Elliott v. Kb Home North Carolina, Inc.

Elliott v. KB Home North Carolina, Inc., 2012 NCBC 55

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF WAKE 08 CVS 21190

MARK ELLIOTT, TOR AND MICHELLE )
GABRIELSON, MICHIHIRO AND YOKO )
KASHIMA, on behalf of themselves and all )
others similarly situated, )
Plaintiffs )
)
v. )
) OPINION AND ORDER
KB HOME NORTH CAROLINA, INC. and ) ON MOTIONS TO STAY, MOTION
KB HOME RALEIGH-DURHAM, INC., ) TO VOLUNTARILY DISMISS AND
Defendants ) MOTION TO INTERVENE
)
and )
)
KB HOME RALEIGH-DURHAM, INC., )
Third-Party Plaintiff )
)
v. )
)
STOCK BUILDING SUPPLY, LLC, )
Third-Party Defendant )

THIS MATTER comes before the court upon Defendant/Third-Party Plaintiff KB

Home Raleigh-Durham Inc.'s Motion to Stay and Compel this Action into Arbitration and

Memorandum of Law in Support Thereof ("First Motion to Stay"), the unnamed class

members' Motion to Intervene ("Motion to Intervene"), Defendant KB Home Raleigh-

Durham Inc.'s Motion to Stay and Compel Arbitration as to Proposed Plaintiffs-in-

Intervention and Memorandum of Law in Support Thereof ("Second Motion to Stay")

and the unnamed class members' Motion to Voluntarily Dismiss Motion to Intervene

("Motion to Voluntarily Dismiss") (collectively, "Motions"); and
THE COURT, after considering the Motions, briefs and arguments in support of

and in opposition to the Motions, other submissions of counsel and appropriate matters

of record, and as discussed in this Opinion and Order, FINDS and CONCLUDES that

the First Motion to Stay should be DENIED; the Motion to Intervene should be DENIED;

the Second Motion to Stay should be DENIED and the Motion to Voluntarily Dismiss

should be GRANTED.

Whitfield Bryson & Mason LLP, by Daniel K. Bryson, Esq., Scott C. Harris, Esq.,
Gary E. Mason, Esq. and Nicholas A. Migliaccio, Esq. for Plaintiffs and unnamed
class members.

Bradley Arant Boult Cummings LLP, by Michael W. Knapp, Esq. and Ryan L.
Beaver, Esq. for Defendant/Third-Party Plaintiff KB Home Raleigh-Durham, Inc.

Hunton and Williams LLP, by A. Todd Brown, Esq. and Ryan G. Rich, Esq. for
Third-Party Defendant Stock Building Supply, LLC.

Jolly, Judge.

I.

PROCEDURAL BACKGROUND

[1] On December 5, 2008, Plaintiffs filed their Class Action Complaint

("Complaint") in this civil action as a putative class action against Defendant KB Home

Raleigh-Durham, Inc. ("KB Home") and KB Home North Carolina, Inc. ("KB Home NC")

alleging five claims for relief ("Claim(s)"): Count I – Breach of Contract ("Claim One"),

Count II – Breach of Express Warranties ("Claim Two"), Count III – Breach of Implied

Warranties ("Claim Three"), Count IV – Negligence ("Claim Four"), Count V –

Negligence Per Se ("Claim Five"), Count VI – Unfair and Deceptive Trade Practices

("Claim Six") and Count VII – Negligent Misrepresentation ("Claim Seven"). All of the

Claims arise from the alleged installation of James Hardie's HardiPlank cement fiber lap
siding ("HardiPlank") on Plaintiffs' homes without a weather-resistive barrier behind the

HardiPlank.

[2] On February 6, 2009, KB Home and KB Home NC filed a Motion to

Dismiss Plaintiffs' Complaint. On July 17, 2009, the court dismissed KB Home NC from

this action.

[3] On January 7, 2010, KB Home filed a Third-Party Complaint against Third-

Party Defendant Stock Building Supply, LLC ("Stock") alleging breach of contract,

negligence and indemnity.

[4] On June 17, 2010, this case was designated as an exceptional and

complex business case pursuant to Rules 2.1 and 2.2 of the General Rules of Practice

for the Superior and District Courts.

[5] On March 31, 2011, Plaintiffs filed a Motion for Class Certification. The

court granted that motion on February 27, 2012, and entered an Order on Class

Certification certifying this matter as a class action.

[6] On March 28, 2012, KB Home appealed the Order on Class Certification

("Appeal") to the North Carolina Court of Appeals.

[7] On April 12, 2012, KB Home filed both the First Motion to Stay and a

Motion for Stay of Proceeding Pending Appeal ("Motion to Stay Pending Appeal"). After

conducting a telephone hearing, the court denied the Motion to Stay Pending Appeal on

April 13, 2012.

[8] On July 30, 2012, the unnamed class members filed the Motion to

Intervene, seeking to intervene in this civil action as named plaintiffs to preserve their
rights in the event the Order on Class Certification was overturned as a result of the

Appeal.

