Carey v. K&M

NOTICE: NOT FOR PUBLICATION.
UNDER ARIZ. R. SUP. CT. 111(c), THIS DECISION DOES NOT CREATE LEGAL PRECEDENT
AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
DAN CAREY, Plaintiff/Appellee,
v.
K&M SEAFOOD FINANCIAL, LLC, an Arizona limited liability
company; GARY SOUCY and THERESA SOUCY, husband and wife;
JOSEPH SOUCY, a single man; RANDY BRONNER and JANE DOE
BRONNER, husband and wife, Defendants/Appellants.
No. 1 CA-CV 13-0357
FILED 12-02-2014
Appeal from the Superior Court in Maricopa County
No. CV2012-092926
The Honorable David M. Talamante, Judge
REVERSED AND REMANDED
COUNSEL
Slaton & Sannes, PC, Scottsdale
By Joel E. Sannes
Counsel for Plaintiff/Appellee
Hovore Law PLLC, Scottsdale
By F. Thomas Hovore
Counsel for Defendants/Appellants
CAREY v. K&M, et al.
Decision of the Court
MEMORANDUM DECISION
Judge Maurice Portley delivered the decision of the Court, in which Chief
Judge Diane M. Johnsen and Judge Patricia K. Norris joined.
P O R T L E Y, Judge:
¶1 In this appeal, we decide whether a clause requiring the
parties to allow the American Arbitration Association to resolve “[a]ny
dispute arising under this [a]greement” encompasses the counts in Dan
Carey’s complaint. Because we conclude that all the pending claims are
subject to arbitration, we vacate the trial court’s order and remand with
instructions to order arbitration.
BACKGROUND
¶2 Carey heard, and alleged in his complaint, that K&M Seafood
Financial LLC (“K&M”) was offering to sell securities. After he made an
inquiry, Randy Bronner, acting on behalf of Joseph Soucy dba BD
Resourcing, sent a proposed Investment Agreement (“Agreement”). The
Agreement provided K&M would pay monthly interest of two percent on
any investment, and K&M would return Carey’s investment “with sixty
(60) days written notice for all amounts under $100,000 and ninety (90) days
for all amounts over $100,000.” Carey, however, requested Bronner revise
the Agreement to include information about the limited use of his
investment. A few days later and without waiting for a revised Agreement,
Cary paid K&M $100,000. Carey never signed the original Agreement or
received a revised Agreement.
¶3 K&M paid Carey three monthly interest payments of $2000.
Gary Soucy, K&M’s Chief Executive Officer, subsequently notified Carey
that K&M’s partner had “diverted significant funds and inventory
belonging to the Company.” After Carey demanded return of his $100,000,
K&M’s legal counsel responded that the company was suspending “all
interest payments, distributions, and disbursements.”
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¶4 Carey then sued K&M, Gary Soucy and his spouse, Joseph
Soucy dba BD Resourcing, and Randy Bronner and his spouse (collectively
“Defendants”). Carey’s amended complaint alleged claims against: all
Defendants for unlicensed brokering of securities (Count One), sale of
unregistered securities (Count Two), and fraud in the purchase and sale of
securities (Count Three); Gary Soucy and K&M for consumer fraud (Count
Four); K&M for breach of contract (Count Five); and Gary Soucy and spouse
under a veil-piercing theory (Count Six).
¶5 The Defendants moved to compel arbitration based upon the
Agreement’s arbitration clause. After briefing, the trial court denied the
Defendants’ motion. Defendants appealed. We have jurisdiction under
Arizona Revised Statutes (“A.R.S.”) section 12-2101.01(A)(1).1 After
reviewing the opening and answering briefs, we requested supplemental
briefing on Dusold v. Porta-John Corp., 167 Ariz. 358, 807 P.2d 526 (App.
1990), and County of Hawai’i v. UNIDEV, LLC, 301 P.3d 588 (HI 2013).
DISCUSSION
¶6 The Arizona Legislature adopted the Revised Uniform
Arbitration Act (“AZ–RUAA”), which substantially mirrors the Revised
Uniform Arbitration Act (amended 2000) (“Uniform Act”) promulgated by
the National Conference of Commissioners on Uniform State Laws. See
A.R.S. §§ 12–3001 through –3029; see also Bruce E. Meyerson, Arizona Adopts
the Revised Uniform Arbitration Act, 43 Ariz. St. L.J. 481 (2011). The AZ-
RUAA applies to all arbitration agreements made after January 1, 2011.
A.R.S. § 12-3003. Because the parties entered into the Agreement in June
2011, the AZ–RUAA applies to this case.
