JRM, Inc. v. The HJH Cos.

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA22-537
Filed 07 February 2023
Davidson County, No. 21CVS2155
JRM, INC., Plaintiff,
v.
THE HJH COMPANIES, INC. D/B/A THE SALT GROUP, THE HJH CONSULTING
GROUP, INC. and TODD G. SIZER, Defendants.
Appeal by defendant from judgment entered 21 January 2022 by Judge
Susan E. Bray in Davidson County Superior Court. Heard in the Court of Appeals
11 January 2023.
Nelson Mullins Riley & Scarborough LLP, G. Gray Wilson and Lorin J.
Lapidus, for the plaintiff-appellee.
Johnston Allison & Hord, PA, by Michael J. Hoefling and Kathleen D.B.
Burchette, for the defendant-appellant.
TYSON, Judge.
JRM Inc. (“Plaintiff”) sued HJH Co. and Todd G. Sizer after Plaintiff realized
Sizer had acted without authority and signed a contract binding Plaintiff to HJH.
HJH (“Defendant”) moved for an order to compel arbitration. The trial court
concluded HJH had failed to meet its burden to prove a valid arbitration agreement
existed by mutual agreement of all parties. HJH appeals. We dismiss.
I. Background
JRM INC. V. HJH COS., INC.
Opinion of the Court
Plaintiff manufactures, sells, and distributes irrigation equipment for golf
courses and other turf covered surfaces. Plaintiff’s office is located in Clemmons.
HJH Companies is a Texas corporation doing business as the “The Salt Group.”
HJH’s principal place of business is located in San Antonio, Texas.
HJH’s business model centers on generating cost-savings for companies by
negotiating lower rates and costs with third-party vendors. HJH then bills those
companies for any purported savings. News reports revealed HJH had “overstat[ed]
the amount of money clients owed the company so it could tap a line of credit with
the bank.” A consultant for HJH pled guilty in federal court to knowingly inflating
and fabricating figures for unearned estimates of fees to be earned under contingent
fee contracts.
During the sentencing hearing, the prosecutor argued the convicted consultant
was “only following the orders of his boss,” the owner of HJH. The trial court
expressed its frustration with the situation, stating: ‘This court is going to [ ] hav[e]
to fashion an appropriate sentence . . . on the man who really is not the person who
should be before the court. But, unfortunately, that’s the person we have.”
Before 2020, HJH had reached out to Plaintiff’s officers on numerous occasions,
attempting to convince Plaintiff to enter into an agreement for its purported cost-
savings services. Plaintiff’s officers repeatedly expressed no desire to contract with
HJH, as Plaintiff has historically been able to secure efficient and reasonable
agreements with vendors, and HJH’s services were not needed.
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JRM INC. V. HJH COS., INC.
Opinion of the Court
Plaintiff hired Sizer in mid-October of 2020 as its Chief Financial Officer.
Within a couple of weeks of hiring Sizer, he entered an agreement for cost-saving
services with HJH on 3 November 2020. The purported agreement included a
reference to arbitration agreement provisions included on HJH’s website.
Plaintiff’s President and Chief Executive Officer, James R. Merritt, submitted
a sworn affidavit to the trial court. In the affidavit, Merritt stated only he and his
wife, Jennifer B. Merritt, the secretary of JRM, were authorized to enter into or
execute contracts on behalf of the company.
Sizer concealed the HJH agreement, and other unauthorized agreements, from
Plaintiff’s management. In the spring of 2021, Merritt learned of an unauthorized
contract Plaintiff had entered into with a third party, who is not a litigant in this
case. As a result, Plaintiff amended the company’s policy handbook on 22 March
2021, clarifying and listing only Merritt and his wife as having the authority to enter
into binding contracts with third parties. Merritt also asked Sizer if he had signed
any other contracts. Sizer responded he had not.
Sizer continued to contract with and pay HJH for alleged cost-saving services
without authority and without Plaintiff’s knowledge or consent. Sizer appeared to
know he was unauthorized to contract with HJH, because he waited until HJH’s
accounts payable manager was out of the office to log into the company’s accounting
system, add HJH as a vendor, and to secretly pay HJH for alleged cost-savings
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JRM INC. V. HJH COS., INC.
Opinion of the Court
services on 26 July 2021. Two days after this conduct, Sizer resigned from the
company on 28 July 2021.