[9] On August 22, 2012, KB Home filed the Second Motion to Stay, seeking to

compel arbitration with respect to the unnamed class members in the event the court

granted the Motion to Intervene.

[10] On August 28, 2012, the North Carolina Court of Appeals dismissed the

Appeal.

[11] As a result of the dismissal of the Appeal, on September 10, 2012, the

unnamed class members filed the Motion to Voluntarily Dismiss, seeking to voluntarily

dismiss the Motion to Intervene without prejudice.

[12] The Motions have been fully briefed and are ripe for determination.

II.

DISCUSSION

[13] KB Home contends that this action, including all of Plaintiffs' Claims and

the third-party claims, should proceed to arbitration in the manner provided for in the

parties' arbitration agreements and that this action should be stayed pending completion

of the arbitration process.1

[14] In response, Plaintiffs dispute whether there is a controlling agreement to

arbitrate between the parties. They further argue that even if an agreement to arbitrate

1
Def. KB Home's Mot. Stay Compel Action Arbit'n Mem. Supp. ("KB Home Memo") 19.
exists, KB Home has waived its right to arbitrate.2 Stock also opposes the First Motion

to Stay on the grounds that there is no controlling agreement to arbitrate.3

A.

General Principles of Arbitration

[15] Both the Federal Arbitration Act, 9 U.S.C. § 1 et seq. ("FAA") and the

North Carolina Revised Uniform Arbitration Act, N.C. Gen. Stat. § 1-569.1 et seq.

("NCRUAA") (hereinafter, all references to the North Carolina General Statutes will be

to "G.S.") make clear that arbitration agreements are favored and should generally be

enforced by the courts. See AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1745,

1748 (2011) (recognizing that "[t]he FAA was enacted in 1925 in response to

widespread hostility to arbitration agreements" and the "'principal purpose' of the FAA is

to 'ensur[e] that private arbitration agreements are enforced according to their terms'").

[16] North Carolina has a strong public policy in favor of resolving disputes

through arbitration. Johnston Cnty. v. R.N. Rouse & Co., 331 N.C. 88, 91 (1992). As

such, courts should "resolve any doubts concerning the scope of arbitrable issues in

favor of arbitration." Id.; see also Cyclone Roofing Co. v. David M. La Fave Co., 312

N.C. 224, 229 (1984) (quoting Moses H. Cone Hosp. v. Mercury Constr. Corp., 460 U.S.

1, 24-25 (1983)) ("[A]ny doubt concerning the scope of arbitrable issues should be

resolved in favor of arbitration, whether the problem at hand is the construction of the

2
Opp'n Def. KB Home's Mot. Stay Compel Action Arbit'n Att'ys Fees ("Plaintiffs Memo") 7-8.
3
Based on representations contained in the KB Home Memo, it appeared to the court that Stock did not
oppose the First Motion to Stay at the time it was filed. See KB Home Memo 22 (stating in the Certificate
of Consultation with Opposing Counsel that "[Stock] agrees with [KB Home]'s position articulated in this
brief."). Notwithstanding this representation, on May 7, 2012, Stock submitted a responsive brief in
opposition to the First Motion to Stay. Accordingly, the court will treat the First Motion to Stay as
contested with respect to all parties and all claims.
contract language itself or an allegation of waiver, delay, or a like defense to

arbitrability.").

[17] Under both the FAA and the NCRUAA,4 courts apply a two-part test to

determine whether to compel arbitration of a dispute: "(1) whether a valid arbitration

agreement exists, and (2) whether the particular dispute is within the agreement's

substantive scope." In re W.W. Jarvis & Sons, 194 N.C. App. 799, 803 (2009); see also

Ragan v. Wheat First Sec., Inc., 138 N.C. App. 453, 455 (2000) ("In considering a

motion to compel arbitration, the trial court should determine (1) the validity of the

contract to arbitrate and (2) whether the subject matter of the arbitration agreement

covers the matter in dispute."). The party seeking to compel arbitration has the burden

of establishing that each prong is satisfied. Revels v. Miss Am. Org., 165 N.C. App.

181, 188 (2004).

B.

The Alleged Arbitration Agreement between Plaintiffs and KB Home

[18] As the party seeking to compel arbitration, KB Home has the burden of

establishing that the parties entered into a valid arbitration agreement and that the

current dispute falls within the scope of such agreement. KB Home contends that the

First Motion to Stay should be granted with regard to the named Plaintiffs because at

times material each homeowner executed a New Home Purchase Agreement

("Purchase Agreement") and a New Home Limited Warranty Agreement ("Warranty

4
Whether or not the FAA or NCRUAA applies to the parties' arbitration agreements is inconsequential for
purposes of this Opinion and Order. See Sloan Fin. Grp., Inc. v. Beckett, 159 N.C. App. 470, 477 (2003)
("North Carolina's stance on arbitration is very close, if not identical, to the federal stance."). Additionally,
in light of the court's conclusion that KB Home has waived its right to arbitrate the Claims, discussed infra,
it is immaterial and unnecessary for the court to determine whether the FAA or NCRUAA governs.
Agreement"), both of which contain valid arbitration agreements that cover the disputes

at issue.5

[19] Plaintiffs' principal response is two-fold. They argue that the Warranty

Agreement, rather than the Purchase Agreement, governs the parties' dispute and that

the Warranty Agreement's arbitration provision is unenforceable because it imposes a

voluntary requirement to arbitrate. Moreover, Plaintiffs argue that even if a valid and

enforceable arbitration agreement exists, KB Home has waived its right to compel

arbitration in this matter.6

1.