¶7 Under the AZ-RUAA, “[t]he court shall decide whether an
agreement to arbitrate exists or a controversy is subject to an agreement to
arbitrate.” A.R.S. § 12-3006(B). We review the interpretation of an
arbitration clause de novo, Grosvenor Holdings, L.C. v. Figueroa, 222 Ariz.
588, 593, ¶ 9, 218 P.3d 1045, 1050 (App. 2009), and the denial of a motion to
compel arbitration de novo. Nat’l Bank of Ariz. v. Schwartz, 230 Ariz. 310,
311, ¶ 4, 283 P.3d 41, 42 (App. 2012) (citations omitted).
I. Arbitration Agreement
¶8 Defendants first argue that a valid arbitration agreement
exists even though Carey did not sign the Agreement. We agree. Even
1 We cite to the current version of the statute unless otherwise noted.
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though, as discussed, Carey did not sign the Agreement, Carey has not
disputed the existence of the Agreement and its arbitration clause.2 See
A.R.S. § 12-3006(A) (“[a]n agreement contained in a record to submit to
arbitration . . . .”).3 Moreover, a party who did not sign an agreement may
be bound by the agreement if the party recognizes the validity and accepts
performance of the agreement. See Modular Sys., Inc. v. Naisbitt, 114 Ariz.
582, 585, 562 P.2d 1083 (App. 1977); see also Nghiem v. NEC Elec., Inc., 25 F.3d
1437, 1439 (9th Cir. 1994) (an arbitration agreement must be in writing to be
enforceable, but the parties need not sign it) (citations omitted).
II. Scope of the Arbitration Agreement
¶9 The arbitration clause in the Agreement provides that “[a]ny
dispute arising under this Agreement must be resolved [b]y [the] American
Arbitration Association in Phoenix, Arizona.” The parties’ agreement
determines the scope of the arbitration agreement. See Clarke v. Asarco, Inc.,
123 Ariz. 587, 589, 601 P.2d 587, 589 (1979). “Although it is commonly said
that the law favors arbitration, it is more accurate to say that the law favors
arbitration of disputes that the parties have agreed to arbitrate.” S. Cal.
Edison Co. v. Peabody W. Coal Co., 194 Ariz. 47, 51, ¶ 11, 977 P.2d 769, 773
(1999). Arbitration clauses, as a result, are to be “construed liberally and
any doubts as to whether or not the matter in question is subject to
arbitration should be resolved in favor of arbitration.” New Pueblo
Constructors, Inc. v. Lake Patagonia Recreation Ass’n, 12 Ariz. App. 13, 16, 467
P.2d 88, 91 (1970).
a. Brokering and Sale of Unregistered Securities
¶10 Describing the arbitration clause here as “broad,” Defendants
argue that it applies to all of Carey’s claims, including Carey’s brokering
and sale of unregistered securities claims (“security claims”). Describing
the arbitration clause as “narrow,” however, Carey contends that it does
not apply to these claims.
2 He specifically alleged that the parties “had an enforceable contract
created by an offer, acceptance and consideration.” And he alleged he fully
performed by sending K&M $100,000 after receiving a draft of the
Agreement, and subsequently received three monthly interest payments.
3 Section 12-3001(6) defines a record as “information that is inscribed on a
tangible medium or that is stored in an electronic or other medium and that
is retrievable in perceivable form.”
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¶11 The AZ–RUAA does not address how the court should
determine whether a dispute is subject to an arbitration clause. Because
AZ–RUAA substantially mirrors the Uniform Act, we look to cases arising
under the Uniform Act, its predecessor, the original Uniform Arbitration
Act, and to the commentary for guidance. See In re Estate of Dobert, 192 Ariz.
248, 252, ¶ 17, 963 P.2d 327, 331 (App. 1998) (if an Arizona statute is based
on a uniform act, courts assume the legislature “intended to adopt the
construction placed on the act by its drafters[,]” and commentary to the
uniform act is “highly persuasive unless erroneous or contrary to settled
policy in this state”) (quoting State v. Sanchez, 174 Ariz. 44, 47, 846 P.2d 857,
860 (App. 1993)) (internal quotation marks omitted). Section 12-3006, which
defines the court’s role in determining the validity of an arbitration
agreement, mirrors the Uniform Act section 6. Compare A.R.S. § 12-3006,
with Uniform Act § 6. Comment 2 to section 6 of the Uniform Act, provides
that the section was:
intended to incorporate the holdings of the vast
majority of state courts and the law that has
developed under the [Federal Arbitration Act
(“FAA”)] that, in the absence of an agreement to
the contrary, issues of substantive arbitrability,
i.e., whether a dispute is encompassed by an
agreement to arbitrate, are for a court to decide
....
