Sunbelt Residential Acquisitions, LLC v. Crowne Lake Assocs.
| Decision Date | 11 February 2021 |
| Docket Number | 1:20CV401 |
| Court | U.S. District Court — Middle District of North Carolina |
| Parties | SUNBELT RESIDENTIAL ACQUISITIONS, LLC, Plaintiff, v. CROWNE LAKE ASSOCIATES, LIMITED PARTNERSHIP, Defendant. |
This case comes before the Court on (1) Plaintiff's "Motion to Stay Arbitration" (Docket Entry 7) ("Sunbelt's Motion") and (2) "Defendant's Motion to Compel Arbitration and Stay or Dismiss Proceedings or, in the Alternative, Motion to Dismiss (Docket Entry 10) ("Crowne Lake's Motion"). For the following reasons, the Court (1) will deny Sunbelt's Motion and (2) should grant in part Crowne Lake's Motion, to the extent it requests an order staying this action.
Seeking a declaratory judgment pursuant to 28 U.S.C. §§ 2201-2202, Sunbelt Residential Acquisitions, LLC ("Sunbelt") initiated this lawsuit against Crowne Lake Associates, Limited Partnership ("Crowne Lake"). (See Docket Entry 1 (the "Complaint").) As the basis for this Court's subject-matter jurisdiction, the Complaint alleges that complete diversity exists between the parties. (See id., ¶ 5; see also id., ¶ 3-4 ().)
The Complaint describes "an Agreement for Purchase and Sale of Crowne at James Landing Apartments, Jamestown, North Carolina (the 'Agreement')," by which Sunbelt arranged to purchase an apartment complex from Crowne Lake. (Id., ¶ 13.) Under the Agreement, Sunbelt allegedly paid a total deposit of $2,100,000, lodged with an escrow agent pending completion of the purchase. (See id., ¶¶ 14-16.) Thereafter, per the Complaint, a "dramatic increase in tenant delinquencies" (id., ¶ 22) led Sunbelt to write Crowne Lake to terminate the Agreement and to "assert[ Sunbelt's] right to return of the [deposit]" (id.). The Complaint alleges that Crowne Lake "disput[ed Sunbelt's] right to return of the [funds]." (Id., ¶ 23.) As a result, the Complaint explains, the escrow agent, in accordance with the Agreement, will retain the funds "pending the outcome of the dispute described in this action." (Id., ¶ 25.)
According to the Complaint, "[Sunbelt] timely and properly terminated the Agreement in accordance with the [its] terms" (id., ¶ 27) and "timely demand[ed] that the [deposit] be repaid to [Sunbelt] in full" (id., ¶ 28). However, the Complaint maintains, "[Crowne Lake] denies that [Sunbelt] is entitled to repayment of the [deposit] and has prevented repayment . . . to [Sunbelt] while asserting [its] own entitlement to the full balance[.]" (Id.,¶ 29.) The Complaint alleges that "[the parties] have an actual controversy that requires adjudication, namely as to the parties' respective rights in the . . . deposit following [Sunbelt's] termination of the Agreement." (Id., ¶ 30.) Accordingly, Sunbelt seeks "a declaratory judgment finding that [Sunbelt] is legally entitled to return of the entirety of the [deposit], along with any interest accrued." (Id., ¶ 31.)
In addition, Sunbelt requests a stay of the arbitration proceedings that Crowne Lake initiated in Alabama regarding the dispute over the deposit's return. (See Docket Entry 7 at 2; Docket Entry 7-1 at 1; Docket Entry 8 at 1-2.) For its part, Crowne Lake seeks an order either (1) compelling arbitration and staying or dismissing this action or (2) dismissing this action pursuant to Federal Rule of Civil Procedure 12(b)(3). (See Docket Entry 10 at 1.) As relevant to Sunbelt's Motion and Crowne Lake's Motion, the record1 reflects the following:
Sunbelt and Crowne Lake signed the Agreement on January 2, 2020. (See Docket Entry 7-2 at 1, 27.) The parties chose North Carolina law to govern the Agreement. (See id. at 20 ().)
The Agreement contemplates a due diligence period lasting from January 7, 2020, until February 6, 2020, with a closing date of March 9, 2020. (See id. at 4-5, 12.) During the due diligence period, Crowne Lake promised to provide, among other things, "[a] current rent roll of the Property, schedule of rental rates, and current specials and promotions." (Id. at 6.) Crowne Lake supplied a rent roll numerous times at Sunbelt's request in the months leading up to closing. (See Docket Entry 11-5, ¶¶ 37-51.) By a written modification to the Agreement, Sunbelt postponed closing until May 8, 2020. (Docket Entry 11, ¶¶ 12-13.)
