Createrra, Inc. v. Sundial, LC

2013 UT App 141_________________________________________________________
THE UTAH COURT OF APPEALS
CREATERRA, INC.,
Plaintiff and Appellant,
v.
SUNDIAL, LC,
Defendant and Appellee.
Opinion
No. 20120049‐CA
Filed June 6, 2013
Third District, Salt Lake Department
The Honorable John Paul Kennedy
No. 110902743
Matthew R. Kober, Attorney for Appellant
Clay W. Stucki, Attorney for Appellee
JUDGE STEPHEN L. ROTH authored this Opinion, in which
JUDGES GREGORY K. ORME and JAMES Z. DAVIS concurred.
ROTH, Judge:
¶1 Createrra, Inc. appeals from the district court’s decision to
deny Createrra’s motion to vacate an arbitration award in favor of
Sundial, LC, on the basis that Createrra’s motion to vacate was
untimely when it was filed more than ninety days after Createrra
had received notice of the award.1 Createrra asserts that its motion
to vacate was not untimely because the arbitrator’s decisions had
1. Based on its determination that Createrra’s motion was untimely,
the district court entered an order denying Createrra’s motion to
vacate, granting Sundial’s cross‐motion to dismiss, and summarily
confirming the arbitration award. See Utah Code Ann. § 78B‐11‐
124(4) (LexisNexis 2012) (“If the court denies a motion to vacate an
award, it shall confirm the award . . . .”).
Createrra v. Sundial
not been served in accordance with the notice requirements of the
parties’ operating agreement. Createrra also contends that the court
wrongly concluded that the parties had orally modified the notice
provision of the operating agreement. We affirm.
BACKGROUND
¶2 Createrra and Sundial are members of Jordan Village
Development, LLC (the LLC), an entity they formed to develop
property in Midvale, Utah. In the course of forming the LLC, the
parties executed an operating agreement, in which they agreed to
serve in writing “any notice, election, or communication” required
by the agreement, with delivery either by hand or through certified
mail with courtesy copies via email. The agreement required that
any disputes arising out of the operating agreement be resolved
through arbitration.
¶3 Disputes soon arose, and from late 2009 through much of
2010, Createrra and Sundial engaged in a series of arbitrations. The
first arbitration was held in fall 2009, and the arbitrator issued a
written decision, in which he noted that “[a]t the conclusion of the
hearing, the parties agreed to service of the arbitration decision via
email.” Createrra did not challenge the accuracy of this statement,
nor did it register any objection to the arbitrator’s delivery of his
decision by email. The parties arbitrated two subsequent disputes.
The arbitrator issued a decision on the second arbitration in
December 2009. Because he believed that the parties had agreed to
electronic service, the arbitrator delivered the decision only via
email. Createrra did not object to the electronic delivery of the
arbitrator’s second decision. On October 19, 2010, the arbitrator
issued a final arbitration decision ordering dissolution of the LLC.
This decision was also served only by email. It is undisputed that
both parties received the email, and Createrra again voiced no
objection to the use of email for this purpose. The notice of award
was never served in accordance with the notice provision of the
parties’ operating agreement. A supplemental arbitration decision,
20120049‐CA 2 2013 UT App 141Createrra v. Sundial
which included an award to Sundial of $52,731 in attorney fees,
was issued on November 3, 2010.2 It too was emailed to the parties.
Again, Createrra made no objection to the method of service.
¶4 On February 2, 2011, ninety‐one days after the arbitrator
issued the supplemental decision on November 3, 2010, Createrra
moved to vacate the arbitration decisions.3 Sundial filed a motion
to dismiss, asserting that Createrra’s motion was untimely because
it had not been filed within ninety days of Createrra’s receipt of
notice of the award. See Utah Code Ann. § 78B‐11‐124(2)
(LexisNexis 2012) (allowing a party to file a motion to vacate an
arbitration award so long as the motion is “filed within 90 days
2. The arbitrator actually issued the supplemental arbitration
decision on October 28, 2010, but allowed Createrra an opportunity
to object to the amount of attorney fees awarded. When Createrra
did not timely respond, the arbitrator, on November 3, “affirmed”
its October 28 decision and deemed the “arbitration concluded.”
The precise date of the “final” decision does not affect our analysis,
and for purposes of appeal, we accept that the “arbitration
concluded” on November 3, 2010.
3. Createrra’s pleadings treat all three arbitration awards as being
eligible for vacatur both because the first two decisions were
referenced in the final decision, which Createrra interprets as
indicating neither was final until November 2010, and because
Createrra takes the position that it has yet to receive notice of any
of the decisions in accordance with the notice provision of the
operating agreement. The first two arbitration decisions, however,
simply “provide[d] guidance and input regarding the ongoing
relationship between Createrra and Sundial” and did not involve
the exchange of any assets or liabilities or result in the payment of
damages. The final arbitration resulted in an order that the parties
dissolve the LLC and that Createrra pay Sundial $52,731 in attorney
fees. It is that decision that prompted Createrra to move to vacate
the awards.
