MORTON v. IVEY, McCLELLAN, GATTON & TALCOTT, LLP

Morton v. Ivey, McClellan, Gatton & Talcott, LLP, 2013 NCBC 23.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF MOORE 12 CVS 1298

JASON MORTON and ERIK )
HARVEY, )
)
Plaintiffs, )
)
v. ) ORDER ON MOTION TO COMPEL
) ARBITRATION
IVEY, MCCLELLAN, GATTON & )
TALCOTT, LLP, )
)
Defendant. )
)

{1} THIS MATTER is before the court on Defendant Ivey, McClellan,
Gatton & Talcott, LLP’s (“IMGT”) Motion to Compel Arbitration (“Motion”)
pursuant to the North Carolina Revised Uniform Arbitration Act, N.C. Gen. Stat. §
1-569.1–569.31 (“RUAA”). For the reasons stated below, the Motion is GRANTED.

Carolina Law Partners by Sophia Harvey for Plaintiffs.

Brooks, Pierce, McLendon, Humphrey & Leonard LLP by John W. Ormand
III, Steven Wilson Quick, Craig D. Schauer, and Jeffrey E. Oleynik for
Defendant.

Gale, Judge.

I. PRODECURAL BACKGROUND

{2} Plaintiffs initiated this action by Complaint dated October 19, 2012
(“Original Complaint”), alleging claims for: (1) breach of contract; (2) breach of the
covenant of good faith and fair dealing; (3) breach of fiduciary duty; (4) constructive
fraud; (5) unfair and deceptive trade practices; and (6) an accounting. On November
26, 2012 the matter was designated a mandatory complex business case by order of
Chief Justice Sarah Parker and assigned to the undersigned. Plaintiffs’ Original
Complaint alleged that an oral partnership agreement between the Parties was
reached in December 2011, stated that Harvey “sent a written agreement
memorializing the parties’ December 2011 oral contract to Defendants” (Compl. ¶
21), and included allegations supporting their claims against Defendant based on
both the oral agreement and the written draft. On December 21, 2012, Defendant
filed the present Motion, urging that each of the causes of action is subject to an
oral agreement to arbitrate, as evidenced by an arbitration provision included in the
written, but unsigned, partnership agreement. Plaintiffs filed an Amended
Complaint on March 9, 2013 (“Amended Complaint”). In material part, the
Amended Complaint repeated the allegations regarding the oral agreement reached
in December 2011, but further alleged that no written partnership agreement was
ever finalized. (Am. Compl. ¶¶ 22–25.) Defendant moved to dismiss the Amended
Complaint on April 10, 2013.
{3} The Motion has been fully briefed and is ripe for disposition.

II. FACTUAL BACKGROUND

A. The Oral Partnership Agreement

{4} Plaintiff Jason Morton (“Morton”) is a citizen and resident of Moore
County, North Carolina. (Am. Compl. ¶ 1.) Prior to becoming a partner in IMGT,
Morton was a solo practitioner practicing in Moore County, North Carolina. (Am.
Compl. ¶ 7.)
{5} Plaintiff Erik Harvey (“Harvey”) is a citizen of Forsyth County, North
Carolina. (Am. Compl. ¶ 2.)
{6} Defendant IMGT is a North Carolina limited liability partnership
engaged in the practice of law. (Am. Compl. ¶ 3.)
{7} Harvey was hired as an associate attorney by IMGT in August, 2009.
(Am. Compl. ¶ 6.) In November, 2011, Harvey notified IMGT of his intent to resign.
(Am. Compl. ¶ 8.) IMGT proposed an alternative arrangement whereby: (1) Harvey
and Morton would become partners in IMGT; and (2) IMGT would be divided into
an “A Group” comprised of the then-existing partners in IMGT and a “B Group”
made up of Harvey and Morton, with the B Group contributing all revenue to IMGT
in exchange for a percentage of revenue based upon an agreed-upon formula. (Am.
Compl. ¶¶ 9–10.) The B Group would concentrate in tax and consumer bankruptcy
work. (Am. Compl. ¶ 10.)
{8} Plaintiffs allege that: “In late December 2011, Mr. Harvey orally
informed [Talcott] that Plaintiffs accepted the terms of the partnership agreement .
. . ,” and Talcott indicated IMGT’s acceptance of the same (“Oral Partnership
Agreement”), and that pursuant to this agreement, Harvey and Morton became
partners in IMGT effective January 1, 2012. (Am. Compl. ¶¶ 13–14, 18.)

