Hitorq v. TCC Veterinary Services , 2020 UT App 123 ( 2020 )

2020 UT App 123THE UTAH COURT OF APPEALS
HITORQ LLC AND LISA PASQUARELLO,
Appellants,
v.
TCC VETERINARY SERVICES INC., TYLER S. STIENS, ARTZ VETMED
SERVICES PLLC, AND JOHN ARTZ,
Appellees.
Opinion
No. 20180971-CA
Filed August 20, 2020
Third District Court, Silver Summit Department
The Honorable Kara L. Pettit
The Honorable Kent R. Holmberg
No. 160500473
Stephen K. Christiansen and Sam Meziani, Attorneys
for Appellants
Joseph E. Wrona, Jared C. Bowman, and Steven
Drew Parkinson, Attorneys for Appellees
JUDGE JILL M. POHLMAN authored this Opinion, in which JUDGES
GREGORY K. ORME and RYAN M. HARRIS concurred.
POHLMAN, Judge:
¶1 HITORQ LLC and Lisa Pasquarello (collectively,
Plaintiffs) appeal the district court’s order compelling them to
arbitrate their claims against Tyler S. Stiens, TCC Veterinary
Services Inc., John Artz, and Artz Vetmed Services PLLC
(collectively, Defendants). They also appeal the district court’s
refusal to stay the arbitration proceedings. We affirm.
HITORQ v. TCC Veterinary Services
BACKGROUND
¶2 Pasquarello, Artz, and Stiens are all veterinarians who
practiced veterinary medicine together in Park City, Utah.
Beginning in 2011, they practiced at the Silver Creek Animal
Clinic (the Clinic), which was a limited liability company that
operated in a building owned by the Silver Creek Animal Clinic
Real Estate LLC (the Real Estate Company), another limited
liability company. Each veterinarian owns an individual
corporate entity, each of which, in turn, has an interest in both
the Clinic and the Real Estate Company (collectively, the
Companies). Specifically, Pasquarello is the sole member of
HITORQ LLC (HITORQ), which has a 25% membership interest
in the Companies. Artz is the sole member of Artz Vetmed
Services PLLC (Vetmed), which also has a 25% membership
interest in the Companies. And Stiens is the sole owner of TCC
Veterinary Services Inc. (TCC), which has a 50% membership
interest in the Companies.
¶3 In September 2015, Artz agreed to purchase HITORQ’s
membership interest in the Companies for a cash payment and
the assumption of remaining debt. The closing date for the sale
was scheduled for November 14, 2015—not long before
Pasquarello’s planned move out of state—and Pasquarello
intended to continue working at the Clinic until the sale closed.
But the sale did not close, and Pasquarello alleged that Artz and
Stiens refused to allow her to work at the Clinic after November
13, 2015. It is undisputed that in June 2016, Artz and Stiens voted
to expel HITORQ from its membership in the Companies on the
basis that Pasquarello had failed to be reasonably productive in
the practice of veterinary medicine with the Clinic.
¶4 In November 2016, Plaintiffs filed suit against Defendants.
Notably, Plaintiffs attached the Clinic’s operating agreement (the
Operating Agreement) to the complaint. The complaint alleged
ten causes of action, but we describe and discuss only the three
that are relevant to this appeal.
20180971-CA 2 2020 UT App 123HITORQ v. TCC Veterinary Services
¶5 Plaintiffs’ first cause of action was for breach of contract
against Artz and Vetmed (the Contract Claim). As part of the
Contract Claim, Plaintiffs alleged that the Operating Agreement
required that memberships in the Clinic and the Real
Estate Company be sold together. 1 Plaintiffs alleged that
the terms of Artz’s agreement to purchase HITORQ’s
membership interest in the Companies included his promises to,
among other things, pay a sum to Pasquarello, assume
HITORQ’s debt related to its purchase of the membership in
the Real Estate Company, “pay HITORQ its share of the
profits and losses as well as the accounts receivable through
the closing date, [and] continue thereafter to pay HITORQ
its share of accounts receivable until they were paid in full.”
Also as part of the Contract Claim, Plaintiffs alleged that
Artz prepared a written agreement that did not comport
with the purchase agreement in that it failed to
include provisions for, among other things, “the sale of the
Real Estate membership” and “the payment of accounts
receivable.”
