Shield v. Lionheart ( 2017 )


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  •                      NOTICE: NOT FOR OFFICIAL PUBLICATION.
    UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
    AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
    IN THE
    ARIZONA COURT OF APPEALS
    DIVISION ONE
    SHIELD SECURITY AND PATROL LLC, Plaintiff/Appellee,
    v.
    LIONHEART SECURITY & CONSULTING LLC, et al.,
    Defendants/Appellants.
    No. 1 CA-CV 16-0678
    FILED 10-31-2017
    Appeal from the Superior Court in Maricopa County
    No. CV2016-004920
    The Honorable Christopher T. Whitten, Judge
    AFFIRMED
    COUNSEL
    Wheelock PC, West Bloomfield, MI
    By Joshua James Wheelock
    Counsel for Plaintiff/Appellee
    Law Offices of Mark D. Svejda PLC, Scottsdale
    By Mark D. Svejda
    Counsel for Defendants/Appellants
    SHIELD v. LIONHEART, et al.
    Decision of the Court
    MEMORANDUM DECISION
    Judge Margaret H. Downie delivered the decision of the Court, in which
    Presiding Judge Michael J. Brown and Judge Jennifer B. Campbell joined.
    D O W N I E, Judge:
    ¶1           Lionheart Security & International Consulting, LLC
    (“Lionheart”), Colin Michael Morrison, Logan Collman, Joshua Hocieniec,
    Adam Leigh, and Frank Sheldone (collectively, “Defendants”) appeal from
    an order denying their motion to compel arbitration. For the following
    reasons, we affirm.
    FACTS AND PROCEDURAL HISTORY
    ¶2             Shield Security and Patrol, LLC (“Shield”) is an Arizona
    limited liability company that provides security services. In 2014, Shield’s
    predecessor-in-interest hired Morrison as its general manager. Morrison
    signed an employment agreement stating that, “[i]f litigation is initiated in
    any manner, by either Party, pertaining to this Agreement, both Employer
    and Employee agree to submit to Binding Arbitration under the jurisdiction
    of the Courts of Maricopa County, Arizona.” Collman, Hocieniec, Leigh,
    and Sheldone were also Shield employees or contractors, but unlike
    Morrison, they did not sign employment agreements with arbitration
    clauses .1
    ¶3           Lionheart is also an Arizona limited liability company that
    provides security services. Morrison, Collman, Hocieniec, Leigh, and
    Sheldone are members and/or directors of Lionheart.
    ¶4             Morrison, Sheldone, Hocieniec and Collman resigned from
    Shield in 2016. According to Shield, they then induced other Shield
    employees to leave, causing a “massive walk-off of employees that resulted
    in the inability [of Shield] to provide adequate security services for multiple
    existing contracts.” Shield further alleges that Defendants acted in ways
    detrimental to Shield before resigning by: (1) informing other employees
    Shield had changed its name to Lionheart; (2) mispresenting to clients that
    1     The superior court dismissed defendant Mariam Oulare from the
    lawsuit.
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    SHIELD v. LIONHEART, et al.
    Decision of the Court
    Shield had changed its name; (3) misrepresenting to clients that Shield and
    Lionheart were one and the same; and (4) using Shield’s property, financial
    resources, and proprietary information for the benefit of Lionheart.
    ¶5            Four months after Morrison, Sheldone, Hocieniec, and
    Collman resigned, Shield filed a complaint in superior court, alleging, as
    relevant here, breach of contract against Morrison and tortious interference
    with contract, breach of fiduciary duty, unjust enrichment, civil conspiracy,
    and direct officer liability against all Defendants.
    ¶6            Defendants filed a motion to compel arbitration based on
    Morrison’s employment agreement. They argued that Arizona Revised
    Statutes (“A.R.S.”) section 12-3003(B)(1), which makes the Arizona Revised
    Uniform Arbitration Act (“AZ-RUAA”) inapplicable to employment
    agreements, is preempted by the Federal Arbitration Act (“FAA”), which
    applies to employment agreements.2 Although acknowledging that only
    Morrison was bound by the employment agreement, Defendants sought to
    compel arbitration as to all parties. Shield opposed the motion. After oral
    argument, the superior court denied the motion to compel arbitration.
    ¶7             Defendants timely appealed, and we have jurisdiction
    pursuant to A.R.S. § 12-2101(A)(1). See U.S. Insulation, Inc. v. Hilro Constr.
    Co., 
    146 Ariz. 250
    , 253 (App. 1985) (“The denial of a motion to compel
    arbitration is substantively appealable.”).
    DISCUSSION
    ¶8            We review the denial of a motion to compel arbitration de
    novo. See Sec. Alarm Fin. Enters., L.P. v. Fuller, 
    242 Ariz. 512
    , 515, ¶ 9 (App.
