Garlock v. 3DS Props., L. L.C.

303 Neb. 521

930 N.W.2d 503

John A. GARLOCK and John H. Garlock, appellees,

v.3DS PROPERTIES, L.L.C., a Nebraska limited liability company, et al., appellants.

No. S-18-336.

Supreme Court of Nebraska.

Filed July 5, 2019

Douglas W. Ruge, for appellant Ryan Basye.

William J. Bianco, of Bianco Stroh, L.L.C., Omaha, for appellants 3DS Properties, L.L.C., and Keith Donner.

Justin D. Eichmann and Sarah E. Cavanagh, of Houghton, Bradford & Whitted, P.C., L.L.O., Omaha, for appellees.

Heavican, C.J., Miller -Lerman, Cassel, Stacy, Funke, Papik, and Freudenberg JJ.

Stacy, J.

The purchasers of a home filed suit against the sellers, alleging several defects in the home had been concealed. The district court stayed the lawsuit to permit either mediation or arbitration as provided in the purchase agreement, and the parties proceeded to arbitration. After an arbitration award was entered in favor of the sellers, the purchasers moved the district court to vacate the award, and the sellers moved to confirm it. The district court vacated the award, and the sellers filed this appeal. We reverse, and remand with directions to confirm the arbitration award.

BACKGROUND

On or about March 26, 2015, John A. Garlock and John H. Garlock entered into a purchase agreement with 3DS Properties, L.L.C. (3DS), for the sale of a home in Omaha, Nebraska. The sellers' disclosure statement had been signed by 3DS member Keith Donner, and the home was listed by Ryan Basye, a licensed real estate agent in Nebraska. After closing, the Garlocks discovered problems with the home.

LAWSUIT

On May 13, 2016, the Garlocks filed a complaint in the Douglas County District Court against 3DS, Donner, and Basye, alleging multiple theories of recovery, including a violation of Neb. Rev. Stat. § 76-2,120 (Cum. Supp. 2014), fraudulent concealment, false representation, negligent misrepresentation, and breach of contract. The complaint alleged the "Seller Property Condition Disclosure," signed by Donner, misrepresented the condition of the home. In particular, the complaint alleged the disclosure statement falsely indicated that the roof did not leak, there was no damage to the roof, there was no water seepage in the basement, and there were no structural problems with the property.

Paragraph 35 of the purchase agreement was entitled "Arbitration and Mediation" and provided in relevant part:

B. Mediation: In the event of any Dispute, any party to the Dispute may seek non-binding mediation in an attempt to resolve the dispute by giving fifteen (15) days written notice of a request for such mediation to all other parties to the Dispute....

C. Arbitration: Any Dispute that is not resolved by informal settlement or mediation shall be resolved exclusively by binding arbitration. Such arbitration shall be administered by the American Arbitration Association and shall be conducted according to the American Arbitration Association’s Commercial Rules — Real Estate Industry Arbitration Rules (Including a Mediation Alternative). The arbiter(s) shall apply Nebraska substantive and procedural law to the arbitration proceeding. Arbitration shall be commenced by written demand made by any one or more of the parties to the Dispute given to all other parties of the Dispute.... The prevailing party shall be entitled to costs and fees of the arbitration and, in the discretion of the arbitrator who shall take into account the relative merits of the opponent’s case, the arbiter may award attorney’s fees and arbitration costs to the prevailing party.

(Emphasis omitted.) Above the signature line in the purchase agreement appeared a sentence which read: "This contract contains an arbitration provision which may be enforced by the parties." (Emphasis omitted.) This sentence appeared in font which was bolded and capitalized, but was not underlined.

On July 5, 2016, 3DS and Donner jointly moved to dismiss the lawsuit because the purchase agreement required that "any dispute not resolved by informal settlement or mediation shall be resolved exclusively by binding arbitration." Shortly thereafter, Basye filed a motion seeking to "[d]ismiss or [s]tay" the lawsuit for the same reason.

A hearing was held on the motions, but our record does not include a transcription of that proceeding. After the hearing, the court entered an order staying the case and deferring ruling on the motions to dismiss. The court’s order, entered September 21, 2016, did not expressly order either mediation or arbitration, but instead stayed the lawsuit "until such time as the parties have either entered into a form of mediation or by agreement ... submit[ted] to arbitration as set forth in Paragraph C of Section 35." No appeal was taken from this order.¹ Thereafter, the Garlocks filed a written demand for expedited arbitration, and all parties began the arbitration process.