¶6 According to Plaintiffs, Artz and Vetmed breached the
purchase agreement in a number of ways, including “[f]ailing to
purchase the membership interests,” failing to make the cash
payment, failing to “pay HITORQ profits and accounts
receivable by November 14, 2015,” and “[p]reventing
Pasquarello from working after November 13, 2015.”
1. The Operating Agreement states, “In the case of any voluntary
or mandatory buy-out of a Member’s interest in the [Clinic], the
Members agree that the purchasing Members shall also acquire
the selling Member’s ownership interest in [the Real Estate
Company] on the same terms and conditions as set forth herein.
In addition, the selling Member shall pay directly or by setoff all
fees and reasonable expenses incurred by the [Clinic] or
Members to effectuate the transfer(s).”
20180971-CA 3 2020 UT App 123HITORQ v. TCC Veterinary Services
¶7 In their second cause of action, Plaintiffs sought damages
from Artz and Vetmed for breaching the “duty of good faith
and fair dealing” (the Good Faith Claim). As part of the
Good Faith Claim, Plaintiffs alleged that under the Operating
Agreement, the Clinic’s members were paid monthly
distributions (Clinic Debt Payments), which they used to “pay
their respective debts for the purchase of their Clinic
membership interests,” and that since December 2015, Artz and
Vetmed took Plaintiffs’ Clinic Debt Payments for their own use,
which left Plaintiffs unable to meet their own financial
obligations. Also, as part of the Good Faith Claim, Plaintiffs
alleged that Artz did not obtain the financing for the sale
despite telling Pasquarello that he had obtained sufficient
financing, and that Artz demanded modifications to the
purchase agreement well into 2016, saying there were other
“large subjects to address before moving deeper into the
contract.” According to Plaintiffs, Artz and Vetmed breached the
duty of good faith and fair dealing by, among other things,
“[w]rongfully taking HITORQ’s Clinic Debt Payments while
failing to close” the sale, making false representations about
financing, failing to meet the obligations under the purchase
agreement, demanding modifications to the purchase
agreement, and voting to expel HITORQ as a member of the
Clinic.
¶8 The eighth cause of action sought dissolution of the
Companies (the Dissolution Claim). As part of that claim,
Plaintiffs alleged that Defendants denied them “the rights and
benefits in both entities, changed the character, profits and losses
of the Clinic[,] and devalued . . . Plaintiffs’ membership.”
Plaintiffs further alleged that Defendants acted “in a manner that
is illegal, oppressive, and directly harmful to Plaintiffs” and that
therefore good cause existed for judicial supervision of the
winding up of the Companies.
¶9 TCC and Vetmed, both members of the Clinic, filed a
notice of their election to purchase HITORQ’s interest in the
20180971-CA 4 2020 UT App 123HITORQ v. TCC Veterinary Services
Clinic in lieu of the Clinic’s dissolution. In the notice, TCC and
Vetmed reserved their right under the Operating Agreement to
mediate and arbitrate.
¶10 Defendants moved to compel arbitration in accordance
with the arbitration provision of the Operating Agreement. That
provision states,
Any Member involved in a dispute regarding the
enforcement or interpretation of this Agreement
may elect to have such dispute referred to
non-binding mediation or binding arbitration. In
the alternative, all Members involved in such a
dispute may elect to have their dispute heard by a
court of competent jurisdiction in the State of Utah.
According to Defendants, this provision was triggered because
HITORQ, Vetmed, and TCC were all members of the Clinic and
thus “agreed to put any disputes ‘regarding the enforcement or
interpretation of this Agreement’ to an arbitrator.” Defendants
pointed out that the Contract Claim “ma[de] reference to” the
Operating Agreement’s term that “the real estate membership
[must] be sold with the clinic membership” and alleged breach
based on the proposed written agreement’s failure to contain a
term for the sale of the real estate membership; that the Good
Faith Claim referred to the Operating Agreement’s terms
regarding the Clinic Debt Payments and alleged breach based on
Defendants’ failure to deliver those payments to Plaintiffs and
Defendants’ vote to expel Plaintiffs from the Clinic; and the
Dissolution Claim asked for judicial dissolution, which is “a
remedy from within the Clinic Operating Agreement.” 2 Hence,
2. Defendants cited the Operating Agreement’s provision stating
that the Clinic “will be dissolved and its affairs must be wound
up only upon the written consent of the Members, when the
(continued…)
20180971-CA 5 2020 UT App 123HITORQ v. TCC Veterinary Services
Defendants asserted that all Plaintiffs’ claims “deal with the
enforcement or interpretation of the Clinic’s Operating
Agreement” and “are subject to this arbitration provision.”
