JRM, Inc. v. The HJH Cos.

• Court: Court of Appeals of North Carolina
• Decided: February 7, 2023
• Docket: 22-537
• Status: Published

Opinion

IN THE COURT OF APPEALS OF NORTH CAROLINA

No. COA22-537

Filed 07 February 2023

Davidson County, No. 21CVS2155

JRM, INC., Plaintiff,

v.

THE HJH COMPANIES, INC. D/B/A THE SALT GROUP, THE HJH CONSULTING GROUP, INC. and TODD G. SIZER, Defendants.

Appeal by defendant from judgment entered 21 January 2022 by Judge

Susan E. Bray in Davidson County Superior Court. Heard in the Court of Appeals

11 January 2023.

Nelson Mullins Riley & Scarborough LLP, G. Gray Wilson and Lorin J. Lapidus, for the plaintiff-appellee.

Johnston Allison & Hord, PA, by Michael J. Hoefling and Kathleen D.B. Burchette, for the defendant-appellant.

TYSON, Judge.

JRM Inc. (“Plaintiff”) sued HJH Co. and Todd G. Sizer after Plaintiff realized

Sizer had acted without authority and signed a contract binding Plaintiff to HJH.

HJH (“Defendant”) moved for an order to compel arbitration. The trial court

concluded HJH had failed to meet its burden to prove a valid arbitration agreement

existed by mutual agreement of all parties. HJH appeals. We dismiss.

I. Background JRM INC. V. HJH COS., INC.

Opinion of the Court

Plaintiff manufactures, sells, and distributes irrigation equipment for golf

courses and other turf covered surfaces. Plaintiff’s office is located in Clemmons.

HJH Companies is a Texas corporation doing business as the “The Salt Group.”

HJH’s principal place of business is located in San Antonio, Texas.

HJH’s business model centers on generating cost-savings for companies by

negotiating lower rates and costs with third-party vendors. HJH then bills those

companies for any purported savings. News reports revealed HJH had “overstat[ed]

the amount of money clients owed the company so it could tap a line of credit with

the bank.” A consultant for HJH pled guilty in federal court to knowingly inflating

and fabricating figures for unearned estimates of fees to be earned under contingent

fee contracts.

During the sentencing hearing, the prosecutor argued the convicted consultant

was “only following the orders of his boss,” the owner of HJH. The trial court

expressed its frustration with the situation, stating: ‘This court is going to [ ] hav[e]

to fashion an appropriate sentence . . . on the man who really is not the person who

should be before the court. But, unfortunately, that’s the person we have.”

Before 2020, HJH had reached out to Plaintiff’s officers on numerous occasions,

attempting to convince Plaintiff to enter into an agreement for its purported cost-

savings services. Plaintiff’s officers repeatedly expressed no desire to contract with

HJH, as Plaintiff has historically been able to secure efficient and reasonable

agreements with vendors, and HJH’s services were not needed.

-2- JRM INC. V. HJH COS., INC.

Plaintiff hired Sizer in mid-October of 2020 as its Chief Financial Officer.

Within a couple of weeks of hiring Sizer, he entered an agreement for cost-saving

services with HJH on 3 November 2020. The purported agreement included a

reference to arbitration agreement provisions included on HJH’s website.

Plaintiff’s President and Chief Executive Officer, James R. Merritt, submitted

a sworn affidavit to the trial court. In the affidavit, Merritt stated only he and his

wife, Jennifer B. Merritt, the secretary of JRM, were authorized to enter into or

execute contracts on behalf of the company.

Sizer concealed the HJH agreement, and other unauthorized agreements, from

Plaintiff’s management. In the spring of 2021, Merritt learned of an unauthorized

contract Plaintiff had entered into with a third party, who is not a litigant in this

case. As a result, Plaintiff amended the company’s policy handbook on 22 March

2021, clarifying and listing only Merritt and his wife as having the authority to enter

into binding contracts with third parties. Merritt also asked Sizer if he had signed

any other contracts. Sizer responded he had not.

Sizer continued to contract with and pay HJH for alleged cost-saving services

without authority and without Plaintiff’s knowledge or consent. Sizer appeared to

know he was unauthorized to contract with HJH, because he waited until HJH’s

accounts payable manager was out of the office to log into the company’s accounting

system, add HJH as a vendor, and to secretly pay HJH for alleged cost-savings

-3- JRM INC. V. HJH COS., INC.

services on 26 July 2021. Two days after this conduct, Sizer resigned from the

company on 28 July 2021.

