Charlotte Student Hous. Dst v. Choate Constr. Co.

2018 NCBC 88
CourtNorth Carolina Business Court
DecidedAugust 24, 2018
Docket18-CVS-5148
StatusPublished

This text of 2018 NCBC 88 (Charlotte Student Hous. Dst v. Choate Constr. Co.) is published on Counsel Stack Legal Research, covering North Carolina Business Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Charlotte Student Hous. Dst v. Choate Constr. Co., 2018 NCBC 88 (N.C. Super. Ct. 2018).

Opinion

Charlotte Student Hous. DST v. Choate Constr. Co., 2018 NCBC 88.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION MECKLENBURG COUNTY 18 CVS 5148

CHARLOTTE STUDENT HOUSING DST; and CHARLOTTE STUDENT HOUSING LEASECO, LLC,

Plaintiffs,

v. ORDER AND OPINION ON MOTIONS TO DISMISS OR STAY CHOATE CONSTRUCTION PENDING ARBITRATION COMPANY; DINO M. PAPPAS; GEOSCIENCE GROUP; MILLER ARCHITECTURE; THE SANCTUARY AT CHARLOTTE, LLC; TONY F. MILLER; and VRETTOS PAPPAS CONSULTING ENGINEERS, P.A.,

Defendants.

1. This case arises from the construction of a student apartment complex,

known as Arcadia. Plaintiffs are Arcadia’s current owner and landlord. They have

sued the original owner, the architect, the general contractor, and two subcontractors,

alleging that numerous, serious defects in Arcadia’s design and construction have

caused millions of dollars in repairs and lost rent.

2. Two Defendants—Choate Construction Company (“Choate”) and Geoscience

Group (“Geoscience”)—believe the claims asserted against them must be resolved in

arbitration. They ask the Court to dismiss or stay the claims pending the outcome of

arbitration. For the following reasons, the Court GRANTS both motions to the

extent they seek a stay. Katten Muchin Rosenman LLP, by Richard L. Farley, Jeffrey C. Grady, and Kelsey Panizzolo, for Plaintiffs Charlotte Student Housing DST and Charlotte Student Housing LeaseCo, LLC.

Kilpatrick Townsend & Stockton LLP, by Brian G. Corgan, Elizabeth L. Winters, Hayley R. Ambler, and David K. Johnson, for Defendant Choate Construction Company.

Berman Fink Van Horn P.C., by Thomas E. Austin, Charles H. Van Horn, and Lauren S. Frisch, for Defendant The Sanctuary at Charlotte, LLC.

Smith Moore Leatherwood LLP, by Jeffrey P. MacHarg and Alexandria Hirsh, for Defendants Dino Pappas and Vrettos Pappas Consulting Engineers, P.A.

Hamilton Stephens Steele + Martin, PLLC, by Tracy T. James and Carmela Mastrianni, for Defendant Geoscience Group.

Cranfill Sumner & Hartzog LLP, by John W. Ong and Meredith A. Fitzgibbon, for Defendants Tony F. Miller and Miller Architecture.

Conrad, Judge.

I. BACKGROUND1

3. To anyone who attended college in the twentieth century, Arcadia must

sound like Shangri-La, a paradise for the modern-day student. It is a 22-acre

property, with over 200 apartments in nearly 40 buildings (variously described as

chalets, manors, and cottages). (Compl. ¶¶ 14–15, ECF No. 3; Choate Mot. to Dismiss

Ex. A, ECF No. 49.1 [“Construction Contract”].) A separate clubhouse offers a game

1 As context for the Court’s analysis, this section describes the allegations in the complaint and also the relevant facts regarding the pending motions, which are largely undisputed (though the parties draw different conclusions from them). The Court elects to make necessary findings of fact and conclusions of law at the end of this Opinion. room, study room, tanning booths, sauna, steam room, and more, with an outdoor

pool in an adjacent area. (See Compl. ¶ 48.)