20120049‐CA 3 2013 UT App 141Createrra v. Sundial
after the movant receives notice of the award”).4 Createrra opposed
dismissal, asserting that the “[n]otice required . . . to start the 90‐
day [motion] filing requirement has not yet been effectuated”
because notice had been delivered only by email and therefore not
in accordance with the notice provision of the operating agreement.
¶5 At a hearing on Sundial’s motion to dismiss, the district
court observed that the first arbitration award indicated that the
parties had orally agreed to electronic service by email rather than
strict compliance with the notice provision of the operating
agreement. When Createrra denied any such agreement, the court
asked if it had ever objected to the arbitrator’s statement. Createrra
contended that it had but only identified occasions where it had
objected to the substance of the award, not the method of service.
Ultimately, the district court agreed to hold an evidentiary hearing
at which it would hear from each side about what, if any,
agreement occurred at the first arbitration and how the arbitration
decisions were subsequently transmitted. Following that hearing,
the district court found that “the Parties verbally agreed to accept
notice relating to the October 15, 2009 arbitration [decision] by
email” and that Createrra’s acceptance of subsequent award notices
by email without objection established a pattern of conduct that
precluded it from now demanding strict compliance with the
notice provision of the operating agreement. The court concluded
that, as a result, the emailed notice fulfilled the statutory
requirement that triggered the ninety‐day period for filing a
motion to vacate. See id. § 78B‐11‐120(1) (“The arbitrator . . . shall
give notice of the award, including a copy of the award, to each
party to the arbitration proceeding.”); id. § 78B‐11‐103(1)–(2) (“[A]
person gives notice to another person by taking action that is
reasonably necessary to inform the other person in ordinary course
. . . . A person has notice if the person has knowledge of the notice
or has received notice.”); id. § 78B‐11‐124(2) (stating that the ninety‐
4. The statute has not been amended since the parties entered into
the operating agreement in October 2008.
20120049‐CA 4 2013 UT App 141Createrra v. Sundial
day period for filing a motion to vacate runs from receipt of notice
of the award). The district court therefore granted Sundial’s motion
to dismiss on the basis that Createrra’s motion to vacate was
untimely, denied the motion to vacate, and summarily confirmed
the arbitration awards. See Allred v. Educators Mut. Ins. Assoc. of
Utah, 909 P.2d 1263, 1266–67 (Utah 1996) (“[F]ailure to timely file
a motion to either modify or vacate the award forecloses a
comprehensive review on the merits of the arbitration process.”).
Createrra now appeals from the district court’s decision in favor of
Sundial.
ISSUE AND STANDARDS OF REVIEW
¶6 Createrra contends that the district court should not have
denied its motion to vacate the arbitration award. “‘[T]here is no
special standard governing [an appellate court’s] review of a
district court’s decision’ to confirm, vacate, or modify an arbitration
award.” Buzas Baseball, Inc. v. Salt Lake Trappers, Inc., 925 P.2d 941,
948 (Utah 1996) (alterations in original) (emphasis omitted)
(quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947
(1995)). Thus, on appeal, “we review the district court’s factual
findings under a clearly erroneous standard” but do not give any
deference to the district court’s conclusions of law, instead
reviewing them for correctness. Id. (citation and internal quotation
marks omitted).
ANALYSIS
¶7 For purposes of appeal, we accept Createrra’s position that
the operating agreement required that notice of an arbitration
award be served either by hand delivery or by certified mail with
20120049‐CA 5 2013 UT App 141Createrra v. Sundial
email copies to both the party and its attorney.5 Sundial asserts that
“[t]he district court made a factual finding that Createrra agreed to
receive arbitration awards via email” and that Createrra has not
challenged that finding on appeal. Sundial contends that, as a
result, even if notice of the arbitration award was required to be
hand delivered or sent via certified mail and email under the
operating agreement, Createrra orally modified that requirement
when it verbally assented to receipt of the arbitration award
through email. Createrra counters that its verbal agreement to
accept notice by email was void because arbitration agreements
cannot be orally modified. Thus, the crux of the inquiry on appeal
is whether a term in an arbitration agreement governing how
notice is to be served is subject to oral modification.
¶8 Arbitration agreements are creatures of contract. Central Fla.
