KC INVESTMENTS, LLC v. WYNIA, 54181-1-I (Wash.App. 1-24-2005)

No. 54181-1-IThe Court of Appeals of Washington, Division One.
Filed: January 24, 2005 UNPUBLISHED OPINION

Appeal from Superior Court of King County. Docket No: 03-2-18310-5. Judgment or order under review. Date filed: 04/23/2004. Judge signing: Hon. Michael J Heavey.

Counsel for Appellant(s), Michael D Franklin, Attorney at Law, 717 W Sprague Ave, Ste 1600, Spokane, WA 99201-3922.

Bryce James Wilcox, Attorney at Law, 717 W Sprague Ave Ste 1600, Spokane, WA 99201-3923.

Counsel for Respondent(s), David L. Ashbaugh, Stanislaw Ashbaugh LLP, 701 5th Ave Ste 4400, Seattle, WA 98104-7012.

Mark Rosencrantz, Stanislaw Ashbaugh LLP, 701 5th Ave Ste 4400, Seattle, WA 98104-7012.

PER CURIAM.

KC Investments, LLC, sued fellow members of a limited liability company seeking to be repaid for contributions made to the company on behalf of the other members. The defendants appeal from a superior court order denying their motion to compel arbitration of the contract dispute. Ordinarily, if one party initiates court action in spite of a mandatory arbitration clause in the parties’ contract, the other party is entitled to an order compelling arbitration. Because the parties in this case agreed to arbitrate their dispute, and because the defendants did not waive their arbitration rights, we reverse.

FACTS
In 1998, KC Investments, LLC (KC Investments) formed a limited liability company named FWOC, LLC (FWOC) with Terry Wynia and others (collectively, Wynia) to build and operate a hotel in Federal Way. Under the terms of the Operating Agreement, each member was to make an initial contribution of funds. The Agreement also provided for the company, upon a majority vote of the members, to call for additional contributions. The Agreement contained an arbitration clause.

In April 2003, KC Investments sued Wynia seeking damages and attorney fees and costs. Claiming that Wynia failed to make certain capital contributions to FWOC as required and that KC Investments eventually contributed to FWOC the amount owed by Wynia, KC Investments argued that Wynia was liable for the entire amount loaned to them plus accrued interest.

Citing Wynia’s failure to answer the complaint, KC Investments filed a motion for default on September 9, 2003. Ten days later, Wynia answered asserting various affirmative defenses. In their answer, Wynia referred specifically to the arbitration clause in the parties’ Operating Agreement. On March 25, 2004, Wynia moved to dismiss the complaint and compel arbitration. KC Investments opposed the motion, arguing that its claim for damages was not subject to arbitration and that Wynia had waived their arbitration rights in any event. The superior court denied the motion to compel arbitration. This appeal followed.

ANALYSIS
A party seeking to enforce an agreement to arbitrate may move to compel arbitration. RCW 7.04.040(1). `We review questions of arbitrability de novo.’ Walters v. A.A.A. Waterproofing, Inc., 120 Wn. App. 354, 357, 85 P.3d 389 (2004). The first task of a court asked to compel arbitration is to determine whether the two parties agreed to arbitrate the particular matter in dispute. Kamaya Co. v. Am. Prop. Consultants, Ltd., 91 Wn. App. 703, 712, 959 P.2d 1140 (1998). In determining whether the parties agreed to arbitrate the particular dispute, we are guided by four principles: `(1) the duty to arbitrate arises from the contract; (2) a question of arbitrability is a judicial question unless the parties clearly provide otherwise; (3) a court should not reach the underlying merits of the controversy when determining arbitrability; and (4) as a matter of policy, courts favor arbitration of disputes.’ Stein v. Geonerco, Inc., 105 Wn. App. 41, 45-46, 17 P.3d 1266 (2001). The party opposing arbitration bears the burden of showing its claims are not suitable for arbitration. Mendez v. Palm Harbor Homes, Inc., 111 Wn. App. 446, 453, 45 P.3d 594 (2002).

KC Investments argues that the arbitration clause does not cover its claims against Wynia. Section 16.12 of the Agreement provides:

Arbitration. If any controversy or claim arising out of this Agreement or the Members’ relationship cannot be settled, the controversy or claim shall be settled by arbitration before three arbitrators in Washington, in accordance with the rules of the American Arbitration Association, as then in effect, and judgment on the award may be entered in any court having jurisdiction. Nothing herein, however, shall prevent a Member or the Company from resort to a court of competent jurisdiction in those instances where injunctive relief may be appropriate or for purposes of expelling a Member.

