Cyclone Roofing Co. v. David M. LaFave Co.

312 S.E.2d 709 (1984)

CYCLONE ROOFING COMPANY, INC. v. DAVID M. LaFAVE COMPANY, INC. and Joseph C. Frye and Emma Gray Frye v. David M. LaFAVE.

No. 8226DC1229.

Court of Appeals of North Carolina.

March 20, 1984.

*710 Mraz, Michael & Boner, P.A. by Mark A. Michael, Charlotte, for defendants-third-party plaintiffs-appellants Frye.

Horack, Talley, Pharr & Lowndes, P.A. by Susan Christman, Charlotte, for defendant-appellee LaFave Co.

JOHNSON, Judge.

This appeal is interlocutory, since the Fryes' claim against LaFave individually remains to be adjudicated. If, however, the Fryes were eventually to prevail on appeal of the claim against LaFave Co. following trial against LaFave, there is a possibility of conflicting verdicts at a second trial, especially in view of the close relationship between LaFave Co. and LaFave. Therefore, the order of 25 June 1982 affects a substantial right and is immediately appealable. G.S. 1-277; G.S. 7A-27(d); Bernick v. Jurden, 306 N.C. 435, 293 S.E.2d 405 (1982).

By the time the demand for arbitration was finally made in this case, both appellee LaFave Co. and appellants Frye had answered the Cyclone complaint and *711 filed cross-claims against each other. Appellants had answered appellee's claim. Thus, a civil suit was filed and pending, see McDowell v. Blythe Brothers Co., 236 N.C. 396, 72 S.E.2d 860 (1952), and the court could not thereafter order arbitration, even with the consent of both parties. Crutchley v. Crutchley, 306 N.C. 518, 293 S.E.2d 793 (1982).

[I]f the parties had not come into court and asked the court to resolve their disputes, or if they had had the court action dismissed prior to arbitration, there would have existed no prohibition to their voluntary agreement to arbitrate the issues. Once a civil action has been filed and is pending, the court has no authority to order, even with the parties' consent, binding arbitration.

Id. at 525, 293 S.E.2d at 798. Therefore, the Crutchley court held that the arbitration order was void ab initio. Id.

Here, after originally filing a claim of line, appellee invoked the jurisdiction of the court by filing a cross-claim against appellants, and demanding a jury trial. Appellee was under no compulsion to do so; under the Rules of Civil Procedure, such a claim was permissive rather than compulsory. G.S. 1A-1, Rule 13(g); see Peterson v. Watt, 666 F.2d 361 (9th Cir.1982), and 3 Moore's Federal Practice § 13.34[1] (construing identical federal rule as entirely permissive). Appellants also filed a claim and demanded a jury trial. Under North Carolina law, this conduct on the part of both parties evinces the election of a legal forum and constitutes waiver of the arbitration provision as a matter of law. See Hargett v. Delisle, 229 N.C. 384, 49 S.E.2d 739 (1948) (once the parties have invoked the jurisdiction of the court by complaint and responsive pleadings, the court may not order them to arbitrate pursuant to prior agreement). Therefore, the court could not order arbitration in this case, particularly over the objection of one of the parties. Crutchley v. Crutchley, supra.

Appellee's argument that upon proof of arbitration agreement the court "has no alternative" but to order arbitration under G.S. 1-567.3(a)[1] has already been rejected by this Court. Development Co. v. Arbitration Assoc., 48 N.C.App. 548, 269 S.E.2d 685 (1980), disc. review denied, 301 N.C. 719,274 S.E.2d 227 (1981) (court has authority to determine preliminary questions of res judicata). It follows that the court also has authority to determine the preliminary question of waiver. The decisions of other jurisdictions which have adopted the Uniform Arbitration Act support this interpretation. See e.g. Brothers Jurewicz, Inc. v. Atari, Inc., 296 N.W.2d 422 (Minn.1980) (court to rule on waiver defenses based on activity before it); Tumim v. Palefsky, 7 Mass.App. 847, 384 N.E.2d 1253 (1979) (arbitration clause not jurisdictional). Therefore, the court had authority to determine that the parties had waived arbitration, and its failure to so find was error.

Since the order confirming the arbitration award must be vacated, we need not consider appellants' second assignment of error. The case is remanded for further proceedings consistent with this opinion.

Vacated and remanded.

WELLS, J., concurs.

VAUGHN, C.J., dissents.

VAUGHN, Chief Judge, dissenting:

In view of the policy underlying the recently adopted Uniform Arbitration Act, G.S. 1-567.1, et seq., favoring arbitration as a means of dispute resolution, I respectfully dissent.

The parties here contractually agreed to resolve disputes through arbitration. Such agreement was valid, enforceable and irrevocable. G.S. 1-567.2; see Sims v. Ritter *712 Construction, Inc., 62 N.C.App. 52, 302 S.E.2d 293 (1983). Waiver of such an agreement is not to be lightly inferred. In re Mercury Const. Corp., 656 F.2d 933, reh. denied, 664 F.2d 936 (4th Cir.1981), affirmed, ___ U.S. ___, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983). After reviewing the record, I do not believe that appellee, LaFave Company, waived its right to arbitration.

I do not agree with the majority herein that participation in litigation constitutes an automatic waiver of a contractual right to arbitration. Rather, to find such a waiver, I would require, as have many other jurisdictions, not only participation in litigation or other action inconsistent with the right to arbitration, but also prejudice to the party opposing the motion for arbitration. See e.g., Charter Air Center v. Florida P.S.C., 503 F. Supp. 243 (N.D.Fla.1980); Weight Watch. of Quebec Ltd. v. Weight W. Int., Inc., 398 F. Supp. 1057 (E.D.N.Y. 1975); Brothers Jurewicz, Inc. v. Atari, Inc., 296 N.W.2d 422 (Minn.1980).

I would, thus, find a waiver of arbitration rights in these situations:

(1) When the parties have contractually agreed to arbitrate their disputes, but then pursue an action in court, with neither party referring to their previous arbitration agreement. See Hargett v. Delisle, 229 N.C. 384, 49 S.E.2d 739 (1948). (2) When a civil suit is already filed and pending at the time the parties enter into an agreement to arbitrate their dispute. See Crutchley v. Crutchley, 306 N.C. 518, 293 S.E.2d 793 (1982). (3) When, although the parties have previously agreed to arbitration, one party takes action (i.e. substantially participates in a civil suit) which are inconsistent with his right to arbitration and the other party is prejudiced thereby.

I find no prejudice to appellees, the Fryes, resulting from appellant LaFave Company's actions in this case. On 5 March 1980, the subcontractor, who is no longer a party, instituted action against both parties herein. On 7 July 1980, appellant answered and cross-claimed against the appellees. Approximately one month later, on 11 August 1980, appellant moved to stay litigation pending arbitration. Since I do not believe the litigation had been pursued enough to cause prejudice to the appellees, I would affirm the trial court order directing the parties to proceed to arbitration.

NOTES

[1] The section states in full:

(a) On application of a party showing an agreement described in G.S. 1-567.2; and the opposing party's refusal to arbitrate, the court shall order the parties to proceed with arbitration, but if the opposing party denies the existence of the agreement to arbitrate, the court shall proceed summarily to the determination of the issue so raised and shall order arbitration if found for the moving party, otherwise, the application shall be denied.