Invs., Inc. v. Parkwest Assocs., 2002 UT 3, ¶ 10, 40 P.3d 599. It is well
established in Utah, however, that arbitration agreements are
governed by statute and that to be enforceable, “arbitration
agreements, unlike ordinary contracts, must be contained in a
written document setting forth the scope of the dispute to be
arbitrated.” Pacific Dev., LC v. Orton, 2001 UT 36, ¶ 11, 23 P.3d 1035;
see also Utah Code Ann. § 78B‐11‐107(1) (explaining that to be
“valid, enforceable, and irrevocable,” an arbitration “agreement
5. The operating agreement contains a provision that requires that
“any notice, election, or communication required or permitted to
be given by any provision of this Operating Agreement” be served
personally or via certified mail and email. Because the parties’
agreement to arbitrate is contained within the operating agreement,
it is ostensibly governed by this notice provision, as Createrra
asserts. Sundial, however, has raised a question about whether the
notice provision only governs “any notice, election, or
communication required or permitted to be given” by the parties
to each other and not by a third person, who is not a party to the
operating agreement, such as the arbitrator. We need not resolve
this dispute.
20120049‐CA 6 2013 UT App 141Createrra v. Sundial
[must be] contained in a record” from which its scope can be
ascertained); Buckner v. Kennard, 2004 UT 78, ¶ 18, 99 P.3d 842(“[T]he arbitrator must not exceed the scope defined in the parties’
written agreement.”). The Utah Supreme Court has observed that
requiring written documentation of the arbitration agreement’s
scope “enhances predictability and seeks to ensure that the parties
are deliberately waiving their substantial rights to judicial review.”
Pacific Dev., 2001 UT 36, ¶ 11. “It also seeks to relieve the parties
and the judiciary of the burden of revisiting disputes that have
been submitted to binding arbitration.” Id.
¶9 Createrra argues that any modification to an arbitration
agreement must also be in writing. In support of its position,
Createrra cites to Pacific Development v. Horton, 2001 UT 36, 23 P.3d
1035, particularly its statement that “[t]o allow modification of an
express written agreement by less than a similarly explicit intent
would simply circumvent the statutory requirements and the
policies they vindicate.” Id. ¶ 14. Sundial counters that Pacific
Development requires written modification only when the parties
are amending the scope of an arbitration agreement and does not
extend the requirement of a writing to changes to a procedural
aspect of an arbitration agreement, such as the method of giving
notice. Accordingly, we begin our analysis with an examination of
the supreme court’s ruling in Pacific Development.
¶10 Pacific Development had subcontracted for Orton to
perform certain work on two plats it was developing (Plats B and
C). Id. ¶ 2. After disputes arose, the parties entered into
negotiations that culminated in a written agreement to arbitrate,
which provided that issues relating to Plat B had been resolved and
that “arbitration will focus on the remaining issues of the dispute,
those which relate to Plat C.” Id. (internal quotation marks
omitted). Despite this limitation on the scope of arbitration, at the
hearing, both parties presented evidence regarding Plat B as well
as Plat C and the arbitrator entered a decision in favor of Orton
with respect to both plats. Id. ¶¶ 1–2. Pacific Development filed a
motion to vacate the award, arguing that the arbitrator had
20120049‐CA 7 2013 UT App 141Createrra v. Sundial
exceeded his authority under the arbitration agreement when he
made an order regarding Plat B. Id. ¶ 3. The supreme court agreed.
Id. ¶¶ 8–14. It held that a written agreement defining the scope of
arbitration could not be “implicitly modified merely by the parties’
actions in bringing evidence of matters outside the [agreed‐upon]
scope of the agreement” because the requirement that arbitration
agreements be in writing demands “an explicit expression of the
intent of the parties regarding the scope of arbitration.” Id. ¶ 14. In
this context, the court then stated, “To allow modification of an
express written agreement by less than a similarly explicit intent
would simply circumvent the statutory requirements and the
policies they vindicate.” Id.
¶11 Pacific Development, therefore, focuses on modification of the
scope of an arbitration agreement and does not address the
question raised here: whether a change to a notice procedure
specified in an arbitration agreement must be made in writing. And
because Createrra depends entirely on the language of Pacific
Development, it provides us with no authority for extending the
written modification requirement to the method for giving notice.
Nor do we see any reason to do so.
¶12 The requirement that the scope of an arbitration agreement,
including any modifications thereof, be in writing is a deviation
from a widely‐accepted principle of contract law. Ordinarily,
“‘[p]arties to a written contract are free to modify that contract by
oral or verbal agreement.’” R.T. Nielson Co. v. Cook, 2002 UT 11,
¶ 13 n.4, 40 P.3d 1119 (quoting a jury instruction that the supreme
court concluded “accords with Utah law”). This is true,
“notwithstanding recitals in a prior contract restricting changes or
modification in its terms.” Prince v. R.C. Tolman Constr. Co., 610
P.2d 1267, 1269 (Utah 1980); see also 2 Corbin on Contracts § 7.14 at
404 (1995) (“Apart from statute, the common law rule is that [e]ven
where the contract specifically states that no non‐written
modification will be recognized, the parties may yet alter their
agreement by parol negotiation.” (alteration in original) (citation
and internal quotation marks omitted)). Rather, it is the parties’
20120049‐CA 8 2013 UT App 141Createrra v. Sundial
intentions, not the form of the modification, that controls. See
Central Fla. Invs., 2002 UT 3, ¶ 12. In other words, an oral
modification to a contract may be enforceable so long as the
modification reflects the parties’ intent.
