Diamante v. Dye , 2013 Ark. App. LEXIS 680 ( 2013 )

Cite as 2013 Ark. App. 630
ARKANSAS COURT OF APPEALS
DIVISION III
No. CV-13-198
Opinion Delivered November 6, 2013
DIAMANTE, A Private Membership
GOLF CLUB, LLC APPEAL FROM THE SALINE
APPELLANT COUNTY CIRCUIT COURT
[NO. 63CV-12-90]
V.
HONORABLE GARY ARNOLD,
JUDGE
GARY DYE and LINDA DYE
APPELLEES AFFIRMED
ROBERT J. GLADWIN, Chief Judge
Appellant Diamante, a Private Membership Golf Club, LLC (Club), appeals the
November 14, 2012 order of the Saline County Circuit Court denying its motion to compel
arbitration. The Club argues that it did not waive its right to compel arbitration; that its
transaction with appellees Gary and Linda Dye did involve interstate commerce and required
the application of the Federal Arbitration Act (FAA); and that there was an agreement to
arbitrate between the parties. Although we hold that there was a valid arbitration clause
contained in an agreement between the parties, we affirm the circuit court’s denial of the
Club’s motion to compel arbitration under the specific facts of this case.
Appellees own Lot 5, Block 20 in the Diamante Subdivision of Hot Springs Village,
Saline County, Arkansas. On February 2, 2012, appellees filed a petition for declaratory
judgment asking the circuit court to declare unenforceable the membership-and-dues
requirement contained in the Corrected Supplemental Declaration of Covenants and
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Restrictions (Supplemental Declaration) filed on December 18, 1997, in connection with
their lot in Hot Springs Village.
Appellees signed a contract when they purchased their lot that indicated that their
membership and obligation to pay dues would be subject to the articles, by-laws, if any, and
rules and regulations of the Club as revised or amended by the Club or any owner of the
Club in its sole discretion. Furthermore, the Supplemental Declaration, which is the subject
of appellees’ petition for declaratory judgment, states that they shall pay dues and that the
membership shall be subject to the provisions and limitations in the Supplemental
Declaration and in accordance with the articles, by-laws, if any, and rules and regulations of
the Club. Under the Supplemental Declaration, appellees are required to be members of the
Club and to pay monthly membership dues to the Club. If appellees fail to pay the monthly
dues, the Club may file a lien against their lot and subsequently foreclose on that lien to
collect the unpaid dues.
At the time appellees purchased their lot, there were no by-laws in existence for the
Club, but by-laws were adopted by the Club in the summer of 2006,1 more than eight years
after appellees had purchased their lot. Among other things, the by-laws provide that most
disputes that cannot be filed in small-claims court and that do not concern dues or charges
owed by the Club member must be submitted for binding arbitration.
1
The by-laws were executed during the first week of August 2006, but state that they
were deemed effective as of June 1, 2006.
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The by-laws state that any controversy, other than nonpayment of dues, charges, and
accounts by a member, arising out of, or relating to the by-laws or the rules and regulations,
or any member’s membership, or a breach, which is not within the jurisdiction of the small-
claims court, shall be settled by binding arbitration administered by the American Arbitration
Association in accordance with its rules.
Appellees amended their petition for declaratory relief on September 10, 2012, which
added a new allegation against the Club. Appellees alleged for the first time in the amended
petition that the Club was breaching the Supplemental Declaration by allowing non-full golf
members to play golf on the course.2 On September 19, 2012, the Club filed a motion to
compel arbitration pursuant to the arbitration provision in the Club’s by-laws. The circuit
court denied the motion pursuant to the order filed on November 14, 2012, and the Club
filed a timely notice of appeal on December 7, 2012.
Our rules of appellate procedure allow for interlocutory appeals from orders denying
a motion to compel arbitration. Ark. R. App. P.–Civ. 2(a)(12) (2012). We review the
denial of a motion to compel arbitration de novo on the record. HPD, LLC v. TETRA
Techs., Inc., 2012 Ark. 408, __ S.W.3d __; Alltel Corp. v. Sumner, 360 Ark. 573, 203 S.W.3d
77 (2005); Advocat, Inc. v. Heide, 2010 Ark. App. 825, 378 S.W.3d 779. The appellate court
decides the issues on appeal using the record developed in the circuit court without
2
The Club claims that this is a matter involving appellees’ membership and should be
decided by arbitration just as the other issues raised in the petition should be decided by
arbitration—and that appellees should not be allowed to raise new allegations against the Club
without it being allowed to at least assert its right to arbitrate the issues.