Sizer, however, continued to contract with HJH after he submitted his

resignation. He signed an addendum to the HJH agreement on 11 August 2021,

which purported to obligate Plaintiff to pay $92,298.55 to HJH for “merchant card

services that had never been obtained.” Plaintiff did not learn about this addendum

until after Sizer had left the company. Additionally, Plaintiff received a $15,000

invoice from HJH on Sizer’s last official day of employment, which Sizer promised to

explain in an email, but never addressed.

Plaintiff subsequently sent Sizer a letter informing him they would withhold

his final paycheck to partially mitigate their damages, and they informed him they

planned to “continue to investigate [his] role in this matter, and reserve[d] the right

to pursue all available civil and criminal remedies to the fullest extent of the law.”

Plaintiff received numerous invoices, demand letters, and collection calls from

HJH. These communications claimed Plaintiff owed HJH a principal amount of

$108,798.55. The amount Plaintiff purportedly owed, however, significantly

increased after Plaintiff’s lawyers asserted claims against HJH. HJH’s final demand

letter expressed Plaintiff owed them $241,861.47 for both the principal and interest

and threatened to force arbitration to be held in Texas.

According to Merritt, it “would impose an extreme hardship on [Plaintiff] to

have to defend a meritless claim in [Texas].” Plaintiff brought several claims against

-4- JRM INC. V. HJH COS., INC.

HJH, including: declaratory relief regarding the validity and scope of the purported

contracts, fraud, unfair and deceptive trade practices, illegal conspiracy, recission of

the contract, and punitive damages on 22 October 2021. Plaintiff also alleged Sizer

breached his fiduciary duty and committed constructive fraud.

HJH moved to dismiss Plaintiff’s claims, or alternatively to compel arbitration

and stay litigation, on 29 December 2021. Plaintiff served two affidavits in opposition

to the motion. HJH filed an untimely affidavit in support of the motion.

A hearing on the motions was held on 10 January 2022. The trial court entered

an order striking the affidavit of Tisha Petty (“Petty Affidavit”), who is the Senior

Manager Account Services and Legal Liaison for HJH, and denied both of HJH’s

motions on 20 January 2022. HJH filed a notice of appeal on 7 February 2022.

II. Jurisdiction

HJH argues the amended order improperly denied its right to compel

arbitration, and the trial court’s order affects a substantial right and is immediately

appealable. HJH also asserts the trial court erred in striking the Petty Affidavit,

which supported its motion to compel arbitration.

III. Standard of Review

Precedents governing the review of the enforceability of arbitration clauses in

contracts is well-established:

Because the law of contracts governs the issue of whether there exists an agreement to arbitrate, the party seeking arbitration must show that the parties mutually agreed to

-5- JRM INC. V. HJH COS., INC.

arbitrate their disputes. The trial court’s determination of whether a dispute is subject to arbitration is a conclusion of law reviewable de novo.

T.M.C.S., Inc. v. Marco Contr'rs, Inc., 244 N.C. App. 330, 339, 780 S.E.2d 588, 595

(2015) (emphasis supplied) (citations, alterations, and internal quotation marks

omitted).

IV. Analysis

Appellate jurisdiction is conferred by statute. This Court only possesses

jurisdiction over the appeal of “any interlocutory order or judgment of a superior court

or district court in a civil action or proceeding” if it “[a]ffects a substantial right.” N.C.

Gen. Stat. § 7A-27(b) (2021).

“This Court has repeatedly held ‘an order denying arbitration, although

interlocutory, is immediately appealable because it involves a substantial right which

might be lost if appeal is delayed.’” Earl v. CGR Dev. Corp., 242 N.C. App. 20, 22, 773

S.E.2d 551, 553 (2015) (citations omitted).

While courts should not refuse to implement the terms of an arbitration

agreement, if a valid agreement to arbitrate exists, a motion to compel arbitration is

properly denied if a valid agreement to arbitrate does not exist. “If the refusing party

opposes the motion, the court shall proceed summarily to decide the issue and order

the parties to arbitrate unless it finds that there is no enforceable agreement to

arbitrate.” N.C. Gen. Stat. § 1-569.7(a)(2) (2021) (emphasis supplied).

The party seeking arbitration must show that the parties

-6- JRM INC. V. HJH COS., INC.

mutually agreed to arbitrate their disputes. . . . The trial court’s findings regarding the existence of an arbitration agreement are conclusive on appeal where supported by competent evidence, even where the evidence might have supported findings to the contrary.

