Richard Harp Homes, Inc. v. Jim Van Wyk and Marla Van Wyk
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DIVISION II
CA06-1446
September 12, 2007
RICHARD HARP HOMES, INC.
APPELLANT
AN APPEAL FROM PULASKI COUNTY
CIRCUIT COURT
[No. CV 06-2928]
v.
HONORABLE TIM FOX,
CIRCUIT JUDGE
JIM VAN WYK and
MARLA VAN WYK
APPELLEES
AFFIRMED
This is an appeal from an order denying a motion by appellant Richard Harp Homes,
Inc. (Harp), seeking to compel arbitration of a cross-claim filed against it by appellees Marla
and Jim Van Wyk. The circuit court found that the arbitration provision was supported by
mutuality of obligation but that the obligations were rendered illusory when the contract is
considered as a whole. We affirm.
In April 2004, Harp agreed to construct a home for the Van Wyks in a subdivision
covered by a “Bill of Assurance” containing a provision regulating setback lines between
adjacent lots. The agreement contained the following provisions:
10. DISPUTES OR CLAIMS:
A. It is mutually agreed that all disputes and controversies between the parties
arising out of or in connection with this Contract as to the existence,
construction, validity, interpretation or meaning, performances, nonperformance,
enforcement, operation, breach, continuance, or termination thereof or any claim,
whatsoever, including, without limitation, alleged misrepresentation, unjust
enrichment, fraud, negligence and violations of the Arkansas Deceptive Trade
Practices Act (Ark. Code Ann. § 4-88-101, et seq.), Arkansas Unfair Practices
Act (Ark. Code Ann. § 4-75-201, et seq.) or any other consumer protection
statute shall be submitted to non-binding mediation in accordance with the rules
and procedures of the American Arbitration Association and by using the
following procedure. Any warranty claims shall first be submitted to any dispute
resolution procedure as set forth in the warranty program called for herein.
Thereafter, either party may demand mediation by setting forth such claims in
such detail as shall give the other party notice and by submitting the claim so
mediation in accordance with the rules and procedures of the American
Arbitration Association; provided, the parties may mutually agree at the time of
a dispute to use a mediation service other than the American Arbitration
Association.
1. Within thirty (30) days after the demand, the other party shall prepare a
response to the allegations set forth in the Statement setting forth such other
matters the other party considers pertinent.
2. Each party shall bear her or his or its own mediation costs and expenses and
shall equally bear the cost of the mediation.
B. If the parties are unable to settle or resolve the dispute or controversy by
mediation, the claim shall be submitted to binding arbitration before one (1)
arbiter in accordance with the rules and procedures of the American Arbitration
Association in which event the decision of the arbitrator shall be final and
binding upon both Parties and may be entered in any Court having jurisdiction;
provided, the parties may mutually agree at the time of a dispute to use an
arbitration service other than the American Arbitration Association. Demand for
arbitration shall be made in writing with the other party to the claim and with the
arbitrator. A demand for arbitration shall be made within a reasonable time after
the claim, dispute or other matter in question has arisen, but in no event later
than the date for the institution of legal proceedings based upon the law of the
state where the property is located. The cost of the arbitrator shall be paid by
the no-prevailing party or as determined by the arbitrator. The parties
acknowledge and agree that the subject matter of this Contract and the
undertakings of the parties are matters involving interstate commerce, and as
such this arbitration clause is governed by and enforceable pursuant to the
Federal Arbitration Act, 9 U. S. C. § 1, et seq.
2
C. The parties stipulate that the provisions of this Contract shall be a complete
defense to any suit, action, or proceeding instituted in any federal, state, or local
court or before any administrative tribunal with respect to any controversy or
dispute arising during the period of this Contract. The mediation and arbitration
provisions shall, with respect to the controversy or dispute, survive the
termination or expiration of this Contract.
D. Said Warranty provides for final and binding arbitration regarding any
controversy, claim or complaint arising under said Warranty, which is not
resolved by mutual agreement between PURCHASER and BUILDER.
PURCHASER’S sole remedy for any such unresolved Warranty matter is the
final and binding arbitration stated herein, the right to sue the BUILDER in court
being expressly waived.
....
31. BREACH BY PURCHASER:
If this Contract is breached by PURCHASER or if the PURCHASER fails for
any reason to complete his purchase of Property in accordance with the terms
and conditions set forth herein, BUILDER shall have the following nonexclusive remedies: BUILDER shall be excused from further performance and
may sell the property to a third party without in any way limiting BUILDER’S
remedies set forth below; or BUILDER may declare this Contract terminated
and Earnest Money plus non-refundable funds shall be forfeited and in addition
five thousand dollars ($5,000) shall be paid by PURCHASER to BUILDER as
liquidated damages. Earnest Money, non-refundable funds or other damages
paid to BUILDER, shall not in any way prejudice the rights of BUILDER or
Broker in any action for damages or specific performance, or both.
PURCHASER shall be obligated to pay all costs or losses which BUILDER
may sustain, including lost profit, court costs and expenses of litigation,
including attorneys’ fees. PURCHASER shall also be obligated to pay any sales
commissions that are due.
32. BREACH BY BUILDER:
If this Contract is breached by BUILDER or if BUILDER fails for any reason
to complete the sale, PURCHASER may terminate this Contract by written
notice to BUILDER and receive a refund of the Earnest Money as
PURCHASER’S sole remedy. PURCHASER hereby waives the right to
damages or specific performance, or both from BUILDER. PURCHASER
hereby waives the defense of non-mutuality of remedies.
3
During construction, Harp discovered that one corner of the structure may be in
violation of the setback provision of the bill of assurances. Harp asserts that, when it brought
the matter to the attention of the Van Wyks, it was instructed to complete the residence. In
April 2005, Harp submitted a proposal to ensure that the residence would comply with the bill
of assurances. After the proposal was approved by the Van Wyks and the architectural
committee, the Van Wyks refused to allow the modifications to be made.
