ELJ, Inc. v. Jefferys

An unpublished opinion of the North Carolina Court of Appeals does not constitute
controlling legal authority. Citation is disfavored, but may be permitted in accordance
with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure.

NO. COA13-1420
NORTH CAROLINA COURT OF APPEALS

Filed: 1 July 2014

ELJ, INC.,
Plaintiff,

v. Onslow County
No. 13-CVS-2383
WILLIAM J. JEFFERYS AND A.C.
SCHULTES OF CAROLINA, INC.,
Defendants.

Appeal by defendants from Order entered 10 September 2013

by Judge Gary E. Trawick in Superior Court, Onlsow County.

Heard in the Court of Appeals 24 April 2014.

Harris, Creech, Ward & Blackerby, P.A., by Luke A. Dalton
and Jay C. Salsman, for plaintiff-appellee.

Bugg & Wolf, P.A., by William R. Sparrow, for defendants-
appellants.

STROUD, Judge.

William Jefferys and A.C. Schultes of Carolina, Inc.

(“defendants”) appeal from an order entered 10 September 2013

denying their motion to compel arbitration. We affirm.

I. Background

On 24 June 2013, ELJ, Inc. (“plaintiff”) filed a complaint

in superior court, Craven County, against defendants. It alleged
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that defendant Jefferys, president of A.C. Schultes, made a

number of derogatory statements about ELJ while the parties were

competing for construction bids in Pamlico County and Lenoir

County. It alleged that these statements were defamatory per se

and that they constituted unfair and deceptive trade practices.

With consent of both parties, venue was moved to Onslow County.

The parties had previously worked together on a

construction project in Farmville, North Carolina. A.C. Schultes

was the prime contractor on the project and ELJ was a

subcontractor. The subcontract they signed for that project

included an arbitration provision that required arbitration of

“[a]ny claim arising out of or related to this Subcontract . . .

.” Defendants filed a motion to compel mediation and arbitration

on the basis of this provision.

The superior court heard defendants’ motion on 3 September

2013. By order entered 10 September 2013, the superior court

denied defendants’ motion to compel mediation and arbitration.

Defendants timely filed written notice of appeal to this Court.

II. Appellate Jurisdiction

Defendants appeal from an interlocutory order denying their

motion to compel arbitration. An order denying a motion to

compel arbitration affects a substantial right. Sillins v. Ness,
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164 N.C. App. 755, 756, 596 S.E.2d 874, 875 (2004). Therefore,

it is immediately appealable and this Court has jurisdiction to

consider the appeal. Id.

III. Motion to Compel Arbitration

Defendants argue that the trial court erred in denying

their motion to compel arbitration because the parties had

entered into a contract with an arbitration provision that

covers plaintiff’s defamation claim. We disagree.

As a general matter, public policy favors
arbitration. However, before a dispute can
be ordered resolved through arbitration,
there must be a valid agreement to
arbitrate. Thus, whether a dispute is
subject to arbitration is a matter of
contract law. Parties to an arbitration must
specify clearly the scope and terms of their
agreement to arbitrate. Moreover, a party
cannot be forced to submit to arbitration of
any dispute unless he has agreed to do so.

The question of whether a dispute is subject
to arbitration is an issue for judicial
determination. . . . [T]he trial court’s
conclusion as to whether a particular
dispute is subject to arbitration is a
conclusion of law, reviewable de novo by the
appellate court. [The determination of]
[w]hether a dispute is subject to
arbitration involves a two pronged analysis;
the court must ascertain both (1) whether
the parties had a valid agreement to
arbitrate, and also (2) whether the specific
dispute falls within the substantive scope
of that agreement.
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Raspet v. Buck, 147 N.C. App. 133, 135-36, 554 S.E.2d 676, 678

(2001) (citations and quotation marks omitted).

“The determination of whether a particular claim is

arbitrable is controlled by the language of the parties’

agreement.” Ruffin Woody And Associates, Inc. v. Person County,

92 N.C. App. 129, 133, 374 S.E.2d 165, 168 (1988), disc. rev.

denied, 324 N.C. 337, 378 S.E.2d 799 (1989).

Other courts have generally agreed that
whether a claim falls within the scope of an
arbitration clause and is thus subject to
arbitration depends not on the
characterization of the claim as tort or
contract, but on the relationship of the
claim to the subject matter of the
arbitration clause.

Rodgers Builders, Inc. v. McQueen, 76 N.C. App. 16, 24, 331

S.E.2d 726, 731 (1985), disc. rev. denied, 315 N.C. 590, 341

S.E.2d 29 (1986).

Here, it is undisputed that the parties signed a contract

with an arbitration clause. The only dispute concerns whether

the tort claims fall within its scope. The primary contract

between the Town of Farmville and A.C. Schultes concerned the

construction of water transmission lines for Farmville. A.C.

