Justice Dirk Sandefur delivered the Opinion of the Court.
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 COUNSEL OF RECORD: 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 Filed: /s/_________
Clerk Justice Dirk Sandefur delivered the Opinion of the Court. ¶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. 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."
and
Int'l Bhd.
of Elec.
Workers v.
Mont.
Power Co.,
280 Mont. 55,
929 P.2d 839 (1996). Peeler timely appeals.
Contrary to the contemplation in the Design Contract, Peeler and Rocky Mountain did not ultimately enter into a separate contract for the manufacture and delivery of the necessary log package. White River apparently acquired the log package directly from Rocky Mountain and incorporated the cost into the Construction Contract.
Peeler's complaint further alleged that Rocky Mountain and White River both "agreed to Plaintiff's proposed contract changes," had duties and made representations under the Construction Contract, "breached the contract," did not perform work "as required under the contract," and breached warranties under the Construction Contract. Peeler's complaint and proposed amended complaint further referenced an email statement wherein Rocky Mountain referred to the proposed Construction Contract as "our agreement."
Without reference to the unknown content of his unattached revised amended complaint, Peeler's first amended complaint is the focus of his assertions of error regarding the District Court's disregard of proposed new or amended claims.
STANDARD OF REVIEW
¶11 We review district court rulings on motions to compel arbitration de novo for correctness under the governing standards of the Federal Arbitration Act (FAA), 9 U.S.C. § 2 et seq., or the Montana Uniform Arbitration Act (MUAA), § 27-5-111, MCA et seq., as applicable. Lenz v. FSC Secs. Corp., 2018 MT 67, ¶ 12, 391 Mont. 84, 414 P.3d 1262. When a district court grants or denies a motion to compel arbitration in response to a motion to dismiss or for summary judgment, we review the order for correctness under the applicable standards of M. R. Civ. P. 12(b) or 56. Lenz, ¶ 12. When a court grants or denies a motion to compel arbitration upon an evidentiary hearing, we review its findings of fact for clear error and its conclusions of law de novo for correctness. Lenz, ¶ 12.
If a motion to compel arbitration is not amenable to disposition under M. R. Civ. P. 12(b) or 56, a district court may conduct summary proceedings to resolve genuine issues of material fact where the court "sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court's discretion . . . ." Engalla v. Permanente Med. Grp., Inc., 938 P.2d 903, 915-16 (Cal. 1997). Accord § 27-5-115(1), MCA; Lenz, ¶¶ 3-9; Kloss v. Edward D. Jones & Co., 2002 MT 129, ¶¶ 12-16, 310 Mont. 123, 54 P.3d 1; Chor v. Piper, Jaffray & Hopwood, Inc., 261 Mont. 143, 147, 862 P.2d 26, 29 (1993). See also 9 U.S.C. §§ 2-4.
DISCUSSION
¶12 The FAA governs arbitration agreements related to interstate commerce. 9 U.S.C. § 2; Southland Corp. v. Keating, 465 U.S. 1, 10-17, 104 S. Ct. 852, 858-61 (1984); Zigrang v. U.S. Bancorp Piper Jaffray, Inc., 2005 MT 282, ¶ 10, 329 Mont. 239, 123 P.3d 237. The MUAA governs arbitration agreements subject to Montana law but not subject to the FAA. See §§ 27-5-111 and -114(1), MCA. Under both Acts, a written contract or contract provision by which the parties agree to resolve a future controversy by arbitration is valid and enforceable except upon "grounds as exist at law or in equity for the revocation" of contracts. 9 U.S.C. § 2;§ 27-5-114(2), MCA. The FAA encompasses a discrete body of substantive federal law mandating enforcement of arbitration agreements within its scope regardless of any contrary substantive or procedural state law. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S. Ct. 927, 941 (1983). The MUAA similarly constitutes a discrete statutory overlay of general contract law recognizing and favoring arbitration agreements subject to Montana law. See § 27-5-114, MCA. ¶13 On application of a party for enforcement of an arbitration agreement governed by the FAA or MUAA, a district court must proceed summarily to determine the issue and shall accordingly order or deny arbitration. 9 U.S.C. §§ 2-4;§ 27-5-115(1), MCA; Southland Corp., 465 U.S. at 16-17, 104 S. Ct. at 861 (substantive provisions of FAA binding on state courts pursuant to 9 U.S.C. § 2 and Supremacy Clause of U.S. Constitution but subject to state law procedural rules); Rosenthal v. Great W. Fin. Sec. Corp., 926 P.2d 1061, 1067-70 (Cal. 1996) (state law procedure for summary enforcement of arbitration agreements not in conflict with federal forum and jury trial requirements of 9 U.S.C. §§ 3-4). Since the question of whether the FAA or MUAA governs is not at issue on 261, ¶ 38, 352 Mont. 30, 217 P.3d 475 (Rice, J., dissenting). Here, the arbitration agreement expressly provided:
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 . . . .
The first sentence clearly and unambiguously described the broad scope of matters that would be subject to arbitration. The language is plainly mandatory, not discretionary or permissive. ¶20 Without limiting the scope of substantive matters subject to arbitration, the second sentence then prescribed the procedural manner for initiating the arbitration process. In contrast to matters of substantive arbitrability, threshold "procedural questions which grow out of [a] dispute and bear on its final disposition" are matters of procedural arbitrability.
MPEA, ¶ 8;
John Wiley & Sons,
Inc., 376 at 557-59,
84 S. Ct. at 918-19. Matters of procedural arbitrability include issues of satisfaction of contract-specified procedural conditions precedent to arbitration and related issues of procedural waiver, timeliness, notice, laches, estoppel, and similar defenses that have no bearing on what issues or type of issues the parties agreed to arbitrate.