    2017). We will uphold the court’s decision if it “is supportable on any
    grounds.” Lopez v. Cole, 
    214 Ariz. 536
    , 537, ¶ 6 (App. 2007).
    2      Although the parties cite § 12-1517 of the Arizona Uniform
    Arbitration Act (“AZ-UAA”), we conclude § 12-3003(B)(1) of the Arizona
    Revised Uniform Arbitration Act (“AZ-RUAA”) is the applicable statute.
    The Arizona Legislature adopted the AZ-RUAA in 2010, and it applies to
    arbitration agreements made after January 1, 2011.                See A.R.S.
    § 12-3003(A)(1); see also Bruce E. Meyerson, Arizona Adopts the Revised
    Uniform Arbitration Act, 43 Ariz. St. L.J. 481, 486 (2011). Because Morrison
    signed his employment agreement in 2014, the AZ-RUAA applies.
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    SHIELD v. LIONHEART, et al.
    Decision of the Court
    I.     Application of the FAA
    ¶9             Defendants contend the FAA preempts § 12-3003(B)(1) and
    requires Shield to arbitrate. The FAA was enacted in 1925 to overcome
    “judicial hostility to arbitration agreements . . . and to place arbitration
    agreements upon the same footing as other contracts.” Gilmer v.
    Interstate/Johnson Lane Corp., 
    500 U.S. 20
    , 24 (1991). By making the FAA
    applicable to state courts, “Congress intended to foreclose state legislative
    attempts to undercut the enforceability of arbitration agreements.”
    Southland Corp. v. Keating, 
    465 U.S. 1
    , 16 (1984).
    ¶10            The Arizona Supreme Court has recognized that the FAA
    “preempts state law and governs all written arbitration agreements
    involving interstate commerce, making such agreements enforceable in
    both federal and state courts.” S. Cal. Edison Co. v. Peabody W. Coal Co., 
    194 Ariz. 47
    , 51, ¶ 13 (1999), as amended May 19, 1999. Under the FAA, courts
    must stay litigation of arbitrable claims pending arbitration and must
    compel arbitration in accordance with the terms of the contract. 9 U.S.C.
    §§ 3, 4; AT&T Mobility LLC v. Concepcion, 
    563 U.S. 333
    , 344 (2011) (applying
    9 U.S.C. §§ 3, 4).
    ¶11            The FAA, 9 U.S.C. §§ 1-16, is applicable to employment
    contracts involving interstate commerce, with the exception of those
    involving transportation workers. See Circuit City Stores, Inc. v. Adams, 
    532 U.S. 105
    , 109 (2001); Hamblen v. Hatch, 
    242 Ariz. 483
    , 488, ¶ 20 (2017) (citing
    Circuit City and acknowledging that “the FAA applies to arbitration
    agreements in employment contracts”). Conversely, the AZ-RUAA, A.R.S.
    §§ 12-3001 through -3029, does not apply to employment contracts. See
    A.R.S. § 12-3003(B)(1) (“[T]his chapter shall not apply to an agreement to
    arbitrate any existing or subsequent controversy [b]etween an employer
    and employee or their respective representatives.”).
    ¶12           In North Valley Emergency Specialists, L.L.C. v. Santana, 
    208 Ariz. 301
    (2004), the Arizona Supreme Court held that A.R.S. § 12-1517 —
    the AZ-UAA equivalent to § 12-3003(B)(1) — exempts employment
    agreements from the AZ-UAA but declined to address whether the FAA
    preempts Arizona law. See 
    id. at 302
    n.2, ¶ 6, 303, ¶ 9. The court did not
    address preemption because the party seeking to enforce the arbitration
    agreement: (1) raised the argument for the first time in a supplemental brief;
    and (2) “did not ask the trial court to make any finding” that the contracts
    involved interstate commerce. 
    Id. at 302
    n.2, ¶ 6. A similar situation exists
    here, making it unnecessary to definitively resolve the preemption
    question. Although the FAA applies to employment contracts involving
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    SHIELD v. LIONHEART, et al.
    Decision of the Court
    interstate commerce, Defendants did not establish that Morrison’s
    employment agreement involves interstate commerce.
    ¶13           “[C]ourts ‘have repeatedly analogized a trial court’s duty in
    ruling on a motion to compel arbitration to its duty in ruling on a motion
    for a summary judgment.’” Ruesga v. Kindred Nursing Ctrs., L.L.C., 
    215 Ariz. 589
    , 596, ¶ 23 (App. 2007). Unlike summary judgment, though, if genuine
    issues of material fact exist regarding the existence or terms of an arbitration
    agreement, the trial court holds an evidentiary hearing to resolve the issue.