Does a Valid Arbitration Agreement Exist?

[20] The same principles that govern contract formation govern arbitration

agreements. "It is well established that a valid contract arises only where there is

assent between the parties, amounting to a meeting of the minds." Revels v. Miss N.C.

Pageant Org., Inc., 176 N.C. App. 730, 733-34 (2006). Where, as here, Plaintiffs

contend that a valid arbitration agreement does not exist, the court must examine the

arbitration agreement "to ascertain the intention of the parties." Id. (quoting Walker v.

Goodson Farms, Inc., 90 N.C. App. 478, 186 (1988). In doing so, "the parties'

intentions control and their intentions may be discerned from their . . . writings . . . ."

Walker, 90 N.C. App. at 486. However, the court must give effect to the plain and

unambiguous language in the contract. R.N. Rouse & Co., 331 N.C. at 95.

5
KB Home Memo 11-16.
6
Plaintiffs Memo 18-20.
[21] Plaintiffs make no argument regarding the validity of the arbitration

provisions contained within the Purchase Agreement.7 Section 35 of the Purchase

Agreement addresses "[m]ediation and [a]rbitration" of future disputes that may arise

between the parties. Specifically, this section states, "[i]n the event of any dispute

related to the [home] or this Agreement, the parties shall first mediate their dispute . . ."

and if mediation does not settle the dispute, "then this Agreement shall be subject to

arbitration under the [FAA]."8 This language on its face is unambiguous. In light of

Plaintiffs' lack of argument with respect to the validity of the arbitration agreement, along

with the court's review of the plain and unambiguous language, the court concludes that

the Purchase Agreement contains a valid and enforceable arbitration agreement.

[22] Plaintiffs do dispute the enforceability of the arbitration provisions

contained within the Warranty Agreement. Plaintiffs' argument with respect to the

enforceability of the Warranty Agreement's arbitration provisions is based upon their

contention that there is no valid arbitration clause because the arbitration provisions are

void as "illusory" promises.9 In substance, Plaintiffs argue that the arbitration provisions

are not mandatory, and Plaintiffs therefore should be allowed to litigate their Claims in a

court of law.10

[23] As stated above, the purpose of contract interpretation is to ascertain the

intention of the parties at the time the parties entered into the contract. See Gould

Morris Elec. Co. v. Atl. Fire Ins. Co., 229 N.C. 518, 520 (1948) ("The heart of a contract

7
Plaintiffs argue that the current disputes fall within the scope and provisions of the Warranty Agreement
and not the Purchase Agreement. Id. 18 ("[The disputes at issue] are to be governed not by the
[Purchase Agreement], but by the Warranty [Agreement] . . . ."). The scope of the respective arbitration
provisions is discussed infra.
8
Purchase Agreement § 35.1.
9
Plaintiffs Memo 18.
10
Id. 19-21.
is the intention of the parties, which is to be ascertained from the expressions used, the

subject matter, the end in view, the purpose sought, and the situation of the parties at

the time."). To do so, the court must apply accepted principles of contract interpretation

by construing the contract as a whole and giving effect to the plain and unambiguous

language in the contract. See R.N. Rouse & Co., 331 N.C. at 95; Sell v. Hotchkiss, 264

N.C. 185, 190 (1965).

[24] KB Home contends that the arbitration provisions from the Warranty

Agreement and Purchase Agreement, taken together, show the parties agreed to

arbitrate the Claims before proceeding with litigation.11

[25] Section E of the Warranty Agreement outlines the process to follow to

handle warranty coverage disputes.12 Section E.1 of the Warranty Agreement sets out

the parties' intentions. That section, entitled "Intent of the Parties," states that disputes

related to the Warranty Agreement "shall be resolved according to the . . . provisions of .

. . [s]ection E." Section E.1 further states that if Plaintiffs are "not satisfied with [KB

Home's] . . . handling of a [dispute], [each Plaintiff] understands and agrees that this

Warranty Agreement requires [Plaintiffs] to go through the entire process described in

this [s]ection E before filing any lawsuit against [KB Home] . . . ."13 (emphasis added).

