Having a client required to arbitrate a case — even though that client never signed off on an arbitration provision — is nothing new.  Judge Conrad dealt with that situation late last month in Charlotte Student Housing DST v. Choate Construction Co., 2018 NCBC 88, where he said:

Because arbitration is a matter of contract, the usual rule is that “a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960). In an appropriate case, though, “a nonsignatory can enforce, or be bound by, an arbitration provision within a contract executed by other parties.”  Int’l Paper Co. v. Schwabedissen Maschinen & Anlagen GmbH, 206 F.3d 411 , 415 (4th Cir. 2000).

Op. ¶14.

Plaintiffs, who had acquired a Charlotte apartment complex from its original owner, were suing the architect, general contractor and two subcontractors over design deficiencies in the construction.

Plaintiffs had not signed the Construction Contract containing the arbitration provision, but Judge Conrad ruled that they were required to arbitrate their claims.

He said that:

estoppel is dispositive here. In short, “[a] nonsignatory is estopped from refusing to comply with an arbitration clause when it receives a direct benefit from a contract containing an arbitration clause.” Int’l Paper, 206 F.3d at 418 (quotation marks omitted). It would be manifestly unfair to permit a party to take the benefit of the contract “despite [its] non-signatory status but then, during litigation, attempt to repudiate the arbitration clause in the contract.” Hellenic Inv. Fund, Inc. v. Det Norske Veritas, 464 F.3d 514, 517–18 (5th Cir. 2006); see also Int’l Paper, 206 F.3d at 418. That is what Plaintiffs seek to do here, and they are therefore estopped from refusing to arbitrate their claims against [the Defendants].

Op. Par. 23

Since the Plaintiffs were claiming that the Defendants had not performed their work in accord with the “Contract Documents,” they were bound by the terms of those documents, which contained the arbitration provision.

But what about that tricky question: who decides whether a matter should be arbitrated: Judge or Arbitrator?  Judge Conrad here seized the right to make that decision for the Business Court.  I’ve written about a Business Court decision on that point once before.  The short answer is that it has to be “clear and unmistakeable” that the parties intended for the arbitrator, not the Court, to decide the question of arbitrability.

It was certainly clear and unmistakeable that the parties signing the contract containing the arbitration provision had delegated authority to determine arbitrability to the arbitrator.  The arbitration clause invoked the AAA’s Construction Industry Rules, expressly delegate to the arbitrator “the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement.”

But that wasn’t enough to bind the Plaintiffs, who were not signatories to the document referencing the Construction Industry Rules.

Those of you who aren’t at home hunkering down in fear of the impending hurricane are wondering why the Plaintiffs, who were found to beobligated to arbitrate, weren’t also obligated to have the arbitrator (as opposed to the Business Court Judge) decide whether they had to  arbitrate the case in the first place.

Well, even though bound by the arbitration provision, there was nothing to show that the Plaintiffs shared the intent of the signatories to have the arbitrator decide the issue of arbitrability.  As noted by Judge Conrad, “[c]ourts have generally found that agreements that do not mention or reference a particular non-signatory do not clearly or unmistakeably evidence an agreement by that non-signatory to have an arbitrator determine whether the agreement is arbitrable.” Op. ¶19 (quoting McKenna Long & Aldridge, LLP v. Ironshore Specialty Ins. Co., 2015 U.S. Dist. LEXIS 3347 at *14-15 (S.D.N.Y. Jan. 12, 2015).

It is one of the most frustrating things you can have happen after concluding a successful deposition.  The witness backtracks on all the substantive admissions she has made during her testimony.

Can she really do that?  Well, yes.  Rule 30(e) of the North Carolina Rules of Civil Procedure says that the deponent can review her testimony and:

If there are changes in form or substance, the deponent shall sign a statement reciting such changes and the reasons given by the deponent for making them.
But are there no limits on the changes which may be offered?  Apparently not, based on Judge Bledsoe’s Opinion this month in Window World of Baton Rouge, LLC v. Window World, Inc., 2018 NCBC 78.
Plaintiffs’ lawyers were attempting to prevent one of the Defendants (Tammy Whitworth) from making wholesale changes to her deposition testimony via the presentation of an errata sheet.  Those proposed changes included “thirty-eight substantive changes to her deposition testimony.”  Op. Par. 5.
The Opinion contains no detail on the nature of the changes offered by Defendant Whitworth, but it is safe to assume that they are in the nature of her saying “the light was green” at her deposition, and changing that testimony to “the light was red.”
Can a deponent make an absolute about face from her deposition testimony?  Yes, in North Carolina and in the majority of federal jurisdictions.  Although the Eastern District of North Carolina is in that minority. William L. Thorp Revocable Tr. v. Ameritas Inv. Corp., 57 F. Supp. 3d 508, 517 (E.D.N.C. 2014) (concluding that Federal Rule 30(e) “does not permit a party to make changes that substantively contradict or modify sworn deposition [testimony]”).
This Opinion did not leave the Plaintiffs with no value from the original deposition testimony.  Judge Bledsoe said that he would “impose[] two safeguards. . . in light of the extensive substantive changes Whitworth has made to her deposition transcript.”  Op. ¶16.
The first “safeguard”was that Whitworth’s original answers would remain in the record and could be used for impeachment purposes. “or for any other relevant or proper purpose.”  Op. ¶16.
The second protection granted by Judge Bledsoe was to allow Plaintiffs another deposition of Defendant Whitworth.  He limited that new deposition to one hour on the record, limiting questioning to “the reasons for those changes and to ask reasonable follow-up questions that flow from Whitworth’s answers to these permitted inquiries.”  Op. ¶17.  The new deposition will be at the Defendants’ expense.

This isn’t the first time that the Business Court has allowed a deposition errata sheet to be allowed over objections that the proposed changes were excessive.  Judge Diaz ruled on this issue in an unpublished Order in Bueche v. Noel, as did Judge Bledsoe in an unpublished Order in BB&T Boli Plan Tr. v. Mass Mutual Life Ins. Co.


North Carolina’s Unfair And Deceptive Trade Practices Act (G.S. sec. 75-1.1) carries with it the heady possibility of triple damages and attorneys fees.  So nearly every Plaintiff’s lawyer routinely includes a Chapter 75 claim in his or her Complaint.

But last week, in Brewster v. Powell Bail Bonding, Inc, 2018 NCBC 74, Judge Conrad cautioned against that practice,  calling it “a regrettable trend in North Carolina business litigation.”  Op. ¶36.

The practice of trying to turn “every shareholder dispute or disagreement between members of a limited liability company into a section 75-1.1 claim” (Op. ¶36) continues despite a plethora of Business Court Opinions (more than ten of which were cited by Judge Conrad in Op. ¶36) rejecting such claims.

The dangers of this knee jerk inclusion of unviable Chapter 75 claims are that it:

invites avoidable motions practice–driving up the cost of litigation, taxing the resources of the Court, and exposing the plaintiff to a potential award of attorneys fees under section 75-16.1.

Op. Par. 37.

If you haven’t caught this message by now you have been asleep with your Complaint drafting.  Take this to heart:”  Judge Conrad says “[b]y now, the message should be clear: section 75-1.1 plays no role in resolving these internal corporate disputes.”  Op. ¶37.

Although there were no sanctions imposed on this Plaintiff,  a minority shareholder in Defendant Powell Bail Bonding, Inc. who had included a Chapter 75 claim in his lawsuit seeking dissolution of the corporation, I think that we will see those in the next Business Court Opinion dismissing a Section 75 claim.  So don’t give me that to write about.