¶11 Plaintiffs opposed Defendants’ motion to compel
arbitration, arguing that because their causes of action did “not
seek to enforce a provision of the Operating Agreement and
[did] not require an interpretation” of it, they were not subject to
its arbitration provision. Concerning the Contract Claim,
Plaintiffs argued that the claim was based on Defendants’ breach
of the purchase agreement, not the Operating Agreement, and
that the complaint’s references to the Operating Agreement were
“only to explain why it may have been important to . . . sell both
[the Clinic and Real Estate Company] memberships
simultaneously.” Similarly, Plaintiffs maintained that the Good
Faith Claim did not allege a breach of the Operating Agreement
and asserted that the “fact that the Operating Agreement may or
may not have given the parties the authority to make [Clinic
Debt Payments] has no bearing upon whether [Artz and
Vetmed’s] breach of the contract to purchase and the resulting
fallout support a covenant of good faith.” And as for the
Dissolution Claim, Plaintiffs asserted that instead of being based
on Defendants’ breach of the Operating Agreement, the
Dissolution Claim was based on the fact that Defendants “have
acted and are acting in an oppressive manner that has [been] and
is directly harmful to [Plaintiffs], or are acting in a fraudulent
manner.” Thus, Plaintiffs asserted, “statutory grounds” existed
for dissolution and “judicial dissolution has nothing to do with
the interpretation or enforcement of an operating agreement.”
(…continued)
[Clinic] has no existing Members or upon entry of a decree of
judicial dissolution.”
20180971-CA 6 2020 UT App 123HITORQ v. TCC Veterinary Services
¶12 Defendants responded that although the Contract Claim
alleged a violation of the purchase agreement, “the key areas of
dispute” still fell within the arbitration provision. For example,
although Plaintiffs alleged that the failure to sell both the Clinic
and Real Estate Company memberships was “a violation of the
purchase agreement,” it was the Operating Agreement that
required those memberships to be sold together. Likewise,
Defendants highlighted that while Plaintiffs alleged that the
failure to pay profits and accounts receivable was “a violation of
the purchase agreement,” the Operating Agreement “governs
profits and distributions.” Regarding the Good Faith Claim,
Defendants maintained that determining whether “Plaintiffs
were entitled to receive the Clinic Debt Payments or any other
distributions has to be answered by interpreting the Operating
Agreement.” As to the Dissolution Claim, Defendants asserted
that “[w]hether [they] acted as [Plaintiffs] alleged”—denying
Plaintiffs the “rights and benefits” in the Companies, changing
the profits and losses of the Clinic, and devaluing Plaintiffs’
membership—“requires an interpretation of the Operating
Agreement because [it] addresses those issues.”
¶13 The district court heard oral argument on Defendants’
motion to compel arbitration. In its ruling, the court first noted
that it was undisputed that an agreement to arbitrate was in the
Operating Agreement, to which HITORQ, Vetmed, and TCC
were members. The court also observed that it was required “to
liberally interpret the arbitration clause and construe it in favor
of arbitration.” Applying the scope of that arbitration clause to
the claims in Plaintiffs’ complaint, the court ruled that “there is a
dispute involving the enforcement and interpretation of the
Operating Agreement” and that the three claims at issue
therefore “are subject to the arbitration provision.” 3
3. With respect to the other claims in Plaintiffs’ complaint, the
district court ruled that only one claim (fraud) was not subject to
(continued…)
20180971-CA 7 2020 UT App 123HITORQ v. TCC Veterinary Services
¶14 Specifically, the Contract Claim and the Good Faith Claim
involve a dispute over enforcement or interpretation of the
Operating Agreement in reference to “whether or not the real
estate membership is supposed to be sold together”—even
though “there’s a dispute as to whether or not that’s even
implicated or whether that is in the complaint.” The court also
determined that those claims involve enforcement or
interpretation of the Operating Agreement’s provisions
regarding “if the selling member is to pay the expenses related to
the sale and transfer of her interest” and regarding if the Clinic
would pay profits and accounts receivable. In so ruling, the
court noted that it was not necessarily agreeing with Defendants’
interpretation of the complaint. As for the Dissolution Claim, the
court determined that the premise that Defendants denied
Plaintiffs “the right and benefits of membership under the
Operating Agreement” was “dependent on . . . [the] enforcement
or interpretation of the [Operating Agreement] to get to whether
or not there should be dissolution.” As a result, the court
concluded that the Dissolution Claim “is a claim in dispute
regarding enforcement or interpretation” of the Operating
Agreement and “is subject to the arbitration [provision].”