[26] The process set out in section E contemplates that the parties will attempt

to settle any dispute that arises under the Warranty Agreement informally through a

negotiation process.14 The negotiation process is the first required step in resolving a

11
KB Home Reply Br. Pls. Opp'n Mot. Stay Compel Action Arbit'n 10.
12
Specifically, section E.3 of the Warranty Agreement deals with arbitration. However, the court must
consider all of section E to determine whether or not the parties agreed to arbitration.
13
Warranty Agreement § E.1.
14
Id. § E.2.
warranty dispute.15 As part of the negotiation process, the parties must participate in a

conference in an attempt to settle the dispute.16

[27] Plaintiffs argue that an excerpt from section E.2(G) indicates the voluntary

nature of the arbitration requirement.17 The relevant portion of section E.2(G) states:

If, after such [c]onference . . . the entire [d]ispute has not
been resolved, then [Plaintiffs] may, but shall not be required
to, proceed to Arbitration as described in [s]ubsection 3,
below. If, as a result the [c]onference, certain issues in the
[d]ispute have been resolved, the parties shall jointly state in
writing the issues that have been resolved and the issues
which remain unresolved and will require Arbitration.
Although Arbitration is the next formal and required step in
the dispute resolution procedure, the parties may continue to
negotiate informally to resolve the [d]ispute . . . .18

Plaintiffs direct the court's attention to that portion of this section that states Plaintiffs

"may, but shall not be required to, proceed to Arbitration." Plaintiffs' reliance on this

excerpt, in support of their argument that arbitration is voluntary, is misguided. Rather,

this excerpt, when read together with all of section E, makes clear that Plaintiffs do not

have to proceed any further with the dispute resolution process if the negotiations and

conference outlined in section E.2 fail to resolve the dispute. However, this does not

mean that Plaintiffs can proceed with litigation without first participating in arbitration.

To the contrary, section E.3, entitled "Arbitration of Disputes," states:

In the event that the [p]arties have the entire "Negotiation"
process as described in and required by [s]ubsection E.2
above, but failed to resolve the [d]ispute, . . . then, if either of
the [p]arties wishes to pursue the matter further, the
unresolved aspects of the [d]ispute shall be resolved by
Arbitration . . . .19

15
Id. § E.2(B).
16
Id. § E.2(D)-(G).
17
Plaintiffs Memo 19.
18
Warranty Agreement § E.2.G.
19
Id. § E.3.A.
[28] Plaintiffs are not required to proceed beyond the negotiations process set

out in section E.2.G and initiate arbitration. However, if Plaintiffs wish to litigate the

Claims, the Warranty Agreement requires them to arbitrate before doing so.

Accordingly, the court finds that the arbitration agreements in both the Purchase

Agreement and Warranty Agreement are valid and enforceable.

2.

Scope of the Arbitration Agreements

[29] The second prong of the two-part test that must be met to compel

arbitration requires the dispute at issue to be within the scope of the parties' arbitration

agreement. Sloan, 159 N.C. at 478 (citing Am. Recovery Corp. v. Computerized

Thermal Imaging, 96 F.3d 88, 93 (4th Cir. 1996)). The scope of an arbitration

agreement is a matter of contract law. The parties must state in their agreement which

disputes are subject to arbitration. Futrelle v. Duke Univ., 127 N.C. App. 244, 248

(1997). Ambiguities regarding the scope of the arbitration agreement should be

resolved in favor of arbitration. Raspet v. Buck, 147 N.C. App. 133, 135 (2001); see

also Sloan, 159 N.C. at 479 ("It is in this second step of either analysis where the

presumption in favor of arbitration exists.").

[30] KB Home argues that all of Plaintiffs' Claims fall within the scope of either

the Purchase Agreement or Warranty Agreement.20 It is Plaintiffs' contention that if

20
KB Home Memo 14.
there is a valid arbitration agreement, the Claims are governed by the Warranty

Agreement's arbitration provisions.21

[31] The arbitration provision from the Purchase Agreement states, at section

35.1, that:

[A]ll claims, demands, disputes, controversies and
differences that may arise between the parties to this
Agreement . . . of whatever nature or kind, including, without
limitation, disputes: ([a]) as to events, representations, or
omissions, which predate this Agreement; ([b]) arising out of
this Agreement; and/or ([c]) relative to the construction
contemplated by this Agreement arising prior to the Closing
shall be submitted to binding arbitration . . . .22

However, the above arbitration provision is limited by section 35.3. Section 35.3 states:

[T]his Section shall not apply to any repairs or warranty
claims with respect to the [h]ome arising after the
construction is completed and the Closing has occurred
hereunder and shall expressly NOT control over the dispute
resolution provisions in the Warranty [Agreement] for such
repairs or warranty claims. . . . [A]ny such repairs or
warranty claims shall be governed by the Warranty
[Agreement] coverage disputes provisions of the Warranty
[Agreement] . . . .23

Interpreting the above language, it appears to the court that all Claims arising between

the parties fall within the expansive scope of the arbitration provisions contained in the

Purchase Agreement. Any Claim excepted from the arbitration provisions in the

Purchase Agreement would fall within the scope of the arbitration provisions in the

Warranty Agreement.

