Melaas v. Diamond Resorts U.S. Collection Development, LLC, 011221 NDSC, 20200055

Docket Nº20200055
Opinion JudgeMCEVERS, JUSTICE
Party NameKathleen Melaas, Plaintiff and Appellant v. Diamond Resorts U.S. Collection Development, LLC, Defendant and Appellee
AttorneyJoshua A. Swanson, Fargo, ND, for plaintiff and appellant. Matthew D. Lamb (argued), Washington, DC, and Joseph A. Wetch, Jr. (appeared), Fargo, ND, for defendant and appellee.
Judge PanelJon J. Jensen, C.J., Gerald W.VandeWalle, concurin result. Daniel J. Crothers Lisa Fair McEvers Jerod E. Tufte
Case DateJanuary 12, 2021
CourtSupreme Court of North Dakota

2021 ND 1

Kathleen Melaas, Plaintiff and Appellant

v.

Diamond Resorts U.S. Collection Development, LLC, Defendant and Appellee

No. 20200055

Supreme Court of North Dakota

January 12, 2021

Appeal from the District Court of Cass County, East Central Judicial District, the Honorable Thomas R. Olson, Judge.

Joshua A. Swanson, Fargo, ND, for plaintiff and appellant.

Matthew D. Lamb (argued), Washington, DC, and Joseph A. Wetch, Jr. (appeared), Fargo, ND, for defendant and appellee.

OPINION

MCEVERS, JUSTICE

[¶1] Kathleen Melaas appeals from a district court order granting a motion to compel arbitration and dismissing her complaint against Diamond Resorts U.S. Collection Development, LLC. Melaas argues the district court erred by ordering arbitration because the contract containing the arbitration agreement is unenforceable and void, she lacked the necessary capacity to consent to the contract, and any consent was obtained by undue influence, duress, menace, or fraud. We conclude the district court erred by ordering arbitration without first deciding Melaas' capacity to consent challenge to the formation of the contract. We reverse and remand.

I

[¶2] In August 2019, Melaas sued Diamond Resorts claiming undue influence, lack of capacity to consent, and unlawful practices under N.D.C.C. ch. 51-15, and requesting the district court declare her October 30, 2018 timeshare agreement with Diamond Resorts is not a valid and binding agreement. She alleged Diamond Resorts offers vacation and timeshare packages, she attended a sales meeting with a Diamond Resorts representative, the sales meeting lasted approximately five hours, and she asked to leave the meeting on at least one occasion and Diamond Resorts refused to allow her to leave. She claimed Diamond Resorts knew she was a diabetic and experienced fatigue and confusion, Diamond Resorts knew she was a vulnerable adult subject to a durable power of attorney for financial management, and Diamond Resorts would not allow her to leave the sales meeting until she signed the timeshare agreement. Melaas asserted she lacked the capacity to enter into the agreement, Diamond Resorts used high-pressure and abusive sales tactics and knowledge of her medical condition to unduly influence and coerce her into signing the agreement, and any consent was obtained by duress and menace.

[¶3] Diamond Resorts moved to compel arbitration and dismiss the complaint or, alternatively, to stay proceedings. Diamond Resorts argued the agreement requires arbitration of any and all claims stemming from the contract. Diamond Resorts claimed the arbitration provision is valid and enforceable, the agreement requires arbitration of all of Melaas' claims in Nevada, and therefore arbitration should be ordered and the action should be dismissed. Melaas opposed the motion, arguing the agreement and its arbitration and forum selection clauses are unenforceable and her claims are properly before the court.

[¶4] After a hearing, the district court granted Diamond Resorts' motion to compel arbitration and dismissed Melaas' complaint. The court ordered, "This matter is referred to arbitration pursuant to the parties' agreement, and Plaintiff's Complaint is hereby DISMISSED."

II

[¶5] Diamond Resorts argues the appeal should be dismissed for lack of jurisdiction. It contends this Court's decision in Superpumper, Inc. v. Nerland Oil, Inc., 1998 ND 144, 582 N.W.2d 647, applies and precludes an immediate appeal from an order compelling arbitration.

[¶6] Most states have adopted the Uniform Arbitration Act or the Revised Uniform Arbitration Act. See Unif. Arbitration Act (1956), U.L.A. Refs & Annos; Unif. Arbitration Act (2000), U.L.A. Refs & Annos. The North Dakota Legislature adopted the Uniform Arbitration Act (UAA) in 1987. See 1987 N.D. Sess. Laws ch. 408; Superpumper, 1998 ND 144, ¶ 9. In 2003, the legislature amended the UAA and recodified it at N.D.C.C. ch. 32-29.3. See 2003 N.D. Sess. Laws ch. 280.

[¶7] Section 32-29.3-28(1), N.D.C.C., authorizes appeals in arbitration cases and states an appeal may be taken from: a. An order denying a motion to compel arbitration;

f. A final judgment entered pursuant to this chapter.