John Crow and
his wife, Lee Ann McMillan-Crow, live next door to the Van Wyks on the side where the Van
Wyk home allegedly encroaches on the setback line. On March 16, 2006, the Crows filed suit
against Harp and the Van Wyks seeking to enforce the setback requirements of the bill of
assurances. Harp answered, stating that “the Van Wyks’ structure appears to sit within the
setback area” but otherwise denying the material allegations of the complaint. The Van Wyks
denied the material allegations of the complaint. They subsequently amended their answer to
assert a cross-claim against Harp.
The cross-claim stated causes of actions for failure to return a security deposit for rental
property, breach of contract, breach of implied warranty, negligence, fraud, slander, and
deceptive trade practices 1 . The cross-claim also sought punitive damages. Harp responded by
filing a motion to compel arbitration.2 The Van Wyks opposed the motion, asserting that the
1
The cross-claim was later amended to omit the causes of action for breach of implied
warranty and violation of the Deceptive Trade Practices Act.
2
Harp also answered the cross-claim, denying the material allegations. Harp asserted
that the Van Wyks were the first party to breach the agreement.
4
arbitration provision lacked mutuality and that some of their claims were not subject to
arbitration.
At the hearing on the motion, Harp argued that the agreement required arbitration of
all claims between the parties. The Van Wyks admitted that they amended their complaint to
eliminate the claims that would be subject to arbitration, i.e., the breach-of-contract and
deceptive-trade-practices claims. They also asserted that the remaining tort and fraud claims
had no connection with the agreement containing the arbitration provision.
The trial court ruled from the bench and found that, although the arbitration clause
contained mutuality of obligation, that mutuality was rendered illusory when the contract was
read as a whole, considering the remedies provided each party in paragraphs 31 and 32. A
written order was entered on August 17, 2006. Harp filed its notice of appeal on September
18, 2006.3 The Crows subsequently dismissed Harp from the original suit.
An order denying
a motion to compel arbitration is an immediately appealable order. Ark. R. App. P.–Civ.
2(a)(12); IGF Ins. Co. v. Hat Creek P’ship, 349 Ark. 133, 76 S.W.3d 859 (2002). We review
a circuit court’s order denying a motion to compel arbitration de novo on the record. IGF Ins.,
supra.
3
The order was entered on August 17, 2006, and the notice of appeal was filed on
September 18, 2006. The thirtieth day on which to file the notice of appeal fell on Saturday,
September 16, 2006. Therefore, the time for filing the notice of appeal was extended to the
following business day, Monday, September 18. Ark. R. App. P.–Civil 9; Watanabe v. Webb,
320 Ark. 375, 896 S.W.2d 597 (1995).
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Harp argues that the mutuality of the arbitration provision is not rendered illusory
because it has not reserved the right to pursue its remedies through any means other than
arbitration.
We find this case to be controlled by the supreme court’s decision in Tyson Foods, Inc.
v. Archer, 356 Ark. 136, 157 S.W.3d 681 (2004), because the agreement in the present case,
when read as a whole, does not clearly and specifically limit Harp to its remedies in arbitration.
In Tyson Foods, the court held that an arbitration agreement lacked the necessary mutuality of
obligation where swine producers were limited to pursuing any grievance in an arbitration
forum while the owner of the swine (Tyson) retained the sole right to pursue legal or equitable
remedies. Tyson, 356 Ark. at 146, 147 S.W.3d at 687. The court also noted that there is no
mutuality of obligation where one party uses an arbitration agreement to shield itself from
litigation, while at the same time reserving its own ability to pursue relief through the court
system. Id.
The same rules of construction and interpretation apply to arbitration agreements as
apply to agreements generally, thus we will seek to give effect to the intent of the parties as
evidenced by the arbitration agreement itself. Id. In the present case, paragraph 10 purports to
require that both parties submit “all disputes” to mediation and arbitration. Paragraphs 31 and
32 then specify the remedies available to each party in the case of a breach. Included in
paragraph 31, entitled “Breach by Purchaser,” is the following language: “[Van Wyk] shall be
obligated to pay all costs or losses which [Harp] may sustain, including lost profit, court costs
and expenses of litigation, including attorneys’ fees.” (Emphasis added.) While this language
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does not specifically reserve Harp’s right to litigate any or all disputes, it does render the
agreement ambiguous so that the trial court can construe the agreement. The ambiguity arises
because the italicized section could be seen as merely illustrative of the types of costs or losses
for which the Van Wyks would be responsible. On the other hand, the language could indicate
an intent that Harp retained the right to bring suit in court for a breach.4
In Tyson Foods, the supreme court declined to read into the contract qualifying
language that would have made it clear that Tyson’s remedies were limited to the confines of
arbitration. Tyson, 356 Ark. at 143, 147 S.W.3d at 685. In the present case, it would be
necessary to change the wording of paragraph 31 in order for the court to find an unambiguous
mutuality of obligation. However, that would be contrary to the rules of construction that
require that effect be given to all provisions of the agreement. Id. at 143-44, 147 S.W.3d at
685. Therefore, the circuit court correctly declined to compel the parties to submit to
arbitration, and we affirm.
Affirmed.
R OBBINS and GLOVER, JJ., agree.
4
Cf Hamilton v. Ford Motor Credit, Inc., ___ Ark. App. ___, ___ S.W.3d ___ (May
23, 2007) (finding the arbitration agreement to be unambiguous where it allowed both parties
to demand arbitration while, at the same time, allowing both parties to maintain certain rights,
such as the right of Ford Motor Credit to protect its security interest in the vehicle).
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