21
Plaintiffs Memo 18-19. Plaintiffs assert that "[i]t is undeniable that Plaintiffs' claims qualify as 'repairs or
warranty claims with respect to the [h]ome arising after the construction is completed' under the [Warranty
Agreement." Id. However, despite this assertion, Plaintiffs do not explain why their Claims are
undeniably repair or warranty claims as such claims are defined pursuant to the Warranty Agreement.
22
Purchase Agreement § 35.1.
23
Id. § 35.3.
[32] Consequently, it appears that all Claims fall within the scope of the

arbitration provisions in either the Purchase Agreement or the Warranty Agreement.24

Therefore, the court CONCLUDES that all of Plaintiffs' Claims are within the scope of

the arbitration agreements at issue.

3.

Waiver Defense

[33] In opposition to the First Motion to Stay, Plaintiffs' argue that KB Home

waived its right to arbitrate under both the Purchase Agreement and Warranty

Agreement by failing to assert its contractual right to arbitration earlier.25 KB Home

argues that it has timely asserted its right to arbitrate against all Plaintiffs. However, in

the alternative, KB Home seeks to persuade the court that even if waiver is found with

respect to the named Plaintiffs, waiver should not be found with respect to the unnamed

class members because KB Home could not have compelled arbitration against the

unnamed class members at any time before the court certified the class.26

[34] "It is well established that arbitration may be waived because it is a right

arising from contract." Herbert v. Marcaccio, __ N.C. App. __, 713 S.E.2d 531, 535

(2011). Whether a party has waived its right to arbitrate is a question of fact for the

court. Id. North Carolina's strong public policy in favor of arbitration dictates that any

doubt with regard to the arbitrability of a claim should be "resolved in a manner which

favors arbitration." Capps v. Virrey, 184 N.C. App. 267, 270 (2007) (citing Smith v.

Young Moving & Storage, Inc., 141 N.C. App. 469 (2000). "This is true 'whether the

24
Based on the court's conclusion that KB Home has waived its right to arbitrate the Claims, discussed
infra, it is not necessary for the court to determine which arbitration agreement governs which Claim.
25
Plaintiffs Memo 14-18.
26
KB Home Memo 18-19.
problem at hand is the . . . allegation of waiver, delay or a like defense to arbitrability.'"

Id. (quoting Cyclone Roofing, 312 N.C. at 229). The Fourth Circuit has held that waiver

of the right to arbitrate is "not to be lightly inferred" and "the party opposing arbitration

bears a 'heavy burden of proving waiver.'" MicroStrategy, Inc. v. Lauricia, 268 F.3d 244,

249-51 (4th Cir. 2001) (quoting Am. Recovery Corp., 96 F.3d at 95).

[35] The North Carolina Supreme Court has recognized that a party waives its

right to compel arbitration if it acts inconsistently with arbitration, and the party opposing

arbitration can show it has been prejudiced as a result. Servomation Corp. v. Hickory

Constr. Co., 316 N.C. 543, 544 (1986). In that case, the supreme court explained that:

A party may be prejudiced by his adversary's delay in
seeking arbitration if [a] it is forced to bear the expense of a
long trial, [b] it loses helpful evidence, [c] it takes steps in
litigation to its detriment or expends significant amounts of
money on the litigation, or [d] its opponent makes use of
judicial discovery procedures not available in arbitration.

Id.

[36] Applying the Servomation holding to the present case, Plaintiffs have

neither been forced to bear the expense of long trial, nor have Plaintiffs lost helpful

evidence. Consequently, Plaintiffs' principal argument for waiver is that they have been

prejudiced by incurring significant litigation expenses to date and that KB Home has

engaged in discovery procedures not available in arbitration.

[37] When determining whether delay in requesting arbitration resulted in

significant litigation expense and prejudice to the party opposing arbitration, "the trial

court must make findings whether the expenses occurred after the right to arbitration

accrued, and whether the expenses could have been avoided through an earlier
demand for arbitration." Herbert, 713 S.E.2d at 536 (citing Culberson v. REO Props.

Corp., 194 N.C. App. 793, 798-99 (2009)).

[38] Here, Plaintiffs argue that KB Home's right to arbitrate this dispute arose in

December 2008 when the named Plaintiffs filed their Complaint.27 KB Home did not file

the First Motion to Stay until April 12, 2012. That was more than three years after this

action was filed and after substantial effort, time and money had been expended by the

parties in discovery, motion practice and related procedural pre-trial initiatives.28 KB

Home could have asserted its arbitration rights much sooner in this dispute, but chose

not to do so. The court finds and concludes that by such delay KB Home acted

inconsistently with its arbitration rights. Notwithstanding this conclusion, Plaintiffs must

still show that they have been prejudiced by KB Home's delay.