B. Written Records Related to the Oral Partnership Agreement

{9} After oral agreement was reached, Talcott asked Mike Wenig, an
attorney at Tuggle Duggins, P.A., to prepare a draft of the Partnership Agreement.
(Talcott Aff. ¶¶ 8–9, Ex. 1.) Using that draft, Harvey and Talcott worked to revise
the agreement and Harvey sent a proposed draft to Defendant in mid-December
2011. (Am. Compl. ¶¶ 22–23; Talcott Aff. ¶¶ 11–12.)
{10} All proposed drafts of the written Partnership Agreement contained
the following provision:
Should any controversy of any type arise hereunder which would
require a judicial determination of such controversy, then such
controversy shall be resolved by binding arbitration under the rules
and regulations of the American Arbitration Association with each
party to bear its own costs, fees and expenses associated therewith.

(the “Arbitration Provision”) (Defs’ Brief in Supp. of Mot. to Compel Arbitration and
Mot. to Stay Pending Ruling [hereinafter Brief in Supp.] 2; Response 3; Gatton Aff.
¶11; Talcott Aff. ¶¶ 10, 13, Ex. 1, at ¶ 7, Ex. 2, at ¶ 9, Ex. 3, at ¶ 9(a), Ex. 4, at 9(a).)
{11} No written Partnership Agreement was ever signed. (Brief in Supp. 3;
Resp. in Opp’n to Mots. to Compel Arbitration and Stay Proceedings [hereinafter
Response] 4.)
{12} After Harvey circulated a draft of the written Partnership Agreement,
the Parties met in January, 2012 to discuss the draft.1 (Response 2–3.) At the
meeting, IMGT’s partner Edwin R. Gatton (“Gatton”) expressed his concern about
the arbitration provision, but refrained from voting on the Partnership Agreement
because he intended to retire in 2013. (Response 3; Def.’s Reply Br. in Supp. of Mot.
to Compel Arbitration [hereinafter Reply] 2; Gatton Aff. ¶¶ 4, 9–10.) The other
partners voted in favor of accepting the draft Partnership Agreement, but also
agreed that a separate provision relating to malpractice insurance should be
modified. (Brief in Supp. 3; Reply 2; Gatton Aff. ¶ 11; Talcott Supplemental Aff. ¶
9.)
{13} Harvey’s copy of the draft Partnership Agreement includes
handwritten notes reflecting Gatton’s concerns and the agreed-upon change to the
malpractice insurance provision. (Response 3–4, Ex. 2, at 10–11; Talcott Aff. ¶¶ 17–
19, Ex. 4, at 11.)

C. Actions After the January Meeting Reflecting the Oral Agreement

{14} While the Parties agree that no draft of the written Partnership
Agreement was ever signed, they acted pursuant to its terms between January 1,
2012 and May or June of 2012. (Am. Compl. ¶¶ 26–35; Brief in Supp. 1–3; Response
4, 6; Reply 3.)
{15} Around May 2012, Plaintiffs accused Defendant of failing to perform
according to the terms of the Partnership Agreement and advised Defendant they
were terminating the Partnership Agreement. (Am. Compl. ¶¶ 30–34.) The Parties
agreed to terminate the Partnership Agreement, effective June 15, 2012. (Am.
Compl. ¶ 35; Brief in Supp. 3.)
{16} The Parties conferred regarding their position on post-termination
obligations. (Brief in Supp. 3; Response 4.) On June 18, Gatton sent a letter to
Plaintiffs documenting attempts at negotiations and referring to possible litigation

1 Plaintiffs also mention an earlier meeting in December 2011 to discuss the agreement. Compare
(Response 2) with (Brief in Supp. 2–3).
and/or arbitration. (Response Ex. 3.) Gatton sent a second letter to Plaintiffs on
June 26, 2012 stating that “once we decide that the negotiations are not proving to
be fruitful (and they do not appear to be at this point) we will refer this matter to
counsel, not for further negotiation, but for litigation.” (Response Ex. 4, at 2.)
Plaintiffs filed suit in Moore County on October 19, 2012.

