Senior Mgmt Inc v. Arnett Group LLC , 240 F. App'x 550 ( 2007 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 06-2273
SENIOR MANAGEMENT, INCORPORATED; PARKER
MANUFACTURING, INCORPORATED; PARKER
ENTERPRISES, INCORPORATED,
Plaintiffs - Appellees,
versus
MICHAEL CAPPS; G. GEOFFREY CRAMER,
Defendants - Appellants,
and
ARNETT GROUP, L.L.C.; CORNELL FUNDING
SYNDICATE, L.L.C.; JOHN H. BELCH; MONEYQUEST,
L.L.C.; INTERNATIONAL FINANCES, LTD; JERRY
ZEDNER; WILLIAM KOERNER; CAPITAL INVESTMENT
AGENCY; DAVID E. DAWKINS,
Defendants.
Appeal from the United States District Court for the Eastern
District of North Carolina, at Raleigh. Terrence W. Boyle,
District Judge. (5:04-cv-00651-BO)
Submitted: April 20, 2007 Decided: June 19, 2007
Before NIEMEYER and WILLIAMS, Circuit Judges, and HAMILTON, Senior
Circuit Judge.
Vacated and remanded by unpublished per curiam opinion.
Michael Capps, G. Geoffrey Cramer, Appellants Pro Se. Donald G.
Hunt, Jr., Jamie L. Vavonese, Amie C. Sivon, AKINS, HUNT & FEARON,
P.C., Fuquay-Varina, North Carolina, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
Senior Management, Inc., Parker Manufacturing, Inc., and
Parker Enterprises, Inc. (“Plaintiffs”) brought this action against
Moneyquest, L.L.C., and two of its partners, Michael Capps and
Geoff Cramer (“Appellants”), as well as other individuals and
organizations (“Defendants”), alleging Appellants and Defendants
stole hundreds of thousands of dollars from them and deprived them
of millions of dollars in lost business opportunities through an
advanced fee scheme. Appellants moved to have the claims against
them dismissed or, in the alternative, compelled to arbitration.
The district court denied Appellants’ motion, and Appellants timely
appealed, challenging only the district court’s denial of their
motion to compel arbitration. Because we conclude the district
court erred in denying Appellants’ motion to compel, we vacate that
portion of the district court’s order and remand for further
proceedings.
Plaintiffs entered into agreements with Appellants
whereby Appellants agreed to obtain large commercial loans for
Plaintiffs in return for Plaintiffs’ payment of costs associated
with procuring the loans. The agreements entered into between
Plaintiffs and Appellants were for a limited duration, one
agreement for 120 days, and the other for ninety days.
Additionally, both agreements contained an arbitration provision
which provided that “[a]t the option of [Appellants], any dispute
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arising out of this agreement may be referred for Arbitration in
accordance with the rules of [sic] American Arbitration Association
at their office in Charlotte, North Carolina.”
In accordance with the agreements, Appellants introduced
Plaintiffs to one of the Defendants who claimed he could obtain
loans for Plaintiffs, and Plaintiffs paid him an advance fee for
the loans. Plaintiffs never obtained the loans, and their advance
fees were never returned. Plaintiffs’ claims against Appellants
and Defendants include securities fraud, common law fraud, unfair
and deceptive trade practices, breach of fiduciary relationship,
and negligent misrepresentation.
This court may exercise jurisdiction only over final
orders under 28 U.S.C. § 1291 (2000), and certain interlocutory and
collateral orders under 28 U.S.C. § 1292 (2000). See also Fed. R.
Civ. P. 54(b); Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541,
546-47 (1949). The Federal Arbitration Act (“FAA”), however,
expressly permits an immediate appellate challenge to a district
court’s denial of a motion to compel arbitration. See 9 U.S.C.
§ 16(a)(1)(B) (2000); Am. Cas. Co. v. L-J, Inc., 35 F.3d 133, 135
(4th Cir. 1994); see also Kansas Gas & Elec. Co. v. Westinghouse
Elec. Corp., 861 F.2d 420, 422 (4th Cir. 1988) (finding district
court order denying motion to compel arbitration an appealable
interlocutory order under 28 U.S.C. § 1292(a)(1)). This court
reviews the district court’s denial of a motion to compel
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arbitration de novo. See Johnson v. Circuit City Stores, 148 F.3d
373, 377 (4th Cir. 1998).
I. Existence of Valid Agreement to Arbitrate
The district court denied Appellants’ motion to compel
arbitration because it determined that, since the arbitration
provision left the decision whether to arbitrate entirely to
Appellants’ discretion, the provision was “illusory and
unenforceable.” We conclude the district court erred because North
Carolina law does not require mutuality of obligation in
arbitration agreements.