Thereafter, the court appointed an arbitrator.
¶15 In September 2017, as the arbitration process was
ongoing, Plaintiffs filed a motion in district court to stay the
arbitration proceedings. In the motion, Plaintiffs asserted that
Defendants’ election to purchase, supra ¶ 9, was irrevocable and
meant that Defendants were statutorily required to purchase
HITORQ’s membership interest in the Clinic. Plaintiffs asked the
court to stay the arbitration proceedings, determine the fair
market value of HITORQ’s membership interest, and enter an
(…continued)
the arbitration provision. That claim is not at issue on appeal.
Supra ¶ 4.
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order directing the purchase. See generally Utah Code Ann.
§ 48-3a-702(7)–(9) (LexisNexis 2015) (explaining that after an
election to purchase has been filed and “upon application of any
party, the district court shall stay the proceedings . . . and
determine the fair market value of the applicant member’s
interest in the limited liability company as of the day before the
date on which the petition” to dissolve was filed).
¶16 Defendants opposed the motion. They argued that
once the district court issued the order compelling arbitration, all
issues “related to or arising out of” the Dissolution
Claim became subject to arbitration. Defendants also contended
that Plaintiffs had already raised and lost the statutory
election issue before the arbitrator and that the motion to stay
was an attempt to “relitigate” the issue. Plaintiffs disputed that
they had received an unfavorable ruling on the issue from
the arbitrator.
¶17 In response, Plaintiffs insisted that the district court did
not order the election-to-purchase issue into arbitration. They
also argued that the statutory remedy was “outside the scope of
the Operating Agreement.”
¶18 After a hearing, the district court denied Plaintiffs’
motion. It explained that the notice of election to purchase was
filed in response to the Dissolution Claim and that because it
had compelled that cause of action into arbitration, “anything
related” to the Dissolution Claim, including the
election-to-purchase issue, was also compelled into arbitration.
In this respect, the court declined to “carve out” the
election-to-purchase issue from its order compelling arbitration,
reasoning that such a result would lead to “two courts
adjudicating the Dissolution Claim.”
¶19 The parties proceeded through the arbitration process,
which resulted in the arbitrator issuing a decision. In his
decision, the arbitrator granted judgment in favor of Defendants
20180971-CA 9 2020 UT App 123HITORQ v. TCC Veterinary Services
on the Contract Claim and the Good Faith Claim. With respect to
the Dissolution Claim, the arbitrator decided that “dissolution
[was] not a viable remedy.” Yet the arbitrator decided that in
lieu of dissolution, Plaintiffs would sell their interest in the
Companies to Artz, both Artz and Stiens, or, alternatively, a
third party. The arbitrator also weighed evidence and valued
Plaintiffs’ interest in the Companies.
¶20 Plaintiffs thereafter moved the district court to vacate
the arbitration award on the ground that the arbitrator
“exceeded his authority in deciding issues beyond the scope
of the parties’ arbitration agreement.” In essence, Plaintiffs’
motion to vacate raised the same arguments they had made in
moving to stay the arbitration proceedings and in opposing
Defendants’ motion to compel arbitration. After a hearing, the
court again rejected Plaintiffs’ arguments and denied their
motion to vacate the arbitration award.
¶21 Finally, Defendants moved to confirm the arbitration
award. The district court granted the motion and confirmed the
arbitrator’s decision. Plaintiffs appeal.
ISSUES AND STANDARDS OF REVIEW
¶22 Plaintiffs raise two issues on appeal. First, they
contend that the district court erred in granting Defendants’
motion to compel arbitration of the Contract Claim, the
Good Faith Claim, and the Dissolution Claim. “Whether a trial
court correctly decided a motion to compel arbitration is a
question of law which we review for correctness, according no
deference to the district judge.” MacDonald Redhawk Invs. v.
Ridges at Redhawk, LLC, 2006 UT App 491, ¶ 2, 153 P.3d 787(cleaned up).