[39] To show prejudicial effect, Plaintiffs have submitted evidence of fees and

other expenses incurred by Plaintiffs.29 In totality, Plaintiffs have incurred approximately

$100,000 in fees and other expenses litigating the Claims.30 The costs that have been

incurred are the result of the parties participating in four hearings,31 taking or defending

twenty depositions across the country, obtaining and working with expert witnesses and

engaging in other discovery.32 These costs have been incurred by the named Plaintiffs

while litigating the Claims on their own behalf and also while litigating the Claims on

27
The Complaint was filed on December 5, 2008.
28
Although neither required nor determinative, KB Home did not specifically assert its right to arbitration
in either its Answer as an affirmative defense, filed on August 5, 2009, or in its response to Plaintiffs' Third
Set of Interrogatories and Request for Production of Documents.
29
See Decl. Gary E. Mason.
30
Id. ¶ 5. These fees and expenses accrued from preparing for and attending negotiation conferences,
depositions, motions and hearings, as well as fees spent on expert testimony. Id. ¶¶ 2-5.
31
The four hearings held have been on KB Home's Motion to Dismiss, Plaintiffs' Motion to Compel
Discovery of KB Home, Plaintiffs' Motion for Class Certification and KB Home's Motion to Stay Pending
Appeal. Id. ¶ 4.
32
Id. ¶¶ 2-4.
behalf of the unnamed class members. KB Home's delayed attempt to enforce the

arbitration provisions only after Plaintiffs have expended material amounts of time and

resources in pursuing their Claims would be prejudicial to Plaintiffs.33 Such time and

resources were expended after KB Home's right to arbitrate accrued and could have

been avoided through an earlier demand for arbitration. KB Home could have

demanded arbitration as early as 2008, well before the named Plaintiffs actively litigated

the Claims. Permitting KB Home to enforce its arbitration rights now would be

inconsistent with the principles of waiver outlined in Servomation. Accordingly, the court

CONCLUDES that KB Home has waived its right to compel the named Plaintiffs to

arbitrate their Claims.34

[40] The court must also consider whether KB Home has waived its right to

compel arbitration with respect to the unnamed class members. KB Home argues that it

could not have asserted its arbitration rights against the unnamed class members at any

time before the court certified the class on February 27, 2012.35 The court is not

persuaded by KB Home's argument.

[41] Permitting KB Home to compel arbitration with regard to the unnamed

class members would be prejudicial to the named Plaintiffs. The reality of class-action

litigation requires the named Plaintiffs to incur expenses litigating the Claims on behalf

33
In Prime S. Homes, Inc. v. Byrd, 102 N.C. App. 255 (1991), the party seeking to compel arbitration was
found to have waived that right when the opposing party "had expended in excess of $10,000 in legal
fees, a sizeable portion of which would not have been incurred . . . had [arbitration been] sought within a
reasonable time." Id. at 261.
34
In light of this conclusion, the court need not consider Plaintiffs' other arguments for determining that
KB Home waived its right to arbitrate.
35
KB Home cites to several federal cases as support for the proposition that a court has jurisdiction to
adjudicate the rights of putative class members only after the class has been certified. See, e.g.,
Partington v. Am. Int'l Specialty Lines Ins. Co., 443 F.3d 334, 340 (4th Cir. 2006). Notwithstanding this
statement of law, a party can still waive its right to arbitrate disputes with unnamed class members by
waiting too long to exercise its arbitration rights with the named plaintiffs.
of the entire class, which the named Plaintiffs in this case have done for more than

three years. Allowing KB Home to compel arbitration with respect to the unnamed class

members would render the named Plaintiffs' efforts pursuing the class Claims

meaningless. KB Home had knowledge that the named Plaintiffs were litigating the

Claims as a class action from the outset and were incurring substantial costs while

doing so.36 Simply put, KB Home sat on its rights to arbitrate for too long.37 Therefore,

KB Home is barred from exercising any alleged arbitration rights now, even as to the

unnamed class members. For the foregoing reasons, the court further CONCLUDES

that KB Home has waived its right to compel the unnamed class members to arbitrate

the Claims. Accordingly, the First Motion to Stay should be DENIED with respect to all

Plaintiffs.

36
KB Home was on notice no later than December 5, 2008, that the named Plaintiffs were bringing their
Claims as a class action when the Complaint was filed. Moreover, evidence suggests that KB Home had
notice of Plaintiffs' class action Claims, even before the Complaint was filed, during informal negotiations
to resolve the dispute. See Decl. Gary E. Mason ¶ 2 ("Throughout the [negotiation] process, Plaintiffs
represented that they were acting on their behalf and on behalf of similarly situated homeowners.").
37
The court is also concerned by KB Home's attempt to compel arbitration as to the unnamed class
members, thereby effectively "undoing" this court's Order on Class Certification and getting the proverbial
"second bite at the apple" for class certification. In Kingsbury v. U.S. Greenfiber, LLC, an unpublished
federal district court decision, the court addressed a similar issue (i.e., whether a defendant can compel
arbitration as to the unnamed class members after a class has been certified) and was presented with
similar arguments (i.e., arbitration should be granted with respect to unnamed class members because
they have not been prejudiced and were not before the court prior to class certification) as those
addressed and presented to this court. No. CV08-00151-AHM, 2012 U.S. Dist. LEXIS 94854, (C.D. Cal.,
June 29, 2012). In Kingsbury, the court stated:
Moreover, to accept [defendant's arguments and compel arbitration] would be to
condone gamesmanship in the class certification process. A defendant could
wait in the weeds and delay asserting its arbitration rights. It could file motions to
dismiss, litigate the named plaintiff's legal theories, and oppose class certification
motions. If and when a class is finally certified, the defendant could simply assert
its arbitration rights and defeat certification of the previously-certified class. In
the interests of the fair and efficient administration of justice, the Court cannot
accept [defendant's] position.
Id. For the same considerations of fairness and the efficient administration of justice outlined by the court
in Kingsbury, this court cannot accept KB Home's argument that it has not waived its right to arbitrate with
respect to the unnamed class members.
C.