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deference to the circuit court’s ruling. Wyatt v. Giles, 95 Ark. App. 204, 235 S.W.3d 552
(2006). We are not bound by the circuit court’s decision, but in the absence of a showing
that the circuit court erred in its interpretation of the law, the circuit court’s decision will be
accepted as correct on appeal. Heide, supra. For purposes of clarity, we will address the
Club’s points in a different order from that presented.
I. Agreement to Arbitrate Between the Parties
Arbitration is strongly favored in Arkansas as a matter of public policy and is looked
upon with approval by courts as a less expensive and more expeditious means of settling
litigation and relieving docket congestion. Hot Spring Cnty. Med. Ctr. v. Ark. Radiology
Affiliates, P.A., 103 Ark. App. 252, 288 S.W.3d 676 (2008). Any doubts and ambiguities
must be resolved in favor of arbitration. Id.
Arkansas statutes concerning arbitration make it plain that a clear agreement to submit
to arbitration is essential:
(a) This subchapter governs an agreement to arbitrate made on or after the effective date
of this subchapter.
(b) This subchapter governs an agreement to arbitrate made before the effective date of
this subchapter if all the parties to the agreement or to the arbitration proceeding so
agree in a record.
Ark. Code Ann. § 16-108-203 (Supp. 2011) (emphasis added). The court shall decide
whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate.
Ark. Code Ann. § 16-108-206(b) (Supp. 2011) (emphasis added). Additionally,
[o]n motion of a person, showing an agreement to arbitrate and alleging another person’s
refusal to arbitrate pursuant to the agreement: . . . (2) If the refusing party opposes the
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motion, the court shall proceed summarily to decide the issue and order the parties
to arbitrate unless it finds that there is no enforceable agreement to arbitrate.
Ark. Code Ann. § 16-108-207(a) (Supp. 2011) (emphasis added).
Arbitration is a matter of contract between the parties. Hot Spring Cnty. Med. Ctr.,
supra. The question of whether a lawsuit should be submitted to arbitration is a matter of
contract construction. Id. The elements of a contract are (1) competent parties, (2) subject
matter, (3) legal consideration, (4) mutual agreement, and (5) mutual obligations. Sumner,
supra.
It is undisputed that the parties in this case are competent. We hold that the subject
matter is clear from the arbitration provision in the by-laws, the contract signed by appellees,
the Supplemental Declaration, and additional documents such as an Addendum to the
original contract signed by appellees and a representative for the Club and a 2007
Membership Change of Status Request document signed by Mr. Dye in which the by-laws
were acknowledged. The consideration of appellees is the payment of dues and the purchase
of the lot, and the consideration on the part of the Club is allowing appellees to use the Club
—through their membership—and the sale of the lot. There is a mutual obligation because
both sides must arbitrate all controversies other than collection cases and small claims, with
both parties treated the same under the arbitration provision. See Hamilton v. Ford Motor
Credit Co., 99 Ark. App. 124, 257 S.W.3d 566 (2007).
We also hold that there is mutual agreement, with both parties assenting to the
agreement and having a meeting of the minds when the objective indicators are reviewed.
See Sumner, supra. Appellees signed an agreement that their membership and obligation to
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pay dues would be subject to the by-laws, if any. After by-laws were adopted in 2006,
appellees continued to pay their dues and continued to be members of the Club, as they still
are today. Also, in 2007, Mr. Dye signed a Membership Change of Status Request
document with the Club in which he acknowledged the by-laws of the Club and agreed to
pay certain fees in accordance with the by-laws.
Amended terms to a contract, here the arbitration provisions, can be enforced when
there is notice. Tinder v. Pinkerton Sec., 305 F.3d 728 (7th Cir. 2002). The objective
evidence in this case indicates that appellees knew of the by-laws as evidenced by the fact
that Mr. Dye signed a document in 2007 agreeing to pay certain fees in accordance with the
by-laws. By continuing to be members of the Club, appellees assented to the terms of the
by-laws, which they originally agreed to do when they signed the contract upon buying their
lot in the subdivision. Appellees both stated in discovery responses that they had read the
by-laws, but they subsequently recanted those responses. Madison Pope, general manager
of the Club, testified that the by-laws are on the Club’s website, and that it is the practice of
the Club to notify new members of the by-laws. Because the objective evidence points to
appellees’ assent to the by-laws and the arbitration provision contained therein, we hold that
all the elements of a contract have been met, and the parties entered into an agreement to
arbitrate the disputes raised in the amended petition for declaratory judgment.