Sizer, however, continued to contract with HJH after he submitted his
resignation. He signed an addendum to the HJH agreement on 11 August 2021,
which purported to obligate Plaintiff to pay $92,298.55 to HJH for “merchant card
services that had never been obtained.” Plaintiff did not learn about this addendum
until after Sizer had left the company. Additionally, Plaintiff received a $15,000
invoice from HJH on Sizer’s last official day of employment, which Sizer promised to
explain in an email, but never addressed.
Plaintiff subsequently sent Sizer a letter informing him they would withhold
his final paycheck to partially mitigate their damages, and they informed him they
planned to “continue to investigate [his] role in this matter, and reserve[d] the right
to pursue all available civil and criminal remedies to the fullest extent of the law.”
Plaintiff received numerous invoices, demand letters, and collection calls from
HJH. These communications claimed Plaintiff owed HJH a principal amount of
$108,798.55. The amount Plaintiff purportedly owed, however, significantly
increased after Plaintiff’s lawyers asserted claims against HJH. HJH’s final demand
letter expressed Plaintiff owed them $241,861.47 for both the principal and interest
and threatened to force arbitration to be held in Texas.
According to Merritt, it “would impose an extreme hardship on [Plaintiff] to
have to defend a meritless claim in [Texas].” Plaintiff brought several claims against
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JRM INC. V. HJH COS., INC.
Opinion of the Court
HJH, including: declaratory relief regarding the validity and scope of the purported
contracts, fraud, unfair and deceptive trade practices, illegal conspiracy, recission of
the contract, and punitive damages on 22 October 2021. Plaintiff also alleged Sizer
breached his fiduciary duty and committed constructive fraud.
HJH moved to dismiss Plaintiff’s claims, or alternatively to compel arbitration
and stay litigation, on 29 December 2021. Plaintiff served two affidavits in opposition
to the motion. HJH filed an untimely affidavit in support of the motion.
A hearing on the motions was held on 10 January 2022. The trial court entered
an order striking the affidavit of Tisha Petty (“Petty Affidavit”), who is the Senior
Manager Account Services and Legal Liaison for HJH, and denied both of HJH’s
motions on 20 January 2022. HJH filed a notice of appeal on 7 February 2022.
II. Jurisdiction
HJH argues the amended order improperly denied its right to compel
arbitration, and the trial court’s order affects a substantial right and is immediately
appealable. HJH also asserts the trial court erred in striking the Petty Affidavit,
which supported its motion to compel arbitration.
III. Standard of Review
Precedents governing the review of the enforceability of arbitration clauses in
contracts is well-established:
Because the law of contracts governs the issue of whether
there exists an agreement to arbitrate, the party seeking
arbitration must show that the parties mutually agreed to
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JRM INC. V. HJH COS., INC.
Opinion of the Court
arbitrate their disputes. The trial court’s determination of
whether a dispute is subject to arbitration is a conclusion
of law reviewable de novo.
T.M.C.S., Inc. v. Marco Contr'rs, Inc., 244 N.C. App. 330, 339, 780 S.E.2d 588, 595
(2015) (emphasis supplied) (citations, alterations, and internal quotation marks
omitted).
IV. Analysis
Appellate jurisdiction is conferred by statute. This Court only possesses
jurisdiction over the appeal of “any interlocutory order or judgment of a superior court
or district court in a civil action or proceeding” if it “[a]ffects a substantial right.” N.C.
Gen. Stat. § 7A-27(b) (2021).
“This Court has repeatedly held ‘an order denying arbitration, although
interlocutory, is immediately appealable because it involves a substantial right which
might be lost if appeal is delayed.’” Earl v. CGR Dev. Corp., 242 N.C. App. 20, 22, 773
S.E.2d 551, 553 (2015) (citations omitted).
While courts should not refuse to implement the terms of an arbitration
agreement, if a valid agreement to arbitrate exists, a motion to compel arbitration is
properly denied if a valid agreement to arbitrate does not exist. “If the refusing party
opposes the 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.” N.C. Gen. Stat. § 1-569.7(a)(2) (2021) (emphasis supplied).
The party seeking arbitration must show that the parties
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JRM INC. V. HJH COS., INC.
Opinion of the Court
mutually agreed to arbitrate their disputes. . . . The trial
court’s findings regarding the existence of an arbitration
agreement are conclusive on appeal where supported by
competent evidence, even where the evidence might have
supported findings to the contrary.
