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Peeler v. Rocky Mountain Log Homes Canada, Inc.

Supreme Court of Montana

December 11, 2018

JAMES M. PEELER, Plaintiff and Appellant,
v.
ROCKY MOUNTAIN LOG HOMES CANADA, INC., d/b/a ROCKY MOUNTAIN LOG HOMES, and WHITE RIVER CONTRACTING, LLC, d/b/a WHITE RIVER CONTRACTING, Defendants and Appellees

          Submitted on Briefs: August 15, 2018

          APPEAL FROM: District Court of the Nineteenth Judicial District, In and For the County of Lincoln, Cause No. DV 16-204 Honorable Matthew Cuffe, Presiding Judge

          For Appellant: Cory R. Gangle, Gangle Law Firm, P.C., Missoula, Montana

          For Appellees: Paul A. Sandry, Connor Walker, Johnson, Berg & Saxby, PLLP, Kalispell, Montana, Mark S. Williams, Peter B. Ivins, Williams Law Firm, P.C. Missoula, Montana

          OPINION

          DIRK M. SANDEFUR, JUDGE

         ¶1 Plaintiff James M. Peeler appeals the judgment of the Montana Nineteenth Judicial District Court, Lincoln County, granting Defendants' Rocky Mountain Log Homes Canada, Inc. (Rocky Mountain) and White River Contracting, LLC (White River) motion to compel arbitration and dismiss the case. We address the following restated issues:

1. Whether the District Court erroneously concluded that the arbitration agreement required arbitration of matters within its scope rather than merely authorizing it as a matter of discretion upon timely demand?
2. Whether the District Court erroneously failed to conclude that the Defendants equitably waived the right to arbitrate?
3. Whether the District Court erroneously compelled arbitration without consideration of a proposed declaratory judgment claim that would have raised threshold questions of substantive arbitrability?
4. Whether the District Court erroneously concluded that Peeler's non-contract claims were subject to arbitration?
5. Whether the District Court erroneously failed to conclude that, as a non-party to the agreement, Rocky Mountain lacked standing to enforce the arbitration agreement against Peeler?

         ¶2 We affirm.

         FACTUAL AND PROCEDURAL BACKGROUND

         ¶3 Peeler is a Florida resident who owns property in Libby, Montana. As alleged, Rocky Mountain is a Montana business corporation and White River is a Montana limited liability company. Hamilton, Montana is the principal place of business for both companies.

         ¶4 In July 2013, Peeler and Rocky Mountain executed a "Plan Development Agreement" (Design Contract) for Rocky Mountain to design and produce construction plans for a custom log home on Peeler's property to be built by a third-party contractor. The Design Contract expressly contemplated that Rocky Mountain would manufacture and deliver the necessary log package to Peeler's property under a separate contract. By separate written agreement dated September 19, 2013, Peeler executed a written contract (Construction Contract) with Rocky Mountain's affiliate, White River, to construct a finished "turn-[k]ey" home in accordance with the building plans produced by Rocky Mountain under the Design Contract. The Construction Contract specified a contract price of $817, 655.06, completion in 2014, and that White River would provide all necessary materials and labor.[1] In contrast to the Design Contract which included no similar provision, the Construction Contract included an arbitration agreement, to wit:

All disputes, claims and questions regarding the rights and obligations of the parties under the terms of this Agreement are subject to arbitration. Either party may make a demand for arbitration by filing such demand in writing with the other party within 30 (thirty) days after the dispute first arises. Thereafter, binding arbitration shall be conducted by three arbitrators acting under the rules of commercial arbitration of the American Arbitration Association or such other method of arbitration as agreed upon between the parties.

         Inter alia, the Construction Contract also included a "No Waiver" provision stating that:

The failure of either party . . . to insist upon the performance of any of the terms and conditions of this Agreement, or the waiver of any breach of any of the terms and conditions of this Agreement, shall not be construed as thereafter waiving any such terms and conditions, but these shall continue and remain in full force and effect as if no such forbearance or waiver had occurred.

         ¶5 Following a 2013 start, construction dragged on into 2016. Dissatisfied with the progress and quality of construction following unsuccessful attempts to resolve his concerns, Peeler filed a complaint against White River and Rocky Mountain in the Montana Nineteenth Judicial District Court on September 16, 2016. In pertinent part, the complaint stated that the "issues giving rise to this [c]omplaint involve a construction contract . . . and related claims for negligence and other torts arising out of work performed on Plaintiff's property . . . ." (Emphasis added.) The complaint asserted specific claims for breach of contract, contract bad faith, breach of various warranties, negligence, negligent misrepresentation, fraud, constructive fraud, tortious conversion, unjust enrichment, statutory unfair trade practices, and negligent infliction of emotional distress. None of the asserted claims challenged the validity or enforceability of the arbitration agreement in the Construction Contract. The complaint further asserted no independent claim against Rocky Mountain, only that, "[u]pon information and belief," Rocky Mountain and White River were "affiliated business entities, and therefore should be treated as one and the same."[2]

         ¶6 Peeler did not initially serve the complaint on White River or Rocky Mountain. Rather, by correspondence to White River dated October 6, 2016, Peeler declared the Construction Contract terminated based on various alleged material breaches of the contract and asserted negligence. White River disputed Peeler's allegations by correspondence dated October 19, 2016. A month later, Peeler served his previously filed complaint separately on White River and Rocky Mountain.

