HCW Retirement & Financial Services, LLC v. HCW Employee Benefit Services, LLC

731 S.E.2d 181, 222 N.C. App. 19, 2012 WL 3171825, 2012 N.C. App. LEXIS 939
CourtCourt of Appeals of North Carolina
DecidedAugust 7, 2012
DocketNo. COA11-1479
StatusPublished
Cited by2 cases

This text of 731 S.E.2d 181 (HCW Retirement & Financial Services, LLC v. HCW Employee Benefit Services, LLC) is published on Counsel Stack Legal Research, covering Court of Appeals of North Carolina primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
HCW Retirement & Financial Services, LLC v. HCW Employee Benefit Services, LLC, 731 S.E.2d 181, 222 N.C. App. 19, 2012 WL 3171825, 2012 N.C. App. LEXIS 939 (N.C. Ct. App. 2012).

Opinion

ERVIN, Judge.

Defendants Frank S. Woody, III, and Todd T. Yates appeal from an order denying their motion to compel arbitration with respect to the twelfth and thirteenth claims for relief asserted in the First Amended Complaint filed by Plaintiffs HCW Retirement and Financial Services, LLC; HCWRFS, LLC; and Wilton R. Drake, III.1 On appeal, Defendants argue that the trial court erred by denying their motion to compel arbitration with respect to the claims in question on the grounds that a contract between Defendants and Mr. Drake contained language providing for arbitration of these claims and that Defendants had not waived the right to have these claims submitted to arbitration by participating in discovery. Upon careful consideration of Defendants’ challenges to the trial court’s order in light of the record and the [21]*21applicable law, we conclude that, while the trial court erred by determining that the claims in question were not covered by the arbitration clause, it did not err by determining that Defendants had waived the right to have these claims resolved in arbitration, so that its order should be affirmed.

I. Factual Background

A. Substantive Facts

Plaintiffs HCW Retirement & Financial Services, LLC (“RFS”), and HCWRFS, LLC, (“HCWRFS”) are North Carolina limited liability companies, while Plaintiff Wilton Drake is a financial planner who offers retirement planning services. Defendants are financial advisers who offer investment and insurance services. Between the late 1990s and 2010, the parties were involved in various cooperative or collaborative business ventures that revolved around the provision of financial or investment advice.

On 12 August 2003, Defendants and Plaintiff Drake formed Prescott Office Management, LLC, for the purpose of entering into an office sharing arrangement pursuant to which Prescott would purchase part of an office condominium. At the conclusion of that process, Prescott became a 50% owner of Prestwick, which owns an office condominium utilized by the parties for the purpose of conducting their businesses.

At the time that they organized Prescott, the parties executed and signed an Operating Agreement that governed their rights and responsibilities with regards to Prescott and included an arbitration provision. Initially, each of the three principals had a one-third interest in and served as a manager of Prescott. In addition, the Operating Agreement provided that decisions involving the limited liability company required the approval of all three managers. In September, 2010, Defendants amended the Operating Agreement to provide that managers would be elected by majority vote and that decisions concerning Prescott could be made by a vote of 66% of the members; elected themselves managers for an indefinite term; and adopted other amendments to the Operating Agreement that gave Defendants increased authority over Prescott’s operations.2 Using the authority granted to them by these amendments to the Operating Agreement, [22]*22Defendants procured the non-renewal of Mr. Drake’s lease for space in the Prestwick building when his lease expired in 2010.

B. Procedural History

On 26 January 2011, Plaintiffs filed a First Amended Complaint3 in which they sought 1) damages for an alleged violation of partnership obligations; 2) damages for trade name infringement; 3) cancellation of N.C. Trademark Registration No. T-020223; 4) a determination that Defendant EBS is not the owner of the trademark “Experience the Benefit”; 5) a determination that registration of the trademark “Experience the Benefit” had been obtained fraudulently; 6) cancellation of N.C. Trademark Registration No. T-020247; 7) a determination that Defendant EBS is not the owner of the HCW logo; 8) a determination that registration of the HCW logo had been fraudulently obtained; 9) cancellation of N.C. Trademark Registration'No. T-020312; 10) a determination that Defendant EBS is not the owner of the trade name “Hill, Chesson & Woody”; 11) that registration of the trade name “Hill, Chesson & Woody” had been fraudulently obtained; 12) damages for breach of the duty of good faith by Defendants Yates and Woody; 13) damages for breach of fiduciary duty by Defendants Yates and Woody; 14) an accounting; 15) damages for breach of a lease agreement; 16) damages for conversion; and 17) damages for tortious interference with contractual relationships and prospective advantage. On 18 February 2011, Defendants filed an answer in which they denied the material allegations of the First Amended complaint and asserted various defenses to Plaintiffs’ claims. In response to the breach of good faith and fair dealing and breach of fiduciary duty claims asserted in the First Amended Complaint, Defendants moved that further litigation be stayed and that these claims be referred to arbitration on the basis of the arbitration clause contained in the Operating Agreement.

After receiving Defendants’ motion to compel, Plaintiffs filed a response denying that the claims in question were subject to arbitration and submitted an affidavit executed by Mr. Drake setting out in more detail the factual basis for the twelfth and thirteenth claims asserted in Plaintiffs’ First Amended Complaint. On 8 August 2011, Plaintiffs filed a supplemental response to Defendants’ motion to compel arbitration in which they asserted that:

[23]*232. . . . Defendants Yates and Woody have refused to respond to discovery propounded by Plaintiffs. . . .
3. . . . Defendants have made use of judicial discovery procedures not available in the arbitration that they seek to compel in that Defendants questioned Plaintiff Drake about the facts and circumstances relating to the Twelfth and Thirteenth Claims for Relief during the deposition of Plaintiff Drake, which was conducted in late July 2011.
5. . . . Defendants Yates and Woody have waived arbitration by making use of judicial discovery procedures not available in arbitration, and Plaintiffs have been prejudiced by such discovery.

In an affidavit attached to Plaintiffs’ supplemental response, Mr. Drake stated, in pertinent part, that:

3. On July 27, 2011, my deposition was conducted by counsel for Defendants. The deposition began at approximately 9:30 a.m. and ended at approximately 8:00 p.m. . . .
4. During the course of the deposition, I was asked questions about the Twelfth and Thirteenth Claims for Relief in my Amended Complaint[.]. . . Defendants inquired about the facts surrounding my claims as well as the loss and damage that I have suffered as a result of the actions that are the basis of my claims. . . . Defendants provided me a copy of the Affidavit in Opposition to Defendants’ Motion to Compel Arbitration that I had previously filed, and questioned me about the Affidavit, including the various exhibits that were attached to the Affidavit. . . .
5. I was represented by counsel during the deposition, and am responsible for the expense incurred in connection with attendance by my counsel at the deposition, including the portion of the deposition that dealt with the questions concerning the Twelfth and Thirteenth Claims for Relief.
6. Previously, Plaintiffs propounded discovery to Defendants Yates and Woody[.] . . .

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Cite This Page — Counsel Stack

Bluebook (online)
731 S.E.2d 181, 222 N.C. App. 19, 2012 WL 3171825, 2012 N.C. App. LEXIS 939, Counsel Stack Legal Research, https://law.counselstack.com/opinion/hcw-retirement-financial-services-llc-v-hcw-employee-benefit-services-ncctapp-2012.