this lawsuit signed his and/or her initials after this paragraph as did Michael McNamee as the attorney-in-fact for Devin McCarthy (McCarthy), the manager of Queens Gap. [Doc. 25–1, at 12, 15; Doc. 25–2, at 12, 15; Doc. 28–1, at 2, 4, 7]. In addition to the above quoted language, the contracts contain detailed procedures for selection of an arbitrator pursuant to the Commercial Arbitration Rules published by the American Arbitration Association. [Doc. 25–1 at 11; Doc. 25–2 at 11].

The parties do not dispute that the Defendants, including Queens Gap, have not provided the infrastructure necessary for the construction of residences on the lots owned by the Plaintiffs.

STANDARD OF REVIEW

The Federal Arbitration Act (FAA) provides that any written provision to resolve by arbitration a controversy arising pursuant to a contract involving commerce “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” ² 9 U.S.C. § 2. The parties do not dispute that the contracts at issue are transactions involving commerce and that the FAA applies. See 15 U.S.C. § 1703(a). “As a result of th[e] federal policy [stated in the FAA] favoring arbitration, ‘any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.’ ” Patten Grading & Paving, Inc. v. Skanska USA Bldg., Inc., 380 F.3d 200, 204 (4th Cir.2004) (emphasis omitted) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25, 103 S.Ct. 927, 941–42, 74 L.Ed.2d 765, 785 (1983)). The language of the statute is clear; arbitration must be compelled if the parties have entered into a valid arbitration agreement and the dispute falls within the scope thereof. Id. The pertinent language of the FAA is as follows:

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement[.]9 U.S.C. § 3.

In determining whether the dispute at issue is one which should be resolved though arbitration, this Court “engage[s] in a limited review to ensure that the dispute is arbitrable—i.e., that a valid agreement to arbitrate exists between the parties and that the specific dispute falls within the substantive scope of that agreement.” Murray v. United Food and Commercial Workers Int'l Union, 289 F.3d 297, 302 (4th Cir.2002).

DISCUSSION

The validity of the arbitration agreement.

The Plaintiffs first argue that no valid agreement to arbitrate was formed by the parties. “The essential thrust of the [FAA] ..., is to require the application of contract law to determine whether a particular arbitration agreement is enforceable; thereby placing arbitration agreements ‘upon the same footing as other contracts.’ ” Raper v. Oliver House, LLC, 180 N.C.App. 414, 419–20, 637 S.E.2d 551, 554 (2006) (citation omitted); Granite Rock Co. v. Int'l Bhd. of Teamsters, ––– U.S. ––––, 130 S.Ct. 2847, 177 L.Ed.2d 567 (2010); Murray, 289 F.3d at 302 (noting that court first must determine if an agreement to arbitrate was formed, then must assess whether the dispute falls within the scope of that agreement). “When making this determination, [courts] should apply ‘ordinary state-law principles that govern the formation of contracts.’ ” Gen. Elec. Capital Corp. v. Union Corp. Fin. Group, Inc., 142 Fed.Appx. 150, 152 (4th Cir.2005) (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 1924, 131 L.Ed.2d 985, 994 (1995)). “Under North Carolina law, a valid contract ‘requires offer, acceptance, consideration, and no defenses to formation.’ ” Hightower v. GMRI, Inc., 272 F.3d 239, 242 (4th Cir.200...