Howsam, 537 U.S. at 884,
123 S. Ct. at 592;
Greater Missoula, ¶ 26. Except as clearly and unequivocally otherwise provided by contract, matters of procedural arbitrability are matters for resolution by arbitration, not in court.
Howsam, 537 U.S. at 83-84,
123 S. Ct. at 591-92;
Greater Missoula, ¶ 26. Here, Peeler's assertion that the Defendants waived their right to compel arbitration by failing to
¶41 We generally will not review issues raised for the first time on appeal.
Martz, ¶ 25. It is "fundamentally unfair" to hold a lower court in error "for failing to rule correctly on an issue" that a party did not afford the court the opportunity to address.
Martz, ¶ 25 (quoting
Paulson v.
Flathead Conservation Dist.,
2004 MT 136, ¶ 37,
321 Mont. 364,
91 P.3d 569). Here, Peeler acknowledges that he did not raise either of these issues before the District Court but asserts that he is nonetheless entitled to raise them on appeal because the District Court raised them
sua sponte as bases for granting the motion to compel arbitration. We disagree. ¶42 Peeler relies on two cherry-picked references in the court's written order to the effect that his "claims fall within the arbitration clause." However, in context, the court noted that "all parties agree the claims fall within the arbitration clause" and that Peeler merely "argues the time limit for arbitrating was not met." After squarely addressing the narrow waiver issue actually raised, the District Court similarly stated in closing that:
the Agreement's arbitration clause is intended to address "all disputes, claims and questions regarding the rights and obligations of the parties under the terms of the Agreement." There appears to be no dispute that [Peeler's] claims fall within that provision. Nor has any party disputed the validity of the parties' agreement to arbitrate. As such, the dispute in this case is substantively arbitrable.
Quoting the express language of the arbitration agreement and framing the narrow matter at issue by noting that Peeler did not raise any challenge to the scope of the arbitration agreement in relation to the claims pled hardly constitutes a
sua sponte raising and reliance on an unbriefed issue. Peeler's assertion that the District Court
sua sponte raised and relied on an unbriefed issue as a basis for its decision on the narrow issue presented is a
pursuant to M. R. Civ. P. 12(b)(1), and
§ 27-5-115, MCA. Unless it considers extrinsic facts pursuant to M. R. Civ. P. 56 or upon supplemental evidentiary hearing pursuant to
§ 27-5-115, MCA, a district court considering a motion to dismiss and compel arbitration pursuant to M. R. Civ. P. 12(b) and
§ 27-5-115, MCA, must take all well-pled factual allegations set forth in the complaint as true.
Kortum-Managhan v.
Herbergers NBGL, 2009 MT 79, ¶ 12,
349 Mont. 475,
204 P.3d 693;
Kingston, ¶ 9. Peeler's complaint, as well as his proposed amended complaint, manifestly stated claims against a party (White River) and a non-party (Rocky Mountain) based on allegations that were, as pled, substantially related and interdependent as matters of fact and law. Whether stated jointly against both Defendants in the original complaint, or as separately stated in part but nonetheless factually and legally linked in the proposed amended complaint, Peeler's allegations of related and interdependent misconduct by both parties were intimately founded in or intertwined with the Construction Contract object and duties on the facts and legal theories pled. Under these circumstances, we hold that the District Court did not erroneously fail to conclude that, as a non-party to the agreement, Rocky Mountain lacked standing to enforce the arbitration agreement against Peeler.
The parties disputed the issue incident to their larger dispute regarding White River's motion to compel arbitration but only in regard to Peeler's claim for contract attorney fees, a matter not at issue on appeal.
The elements essential for formation of a valid agreement to arbitrate include identifiable parties capable of contracting, the parties' mutual assent to arbitrate, consideration, and, as applicable, satisfaction of any condition precedent to formation of the agreement to arbitrate or the larger agreement encompassing it. Lenz, ¶ 18 (general contract elements); Thompson v. Lithia Chrysler Jeep Dodge of Great Falls, 2008 MT 175, ¶¶ 12-19, 343 Mont. 392, 185 P.3d 332 (satisfaction of condition precedent to threshold contract formation). As applicable to arbitration agreements, federal and state statutory recognition of the validity and enforceability of arbitration agreements generally satisfies the additional legal requirement for a lawful contract object.
Peeler correctly points out that the Defendants did not oppose the motion but without mention of the fact that the Defendants had yet to answer his original complaint due to the continued pendency of their Rule 12(b) motion to compel and dismiss. --------
CONCLUSION
¶51 In summary, we hold that the District Court did not erroneously conclude that the arbitration agreement required arbitration of the matters within its scope rather than merely authorizing it as a matter of discretion upon timely demand. We hold that the District Court did not erroneously fail to conclude that the Defendants equitably waived the right to arbitrate. We hold that the District Court did not erroneously compel arbitration without consideration of Peeler's proposed declaratory judgment claim challenging the validity and enforceability of the arbitration agreement. We further hold that the District Court did not erroneously conclude that Peeler's asserted non-contract claims were subject to arbitration. Finally, we hold that the District Court did not erroneously fail to conclude that, as a non-party to the agreement, Rocky Mountain lacked standing to enforce the arbitration agreement against Peeler. ¶52 Affirmed.
/S/ DIRK M. SANDEFUR We concur: /S/ JAMES JEREMIAH SHEA
/S/ INGRID GUSTAFSON
/S/ BETH BAKER
/S/ LAURIE McKINNON