III. ANALYSIS

{17} If one party invokes arbitration and another contends that there is no
enforceable agreement to arbitrate, § 569.7 of the RUAA requires the court to
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) (2013). Pursuant to § 569.7, the court is to determine whether an
agreement to arbitrate exists and, if so, whether the controversy is subject to
arbitration. See Ellison v. Alexander, 207 N.C. App. 401, 409, 700 S.E.2d 102, 109
(2010). These issues are for the trial court to determine, and the court may resolve
contested issues to make that determination. Routh v. Snap-On Tools Corp., 101
N.C. App. 703, 705–06, 400 S.E.2d 755, 757 (1991). Subject to the language of the
arbitration agreement, a wide array of claims, including tort claims and assertions
of unfair trade practices may be properly submitted to arbitration. Rodgers
Builders, Inc. v. McQueen, 76 N.C. App. 16, 24–25, 331 S.E.2d 726, 731–32 (1985),
cert. denied, 315 N.C. 590, 341 S.E.2d 29 (1986).
{18} While the burden of proving an agreement to arbitrate may rest on the
party seeking to compel arbitration, “North Carolina has a strong public policy
favoring the settlement of disputes by arbitration,” and “any doubt concerning the
existence of such an agreement” or concerning whether a particular dispute falls
within the scope of that agreement must be resolved in favor of arbitration.
Johnston Cnty. v. R. N. Rouse & Co., 331 N.C. 88, 91–92, 414 S.E.2d 30, 32 (1992).
A. The Existence of an Agreement to Arbitrate