Because the arbitration clause broadly covers almost all claims or controversies arising out of the Operating Agreement or between the members, it applies here.

KC Investments asserts that the `Operating Agreement is hardly a model of clarity,’ and argues it cannot be read to require arbitration in this case. KC Investments quotes from an entirely different section[1] of the Agreement to support its position that disputes relating to collection efforts against members of FWOC who have failed to fulfill a contribution obligation are not covered by the arbitration clause. According to KC Investments, its claims `fall squarely within the confines of paragraph 5.3(a), and may be litigated at KC Investments’ discretion.’ We disagree. In Washington,[2] arbitration agreements are valid, supported by public policy, and enforceable. Harvey v. University of Washington, 118 Wn. App. 315, 318, 76 P.3d 276 (2003). `As a rule, a contractual dispute is arbitrable unless the court can say with positive assurance that no interpretation of the arbitration clause could cover the particular dispute.’ Stein, 105 Wn. App. at 46. In other words, `the agreement is construed in favor of arbitration unless the reviewing court is satisfied the agreement cannot be interpreted to cover a particular dispute.’ Mendez, 111 Wn. App. at 456.

We agree with the parties that language in section 5.3(a) qualified the otherwise broad arbitration clause contained in the Operating Agreement, providing that `[e]ach Member expressly agrees to the jurisdiction of . . . courts but only for the collection of contributions. . . .’ KC Investments asserts that an earlier reference to `Initial Contribution[s]’ in section 5.3(a) must be a `mistake’ and that the exception applies in all cases where contribution obligations are being collected. Even if that were true, however, KC Investments fails to show that the limited exception applies here. Pursuant to section 5.3(a), collection actions are to be taken by the `Members’ of FWOC, presumably on behalf of the company. Nothing suggests that KC Investments is acting in any capacity other than as an individual member of FWOC. According to KC Investments, FWOC had already collected the amount requested in additional contributions when KC Investments commenced this action against Wynia. The company elected to allow KC Investments to make the contributions for all members rather than take any action against those members who were either unable or unwilling to pay their individual contribution obligation. As a consequence, KC Investments’ rights and obligations under the Agreement are governed by section 5.3(c), not 5.3(a). Under the circumstances, the agreement to arbitrate is broad enough to include KC Investments’ claims. We conclude that KC Investments was required to submit its contractual dispute to arbitration.

KC Investments also argues that Wynia waived their right to demand arbitration by waiting for more than one year to file their motion to compel arbitration. We disagree.

Parties may waive their right to arbitration `by failing to invoke the provision when an action is commenced, or by conduct inconsistent with any other intention but to forgo the right to arbitration.’ B D Leasing Co. v. Ager, 50 Wn. App. 299, 303, 748 P.2d 652 (1988). And while we agree that a party to a lawsuit who claims the right to arbitration must take some action within a reasonable time, the delay here is insufficient to establish waiver. It is undisputed that Wynia, citing to the arbitration clause in their answer, stated that KC Investments `failed to exhaust its contractual obligations prior to bringing this lawsuit’ and requested either that KC Investments’ complaint be dismissed or that the lawsuit be stayed `pending arbitration pursuant to the mandatory arbitration clause in the parties’ Operating Agreement.’ The record shows that Wynia also initiated discussions with KC Investments regarding the need for arbitration. And while those conversations eventually proved fruitless, Wynia preserved their arbitration rights by their conduct. See Lake Wash. Sch. Dist. 414 v. Mobile Modules Northwest, Inc., 28 Wn. App. 59, 62-63, 621 P.2d 791 (1980). Under the circumstances, Wynia did not waive their right to compel arbitration.

In sum, the superior court erred when it denied Wynia’s motion to compel arbitration. To hold otherwise would not only run contrary to the parties’ agreement to arbitrate, it would frustrate the strong public policy favoring arbitration of disputes. If `a party moves to compel arbitration of a particular dispute and the court determines that the parties have agreed to arbitrate that dispute, the court must order the parties to proceed with arbitration.’ Kamaya, 91 Wn. App. at 708.

Reversed.

GROSSE, J., AGID, J. and BAKER, J.