¶23 Second, Plaintiffs contend that the district court
“incorrectly refused to stay the [arbitration] proceedings
20180971-CA 10 2020 UT App 123HITORQ v. TCC Veterinary Services
and determine the market value of the [Clinic] . . . when
the Dissolution Claim arose by statute and not by contract.”
The resolution of this issue likewise turns on whether the
district court correctly compelled arbitration of the Dissolution
Claim. We therefore review the district court’s denial of
Plaintiffs’ motion to stay the arbitration proceedings
for correctness. See id. To the extent that the resolution of
this issue involves a question of statutory interpretation,
we review the district court’s interpretation of a statute
for correctness. Graham v. Albertson’s LLC, 2020 UT 15, ¶ 9, 462
P.3d 367.
ANALYSIS
I. Motion to Compel Arbitration
¶24 Plaintiffs contend that the district court erred in
compelling the parties to arbitrate the claims at issue on appeal.
They assert that the plain language of the Operating
Agreement’s arbitration provision “applies only to those
disputes that involve the ‘interpretation’ of language in the
Operating Agreement or the ‘enforcement’ of a term of the
Operating Agreement.” According to Plaintiffs, the Contract
Claim, the Good Faith Claim, and the Dissolution Claim “are
based on legal grounds that are independent of” the Operating
Agreement because they “do not seek the ‘enforcement or
interpretation’ of the Operating Agreement.” Thus, Plaintiffs
assert, those claims are not subject to arbitration.
¶25 We begin by setting forth the principles that guide
whether these disputes are arbitrable. We then address each
claim in turn.
20180971-CA 11 2020 UT App 123HITORQ v. TCC Veterinary Services
A. Guiding Principles
¶26 “In the event of a disagreement about whether there is
an applicable agreement to arbitrate a dispute,” Mariposa Express,
Inc. v. United Shipping Sols., LLC, 2013 UT App 28, ¶ 16, 295 P.3d
1173 (cleaned up), the Utah Uniform Arbitration Act
provides that “the court shall proceed summarily to decide
the issue and order the parties to arbitrate unless it finds
that there is no enforceable agreement to arbitrate,” Utah Code
Ann. § 78B-11-108(1)(b) (LexisNexis 2018). See generally id.
§§ 78B-11-101 to -131 (the Utah Uniform Arbitration Act).
The parties agree that there is an enforceable agreement to
arbitrate. The sole question we must decide is whether the
claims at issue fall within the scope of that agreement. Resolving
this question depends on, first, the breadth of the arbitration
provision and, second, the nature of the claims. See CardioNet,
Inc. v. Cigna Health Corp., 751 F.3d 165, 172 (3d Cir. 2014).
¶27 When interpreting agreements, Utah courts bear in
mind “our policy of encouraging arbitration.” Central Fla. Invs.,
Inc. v. Parkwest Assocs., 2002 UT 3, ¶ 16, 40 P.3d 599. Indeed, “it is
the policy of the law in Utah to interpret contracts in favor
of arbitration, in keeping with our policy of encouraging
extrajudicial resolution of disputes when the parties have
agreed not to litigate.” Id. (cleaned up); see also id. ¶ 24
(reiterating “the strong policy of the law in Utah in favor of
arbitration”).
¶28 However, even with that policy in mind, the “intentions
of the parties are controlling.” Id. ¶ 12. And “we first look to the
four corners of the agreement to determine the intentions of the
parties.” Id. (cleaned up). “If the language within the four
corners of the contract is unambiguous, the parties’ intentions
are determined from the plain meaning of the contractual
language, and the contract may be interpreted as a matter of
law.” Id.; see also Zions Mgmt. Services v. Record, 2013 UT 36, ¶ 36,
305 P.3d 1062 (“State and federal policies favoring arbitration
20180971-CA 12 2020 UT App 123HITORQ v. TCC Veterinary Services
cannot be used to defeat the plain language of the parties’
contract, nor can they be used to create ambiguities where there
are none.” (cleaned up)).
¶29 The Operating Agreement’s arbitration provision states,
“Any Member involved in a dispute regarding the
enforcement or interpretation of this Agreement may elect
to have such dispute referred to . . . binding arbitration.”