Slaughter v. Swicegood, 162 N.C. App. 457, 461, 591 S.E.2d 577, 580 (2004) (quoting

Routh v. Snap–On Tools Corp., 108 N.C. App. 268, 271–72, 423 S.E.2d 791, 794

(1992), and Sciolino v. TD Waterhouse Investor Servs., Inc., 149 N.C. App. 642, 645,

562 S.E.2d 64, 66 (2002)) (citations and internal quotation marks omitted).

For example, in Evangelistic Outreach Ctr. v. General Steel Corp., this Court

affirmed the trial court’s denial of a motion to compel arbitration where the trial court

resolved conflicts in the evidence regarding whether a valid arbitration agreement

existed. 181 N.C. App. 723, 726-27, 640 S.E.2d 840, 843 (2007). There, the proponent

of the alleged arbitration agreement submitted an unverified motion alleging a one-

page purchase order, which noted the agreement was subject to the terms and

conditions on its face and on the reverse side. Id. at 726, 640 S.E.2d at 843. The

proponent submitted a copy of the reverse side, which contained an arbitration

clause. Id. The proponent also submitted an affidavit from a Customer Service

Manager alleging the manager faxed both sides of the agreement to the plaintiff. Id.

To counter this evidence, the plaintiff submitted both a verified response to requests

for admissions, in which plaintiff denied ever receiving the reverse side of the

agreement, and an affidavit denying receipt of the second page or any document

-7- JRM INC. V. HJH COS., INC.

referencing arbitration. Id. at 727, 640 S.E.2d at 843. Plaintiff also denied entering

into any contract including an arbitration clause. Id.

As our Court explained:

The trial court denied defendant’s motion in an order stating in relevant part that “[t]he Defendant has failed in its burden of proof to prove that there was an agreement between the parties to arbitrate.” Thus, the trial court denied defendant’s motion on the grounds that proof of the very existence of an arbitration agreement was lacking. We conclude that the evidence supports this conclusion.

Id.

Here, the trial court found and concluded HJH had “failed to meet its burden

of proving that [a] valid arbitration agreement exist[ed] by mutual agreement of both

parties” pursuant to N.C. Gen. Stat. § 1-569.7(a)(2) (2021). The trial court also

concluded HJH “failed to meet its burden of showing clear and unmistakable proof

that HJH and JRM agreed to delegate the threshold issue of arbitrability to an

arbitrator.” A trial court may properly deny a motion to compel arbitration if it

determines evidence of the “very existence of an arbitration agreement [i]s lacking.”

Evangelistic Outreach Ctr., 181 N.C. App. at 727, 640 S.E.2d at 843.

The trial court did not err as a matter of law by concluding HJH had

failed to prove a valid arbitration agreement existed. Id. Plaintiff submitted two

affidavits to support the assertion it never entered into a valid arbitration agreement

with HJH. Defendant did not offer any evidence to support an agreement to arbitrate

existed aside from the disputed agreement and the stricken Petty Affidavit. The trial

-8- JRM INC. V. HJH COS., INC.

court struck the Petty Affidavit from the record because HJH did not serve the Petty

Affidavit with the motion to compel arbitration, nor was it served at least two days

prior to the hearing. N.C. Gen. Stat. § 1A-1, Rule 6(d) (2021) (“When a motion is

supported by affidavit, the affidavit shall be served with the motion; and except as

otherwise provided in Rule 59(c), opposing affidavits shall be served at least two days

before the hearing.”).

This Court otherwise lacks jurisdiction to review the portion of the trial court’s

interlocutory order striking the Petty Affidavit. See State v. Carver, 2021-NCCOA-

141, ¶23, 277 N.C. App. 89, 94, 857 S.E.2d 539, 543, writ denied, review denied, 379

N.C. 156, 863 S.E.2d 597 (2021). In Carver, this Court held it may not exercise

pendant appellate jurisdiction over interlocutory orders that are not immediately

appealable, and “if a trial court denies the State’s motion to dismiss based on

sovereign immunity—a ruling that is immediately appealable—the State ordinarily

cannot appeal the denial of its motion to dismiss on other grounds, even if those other

rulings are contained in the same order.” Id.

Without the untimely Petty Affidavit, the trial court did not err as a matter of

law by declining to conclude an agreement to arbitrate existed. Evangelistic Outreach

Ctr., 181 N.C. App. at 727, 640 S.E.2d at 843; Gay, 271 N.C. App. at 13-14, 842 S.E.2d

at 643-44. The trial court’s ruling denying the motion to compel arbitration in the

absence of the existence of an arbitration agreement is affirmed.

-9- JRM INC. V. HJH COS., INC.