¶13 The legislature, however, deemed it appropriate to except
arbitration agreements from the general rule because an agreement
to arbitrate deprives a party of many of the protections of the
judicial process. Arbitration is considered a “speedy and
inexpensive method[] of adjudicating disputes,” compared to the
traditional legal process, because it resolves disputes outside of the
court system with little opportunity for judicial review. Pacific Dev.,
LC v. Orton, 2001 UT 36, ¶ 12, 23 P.3d 1035 (citation and internal
quotation marks omitted). And because arbitration’s benefits come
at a significant cost, the legislature has provided that the parties’
core understanding must be written out to ensure that the extent of
their commitment to arbitration is clearly defined so that the
parties and the court are informed of what disputes are the subject
of binding arbitration and to make clear “that the parties are
deliberately waiving their substantial rights to judicial review” of
those issues. Id. ¶ 11. The same concerns do not seem to arise,
however, with respect to the modification of a notice procedure
where the arbitration act itself requires no more than that notice be
provided “in ordinary course,” a concept the act describes in
practical, rather than technical, terms. See Utah Code Ann. § 78B‐
11‐103(1) (LexisNexis 2012) (“[A] person gives notice to another
person by taking action that is reasonably necessary to inform the
other person in ordinary course, whether or not the other person
acquires knowledge of the notice.”); id. § 78B‐11‐103(2) (“A person
has notice if the person has knowledge of the notice or has received
notice.”); id. § 78B‐11‐103(3) (“A person receives notice when it
comes to the person’s attention or the notice is delivered at the
person’s place of residence or place of business, or at another
location held out by the person as a place of delivery of such
20120049‐CA 9 2013 UT App 141Createrra v. Sundial
communications.”).6 There seems to be no reason, therefore, why
the notice provisions of an arbitration agreement should not be
governed by the ordinary principles applicable to modifications of
written contracts, that is, “[p]arties to a written contract are free to
modify that contract by oral or verbal agreement,” R.T. Nielson Co.,
2002 UT 11, ¶ 13 n.4 (internal quotation marks omitted).
¶14 Further, the terms of the operating agreement itself do not
preclude the parties from modifying it. To the contrary, the
operating agreement expressly contemplates its revision, defining
the term “Operating Agreement” to “mean this Operating
Agreement as amended from time to time.” (Emphasis added.)
There is neither a provision requiring that modifications be in
writing, nor an integration clause. Furthermore, the parties’
conduct does not, contrary to Createrra’s contention, mandate that
modifications to the operating agreement be written. Createrra
claims that the parties agreed to confine any contract modifications
to writing when Createrra sent an email to Sundial and its counsel
on February 18, 2010, advising that in order to “mitigate future
misunderstandings,” it was putting them “on notice that any
agreement, waiver, or any other modification of the . . . arbitration
agreement or arbitration proceeding . . . will . . . be done only in
writing and signed by Createrra.” This statement, however,
amounts to no more than an attempt to unilaterally impose a
requirement not otherwise part of the operating agreement. To the
extent the statement may be evidence of Createrra’s own intent to
abjure future oral modification of the arbitration procedure, that
intent was belied by Createrra’s continued acceptance, without
objection, of the emailed arbitration decisions in accordance with
its earlier oral agreement. Indeed, the district court viewed the
February 2010 email as “not disputing the statement in the [first
6. Createrra has not contested the district court’s determination that
email notification satisfies these statutory requirements for notice
in an arbitration proceeding.
20120049‐CA 10 2013 UT App 141Createrra v. Sundial
arbitration] award that the parties are agreeing to service of the
decision by e‐mail.”
CONCLUSION
¶15 Utah law does not require that a modification to the
provisions of an arbitration agreement governing the method of
service be in writing, and Createrra has not disputed the district
court’s findings both that Createrra agreed to an oral modification
to the parties’ operating agreement that allowed the arbitrator to
issue his decisions by email and that Createrra then accepted
service of the arbitrator’s decisions by email without objection.
Because there is no dispute that Createrra received the arbitrator’s
last emailed decision by November 3, 2010, the motion to vacate
filed ninety‐one days later, on February 2, 2011, was untimely. We
therefore affirm the district court’s decision.
20120049‐CA 11 2013 UT App 141