¶12 Although we are guided by case law examining the FAA, the
Hawai’i Supreme Court recently noted that federal courts are split on
whether language that requires the parties to arbitrate disputes “arising
under” the agreement between them covers related torts. See Cnty. of
Hawai’i, 301 P.3d at 595. The majority of federal courts have held that
“arising under” language creates a general arbitration clause with a broad
scope that includes related tort claims. See, e.g., PRM Energy Sys., Inc. v.
Primenergy, L.L.C., 592 F.3d 830, 836-37 (8th Cir. 2010) (arbitration provision
containing “arising under” is a broad general arbitration clause that applied
to tort claims including fraud, misappropriation of trade secrets, unfair
competition, and tortious interference). A minority of courts, however,
have held that “arising under” creates a narrow arbitration clause, which is
limited to interpreting the contract. See Mediterranean Enterprises, Inc. v.
Ssangyong Corp., 708 F.2d 1458, 1464 (9th Cir. 1983) (“We have no difficulty
finding that ‘arising hereunder’ is intended to cover a much narrower scope
of disputes, i.e., only those relating to the interpretation and performance
of the contract itself.”). The Hawai’i Supreme Court, relying on the
reasoning from the majority of federal courts, held that under Hawai’i’s
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Revised Uniform Arbitration Act an arbitration clause applying to “[a]ny
dispute arising under the terms of this Agreement” is a broad general
arbitration clause that covered related torts. Cnty. of Hawai’i, 301 P.3d at
591, 605-06. Defendants urge us to adopt the approach taken by the Hawai’i
Supreme Court in interpreting the arbitration clause contained in the
Agreement.
¶13 In Dusold, we considered whether an arbitration clause that
required the parties to arbitrate “any controversy or claim arising out of, or
relating to this agreement, or the breach thereof” applied to the plaintiff’s
personal injury claim. 167 Ariz. at 359, 807 P.2d at 527. We explained that
“in order for the dispute to be characterized as arising out of or related to
the subject matter of the contract, and thus subject to arbitration, it must, at
the very least, raise some issue the resolution of which requires a reference
to or construction of some portion of the contract itself.” Dusold, 167 Ariz.
at 362, 807 P.2d at 530. Although the arbitration clause in Dusold is not the
same as the clause in this case, Carey argues Dusold requires us to hold that
his security claims are not subject to arbitration because an arbitration
clause with “arising under” only applies to disputes raising an issue that
“the resolution of which requires a reference to or construction of some
portion of the contract itself.” See id.¶14 But we do not need to resolve the parties’ conflicting
arguments. Even if we agree with Carey, his security claims require “a
reference to or construction of some portion” of the Agreement. See id.¶15 Carey alleged that the Agreement was for the sale of
securities. Defendants, however, contended that the Agreement was a debt
instrument. Although under Arizona law a debt instrument can be a
security, there are many exceptions, and whether a transaction involves a
security depends on the circumstances, including the contractual
arrangement and agreement between the parties. See generally State v. Tober,
173 Ariz. 211, 841 P.2d 206 (1992) (discussing applicable statutes and
authorities). Accordingly, whether Carey purchased a security or a debt
instrument, will require “reference to or construction of some portion” of
the Agreement. See Dusold, 167 Ariz. at 362, 807 P.2d at 530; see generally
Sun Valley Ranch 308 Ltd. P’ship ex rel. Englewood Properties, Inc. v. Robson,
231 Ariz. 287, 293-94, ¶¶ 19-22, 294 P.3d 125, 131-32 (App. 2012) The
arbitration clause therefore applies to Carey’s security claims, Counts One
and Two.
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CAREY v. K&M, et al.
Decision of the Court
b. Fraud and Consumer Fraud
¶16 Defendants also argue that the arbitration clause applies to
Counts Three and Four, fraud in the purchase and sale of securities and
consumer fraud. We agree. Counts Three and Four are within the scope of
the arbitration clause because they allege Defendants made
misrepresentations in the Agreement. See U.S. Insulation, Inc. v. Hilro Const.
Co., 146 Ariz. 250, 254 n. 3, 705 P.2d 490, 494 n. 3 (App. 1985). Moreover,
like Carey’s security claims, Carey alleges that the frauds occurred in the
sale of a security. Thus, the court must look to the Agreement to resolve
these claims.
c. Breach of Contract
¶17 Although on appeal Carey agrees the arbitration clause
applies to Count Five, the breach of contract claim, he argues that there is
nothing to arbitrate because K&M admitted in its motion to compel
arbitration that it breached the contract. We disagree.
