Sec. Alarm Fin. Enters., L.P. v. Fuller, 1 CA-CV 16-0255

• Court: Arizona Court of Appeals
• Writing for the Court: JOHNSEN, Judge
• Citation: Sec. Alarm Fin. Enters., L.P. v. Fuller, 398 P.3d 578 (Ariz. App. 2017)
• Decision Date: 06 July 2017
• Docket Number: No. 1 CA-CV 16-0255,1 CA-CV 16-0255
• Parties: SECURITY ALARM FINANCING ENTERPRISES, L.P., Plaintiff/Appellee, v. Amy FULLER, et al., Defendants/Appellants.

398 P.3d 578

SECURITY ALARM FINANCING ENTERPRISES, L.P., Plaintiff/Appellee,

v.Amy FULLER, et al., Defendants/Appellants.

No. 1 CA-CV 16-0255

Court of Appeals of Arizona, Division 1.

FILED July 6, 2017

Baskin, Richards, PLC, Phoenix, By William A. Richards, Nicole C. Davis, Counsel for Plaintiff/Appellee

Limon–Wynn Law, PLLC, Tempe, By Monica A. Limon–Wynn, Counsel for Defendants/Appellants

Presiding Judge Diane M. Johnsen delivered the opinion of the Court, in which Judge Patricia K. Norris and Judge Jennifer B. Campbell joined.

OPINION

JOHNSEN, Judge:

¶ 1 The superior court denied a motion to dismiss in favor of arbitration under the Federal Arbitration Act, holding the moving parties waived their right to compel arbitration by failing to raise it as an affirmative defense in their answer. Exercising our discretion to accept special action review and applying federal law, we hold there was no waiver and reverse the order denying the motion to dismiss.

FACTS AND PROCEDURAL BACKGROUND

¶ 2 Security Alarm Financing Enterprises, L.P. filed a complaint alleging contract and tort claims against several former employees and their new employer. The complaint alleged breach of contract, misappropriation of trade secrets, unfair competition and tortious interference with business expectancies. In answering the complaint, Amy Fuller, Molly Griffis, and Carlee and Darryl Reeves (collectively "Appellants") did not raise any affirmative defense concerning arbitration.

¶ 3 Security acknowledges that 29 days after Appellants answered the complaint, their counsel contacted Security to raise the existence of arbitration agreements Appellants each had signed when they started work with Security. (The arbitration agreements were stand-alone contracts separate from the confidentiality agreements on which Security's contract claims were based.) Each of the identical three-page arbitration agreements specified that it "is governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq.," and that it would apply "to any dispute arising out of or related to" the employee's "employment with ... [Security] ... or termination of employment." Appellants asked whether Security would agree to arbitration; a month later, Security responded that it would not agree. Four days after receiving Security's response, Appellants moved to dismiss the complaint and to compel arbitration. The superior court denied the motion, finding Appellants waived their right to compel arbitration by failing to cite the arbitration agreement as an affirmative defense in their answer. Appellants then appealed.

DISCUSSION

A. Jurisdiction.

¶ 4 This court derives its jurisdiction wholly from statute. See Garza v. Swift Transp. Co. , 222 Ariz. 281, 283, ¶ 12, 213 P.3d 1008, 1010 (2009). Generally speaking, an order denying a motion to dismiss is not reviewable by appeal because it is not a final judgment. See Brumett v. MGA Home Healthcare, L.L.C. , 240 Ariz. 420, 426, ¶ 4, 380 P.3d 659, 665 (App. 2016).

¶ 5 Appellants, however, suggest Arizona Revised Statutes ("A.R.S.") section 12–2101.01(A)(1) (2017) grants this court jurisdiction over the denial of their motion to dismiss and to compel arbitration.¹ That statute grants the court of appeals jurisdiction to hear an appeal from "[a]n order denying an application to compel arbitration made under § 12–1502 or 12–3007." But Appellants did not move to compel arbitration under either A.R.S. § 12–1502 (2017) (adopted from the Uniform Arbitration Act) or A.R.S. § 12–3007 (2017) (adopted from the Revised Uniform Arbitration Act). Indeed, Arizona's versions of the Uniform Arbitration Act and the Revised Uniform Arbitration Act expressly do not apply to arbitration agreements, such as the one at issue here, between an employer and its employee. A.R.S. §§ 12–1517 (2017), –3003(B)(1) (2017). Instead, Appellants moved to compel arbitration under the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1 – 16 (2017), which the arbitration agreement expressly adopted. Because Appellants did not move to compel arbitration under A.R.S. §§ 12–1502 or –3007, and because no other statute grants this court appellate jurisdiction, we lack jurisdiction to consider Appellants' appeal from the order denying their motion.