The Agreement characterizes Sunbelt's deposit as non-refundable (except (1) under certain "Refund Conditions" not relevant here or (2) prior to the expiration of the due diligence period) and explains that the deposit would apply toward the purchase price at closing. (See Docket Entry 7-2 at 2-5.) Additionally, the Agreement provides that, if "[Sunbelt] fail[ed] to close in accordance with the terms of [the] Agreement, and [Crowne Lake] [was] not otherwise in default . . ., the Deposit [would] be paid to [Crowne Lake] as liquidated damages and [Crowne Lake would] waive any and all other damages related to [Sunbelt's] breach hereof or failure to close in accordance with the terms of [the] Agreement." (Id. at 10.)
In Section 24, entitled "Resolution of Disputes by Arbitration," the parties agreed that "[a]ny controversy or claim arising out of or relating to this Agreement (a 'Dispute') shall be resolved solely by binding arbitration[.]" (Id. at 22.) Section 24 further describes how and by when to commence arbitration and outlines the applicable rules. (Id. at 22-23.) In particular, the parties agreed that arbitration would occur "in accordance with this Section 24, as supplemented by the Commercial Arbitration Rules of the American Arbitration Association ['AAA Rules'], to the extent that such rules do not conflict with this Section 24." (Id. at 22.) Moreover, the parties selected as the site for arbitration "the regional office of the [American Arbitration Association ('AAA')] located in Birmingham, Alabama." (Id.)
In the event of a dispute concerning the deposit, the Agreement authorizes the escrow agent to "interplead all parties and deposit the [funds] with a court of competent jurisdiction." (Id. at 3.) The Agreement also provides that the "Escrow Agent shall retain the Deposit . . . until ordered by the Arbitrator's approval of a Final Proposal as provided for in Section 24 or a final court order, decree or judgment, which is not subject to appeal, to deliver the Deposit to a particular party." (Id. at 2.)
On April 15, 2020, Sunbelt sent Crowne Lake a letter terminating the Agreement. (See Docket Entry 7-4 at 1.) The letter explains that, on April 14, 2020, Sunbelt received fromCrowne Lake an updated rent roll showing a higher percentage of unpaid rent than the initial rent roll; according to the letter, tenant delinquencies increased by a factor of 35 between January and April. (See id.) As a result, Sunbelt expressed its intent to terminate the Agreement and further demanded the return of the $2,100,000 deposit. (Id.)
The Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16, renders enforceable written arbitration contracts, "save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. "The [FAA] provides two parallel devices for enforcing an arbitration agreement: a stay of litigation in any case raising a dispute referable to arbitration, 9 U.S.C. § 3, and an affirmative order to engage in arbitration, § 4." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 22 (1983); see also Patten Grading & Paving, Inc. v. Skanska U.S. Bldg., Inc., 380 F.3d 200, 204 (4th Cir. 2004) (). Entitlement to a Section 3 stay depends on the validity,enforceability, and scope of the arbitration clause. See Wilkerson v. Nelson, 395 F. Supp. 2d 281, 285-86 (M.D.N.C. 2005).2
Similarly, a party seeking to compel arbitration under Section 4 must establish: "(1) the existence of a dispute between the parties, (2) a written agreement that includes an arbitration provision which purports to cover the dispute, (3) the relationship of the transaction, which is evidenced by the agreement, to interstate or foreign commerce, and (4) the failure, neglect or refusal of [the other party] to arbitrate the dispute." American Gen. Life & Accident Ins. Co. v. Wood, 429 F.3d 83, 87 (4th Cir. 2005) (internal quotation marks omitted). If the party requesting arbitration establishes these four factors, "the party opposing arbitration must come forward with evidence sufficient to place the entitlement to arbitration in dispute." Scales v. SSC Winston-Salem Operating, Co., No. 1:17cv539, 2017 WL 4467278, at *2 (M.D.N.C. Oct. 5, 2017) (). "This standard is akin to the burden on summary judgment." Chorley, 807 F.3d at 564. "Accordingly, the [C]ourt may consider materials outside the pleadings" in resolving a motion to compelarbitration. CIP Constr. Co. v. Western Sur. Co., No. 1:18cv58, 2018 WL 3520832, at *4 (M.D.N.C. July 20, 2018).
Id. at *5 (citations omitted). As earlier noted, the Agreement here contains a choice-of-law provision selecting North Carolina law,3 and no party...
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