Under the FAA, a party may compel arbitration if it can
demonstrate: “(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
commerce, and (4) the failure, neglect or refusal of the [other
party] to arbitrate the dispute.” Adkins v. Labor Ready, Inc., 303
F.3d 496, 500-01 (4th Cir. 2002).
The issue of whether an arbitration agreement exists
between the parties, however, is a question of state contract law.
See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944
(1995); see also Hill v. Peoplesoft USA, Inc., 412 F.3d 540, 543
(4th Cir. 2005) (holding that although federal law governs the
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arbitrability of disputes, ordinary state-law principles resolve
issues regarding the formation of contracts). Thus, state law
determines questions “concerning the validity, revocability, or
enforceability of contracts generally.” Perry v. Thomas, 482 U.S.
483, 492 n.9 (1987).
North Carolina law provides that so long as the contract
as a whole is supported by adequate consideration, there is no
requirement that an arbitration provision in the contract place an
obligation to arbitrate on all parties to the contract. See
Tillman v. Commercial Credit Loans, Inc., 629 S.E.2d 865, 874-75
(N.C. Ct. App. 2006) (“Under North Carolina law, ‘mutuality’ merely
requires consideration on each side of a contract. Mutuality does
not require that each of the contract terms must apply equally to
both parties to be enforceable.”); see also Strategic Outsourcing,
Inc. v. Stacks, 625 S.E.2d 800, 803 (N.C. Ct. App. 2006) (holding
that provision allowing one party to exempt its claims from
arbitration is not unreasonable and unconscionable for want of
mutuality).
Despite the foregoing, Plaintiffs claim that because they
were fraudulently induced into entering the agreements, this court
should separately view the arbitration provision to determine if
that provision is supported by consideration. They cite Prima
Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), to
support this assertion. Plaintiffs’ argument is meritless.
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In Prima Paint, the Supreme Court held that when
considering whether an issue of fraud should be determined by an
arbitrator or the district court, the district court must determine
whether the claim is “fraud in the inducement of the entire
contract” or fraud in the inducement to enter the arbitration
provision. If the plaintiff asserts fraud in the inducement of the
contract as a whole, the district court must defer the matter to an
arbitrator to determine the validity of the claim. If the
plaintiff asserts fraud in the inducement to enter the arbitration
provision, the district court may adjudicate the claim. Id. at
403-04.
Plaintiffs’ assertions to the contrary, Prima Paint does
not stand for the proposition that the district court may look to
an arbitration provision in isolation to determine if that
provision is independently supported by consideration. See
Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)
(holding that federal courts must not "singl[e] out arbitration
provisions for suspect status" but should evaluate arbitration
agreements with the same standards as other contracts); Tillman,
629 S.E.2d at 874 (“[A] single consideration may support several
promises; it is not necessary that each promise have a separate
consideration. Hence, a covenant which imposes obligations upon
one party only may be enforceable if it is part of an entire
contract which is supported by a sufficient consideration.”).
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Because Appellants agreed to secure commercial loans in exchange
for non-refundable processing fees, the agreements as a whole were
supported by adequate consideration. Accordingly, we conclude the
district court erred in holding the arbitration provisions were
invalid.
Prima Paint is instructive of the outcome of this appeal,
however. Because Plaintiffs assert they were fraudulently induced
by Appellants to enter the agreements, but do not specifically
assert they were fraudulently induced to enter into the arbitration
provisions contained therein, the district court lacks authority to
determine the validity of Plaintiffs’ claims against Appellants.
Rather, the district court must defer Plaintiffs’ claims against
Appellants to arbitration. See Prima Paint, 388 U.S. at 403-04.
II. Claims Covered By Arbitration Provision
Plaintiffs argue on appeal that even if the district
court erred in denying Appellants’ motion to compel, only
Plaintiffs’ claims that accrued prior to the expiration of the
agreements may be deferred to arbitration. Because the district
court denied the motion to compel arbitration, it had no occasion
to rule on this issue.
In determining which claims are subject to arbitration,
a district court must consider whether an intent exists to defer
all or certain claims to arbitration regardless of whether the
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claims accrued before or after the contract’s termination date.
See Virginia Carolina Tools, Inc. v. Int’l Tool Supply, Inc., 984
F.2d 113, 118-19 (4th Cir. 1993). This determination may well
require an evaluation of when the plaintiff’s claims accrued, when
the contract terminated, and the intent of the parties, as
evidenced by the contractual language. These are issues best left
to plenary consideration by the district court on remand.
For the foregoing reasons, we vacate the district court’s
order denying Appellants’ motion to compel arbitration, and remand
the matter to the district court for a determination of which
claims, if any, should be deferred to arbitration. We dispense
with oral argument because the facts and legal contentions are
adequately presented in the materials before the court and argument
would not aid the decisional process.
VACATED AND REMANDED
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