¶18 Although K&M admitted that it had not repaid Carey the
$100,000, it has yet to file an answer or to assert any potential affirmative
defenses. And K&M averred in its motion to compel arbitration that Counts
Three and Four, fraud and consumer fraud, are barred by the statute of
limitations. See Ariz. R. Civ. P. 8(c) (a party must include affirmative
defenses in a pleading to a preceding pleading). Moreover, even with
K&M’s admission that it did not return Carey’s investment, an arbitrator
will need to resolve any unpaid interest, as well as any attorneys’ fees and
costs.
¶19 K&M is entitled to have an arbitrator decide any affirmative
defenses, damages, fees and costs. See A.R.S. § 12-3006(C); Uniform Act § 6
cmt. 2 (“issues of procedural arbitrability, i.e., whether prerequisites such
as time limits, notice, laches, estoppel, and other conditions precedent to an
obligation to arbitrate have been met, are for the arbitrators to decide.”); see
also A.R.S. § 12-3021(B) (“An arbitrator may award reasonable attorney fees
and other reasonable expenses of arbitration only if that award is
authorized by law in a civil action involving the same claim or by the
agreement of the parties to the arbitration proceeding.”). Therefore, the
arbitration clause also applies to Count Five.
d. Piercing the Corporate Veil
¶20 Carey also alleged that Gary Soucy was the alter ego of K&M.
He claimed, as a result, that Gary Soucy was, legally speaking, K&M. See
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Deutsche Credit Corp. v. Case Power & Equip. Co., 179 Ariz. 155, 160, 876 P.2d
1190, 1195 (App. 1994) (alter ego status exists “when there is such a unity of
interest and ownership that the separate personalities of the corporation
and the owners cease to exist”). “When a plaintiff sues an individual under
an alter ego theory, that defendant may demand arbitration to the same
extent the corporate entities could do so.” Sun Valley Ranch, 231 Ariz. at
296, ¶ 36, 294 P.3d at 134. Count Six is therefore subject to the arbitration
clause.
III. Joseph Soucy and Randy Bronner
¶21 Finally, we must determine whether Carey also has to
arbitrate his claims against Joseph Soucy and Randy Bronner, neither of
whom were parties or signatories to the Agreement. Both, however, sought
to compel arbitration of Carey’s claims against them.
¶22 “[A] willing [nonsignatory] seeking to arbitrate with a
signatory that is unwilling may do so under what has been called an
alternative estoppel theory, which takes into consideration the
relationships of persons, wrongs, and issues[.]” Id. at 296, ¶ 37, 294 P.3d at
134 (quoting Merrill Lynch Inv. Managers v. Optibase, Ltd., 337 F.3d 125, 131
(2d Cir. 2003)) (internal citations omitted) (internal quotation marks
omitted). A nonsignatory may compel arbitration when “the signatory’s
claims arise out of and relate directly to the written agreement . . . .” Id. at
297, ¶ 40, 294 P.3d at 135 (quoting CD Partners, LLC v. Grizzle, 424 F.3d 795,
798 (8th Cir. 2005)) (internal quotation marks omitted). Likewise, a
nonsignatory may compel arbitration when the signatory must rely on the
contract and alleges “substantially interdependent and concerted
misconduct by both the nonsignatory and one or more of the signatories.”
Id. at 297, ¶ 40, 294 P.3d at 135 (quoting 4 Am. Jur. 2d Alternative Dispute
Resolution § 60) (internal quotation marks omitted).
¶23 Here, Carey alleged that Joseph Soucy and Randy Bronner
were also responsible for brokering and selling unregistered securities and
fraud in the sale of those securities, Counts One through Three. He alleged
that Bronner made the offer to sell K&M’s securities and that Joseph Soucy,
as well as Gary Soucy, influenced Bronner’s and K&M’s offer to sell
securities. Carey, as a result, has alleged “substantial[] interdependent and
concerted misconduct” by Joseph Soucy and Bronner, nonsignatories to the
Agreement, with Gary Soucy and K&M. See id. Because Carey will still
need to prove that the Agreement is a security and not a debt instrument to
prevail on his claims against Joseph Soucy and Bronner, they can compel
arbitration.
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CAREY v. K&M, et al.
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ATTORNEYS’ FEES
¶24 Carey requests an award of attorneys’ fees and costs under
A.R.S. §§ 12-341.01 and -341, and Arizona Rules of Civil Appellate
Procedure 21. Because Carey is not the prevailing party, we deny his
request.
CONCLUSION
¶25 Based on the foregoing, we reverse the order denying
arbitration and remand the case for the trial court to compel arbitration.
:gsh
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