4. Arcadia took nearly two years to build. Its original owner, The Sanctuary

at Charlotte, LLC (“Sanctuary”), engaged Choate to serve as general contractor, using

a standard form contract (“Construction Contract”). (See Compl. ¶¶ 16–17.) Choate

warranted that it would furnish new materials of good quality and that its work

would conform to the contract and be free from defects. The warranties became

effective upon substantial completion of the complex and ran for one year. (See

Construction Contract, General Conditions §§ 3.5, 9.8.4, 12.2.2.1.) As alleged by

Plaintiffs, Choate later issued a written, one-page Contractor Warranty “[u]pon

completion of the Project” to be effective from March 10, 2015 to March 10, 2016.

(Compl. ¶ 22; see also Choate’s Mot. to Dismiss Ex. B, ECF No. 49.2.)

5. After construction was complete, Arcadia changed hands. Sanctuary sold

the property to a third party, which in turn sold it to Plaintiff Charlotte Student

Housing DST. (Compl. ¶¶ 24, 36.) Plaintiff Charlotte Student Housing LeaseCo,

LLC became the landlord on all tenant leases. (Compl. ¶ 37.)

6. Plaintiffs now claim that, upon purchasing the property, they learned

Arcadia wasn’t paradise after all. Among other things, Plaintiffs allege they were

forced to close the clubhouse and one of the apartment buildings after discovering

major structural defects, including weak soil and water infiltration. (See Compl.

¶¶ 54, 81.) They also allege widespread mold and mildew problems due to defects in

the HVAC systems throughout Arcadia. (See Compl. ¶ 93.) When Plaintiffs notified Choate of these and other alleged defects, Choate agreed to address some but not all

of them under the terms of the Contractor Warranty. (See Compl. ¶¶ 22–23, 39–45.)

7. The unresolved disputes prompted this lawsuit. Asserting a claim for

breach of warranty, Plaintiffs attribute all of the defects to Choate’s faulty

workmanship and failure to comply with the project’s plans and specifications. (See

Compl. ¶ 131.) Plaintiffs also claim negligence on the part of several subcontractors

and service providers, including Geoscience for its role in testing soil conditions and

providing other engineering services. (See Compl. ¶¶ 153–54.) Finally, Plaintiffs

allege that Choate and Sanctuary were aware of the mold and mildew problems

before selling Arcadia but conspired to commit fraud by concealing them. (See Compl.

¶¶ 161–69.)

8. Choate and Geoscience ask the Court to dismiss or stay all claims asserted

against them on the ground that they are subject to binding arbitration. Choate relies

on the arbitration clause found in the Construction Contract between it and

Sanctuary. That clause requires claims “arising out of or related to” the Construction

Contract to be mediated and then subject to arbitration before the American

Arbitration Association (“AAA”) in accordance with its Construction Industry

Arbitration Rules (“Construction Rules”). (Construction Contract, General

Conditions §§ 15.1.1, 15.4.1.)

9. Geoscience points to its own contracts with Sanctuary, one dealing with

geotechnical subsurface exploration and the other with construction materials testing

services (“Geoscience Contracts”). Each contract includes a clause requiring, at Geoscience’s sole discretion, arbitration of “all claims or disputes” by the AAA under

its Construction Rules. (Geoscience’s Mot. to Dismiss Exs. A, B, ECF Nos. 40.1, 40.2.)

10. Plaintiffs argue that none of these contracts were assigned to them as part

of the purchase of Arcadia and that they are not attempting to enforce the contracts’

terms. Thus, Plaintiffs contend, any arbitration agreements made between Choate

and Sanctuary or Geoscience and Sanctuary are not binding on Plaintiffs.

11. The motions have been fully briefed, and the Court held a hearing on July

25, 2018. After the hearing, Choate and Geoscience supplemented the record without

objection, and Plaintiffs filed a short response. (See ECF Nos. 80, 91, 93.) The

motions are ripe for determination.

II. LEGAL STANDARD

12. The parties agree that the Federal Arbitration Act (“FAA”) governs the

resolution of these motions. (See Choate’s Mem. in Supp. Mot. to Dismiss 9, ECF No.

49 [“Choate’s Mem.”]; Geoscience’s Br. in Supp. Mot. to Dismiss 2, ECF No. 44 [“Geo.’s

Br.”]; Pls.’ Opp’n to Choate’s Mot. to Dismiss 10, ECF No.

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2018 NCBC 88, Counsel Stack Legal Research, https://law.counselstack.com/opinion/charlotte-student-hous-dst-v-choate-constr-co-ncbizct-2018.