II. Interstate Commerce and Application of the FAA
Our supreme court has held that the FAA applies if a transaction involves interstate
commerce even if the parties did not contemplate an interstate-commerce connection. Pest
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Mgmt., Inc. v. Langer, 369 Ark. 52, 250 S.W.3d 550 (2007); see also Chenal Restoration
Contractors, LLC v. Carroll, 2011 Ark. App. 291. In the present case, the developer of the
Club sold lots all across the country, and the Club has both in-state and out-of-state
members. Although the Club notes that appellees were paying personal property taxes in
Texas when they bought their lot and that their driver’s licenses were still from Texas, we
do not find that evidence to be determinative. More significant is that one benefit of being
a member of the Club is the ability to play other ClubCorp courses nationwide.
Appellees cite Tyson Foods, Inc. v. Archer, 356 Ark. 136, 147 S.W.3d 681 (2004), in
which our supreme court commented that the applicability of the FAA only becomes an
issue if a determination is made that the arbitration agreement is valid and enforceable. Id.
The threshold requirement to determine applicability of the FAA is found in 9 U.S.C., sec.
2:
A written provision in any maritime transaction or a contract evidencing a transaction
involving commerce to settle by arbitration a controversy . . . shall be valid,
irrevocable, and enforceable, save upon such grounds as exist at law or in equity for
the revocation of a contract.
Appellees argue that the FAA does not apply because this case involves an Arkansas lot, an
Arkansas seller, an Arkansas buyer, a contract signed in Arkansas, and by-laws adopted solely
by the Club in Arkansas at a time when an agreement to arbitrate in this state had to be in
writing. See former Ark. Code Ann. § 16-108-201 (Repl. 2006), repealed by Act 695 of
2011, which requires a “written agreement” to arbitrate.
Appellees attempt to distinguish Langer, supra, noting that there was a contract signed
by both parties, and the contract contained a written arbitration agreement stating that it
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would be governed by the FAA. Langer, supra. They also challenge appellant’s reliance on
Tinder, supra, noting that the case dealt with a specific arbitration clause contained in a
pamphlet released by the employer a year later and applied specifically to an at-will employee
situation in Wisconsin.
Based on Langer, supra, and Carroll, supra, we hold that the FAA applies. The Club’s
sale of lots to both in-state and out-of-state members and the continuing membership benefit
of the ability to play other ClubCorp courses nationwide is sufficient to trigger the
application of the FAA in this case.
III. Waiver of Right to Compel Arbitration
As stated in Heide, supra, we review the denial of a motion to compel arbitration de
novo on the record. Although we are not bound by the circuit court’s decision, in the
absence of a showing that the circuit court erred in its interpretation of the law, the circuit
court’s decision will be accepted as correct on appeal. Id.
Our supreme court recently reiterated that when a court is asked to compel
arbitration, it is limited to deciding two threshold questions: (1) whether there is a valid
agreement to arbitrate between the parties, and if there is, (2) whether the dispute falls within
the scope of the agreement. Legalzoom.com, Inc. v. McIllwain, 2013 Ark. 370, __ S.W.3d __,
(citing TETRA Techs, Inc., supra). Because we have determined that there is a valid
agreement between the parties, we now analyze the three factors a court must consider when
determining whether a party has waived its right to arbitration: (1) the length of the
litigation, (2) the party availing itself of the opportunity to litigate, and (3) the prejudice to
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the opposing party. Heide, supra. Under the specific facts of this case, we hold that the
circuit court did not err in finding that the Club waived its right to compel arbitration under
its agreement with appellees.
The Club filed its motion to compel arbitration approximately seven months after the
appellees had filed their original petition for declaratory judgment. The motion was filed in
conjunction with a response to the amended petition for declaratory judgment. The Club
asserts that, in this case, seven months is not too long of a period before filing a motion to
compel arbitration. The parties had not begun merit discovery, only class discovery, and the
Club’s motion was filed with a response to an amended pleading that raised new allegations
and claims against the Club.