The Alleged Arbitration Agreement between KB Home and Stock

[42] The First Motion to Stay seeks to compel all claims presented in this

action into arbitration, including KB Home's third-party claims against Stock. As

discussed above, KB Home has the burden of establishing that a valid agreement to

arbitrate exists between KB Home and Stock and that the dispute falls within the scope

of any such agreement. KB Home argues that the contract it entered into with Stock in

2004 ("Subcontract") contained a valid arbitration agreement. The substance of Stock's

argument in opposition to the First Motion to Stay is that a valid contract does not exist

between KB Home and Stock; thus, there is no valid arbitration agreement.38 In this

regard, Stock argues that the parties entered into a subsequent agreement, which

replaced the Subcontract and did not include an arbitration agreement. KB Home

contends that validity and enforceability of the Subcontract is not a question for the

court to answer, but rather is a question for the arbitrator.

[43] Claims challenging the validity of the underlying contract, but not the

arbitration agreement, raise issues that are appropriate for the arbitrator to decide, not

the court. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 448-49 (2006) ("[A]

challenge to the validity of the contract as a whole, and not specifically to the arbitration

clause, must go to the arbitrator."); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388

U.S. 395, 403-04 (1967); accord Tillman v. Commer. Credit Loans, Inc., 362 N.C. 93,

119 (2008) (Edmunds, J., concurring) ("[C]laims . . . challenging the contract, in which

the arbitration agreement is included . . . are for the arbitrator to decide.").

38
Stock Memo 2-3.
[44] Stock's principal argument in opposition to the First Motion to Stay focuses

on the contended unenforceability of the Subcontract. Specifically, Stock argues that

the Subcontract is unenforceable because it does not have a description of the subject

matter, contains no description of the work or services to be provided by Stock, lacks

pricing terms and is not signed by KB Home.39

[45] Stock's argument with respect to the underlying validity of the contract is

misplaced in regard to the First Motion to Stay. Stock does not argue in its brief that the

arbitration agreement is invalid and unenforceable. It is well-settled law that arguments

similar to Stock's raise questions that are to be decided by an arbitrator. However, the

foregoing notwithstanding, KB Home still has the burden, as the party seeking to

compel arbitration, of showing that the parties agreed to a valid and enforceable

arbitration agreement and that the dispute in question falls within the scope of the

arbitration agreement. See Revels, 165 N.C. App. at 188; Raspet, 147 N.C. App. at

135. KB Home relies on the following language from paragraph 14 of the Subcontract

in support of its argument that it and Stock agreed to arbitration:

[Stock] agrees that, upon written request of [KB Home],
[Stock] shall participate as a party in, and also separately
defend as set forth above, by paying Indemnified Parties'
expenses as incurred by [KB Home] with respect to any
alternative dispute resolution proceeding . . . related to
investigation and resolution of Claims, Claims brought
pursuant to statute by homebuyers, successive homebuyers
. . . or Claims arising out of [KB Home's] new home limited
warranty . . . .40

39
Stock Memo 5-6. In a motion to dismiss, Stock made the same arguments with regard to the
unenforceability of the Subcontract. Stock's Br. Supp. Mot. Dismiss Third Party Compl. Def. Third Party
Pl. KB Home 6-10. That motion was denied by this court on August 8, 2011.
40
Subcontract ¶ 14(e). "Claims", as that term is defined by the Subcontract, refers to "any and all claims,
demands, causes of action . . . in law or equity, contract or tort . . . of every kind and nature whatsoever
that in any way arise out of or relate to this Subcontract . . ." that may be brought against KB Home and
for which Stock must indemnify KB Home. Id. ¶ 14(a).
[46] KB Home also directs the court's attention to language from paragraph 10

in the Subcontract as further evidence of Stock's agreement to arbitrate. Among other

things, paragraph 10 states:

[Stock] acknowledges and agrees that, regardless of the
forum that is used for dispute resolution with a single
homeowner, multiple homeowners or an association
involving the work of this Subcontract, [Stock] shall willingly
participate in such dispute resolution forum to the extent any
of its indemnification obligations under paragraph 14 of this
Subcontract are triggered.41

Paragraphs 10 and 14 only obligate Stock to participate in dispute resolution

proceedings between KB Home and Plaintiffs and only to the extent such obligation is

triggered by one of the Subcontract's indemnification provisions.

[47] As stated previously, the court "cannot rewrite the plain meaning of the

contract." Montgomery v. Montgomery, 110 N.C. App. 234, 238 (1993). Further, when

construing language in a contract, the court should give ordinary words their ordinary

meanings. Biggers v. Evangelist, 71 N.C. App. 35, 42 (1984). Here, the language in

the Subcontract is clear and unambiguous, and the court will interpret the Subcontract

giving effect to the ordinary meaning of the words.

