Recently, the Arizona Court of Appeals determined that under the 2010 Arizona Revised Uniform Arbitration Act, A.R.S. §12-3001, et seq. (the AZ-RUAA), a contractual agreement to arbitrate extends to: (i) arbitration of claims arising out of a related contract that lacks an arbitration provision, (ii) non-contract claims so long as resolution of the claim requires reference to the contract, and (iii) non-signatories in certain circumstances. In addition, the Court of Appeals confirmed that arbitrators have the power under AZ-RUAA to appoint receivers and dissolve limited partnerships. Sun Valley Ranch 308 LP v. Robson, 648 Ariz. Adv. Rep. 42 (App. 2012). These holdings expand the scope of who can enforce arbitration provisions and the claims that are subject to arbitration under Arizona law, while confirming the broad powers of arbitrators.

Relevant Facts of the Case

In Sun Valley, five entities signed a partnership agreement for a limited partnership entitled Sun Valley Ranch 308 LP (SVR) in 2000. The partnership agreement contained an arbitration provision. Four of the five partners were entities owned or controlled by Steven Robson (the Robson Entities), and the fifth was a corporation named Englewood Properties, Inc. (Englewood). SVR subsequently contracted with one of the Robson Entities to construct the Sun Valley Ranch Apartments (the Construction Contract). Once the project was complete, SVR contracted with another, non-partner entity controlled by Steven Robson (the Management Company) to manage the project.

In 2008, SVR sold the project for $32 million. Not satisfied with the distributions made by SVR to the partners, Englewood hired a forensic accountant who opined that SVR owed Englewood an additional $2,578,034. Accordingly, Englewood, on behalf of itself and SVR, filed suit against Steven Robson, the Management Company and the Robson Entities (collectively, the Defendants). 

Procedural History

The complaint alleged 10 causes of action against the Defendants, including breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment, fraud and negligent misrepresentation, breach of fiduciary duty, dissolution and accounting, and piercing the corporate veil of the Robson Entities. 

In response to the complaint, the Defendants moved to compel arbitration of all the claims based on the arbitration clause in the partnership agreement. Englewood objected to the motion, arguing that the arbitration clause did not apply to all of the claims, did not apply to all of the Defendants (some of whom were not parties to the partnership agreement), and that an arbitrator lacked the authority to grant Englewood the relief it requested (i.e., dissolution of the partnership and the appointment of a receiver). The trial court agreed with Englewood and denied the motion. The Defendants appealed, and the Court of Appeals reversed.

The Court of Appeal’s Opinion

On appeal, the Court of Appeals first disposed of Englewood’s argument that the trial court could not compel arbitration of claims arising out of the Construction Contract because the Construction Contract lacked an arbitration provision. Although the Construction Contract lacked an arbitration provision, the Court of Appeals concluded that the arbitration provision in the partnership agreement applied. Analyzing the following four factors: (1) whether the agreements incorporate or reference each other; (2) whether the agreements are dependent on each other or relate to the same subject matter; (3) whether the arbitration clause specifically excludes certain claims; and (4) whether the agreements are executed closely in time and by the same parties, the Court of Appeals concluded that because the Construction Contract was sufficiently related to the partnership agreement and the arbitration provision in the partnership agreement was sufficiently broad, the arbitration clause in the partnership agreement controlled. Sun Valley, 648 Ariz. Adv. Rep. 42, *8 (quoting Consol. Brokers, Ins. Servs., Inc. v. Pan-Am Assurance Co., 427 F. Supp. 2d 1074, 1082 (D. Kan. 2006)). Thus, even though most of the claims asserted by Englewood arose out of the Construction Contract, those claims could be compelled to arbitration based on the arbitration clause in the partnership agreement.

Second, the Court of Appeals rejected Englewood’s argument that the trial court could not compel arbitration of the common law unjust enrichment claims. Englewood argued that because the unjust enrichment claims did not depend upon the contracts between the parties, the claims fell outside of the agreement to arbitrate. The Court of Appeals disagreed, however, because whether the claim depends upon the contract is not the relevant inquiry. Rather, whether claims are subject to an arbitration clause depends upon whether the claims “raise some issue of the resolution of which requires a reference to or construction of some portion of the contract.”  Id. at *12 (quoting Dusold v. Porta-John Corp., 167 Ariz. 358, 362, 807 P.2d 526, 530 (App. 1990)). Because the adjudication of Englewood’s unjust enrichment claims would necessarily require consideration of the contract containing the arbitration clause, the common law unjust enrichment claims were also subject to the arbitration clause.

Third, the Court of Appeals rejected Englewood’s argument that an arbitrator could not appoint a receiver or dissolve a partnership. Englewood contended that those remedies were statutorily assigned to the courts, not arbitrators. Rejecting the argument, the Court of Appeals noted that A.R.S. § 12-3008(B)(1) authorizes arbitrators to “issue such orders for interim remedies . . . to the same extent and under the same conditions as if the controversy were the subject of a civil action.” Thus, although receiverships and dissolution actions are assigned to the courts, the Court of Appeals concluded that arbitrators had the authority to grant the relief requested by Englewood.

Last, the Court of Appeals rejected Englewood’s argument that non-signatories SVR, Steven Robson and the Management Company could not invoke the arbitration provision in the partnership agreement because they did not sign the partnership agreement. SVR could be compelled to arbitrate because it was the partnership entity and was, therefore, subject to the partnership agreement. Steven Robson could also compel arbitration because (i) Englewood sued him under an alter ego theory, and (ii) the claims asserted against Steven Robson were intertwined with the claims asserted against the signing parties. The Management Company could also compel arbitration because the claims against it depended, at least in part, upon purported violations of the partnership agreement. Thus, the fact that SVR, Steven Robson and the Management Company were not signatories to the partnership agreement with the arbitration clause did not prevent arbitration of the claims brought by or against them.

Having disposed of all of Englewood’s arguments, the Court of Appeals reversed and ordered the trial court to compel the matter to arbitration.

Conclusion

Sun Valley illustrates the expansive breadth and scope of the AZ-RUAA. The holding expands the parties who can enforce arbitration provisions, expands the claims subject to arbitration under Arizona law and confirms the broad powers of arbitrators to grant relief.

Topics:  Appeals, Arbitration Agreements, Arbitrators, Breach of Contract, Construction Contracts, Dissolution, Fiduciary Duty, Fraud, LLC, Negligent Misrepresentation, Non-Parties, Partnerships, Receivership, Revised Uniform Arbitration Act, Unjust Enrichment

Published In: Alternative Dispute Resolution (ADR) Updates, Business Organization Updates, Civil Procedure Updates, General Business Updates, Construction Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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