An order that denies a motion to compel arbitration, although interlocutory, can be appealed right away. Such rulings involve a substantial right that might be lost if appeal is delayed. But in JRM, Inc. v. HJM Cos., Inc., the North Carolina Court of Appeals qualified this conventional wisdom. Interlocutory review is still available. But following JRM, review is only proper if the trial court finds a binding agreement in the first place. If not, then the appeal should be dismissed.
The parties in JRM disputed whether the plaintiff’s chief financial officer had authority to bind the company to a contract that included an arbitration agreement. The trial court found that the defendant “failed to meet its burden of proving that [a] valid arbitration agreement exist[ed] by mutual agreement of both parties.” The court of appeals decided that this factual finding carried the day. It affirmed the trial court’s order because arbitration is unavailable if the “very existence of an arbitration agreement [i]s lacking.”
Then the opinion got interesting.
“If a valid agreement to arbitrate does not exist,” the court of appeals wrote, then the defendant “has failed to show a substantial right is affected.” As such, the appellate court “lacks jurisdiction to review the trial court’s interlocutory order denying [the defendant]’s motion to compel arbitration.” From there, the court dismissed the appeal.
The majority opinion did not go unanswered. Judge Chris Dillon wrote separately and concurred with the outcome. Still, he believed that the court of appeals should have affirmed the trial court rather than dismiss the appeal. Judge Dillon recognized that his gripe, perhaps, amounted to a “distinction without a difference.” Even so, whether an arbitration agreement exists controls whether it should be enforced. In Judge Dillon’s view, this question impacts a substantial right. In turn, the court of appeals should have reached the merits and affirmed the trial court.
A party that moves to compel arbitration should seek a finding that the parties entered a binding agreement. That way, even if the trial court finds the agreement unenforceable on legal grounds, interlocutory review is available. But JLM is a good reminder that if there is no agreement in the first place, the appeal may be dismissed.
If you have questions about how to best posture a motion to compel arbitration for potential appeal or arbitration in general, contact Steven Bader.