[48] The court finds and concludes that the language relied upon by KB Home

to persuade the court that Stock agreed to arbitration with KB Home is not compelling.

Rather, the language is indicative of an agreement for Stock to indemnify KB Home

against certain claims that may be brought by homeowners against KB Home. To the

extent the Subcontract references Stock's participation in "alternate dispute

proceedings," the Subcontract arguably obligates Stock to participate in such

41
Id. ¶ 10(d).
proceeding as but one form of indemnification against homeowners claims.42 In this

regard, any perceived agreement by Stock to participate in arbitration is contingent on

KB Home successfully compelling Plaintiffs' Claims to arbitration. However, there is no

language in the Subcontract that states that KB Home and Stock agreed to arbitration to

resolve their own disputes.

[49] Additionally, the Subcontract contains a forum-selection clause and

consent-to-jurisdiction clause in paragraph 32.43 Such clauses are not inherently

inconsistent with arbitration agreements and can be construed together. See Internet

East, Inc. v. Duro Communs., Inc., 146 N.C. App. 401 (2001) (holding that a forum-

selection clause and arbitration provision do not conflict). However, here the court finds

the forum-selection and consent to jurisdiction clauses to be additional support for the

conclusion that KB Home and Stock did not intend to enter into a valid and enforceable

arbitration agreement. Therefore, the court CONCLUDES that KB Home has not met its

burden because it cannot show that it and Stock agreed to arbitrate their disputes.

Accordingly, the First Motion to Stay should be DENIED with respect to Stock.

42
The court makes no determination with regard to the enforceability or applicability of any contended
obligation of Stock to indemnify KB Home under the Subcontract. The court's interpretation of the
indemnity provisions of paragraphs 10 and 14 is limited to this Opinion and Order regarding arbitration
between Stock and KB Home.
43
Subcontract ¶ 32. Paragraph 32 states that "in the event a dispute should arise as to the performance
of the obligations of the parties pursuant to this Subcontract, the parties will adjudicate any such disputes
in the courts of the State of North Carolina . . . and each of the parties agree and expressly consent to the
jurisdiction of the Courts of the State of North Carolina, which shall have in personam jurisdiction over the
parties in connection with this Subcontract and in connection with any litigation which may arise . . . ." Id.
D.

Motion to Intervene, Second Motion to Stay and
Motion to Voluntarily Dismiss

[50] The unnamed class members filed the Motion to Intervene out of an

abundance of caution, seeking to preserve their rights to participate in this civil action if

the class was decertified as a result of the Appeal. However, the court of appeals

dismissed the Appeal. As a result of that dismissal, the unnamed class members filed

the Motion to Voluntarily Dismiss, seeking dismissal44 without prejudice of their Motion

to Intervene. The court CONCLUDES that good cause exists to GRANT the Motion to

Voluntarily Dismiss. Therefore, the Motion to Intervene should be DENIED, without

prejudice. Also, as a result of the above rulings, the court CONCLUDES that the

Second Motion to Stay is MOOT and therefore should be DENIED.

E.

Attorneys' Fees

[51] Plaintiffs, in their responsive brief, request recovery of their attorneys' fees

incurred in responding to the First Motion to Stay.45 Plaintiffs cite to G.S. 6-21.5 and

Rule 11, North Carolina Rules of Civil Procedure ("Rule(s)"), in support for their request,

arguing that the First Motion to Stay is both frivolous and filed for the improper purpose

of delaying this civil action.46 The court finds this argument to be without merit and finds

no basis for support of an award of attorneys' fees under either G.S. 6-21.5 or Rule 11.

Accordingly, Plaintiffs' request for attorneys' fees in responding to the First Motion to

Stay should be DENIED.

44
The court reads this to request that their Motion to Intervene be denied.
45
Plaintiffs Memo 22.
46
Id. 22-23.
III.

CONCLUSION

NOW THEREFORE, based on the foregoing, it hereby is ORDERED that:

[52] Defendant KB Home Raleigh-Durham Inc.'s Motion to Stay and Compel

this Action into Arbitration and Memorandum of Law in Support Thereof is DENIED.

[53] The unnamed class members' Motion to Voluntarily Dismiss Motion to

Intervene is GRANTED; therefore, the Motion to Intervene is DENIED, without

prejudice.

[54] Defendant KB Home Raleigh-Durham Inc.'s Motion to Stay and Compel

Arbitration as to Proposed Plaintiffs-in-Intervention and Memorandum of Law in Support

Thereof is DENIED, as MOOT.

[55] Plaintiffs' request for attorneys' fees is DENIED. Each party shall bear

their own costs and attorneys' fees in responding to the First Motion to Stay.

[56] On Tuesday, November 27, 2012, beginning at 11:00 a.m., in the North

Carolina Business Court, 225 Hillsborough Street, Suite 303, Raleigh, North Carolina,

the court will conduct a status conference to address any issues going forward in this

civil action.

This the 2nd day of November, 2012.