         ¶7 By motion filed December 30, 2016, White River initially appeared in the action and moved pursuant to M. R. Civ. P. 12(b)(1) and § 27-5-115, MCA, for an order compelling arbitration and dismissing Peeler's complaint. On January 11, 2017, Peeler filed a response opposing the motion on the asserted grounds that arbitration was not mandatory under the agreement and that White River in any event waived its right to compel arbitration by failing to timely demand it within 30 days after the dispute arose as referenced in the Construction Contract. Upon leave of court, Peeler filed a "supplemental response" bolstering his prior assertion that the Defendants waived the right to compel arbitration.

         ¶8 By notice filed March 2, 2017, Rocky Mountain first appeared in the action and joined in White River's motion to compel arbitration and dismiss. Peeler subsequently moved to strike Rocky Mountain's notice of joinder on the asserted ground that Rocky Mountain had no standing to compel arbitration under a contract to which it was not a party. In response, Rocky Mountain asserted that it had standing to compel arbitration on the Construction Contract based on Peeler's complaint allegations that the Defendants were affiliated entities who were "one and the same" and that Rocky Mountain was liable on the Construction Contract for the asserted defects. Though acknowledging that he may need to amend his complaint to state separate claims against Rocky Mountain upon further discovery, Peeler continued to maintain that Rocky Mountain had no standing to enforce the arbitration agreement in the Construction Contract despite the fact that he was suing Rocky Mountain on the Construction Contract.

         ¶9 Almost nine months after his response to Rocky Mountain's notice of joinder, while White River's motion to compel arbitration was still pending decision, Peeler moved for leave to amend his original complaint as manifested in an attached proposed amended complaint. Generally characterizing the included claims as "breaches of contract, negligence, and other tort claims, including [a claim for] property damage," the proposed amended complaint: (1) more particularly stated breach of contract, contract bad faith, breach of contract warranties, negligence, negligent misrepresentation, fraud, constructive fraud, statutory unfair trade practices, negligent infliction of emotional distress, and punitive damages claims separately against each Defendant based on or related to their respective Design and Construction Contracts; (2) stated a declaratory judgment claim against Rocky Mountain asserting that a waiver provision in the Design Contract was void; (3) stated a declaratory judgment claim against White River asserting that it waived the right to compel arbitration and that the arbitration provision was in any event "void as a matter of public policy"; and (4) stated claims against both Defendants for "joint and several liability" and "pierc[ing] the corporate veil." However, as in his original complaint, the proposed amended complaint again ambiguously alleged that Rocky Mountain and White River were "affiliated business entities, and therefore should be treated as one and the same." On January 17, 2018, with decisions on White River's motion to compel arbitration and Peeler's motion for leave to amend still pending, Peeler filed an "amended motion" for leave to file a "revised" amended complaint based on the asserted recent discovery that White River and Rocky Mountain were "part of a larger conglomerate," that "it appear[ed] that [Rocky Mountain] operated on its own," that "Montana Sundown, Inc. did business as 'Rocky Mountain Log Homes, '" and that White River and Rocky Mountain, "together with their individual shareholders, bear some liability in this case." Unlike before, Peeler did not attach a copy of the proposed revised amended complaint to his amended motion.[3]

         ¶10 On January 24, 2018, without reference to Peeler's successive motions for leave to file an amended complaint, the District Court issued a written order granting White River's motion to compel arbitration and accordingly dismissed the action. In accordance with Peeler's complaint averment, the court "treated" White River and Rocky Mountain "as one and the same." Characterizing Peeler's waiver assertion as an issue of "procedural arbitrability" rather than "substantive arbitrability," the court granted the motion pursuant to Mont. Pub. Empl's Ass'n v. City of Bozeman, 2015 MT 69, 378 Mont. 337, 343 P.3d 1233 (MPEA); Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 123 S.Ct. 588 (2002); and Int'l Bhd. of Elec. Workers v. Mont. Power Co., 280 Mont. 55, 929 P.2d 839 (1996). Peeler timely appeals.

         STANDARD ...


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