    Brake Masters Sys., Inc. v. Gabbay, 
    206 Ariz. 360
    , 365, ¶¶ 13–14 (App. 2003).
    In deciding whether an evidentiary hearing is necessary, the court applies
    the same standards applicable to a summary judgment motion. 
    Id. at ¶
    14.
    In Ruesga, we cited with approval the Alabama Supreme Court’s decision
    in Ex parte Greenstreet, Inc., 
    806 So. 2d 1203
    (Ala. 2001), which explains the
    movant’s burden of proof in seeking to compel arbitration under the FAA:
    [T]he party moving for arbitration has the burden of proving
    the existence of a contract containing an arbitration clause, in
    a transaction that substantially affects interstate commerce.
    If the party moving to compel arbitration fails to make such a
    showing, the burden of proof does not shift to the opposing
    party and the motion should be denied.
    Ex parte Greenstreet, 
    Inc., 806 So. 2d at 1207
    (emphasis added) (citation
    omitted). Defendants thus had the burden of proving not only that the
    employment agreement includes an arbitration clause, but also that the
    agreement substantially affects interstate commerce. They did not do so.
    ¶14             In their motion to compel arbitration, Defendants asserted
    that A.R.S. § 12-3003(B)(1) is preempted by the FAA, but did not explain
    how Morrison’s employment agreement substantially affects interstate
    commerce. In responding to the motion, Shield argued that interstate
    commerce was not at issue here. Defendants, in reply, acknowledged the
    requirement that the arbitration agreement be “contained in a contract
    evidencing a transaction involving commerce,” but did not discuss the
    topic further. And when the issue was raised at oral argument, Defendants
    stated simply that, “[s]ecurity services could be provided to out-of-state
    entities” and that Shield “could purchase security supplies, such as guns or
    uniforms, from outside the State of Arizona.” (Emphasis added.) This was
    insufficient to create a genuine issue of material fact requiring resolution at
    an evidentiary hearing. See, e.g., Gilbert v. Bd. of Med. Exam’rs, 
    155 Ariz. 169
    ,
    176 (App. 1987) (in ruling on motions for summary judgment, trial court is
    not required to search the record for facts or arguments that support the
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    SHIELD v. LIONHEART, et al.
    Decision of the Court
    opposing party; trial court is required to consider only those portions of the
    record that are brought to its attention by the parties).
    ¶15           As the parties moving to compel arbitration, Defendants were
    required to establish that the employment agreement involved interstate
    commerce, not simply that it might involve interstate commerce. They thus
    failed to carry their burden of establishing that the FAA applies. On the
    record before it, the superior court properly denied the motion to compel
    arbitration.3
    II.    Common Law Contract
    ¶16           Defendants next argue the arbitration clause is enforceable as
    a common law contract term. They did not, however, make that argument
    in their motion to compel arbitration. And in their reply in support of that
    motion, Defendants included only one sentence asserting that “the
    language in the Employment Agreement is also enforceable as a common
    law contract term.” They offered no legal authority or factual support for
    that belated assertion. We therefore decline to address this argument on
    appeal.4
    CONCLUSION
    ¶17         For the foregoing reasons, we affirm the denial of Defendants’
    motion to compel arbitration. Both parties request an award of attorneys’
    fees on appeal pursuant to A.R.S. § 12-341.01 and the employment
    agreement. Because the case has not been resolved on its merits, we defer
    3      We do not consider Defendants’ arguments — asserted for the first
    time on appeal — about how the employment agreement purportedly
    affects interstate commerce. See Tanner Cos. v. Ins. Mktg. Servs., Inc., 
    154 Ariz. 442
    , 447 (App. 1987) (“Arguments not made in the trial court cannot
    be asserted for the first time on appeal.”); Brookover v. Roberts Enters., Inc.,
    
    215 Ariz. 52
    , 55, ¶ 8 (App. 2007) (“We review the decision on the record
    made in the trial court, considering only the evidence presented to the trial
    court when it addressed the motion.”); Cahn v. Fisher, 
    167 Ariz. 219
    , 221
    (App. 1990) (party cannot raise new theories on appeal to seek reversal of
    summary judgment).
    4      Because we affirm the denial of Defendants’ motion to compel, we
    do not address the contention that Shield could be compelled to arbitrate
    with all Defendants. See Freeport McMoRan Corp. v. Langley Eden Farms, LLC,
    
    228 Ariz. 474
    , 478, ¶ 15 (App. 2011) (Appellate courts “do not issue advisory
    opinions or decide unnecessary issues.”).
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    SHIELD v. LIONHEART, et al.
    Decision of the Court
    any decision on fees to the superior court after the successful party has been
    identified. We award Shield its costs on appeal upon compliance with
    ARCAP 21.
    AMY M. WOOD • Clerk of the Court
    FILED: AA
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