Approximately 6 months later, on March 22, 2017, the Garlocks filed what they styled a "Motion for Rehearing" asking the court to reconsider its order of September 21, 2016, staying the lawsuit. In support, the Garlocks alleged for the first time that the arbitration provision in the purchase agreement violated Neb. Rev. Stat. § 25-2602.02 (Reissue 2016) of Nebraska’s Uniform Arbitration Act (UAA)² because certain language was not underlined. In response, 3DS and Donner filed another motion to dismiss, again asserting that the purchase agreement required the parties' dispute to be settled by binding arbitration.

On May 16, 2017, a hearing was held on all pending motions and evidence was adduced. Among the exhibits offered were affidavits of the Garlocks in which they averred they had initiated arbitration proceedings, but were dissatisfied with (1) how costly and complex the arbitration process was, (2) the length of time the arbitration was taking, (3) the fact that they would "still need the services of an attorney" during the arbitration, and (4) the discovery limitations they had encountered in arbitration. The Garlocks' affidavits stated that if they had known these things in advance, they would not have agreed to arbitrate.

After receiving evidence and hearing argument, the court took all motions under advisement. At the time of the hearing, all parties were aware that an arbitration hearing was set for June 12 and 13, 2017, in Omaha. However, no party advised the court of this fact, and no party asked to stay or enjoin the imminent arbitration hearing.³

Instead, the arbitration took place as scheduled and was completed before the district court ruled on either the Garlocks' motion to reconsider or the motion to dismiss filed by 3DS and Donner. All parties to the district court action participated in the arbitration hearing, and all were represented by counsel.

ARBITRATION

After the Garlocks filed a written demand for expedited arbitration, the parties selected an arbitrator and the proceedings were expanded to include discovery and a multiday hearing. The parties agreed to have a court reporter present for the arbitration hearing, which was held in Omaha at an agreed-upon location.

All parties consented to participate in the arbitration and agreed to be bound by it. Before the arbitration hearing, Basye’s attorney sent an email addressed to the arbitration company and the Garlocks' attorney, stating: "By this email, my client consents and agrees to be bound by the arbitration. This is contingent on a substantially similar representation by the other parties." At the start of the arbitration hearing on June 12, 2017, the Garlocks' attorney asked the arbitrator to confirm, on the record, each party’s consent to arbitrate. The arbitrator then individually confirmed the parties' agreement to proceed with the arbitration and to be bound by it. During the 2-day arbitration hearing that followed, more than 70 exhibits were offered and 12 witnesses testified.

An arbitration award was issued July 14, 2017. The award began by addressing procedural issues and expressly stated that before the arbitration hearing, and again during the hearing, a question was raised whether all parties had agreed to be bound by arbitration. The arbitrator found that "all Respondents agreed in writing to waive any challenge to the binding nature of the arbitration proceedings" and that "[t]he Parties also made the same representation on the record before the close of [the] Hearing." Additionally, the arbitrator acknowledged he had been advised that the Garlocks had "a pending motion before the state court regarding reconsideration of its remand of this matter to arbitration" but that they had "agreed to move forward with the arbitration." The arbitrator further stated: "No motion for continuance was made or pending at the time of [the arbitration] Hearing and no court order presented."

The arbitrator’s award then discussed the merits of the Garlocks' claims and found there was "no credible evidence to support" any of the Garlocks' claims against 3DS, Donner, or Basye. The arbitrator ordered the Garlocks to pay the costs of the arbitration and ordered each party to pay their own attorney fees.

COMPETING MOTIONS TO VACATE AND CONFIRM ARBITRATION

On August 11, 2017, the Garlocks filed, in the district court action, an "Application to Vacate" the arbitration award. The motion asserted three grounds for vacating the award: (1) The arbitrator was partial to the defendants, (2) the award was contrary to Nebraska public policy, and (3) the arbitrator refused to postpone the arbitration hearing despite a pending motion for rehearing in the district court action.

On September 12, 2017, 3DS and Donner filed another motion to dismiss, this time alleging the lawsuit should be dismissed because binding arbitration had been completed by the parties. Thereafter, on November 14, 3DS and Donner filed a motion seeking judicial confirmation of the arbitration award.

On November 17, 2017, a hearing was held before the district court on all pending motions. Evidence was adduced, and the matter was taken under...