Southern Update - IPayment, Inc. v. Grainger

IPayment, Inc. v. Grainger, No. 15 CVS 2234, 2017 N.C. App. LEXIS 1087*; 808 S.E.2d 796

An asset purchase agreement governed by New York law provided that any dispute or claim arising out of or related to the agreement would be fully and finally resolved by binding arbitration in the city and county of New York. A month after executing the asset purchase agreement, the parties entered into a split funding agreement, which included similar governing law and binding arbitration provisions. After filing and receiving a favorable arbitration award, the purchaser sought to confirm the award in the United States District Court for the Southern District of New York.

While the purchaser’s motion to confirm an arbitration award was pending, purchaser filed a verified complaint in the Union County Superior Court of North Carolina alleging that immediately after the arbitration award was entered, the sellers entered into a scheme to fraudulently transfer their assets to another finance company in order to avoid purchaser’s eventual judgment from the arbitration award. The verified complaint included the finance company, which was not party to the arbitration. The finance company filed a joint answer and asserted numerous counterclaims against purchaser. After engaging in depositions and interrogatories, in which the purchaser clearly reserved its ability to pursue arbitration, the purchaser filed a motion to compel arbitration of the counterclaims. The trial court denied the purchaser’s motion and held that the purchaser was acting in a manner clearly inconsistent with the arbitration provision contained in the split funding agreement, which manifested purchaser’s election to submit to the jurisdiction of the court.

The purchaser appealed the order denying its motion to compel arbitration of the counterclaims brought by the finance company and argued that the trial court erred in finding that the purchaser waived its right to compel arbitration on the defendant’s counterclaims. The Court of Appeals of North Carolina reversed the trial court’s order. The appellate court considered whether the purchaser’s actions prior to seeking arbitration of finance company’s counterclaims waived purchaser’s contractual right to compel arbitration. The appellate court held that the purchaser did not waive its arbitration rights by litigating and pursuing discovery related to its fraudulent transfer claims against the finance company because the finance company failed to present competent evidence that the purchaser acted inconsistently with its right to compel arbitration or that the finance company was prejudiced by the purchaser’s actions prior to the purchaser’s assertion of its rights to compel arbitration.