{19} “The trial court’s finding with regard to whether there existed an
arbitration agreement is a question of fact, to be determined by the trial court upon
competent evidence,” and “[i]n determining whether parties had a valid agreement
to arbitrate, the court may consider evidence as to facts that are in dispute.” Se.
Paper Grp., Inc. v. Sunburst Chems., Inc., 2012 NCBC LEXIS 15, at *3 n.1, *28
(N.C. Super. Ct. Mar. 13, 2012). “The law of contracts governs the issue of whether
there exists an agreement to arbitrate.” Routh v. Snap-On Tools Corp., 108 N.C.
App. 268, 271, 423 S.E.2d 791, 794 (1992) (citing S. Spindle & Flyer Co., Inc. v.
Milliken & Co., 53 N.C. App. 785, 786, 281 S.E.2d 734, 735 (1981)). “Before a valid
contract can exist, there must be mutual agreement between the parties as to the
terms of the contract.” Id. at 273, 423 S.E.2d at 795 (citing Normile v. Miller, 313
N.C. 98, 108, 326 S.E.2d 11, 18 (1985)). “In the construction of a contract, the
parties’ intentions control.” Walker v. Goodson Farms, Inc., 90 N.C. App. 478, 486,
369 S.E.2d 122, 126 (1988).
{20} Plaintiffs rely on several cases to contend that there can be no
enforceable arbitration agreement because the Partnership Agreement was never
signed. (Response 5 (citing Sciolino v. TD Waterhouse Investors Servs., Inc., 149
N.C. App. 642, 645–46, 562 S.E.2d 64, 66–67; Routh, 108 N.C. App. 268, 423 S.E.2d
791; Blow v. Shaughnessy, 68 N.C. App. 1, 313 S.E.2d 868 (1984), abrogated on
other grounds as recognized in Battleground Veterinary Hosp., P.C. v. McGeough,
2007 NCBC LEXIS 33, at *69 (N.C. Super. Ct. Oct. 19, 2007); Supak & Sons Mfg.
Co., Inc. v. Pervel Indus., Inc., 463 F. Supp. 177, 181 (E.D.N.C. 1978)).) However,
each of these cases reflects the court’s doubt whether the plaintiffs there ever saw or
were aware of the arbitration provision upon which the defendant relied. See, e.g.
Blow, 68 N.C. App. 1, 313 S.E.2d 868; Supak & Sons, 463 F. Supp. at 181; Sciolino,
149 N.C. App. at 646, 562 S.E.2d at 66–67. This case is quite different, with the
Plaintiffs not only knowing of the agreement but actually having had a significant
hand in drafting the agreement, which included the arbitration provision.
{21} An agreement need not be signed to be enforceable, and a court may
look to the actions of the parties to find a “meeting of the minds.” See Walker, 90
N.C. App. at 486–87, 369 S.E.2d at 126–27 (finding a contract was formed and the
terms in a written but unsigned agreement were assented to because “the parties . .
. affirmatively acted upon their negotiations which tended to show the formation of
an agreement”); see also Miller & Long, Inc. v. Intracoastal Living, LLC, 2011
NCBC LEXIS 19, at *21 (N.C. Super. Ct. June 21, 2011) (conduct can demonstrate
agreement even though written agreement not signed); Heater v. Heater, 53 N.C.
App. 101, 104–05, 280 S.E.2d 19, 21–22 (1981) (same).
{22} Admittedly, the RUAA demands more than only oral evidence of an
agreement to arbitrate. Section 569.6 of the RUAA provides that “[a]n agreement
contained in a record to submit to arbitration . . . is valid, enforceable, and
irrevocable except upon a ground that exists at law or in equity for revoking a
contract.” N.C. Gen. Stat. § 1-569.6(a) (2013) (emphasis added). The RUAA defines
a “record” as “information that is inscribed on a tangible medium . . . .” N.C. Gen.
Stat. § 1-569.1(6) (2013). The RUAA became effective in 2004, modifying earlier
provisions of North Carolina’s Uniform Arbitration Act, which provided that
“parties may agree in writing to submit to arbitration . . . or they may include in a
written contract a provision for the settlement by arbitration of any controversy . . .
.” Red Springs Presbyterian Church v. Terminix Co., 119 N.C. App. 299, 302, 458
S.E.2d 270, 273; see also Crutchley v. Crutchley, 306 N.C. 518, 522, 293 S.E.2d 793,
796 (1982). This reflects a relaxation that the arbitration agreement must itself
have been executed by the parties to an oral agreement whose terms are otherwise
reflected in a written record. See Miller & Long, 2011 NCBC LEXIS 19, at *21–24
(enforcing an unsigned but written agreement including an arbitration clause, while
refusing to extend the arbitration provision to another agreement with no
accompanying writing).
{23} In order to determine the matter summarily as directed by the RUAA,
the court elects pursuant to Business Court Rule 15.4 to decide the matter on the
written submissions without oral argument. Based on the pleadings and affidavits
submitted, together with documents attached thereto, the court finds as follows:
• The Parties orally agreed to a Partnership Agreement in December 2011;
• In and after January 1, 2012, the Parties acted in accordance with their
oral Partnership Agreement;
• The Parties reached a “meeting of the minds” as to the terms of the
Partnership Agreement, which included the arbitration agreement
reflected in the drafts of the unsigned written Partnership Agreement, at
their January 2012 meeting;
• Plaintiffs were aware of and consented to the arbitration terms;
• Although Gatton may have expressed reservations about arbitration as
reflected in Harvey’s handwritten notations, the Parties agreed to the
arbitration provision, and the possibility of a revised provision regarding
malpractice coverage does not defeat the agreement to arbitrate;
• The evidence reflects no opposition by Plaintiffs to the arbitration
provision (Reply 5);
• Defendant did not waive the right to arbitrate by threatening litigation;
• Plaintiffs have indicated their assent to the oral Partnership Agreement
by their effort to enforce provisions of that oral Partnership Agreement,
and their evidence to do so leans in favor of enforcing the arbitration
provision contained in the written agreement reflecting that oral
agreement. See Ellen v. A.C. Schultes of Md., Inc., 172 N.C. App. 317,
321–22, 615 S.E.2d 729, 732–33 (2005); see also Carter v. TD Ameritrade
Holding Corp., 721 S.E.2d 256, 263; and
• The draft Partnership Agreement circulated by Harvey and assented to by
IMGT, although unsigned, is a sufficient “record” to satisfy the
requirement of § 569.6(a) of the RUAA.
{24} In sum, the court determines and finds that there was a valid and
enforceable agreement to arbitrate between the Parties contained in a record.
B. The Dispute Falls Within the Scope of the Parties’ Agreement to Arbitrate

{25} The Arbitration Provision provides that “[s]hould any controversy of
any type arise hereunder which would require a judicial determination of such
controversy, then such controversy shall be resolved by binding arbitration . . . .”
(Response Ex. 2, at ¶ 9(a) (emphasis added).)
{26} Each of the claims in Plaintiffs’ Amended Complaint arises out of
duties imposed by the Partnership Agreement between the Parties and clearly falls
under the broad scope of this provision See In re W. W. Jarvis & Sons, 194 N.C.
App. 799, 804, 671 S.E.2d 534, 537 (2009); (Am. Compl. ¶¶ 39, 41, 46–47, 53–55, 61–
62, 68–69, 78, 81.)

IV. CONCLUSION

{27} For the reasons stated above, Defendants’ Motion is GRANTED.
Plaintiffs’ claims shall be submitted to binding arbitration and this action is stayed
pending conclusion of that arbitration.

IT IS SO ORDERED, this the 24th day of April, 2013.