Slaughter v. Swicegood, 162 N.C. App. 457, 461, 591 S.E.2d 577, 580 (2004) (quoting
Routh v. Snap–On Tools Corp., 108 N.C. App. 268, 271–72, 423 S.E.2d 791, 794
(1992), and Sciolino v. TD Waterhouse Investor Servs., Inc., 149 N.C. App. 642, 645,
562 S.E.2d 64, 66 (2002)) (citations and internal quotation marks omitted).
For example, in Evangelistic Outreach Ctr. v. General Steel Corp., this Court
affirmed the trial court’s denial of a motion to compel arbitration where the trial court
resolved conflicts in the evidence regarding whether a valid arbitration agreement
existed. 181 N.C. App. 723, 726-27, 640 S.E.2d 840, 843 (2007). There, the proponent
of the alleged arbitration agreement submitted an unverified motion alleging a one-
page purchase order, which noted the agreement was subject to the terms and
conditions on its face and on the reverse side. Id. at 726, 640 S.E.2d at 843. The
proponent submitted a copy of the reverse side, which contained an arbitration
clause. Id. The proponent also submitted an affidavit from a Customer Service
Manager alleging the manager faxed both sides of the agreement to the plaintiff. Id.To counter this evidence, the plaintiff submitted both a verified response to requests
for admissions, in which plaintiff denied ever receiving the reverse side of the
agreement, and an affidavit denying receipt of the second page or any document
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JRM INC. V. HJH COS., INC.
Opinion of the Court
referencing arbitration. Id. at 727, 640 S.E.2d at 843. Plaintiff also denied entering
into any contract including an arbitration clause. Id.As our Court explained:
The trial court denied defendant’s motion in an order stating in
relevant part that “[t]he Defendant has failed in its burden of
proof to prove that there was an agreement between the parties
to arbitrate.” Thus, the trial court denied defendant’s motion on
the grounds that proof of the very existence of an arbitration
agreement was lacking. We conclude that the evidence supports
this conclusion.
Id.Here, the trial court found and concluded HJH had “failed to meet its burden
of proving that [a] valid arbitration agreement exist[ed] by mutual agreement of both
parties” pursuant to N.C. Gen. Stat. § 1-569.7(a)(2) (2021). The trial court also
concluded HJH “failed to meet its burden of showing clear and unmistakable proof
that HJH and JRM agreed to delegate the threshold issue of arbitrability to an
arbitrator.” A trial court may properly deny a motion to compel arbitration if it
determines evidence of the “very existence of an arbitration agreement [i]s lacking.”
Evangelistic Outreach Ctr., 181 N.C. App. at 727, 640 S.E.2d at 843.
The trial court did not err as a matter of law by concluding HJH had
failed to prove a valid arbitration agreement existed. Id. Plaintiff submitted two
affidavits to support the assertion it never entered into a valid arbitration agreement
with HJH. Defendant did not offer any evidence to support an agreement to arbitrate
existed aside from the disputed agreement and the stricken Petty Affidavit. The trial
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JRM INC. V. HJH COS., INC.
Opinion of the Court
court struck the Petty Affidavit from the record because HJH did not serve the Petty
Affidavit with the motion to compel arbitration, nor was it served at least two days
prior to the hearing. N.C. Gen. Stat. § 1A-1, Rule 6(d) (2021) (“When a motion is
supported by affidavit, the affidavit shall be served with the motion; and except as
otherwise provided in Rule 59(c), opposing affidavits shall be served at least two days
before the hearing.”).
This Court otherwise lacks jurisdiction to review the portion of the trial court’s
interlocutory order striking the Petty Affidavit. See State v. Carver, 2021-NCCOA-
141, ¶23, 277 N.C. App. 89, 94, 857 S.E.2d 539, 543, writ denied, review denied, 379
N.C. 156, 863 S.E.2d 597 (2021). In Carver, this Court held it may not exercise
pendant appellate jurisdiction over interlocutory orders that are not immediately
appealable, and “if a trial court denies the State’s motion to dismiss based on
sovereign immunity—a ruling that is immediately appealable—the State ordinarily
cannot appeal the denial of its motion to dismiss on other grounds, even if those other
rulings are contained in the same order.” Id.Without the untimely Petty Affidavit, the trial court did not err as a matter of
law by declining to conclude an agreement to arbitrate existed. Evangelistic Outreach
Ctr., 181 N.C. App. at 727, 640 S.E.2d at 843; Gay, 271 N.C. App. at 13-14, 842 S.E.2d
at 643-44. The trial court’s ruling denying the motion to compel arbitration in the
absence of the existence of an arbitration agreement is affirmed.
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JRM INC. V. HJH COS., INC.
Opinion of the Court
If a valid agreement to arbitrate does not exist, Defendant has failed to show
a substantial right is affected. This Court lacks jurisdiction to review the trial court’s
interlocutory order denying HJH’s motion to compel arbitration. N.C. Gen. Stat.