The statute further states, "An appeal under this section must be taken as from an order or a judgment in a civil action." N.D.C.C. § 32-29.3-28(2). The Federal Arbitration Act (FAA), 9 U.S.C. § 1, et seq., also includes a section authorizing appeals in certain cases, stating: (a) An appeal may be taken from -

(1) an order -

(A) refusing a stay of any action under section 3 of this title,

(B) denying a petition under section 4 of this title to order arbitration to proceed,

(C) denying an application under section 206 of this title to compel arbitration,

(3) a final decision with respect to an arbitration that is subject to this title.

(b) Except as otherwise provided in section 1292(b) of title 28, an appeal may not be taken from an interlocutory order -

(1)granting a stay of any action under section 3 of this title;

(2) directing arbitration to proceed under section 4 of this title;

(3) compelling arbitration under section 206 of this title; or

(4) refusing to enjoin an arbitration that is subject to this title.

9 U.S.C. § 16.

[¶8] Neither the UAA nor the FAA explicitly authorize an appeal from an order granting a motion to compel arbitration and dismissing the action. This Court addressed the appealability of an order compelling arbitration in Superpumper, 1998 ND 144. We said orders compelling arbitration are not listed as appealable under the UAA and jurisdictions that adopted the uniform act are divided about whether the orders are appealable. Id. at ¶ 10. This Court acknowledged that some jurisdictions hold an order compelling arbitration is appealable as a final order or an appealable interlocutory order and that other jurisdictions have held the orders are interlocutory and are not appealable. Id. at ¶¶ 11-12. We said, "we are persuaded by the wisdom of the decisions interpreting and applying the procedural requirements of the FAA in deciding whether an order compelling arbitration is appealable under the UAA." Id. at ¶ 17. We explained the FAA states that an appeal may not be taken from an interlocutory order directing arbitration to proceed but allows an appeal from a final decision with respect to arbitration. Id. We said, "This statutory contrast grew out of the distinction that federal courts had previously recognized 'between so-called independent proceedings and so-called embedded proceedings.'" Id. (quoting Filanto, S.P.A. v. Chilewich Int'l Corp., 984 F.2d 58, 60 (2d Cir. 1993)). We explained, "In an independent proceeding, the request to compel arbitration is the sole issue before the district court. In an embedded proceeding, the motion for arbitration is made in the course of a larger, substantive suit." Superpumper, at ¶ 18 (quoting Napleton v. Gen. Motors Corp., 138 F.3d 1209, 1211 (7th Cir. 1998)). We said the lack of dismissal after ordering arbitration is often indicative of an embedded proceeding because it suggests the order compelling arbitration is not wholly dispositive of the case. Superpumper, at ¶ 21. We held an order to arbitrate in an embedded proceeding is not appealable, even when the practical result is to refer all claims to the arbitrator and terminates the proceedings before the district court. Id. at ¶¶ 22-23. We said, "The rule we adopt today for our own State procedure, that an order compelling arbitration in an embedded proceeding is not appealable, is consistent with the policy favoring arbitration endorsed by the Congress and this Court's recent precedents." Id. at ¶ 23. We explained the issues raised were appealable once the arbitration was complete and the district court rendered a final disposition, but an order compelling arbitration in an embedded proceeding is not appealable. Id.

[¶9] This Court's decision on appealability under the UAA in Superpumper was guided by the federal courts' interpretation of similar appealability provisions of the FAA. Melaas argues the law about appealability under the FAA changed after Superpumper and therefore the order in this case is appealable.

[¶10] In Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 86 (2000), and more recently in Lamps Plus, Inc. v. Varela, 139 S.Ct. 1407, 1414 (2019), the Supreme Court held an order compelling arbitration and dismissing a party's underlying claims is appealable under the FAA because it is a "final decision with respect to an arbitration" within the meaning of 9 U.S.C. § 16(a)(3). The Court explained an order compelling arbitration and dismissing a party's underlying claims disposes of the entire case on the merits and leaves no part of it pending before the court, which is consistent with the longstanding interpretation of a "final decision." Green Tree, at 86. The Court noted that the order compelling arbitration would not have been appealable if the district court had entered a stay instead of dismissing the underlying action. Id. at 87 n.2. The Court also recognized that the FAA permits parties to bring a separate proceeding in a district court to enter judgment on an arbitration award once it is made, but said the "existence of that remedy does not vitiate the finality of the District Court's resolution of the claims in the instant proceeding[, ]" and therefore the dismissal was "a final decision with respect to an arbitration" and is appealable. Green Tree, at 86.

[¶11] The proceedings in both Lamps Plus and Green Tree were "embedded" proceedings, and the Supreme Court rejected the argument that an order compelling arbitration was only appealable in an "independent" proceeding. Green...

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