¶ 6 Alternatively, Appellants ask us to treat their appeal as a petition for special action. In our discretion and pursuant to A.R.S. § 12–120.21(A)(4) (2017), we may exercise special action jurisdiction "under appropriate circumstances." Phillips v. Garcia , 237 Ariz. 407, 410, ¶ 6, 351 P.3d 1105, 1108 (App. 2015). Special action jurisdiction is proper when a party has no "equally plain, speedy, and adequate remedy by appeal," Arizona Rule of Procedure for Special Actions 1(a), and in cases "involving a matter of first impression, statewide significance, or pure questions of law," State ex rel. Pennartz v. Olcavage , 200 Ariz. 582, 585, ¶ 8, 30 P.3d 649, 652 (App. 2001).

¶ 7 Appellants have no adequate remedy by appeal from the order denying their motion to compel arbitration. See Yarbrough v. Montoya–Paez , 214 Ariz. 1, 2, 147 P.3d 755, 756 (App. 2006) (accepting special action jurisdiction of order transferring venue). Further, the primary issue presented here is a question of law, namely, what a party must show to establish that an adversary has waived a right to arbitration under the FAA. As presented, this dispute "require[s] neither factual review nor interpretation." Orme School v. Reeves , 166 Ariz. 301, 303, 802 P.2d 1000, 1002 (1990). It likewise is an issue of first impression in this state. See State ex rel. Thomas v. Duncan , 216 Ariz. 260, 262, ¶ 5, 165 P.3d 238, 240 (App. 2007).

¶ 8 Accordingly, we exercise our discretion to accept special action jurisdiction to determine whether the superior court erred by denying Appellants' motion to dismiss and to compel arbitration.

B. Denial of the Motion to Compel Arbitration.

¶ 9 We review the denial of a motion to compel arbitration de novo . Sun Valley Ranch 308 Ltd. P'ship v. Robson , 231 Ariz. 287, 291, ¶ 9, 294 P.3d 125, 129 (App. 2012). Further, whether conduct amounts to waiver of the right to arbitrate is a question of law we review de novo . In re Estate of Cortez , 226 Ariz. 207, 210, ¶ 3, 245 P.3d 892, 895 (App. 2010).

¶ 10 The parties disagree about whether Arizona law or federal law governs waiver of a right to arbitration under the FAA. Depending on the circumstances of a particular case, which law applies may make a difference because the legal standards governing waiver may not be precisely the same. In arguing that Appellants waived arbitration by failing to plead it in their answer, Security relies on our decision in Cortez as "controlling." See 226 Ariz. at 211, ¶ 6, 245 P.3d 892 ("An assertion that arbitration is mandatory is an affirmative defense to a complaint. It is well established that any defense not set forth in an answer or pre-answer motion to dismiss is waived." (Citation omitted.)). Security argues that under Arizona law, Appellants' failure to plead arbitration was sufficient by itself to constitute waiver. By contrast, under the FAA, conduct inconsistent with an intent to arbitrate by itself is not sufficient to establish waiver; at a minimum, the court also must consider whether the party opposing arbitration has suffered prejudice by the other party's inconsistent acts. Compare Richards v. Ernst & Young, LLP , 744 F.3d 1072, 1074 (9th Cir. 2013) (waiver requires showing of prejudice), with Zuckerman Spaeder, LLP v. Auffenberg , 646 F.3d 919, 922 (D.C. Cir. 2011) (potential prejudice is among circumstances to be considered).

¶ 11 Two respective provisions of the FAA guide analysis of challenges to a party's right to compel arbitration. First, under 9 U.S.C. § 2, a written arbitration agreement "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." The cases make clear that the inquiry under § 2 of whether an arbitration agreement is "valid, irrevocable, and enforceable" is governed by state law, i.e., the law pertaining to "revocation of any contract." See, e.g. , Doctor's Assocs., Inc. v. Casarotto , 517 U.S. 681, 686, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996) (state law governs general issues concerning the validity, revocability and enforceability of contracts); Perry v. Thomas , 482 U.S. 483, 492, n.9, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987) ; Hudson v. Citibank (S.D.) NA , 387 P.3d 42, 47 (Alaska 2016). Thus, when an Arizona court determines the validity or enforceability of an arbitration agreement under the FAA, it applies Arizona common law pertaining to contracts. See, e.g. , WB, The Bldg. Co. v. El Destino, LP , 227 Ariz. 302, 308, ¶ 14, 257 P.3d 1182, 1188 (App. 2011).

¶ 12 But the issue here is not whether Arizona contract-law principles invalidate the arbitration agreements Security asked Appellants to sign. The issue is whether Appellants waived their right to enforce those agreements. That issue is resolved not under state-law principles pursuant to § 2 of the FAA, but under federal-law principles dictated by the other provision in the FAA applying to challenges to arbitration, 9 U.S.C. § 3. Under § 3 :

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, providing the applicant for the stay is not in default in proceeding with such arbitration.

¶ 13 Pursuant to 9 U.S.C. § 3, a state court must order arbitration so long as the moving party "is not in default in proceeding with such arbitration." This provision, as a matter of federal...