§§ 7A-27(b)(3)(a) and 1-569.7(a)(2); Slaughter, 162 N.C. App. at 461, 591 S.E.2d at
580. Defendant has not filed a petition for writ of certiorari. N.C. R. App. P. 21.
V. Conclusion
The trial court properly concluded HJH had failed to show Plaintiff and HJH
entered into a valid agreement to arbitrate their disputes. Evangelistic Outreach
Ctr., 181 N.C. App. at 727, 640 S.E.2d at 843; Gay, 271 N.C. App. at 13-14, 842 S.E.2d
at 643-44.
Without the existence of a valid arbitration agreement, no substantial right is
shown to warrant immediate review. HJH’s appeal is interlocutory. N.C. Gen. Stat.
§§ 7A-27(b)(3)(a) and 1-569.7(a)(2); Slaughter, 162 N.C. App. at 461, 591 S.E.2d at
580.
This Court lacks appellate jurisdiction to assess the trial court’s other findings
contained in the order entered on 20 January 2022, and its purported appeal is
dismissed. See Carver, ¶23, 277 N.C. App. at 94, 857 S.E.2d at 543. It is so ordered.
DISMISSED.
Judge HAMPSON concurs.
Judge DILLON concurs with separate opinion.
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No. COA20-10622-537 – JRM, Inc. v. HJH Companies, Inc.
DILLON, Judge, writing separately.
I essentially agree with the analysis contained in the majority opinion except
for the disposition to dismiss Defendants’ appeal of the trial court’s denial of their
motion to compel arbitration. I believe the disposition should be to affirm the trial
court order. That is, I conclude we do have jurisdiction to consider whether
Defendants, in fact, have a substantial right which would be forever lost by the trial
court’s order.
By dismissing the appeal, the majority, in essence, concludes we do not have
appellate jurisdiction to consider whether Defendants have a substantial right which
would be forever lost by the trial court’s interlocutory order. We should not reach
the merits of Defendants’ claim to that substantial right in answering the threshold
jurisdictional question. To do so would, in the words of the United States Supreme
Court, “conflat[e] the jurisdictional question with the merits of the appeal.” Arthur
Andersen v. Carlisle, 556 U.S. 624, 628 (2009). As that Court instructs, “[j]urisdiction
over the appeal[,] ‘must be determined by focusing on the category of order appealed
from, rather than upon the strength of the grounds for reversing the order.’” Id.(quoting Behrens v. Pelletier, 516 U.S. 299, 311 (1996)).
Here, the interlocutory order being appealed by Defendants falls within the
category of interlocutory orders over which we have jurisdiction to review
immediately: an order which denies litigants their motion to compel arbitration.
JRM, INC. V. HJH COMPANIES, INC.
DILLON, J., writing separately
The fact that we all ultimately conclude there is no strength in Defendants’
grounds for reversing the trial court’s interlocutory order should not affect whether
we have appellate jurisdiction to evaluate those grounds. See Arthur Andersen, 556
U.S. at 629 (“It is more appropriate to grapple with [the] merits question after the
court has accepted jurisdiction over the case.”). See also Neusoft Med. v. Neuisys, 242
N.C. App. 102, 774 S.E.2d 851 (2015) (arbitration matter); Meherrin v. Lewis, 197
N.C. App. 380, 385, 86, 677 S.E.2d 203, 207-08 (2009) (affirming trial court’s order
denying dismissal based on sovereign immunity, concluding appellate jurisdiction
existed to consider defendant’s claim to sovereign immunity as a member of an Indian
tribe, but determining on the merits that the defendant, in fact, did not belong to a
recognized tribe and therefore did not have sovereign immunity).
I am aware that parties may assert frivolous claims to some substantial right
to put an ongoing case on hold. But an appellant who makes a frivolous assertion of
a substantial right for an improper purpose (e.g., delay) does so at the risk of being
sanctioned by this Court. See N.C. R. App. P. 34. See also Arthur Andersen, 556 U.S.
at 629 (addressing concern that recognizing appellate jurisdiction might result in
frivolous appeals by stating that those bringing such appeals subject themselves to
sanctions).
In any event, my disagreement with the majority is essentially over a
distinction without a difference, as the majority in its opinion also resolves the key
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JRM, INC. V. HJH COMPANIES, INC.
DILLON, J., writing separately
issue on appeal; namely, whether the trial court correctly determined that
Defendants have no right to arbitrate.
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