Additionally, the Club submits that appellees have not been prejudiced by the filing
of the motion to compel arbitration seven months after the beginning of the litigation, noting
that Mr. Dye expressly testified that he had not been harmed by the motion to compel being
filed in September 2012. It is undisputed that appellees want to continue to be members of
the Club and to pay their dues. Lastly, the contract signed by appellees was not in the Club’s
file but was found through discovery, and only after it had been discovered was the motion
to compel arbitration filed. For these reasons, the Club claims that it did not waive its right
to compel arbitration.
The evidence before us indicates that during the seven-and-a-half months after
appellees had filed their original case on February 3, 2012, but before the Club first raised the
issue of arbitration on September 19, 2012, the Club filed a motion to dismiss, a motion for
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recusal, two “withdrawals,” a motion for continuance, as well as responses to several motions
filed by appellees. A hearing was held on May 10, 2012, before Judge Arnold, at which
rulings on many, if not all, of these motions were obtained.
In Heide, this court noted that
[o]ther courts have found waiver when a defendant has taken affirmative steps
in an action involving a claim which was allegedly covered by an arbitration
agreement. Determining whether a waiver has occurred requires a factually specific
inquiry and is “not susceptible to bright line rules.” Generally, “waiver is more likely
to be found the longer the litigation goes on, the more a party avails itself of the
opportunity to litigate, and the more that party’s litigation results in prejudice to the
opposing party.”
Heide, 2010 Ark. App. 825, at 6, 378 S.W.3d at 783–84 (citations omitted). In the present
case, the Club made use of the circuit court to decide motions, raise various defenses and
arguments, and participate in a hearing. Appellees indicate that they were forced to spend
a great deal of attorney time and expense in the preparation of pleadings and responses, as
well as being present at the hearing. In Heide, the time period involved between initial
pleading and raising of the arbitration issue was only three months, versus seven months here,
and there is no evidence that the matter involved extensive motions as here, or that any
hearings were held. Id. The analysis in Heide on the extent of the proceedings in circuit
court, as well as the expense of time and/or money incurred in that venue, supports the
circuit court’s denial of the Club’s motion to compel arbitration in the instant case. Under
our standard of review, we hold that the circuit court did not err in its determination that
the Club waived its right to raise the arbitration defense due to unnecessary delay, prejudice
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to appellees, and failure to raise the arbitration issue earlier in the prior hearing on the Club’s
motion to dismiss.
Affirmed.
PITTMAN J., agrees.
WOOD, J., concurs.
RHONDA K. WOOD, Judge, concurring. I join the majority opinion without
reservation. I write separately to further emphasize the fact-specific nature of our decision
affirming the circuit court’s decision that the appellant had waived the right to enforce the
arbitration agreement.
As the majority decision explains, we review the denial of a motion to compel
arbitration de novo on the record. Advocat, Inc. v. Heide, 2010 Ark. App. 825, 378 S.W.3d
779. This court, in Heide, adopted a three-factor test for determining whether a party waived
its right to arbitrate. Id. (citing 2 David Newbern & John Watkins, Ark. Civil Prac. & Proc. §
14:14 (5th ed.)).
It is well-settled law that even utilizing a de novo standard of review, the reviewing
court will not reverse absent a showing that the circuit court erred. Clemenson v. Rebsamen,
205 Ark. 123, 168 S.W.2d 195 (1943). In the present case, the circuit court, having the front-
row seat to the litigation, determined that the appellant had waived its right to enforce the
arbitration agreement based on the appropriate legal factors. No one is in a better position
than the circuit court to determine the length of time the litigation has been on-going, the
extent to which the party seeking to enforce the arbitration agreement availed itself to
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participate in the litigation, and whether the delay in exercising the right to arbitrate
prejudiced the opposing party.
Our affirmation of the circuit court’s opinion does not draw a line in the sand that
seven months will always be too long to assert a right to enforce an agreement to arbitrate a
claim. The particulars of each case matter, and clearly the appellant’s participation in
discovery, filing of motions, responding to motions, and participation in hearings over seven
months were sufficient for us to find that the circuit court did not err in its application of the
factors announced in Heide.
McMillan, McCorkle, Curry & Bennington, LLP, by: Philip McCorkle, for appellant.
Terry P. Diggs, Lawyer, P.A., by: Terry P. Diggs, for appellee.
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