If a valid agreement to arbitrate does not exist, Defendant has failed to show

a substantial right is affected. This Court lacks jurisdiction to review the trial court’s

interlocutory order denying HJH’s motion to compel arbitration. N.C. Gen. Stat.

§§ 7A-27(b)(3)(a) and 1-569.7(a)(2); Slaughter, 162 N.C. App. at 461, 591 S.E.2d at

580. Defendant has not filed a petition for writ of certiorari. N.C. R. App. P. 21.

V. Conclusion

The trial court properly concluded HJH had failed to show Plaintiff and HJH

entered into a valid agreement to arbitrate their disputes. Evangelistic Outreach

Ctr., 181 N.C. App. at 727, 640 S.E.2d at 843; Gay, 271 N.C. App. at 13-14, 842 S.E.2d

at 643-44.

Without the existence of a valid arbitration agreement, no substantial right is

shown to warrant immediate review. HJH’s appeal is interlocutory. N.C. Gen. Stat.

§§ 7A-27(b)(3)(a) and 1-569.7(a)(2); Slaughter, 162 N.C. App. at 461, 591 S.E.2d at

580.

This Court lacks appellate jurisdiction to assess the trial court’s other findings

contained in the order entered on 20 January 2022, and its purported appeal is

dismissed. See Carver, ¶23, 277 N.C. App. at 94, 857 S.E.2d at 543. It is so ordered.

DISMISSED.

Judge HAMPSON concurs.

Judge DILLON concurs with separate opinion.

- 10 - No. COA20-10622-537 – JRM, Inc. v. HJH Companies, Inc.

DILLON, Judge, writing separately.

I essentially agree with the analysis contained in the majority opinion except

for the disposition to dismiss Defendants’ appeal of the trial court’s denial of their

motion to compel arbitration. I believe the disposition should be to affirm the trial

court order. That is, I conclude we do have jurisdiction to consider whether

Defendants, in fact, have a substantial right which would be forever lost by the trial

court’s order.

By dismissing the appeal, the majority, in essence, concludes we do not have

appellate jurisdiction to consider whether Defendants have a substantial right which

would be forever lost by the trial court’s interlocutory order. We should not reach

the merits of Defendants’ claim to that substantial right in answering the threshold

jurisdictional question. To do so would, in the words of the United States Supreme

Court, “conflat[e] the jurisdictional question with the merits of the appeal.” Arthur

Andersen v. Carlisle, 556 U.S. 624, 628 (2009). As that Court instructs, “[j]urisdiction

over the appeal[,] ‘must be determined by focusing on the category of order appealed

from, rather than upon the strength of the grounds for reversing the order.’” Id.

(quoting Behrens v. Pelletier, 516 U.S. 299, 311 (1996)).

Here, the interlocutory order being appealed by Defendants falls within the

category of interlocutory orders over which we have jurisdiction to review

immediately: an order which denies litigants their motion to compel arbitration. JRM, INC. V. HJH COMPANIES, INC.

DILLON, J., writing separately The fact that we all ultimately conclude there is no strength in Defendants’

grounds for reversing the trial court’s interlocutory order should not affect whether

we have appellate jurisdiction to evaluate those grounds. See Arthur Andersen, 556

U.S. at 629 (“It is more appropriate to grapple with [the] merits question after the

court has accepted jurisdiction over the case.”). See also Neusoft Med. v. Neuisys, 242

N.C. App. 102, 774 S.E.2d 851 (2015) (arbitration matter); Meherrin v. Lewis, 197

N.C. App. 380, 385, 86, 677 S.E.2d 203, 207-08 (2009) (affirming trial court’s order

denying dismissal based on sovereign immunity, concluding appellate jurisdiction

existed to consider defendant’s claim to sovereign immunity as a member of an Indian

tribe, but determining on the merits that the defendant, in fact, did not belong to a

recognized tribe and therefore did not have sovereign immunity).

I am aware that parties may assert frivolous claims to some substantial right

to put an ongoing case on hold. But an appellant who makes a frivolous assertion of

a substantial right for an improper purpose (e.g., delay) does so at the risk of being

sanctioned by this Court. See N.C. R. App. P. 34. See also Arthur Andersen, 556 U.S.

at 629 (addressing concern that recognizing appellate jurisdiction might result in

frivolous appeals by stating that those bringing such appeals subject themselves to

sanctions).

In any event, my disagreement with the majority is essentially over a

distinction without a difference, as the majority in its opinion also resolves the key

2 JRM, INC. V. HJH COMPANIES, INC.

DILLON, J., writing separately issue on appeal; namely, whether the trial court correctly determined that

Defendants have no right to arbitrate.