Schultes and ELJ signed a subcontract that required ELJ to

provide certain labor and material in connection to the project.

The subcontract contained the following arbitration provision:
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6.2 ARBITRATION
6.2.1 Any claim arising out of or related to
this Subcontract, except claims as otherwise
provided in Subparagraph 4.1.5[1] and except
those waived in the Subcontract, shall be
subject to arbitration. Prior to
arbitration, the parties shall endeavor to
resolve disputes by mediation in accordance
with the provision of Paragraph 6.1.

In Rodgers Builders, Inc. we considered an arbitration

clause similar to the one here. In that case, the arbitration

clause provided: “‘All claims, disputes and other matters in

question between the Contractor [plaintiff] and the Owner

[McQueen Properties] arising out of, or relating to, the

Contract Documents or the breach thereof, . . . shall be decided

by arbitration . . . .’” Id. at 18, 331 S.E.2d at 728. The

subsequent claims in that case were tort claims related to “a

dispute . . . concerning plaintiff’s alleged failure to complete

the project within the time specified in the contract and

McQueen Properties’ subsequent refusal to pay a draw request in

the amount of $177,000 submitted by plaintiff.” Id. We observed

that the tort claims were subject to arbitration because “[t]he

actions which form the basis for the claims allegedly were taken

for the purpose of defeating plaintiff’s claim for damages

1
This subparagraph concerned the authority of the prime
contractor and architect to reject any work performed by ELJ
that does not conform to the prime contract.
 -6-
arising under the contract.” Id. at 25, 331 S.E.2d at 732.

Therefore, we concluded that the “alleged tortious conduct on

the part of defendants . . . occurred in connection with, or as

a part of, the formation of, performance under, or breach of the

contract between plaintiff and McQueen Properties” and held that

the claims were subject to arbitration. Id.

ELJ’s complaint alleged that the parties worked together on

a project for the Town of Farmville in 2009 and 2010, the

project covered by the subcontract discussed above. That project

“ended up in litigation, with [A.C. Schultes] filing suit

against ELJ.” In 2012, a project in Grantsboro, Pamlico County,

was posted for bid. ELJ alleged that defendant Jefferys made a

number of defamatory statements to engineers for the Pamlico

County project in order to convince the County to award the

contract to A.C. Schultes instead of ELJ. There is no indication

on the face of the complaint that the project in Pamlico County

had anything to do with the Farmville project.

Both parties also bid on a project in the Town of LaGrange,

Lenoir County. ELJ alleged that defendant Jefferys also called

an influential supplier on that project, the LaGrange mayor, and

the LaGrange public works director to make several derogatory

statements regarding ELJ’s past work. ELJ alleged that these
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statements were made in an attempt to dissuade LaGrange from

hiring ELJ to work on the project. There is no indication that

this project had anything to do with the Farmville project

either.

The only evident relevance of the Farmville project to the

present claims is to explain how the parties knew each other

prior to the later bids. It is the conduct surrounding these

later bid contests that gave rise to plaintiff’s claims here,

not the performance or breach of the contract. Even assuming

that Jeffreys’ allegedly derogatory statements were about ELJ’s

performance of the Farmville project, we cannot say that these

claims are “arising out of or related to [the Farmville]

Subcontract.” See Fontana v. Southeast Anesthesiology

Consultants, P.A., ___ N.C. App. ___, ___, 729 S.E.2d 80, 87

(holding that a plaintiff’s tort claims were not covered by an

arbitration agreement where “the facts underlying plaintiff’s

allegations relating to the tort claims may have contributed to

creating the environment which led to plaintiff’s termination,

but they do not specifically pertain to a dispute concerning

plaintiff’s termination.”), disc. rev. denied, 366 N.C. 394, 732

S.E.2d 478 (2012).
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The alleged defamatory statements were made after the

project, as well as the related litigation, was complete. They

were not substantially related to the subcontract. Unlike in

Rodgers Builders, Inc., the conduct giving rise to plaintiff’s

tort claims did not occur “in connection with, or as a part of,

the formation of, performance under, or breach of the contract

between” the parties. 76 N.C. App. at 25, 331 S.E.2d at 732.

Although defendants correctly observe that this arbitration

provision is broad, it is not quite so broad as to reach all

conduct between the parties. Given the lack of connection

between the claims under consideration here and the contract

containing the agreement to arbitrate, we conclude that

plaintiff is not required to arbitrate these claims. Therefore,

we affirm the trial court’s denial of defendants’ motion to

compel arbitration.

IV. Conclusion

We conclude that the arbitration provision in the contract

between the parties does not cover the unrelated tort claims

later brought by plaintiff. Therefore, we affirm the trial

court’s order denying defendants’ motion to compel arbitration.

AFFIRMED.

Judges HUNTER, JR., Robert N. and DILLON concur.
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Report per Rule 30(e).