Under this provision’s plain language, only those disputes
“regarding the enforcement or interpretation” of the
Operating Agreement are subject to arbitration. “Enforcement”
is the “act or process of compelling compliance with a law,
mandate, command, decree, or agreement.” Enforcement,
Black’s Law Dictionary (11th ed. 2019); see also
Enforcement, Cambridge Dictionary, https://dictionary.cambridge
.org/us/dictionary/english/enforcement [https://perma.cc/3TYQ-
T8H3] (defining “enforcement” as “the process of making people
obey a law or rule, or making a particular situation happen or
be accepted”); Enforce, Merriam-Webster, https://www.merriam-
webster.com/dictionary/enforcement [https://perma.cc/CG7X-
E5XV] (stating that “enforce” means “to cause to take effect or to
be fulfilled”). And “interpretation” is the “ascertainment of a
text’s meaning,” especially the “determination of how a text
most fittingly applies to particular facts.” Interpretation, Black’s
Law Dictionary (11th ed. 2019); see also Interpretation, Macmillan
Dictionary, https://www.macmillandictionary.com/us/dictionary
/american/interpretation [https://perma.cc/HG32-B3B4] (defining
“interpretation” as “an explanation of the meaning or
importance of something”).
¶30 When it comes to examining the nature of claims to
determine whether they fall within the scope of an arbitration
provision, we again bear in mind Utah’s strong policy favoring
arbitration. See Central Fla. Invs., 2002 UT 3, ¶¶ 16, 24; Mariposa
Express, 2013 UT App 28, ¶ 17. Under that policy, when an
arbitration agreement exists, “we encourage arbitration by
liberal interpretation of the arbitration provisions themselves.”
20180971-CA 13 2020 UT App 123HITORQ v. TCC Veterinary Services
Edwards v. Carey, 2017 UT App 73, ¶ 13, 397 P.3d 797 (cleaned
up). Given this approach to deciding the breadth of an
arbitration provision, we similarly deem it appropriate to
liberally interpret the nature of the claims at issue.
¶31 Utah law on the subject of how to examine the nature of
claims in this context is sparse. We therefore “look to the law of
other states and to federal case law for guidance on these
issues.” Buzas Baseball, Inc. v. Salt Lake Trappers, Inc., 925 P.2d 941,
947 n.5 (Utah 1996) (explaining that where “Utah law on [an
arbitration] issue is sparse,” and where the relevant “provisions
of the Utah Arbitration Act are nearly identical to those
contained in the Federal Arbitration Act,” we “look to the law of
other states and to federal case law for guidance on” the issue).
In this regard, the analysis of CardioNet, Inc. v. Cigna Health Corp.,
751 F.3d 165 (3d Cir. 2014), is helpful to the issue at hand.
¶32 In CardioNet, the United States Court of Appeals for the
Third Circuit explained that to assess “whether a particular
dispute falls within the scope of an arbitration clause, we focus
on the factual underpinnings of the claim rather than the legal
theory alleged in the complaint.” Id. at 173 (cleaned up). This
approach prevents “a creative and artful pleader from drafting
around an otherwise-applicable arbitration clause.” Id. (cleaned
up). In other words, “the arbitrability of a given dispute depends
not on the particular cause of action pleaded, but on the
relationship of the arbitration clause at issue to the facts
underpinning a plaintiff’s claims.” Id. at 176.
¶33 For instance, if an arbitration clause in an agreement is
“limited in scope to disputes regarding the performance or
interpretation of the Agreement,” id. at 174 (cleaned up), and if
certain claims depend on a document distinct from that
agreement, the claims will fall outside the arbitration clause
when “the resolution of [the] claims does not require
construction of, or even reference to, any provision” in the
agreement, id. at 175–76 (cleaned up). Similarly, the claims will
20180971-CA 14 2020 UT App 123HITORQ v. TCC Veterinary Services
fall outside the scope of the arbitration clause when
“interpreting the Agreement is not required, or even useful, in
resolving” the claims. Id. at 176–77.
¶34 We now apply these principles to Plaintiffs’ claims.
B. Plaintiffs’ Claims
1. The Contract Claim
¶35 Plaintiffs argue that the Contract Claim “sought to enforce
an oral contract” in which Artz agreed to purchase HITORQ’s
interest in the Clinic. Without addressing the nature of the
Contract Claim itself, Plaintiffs generally assert that the action to
enforce the oral purchase agreement is “not an action to ‘enforce’
or ‘interpret’ the Operating Agreement” given that they are
“separate contracts.” And because the purchase agreement lacks
an arbitration clause, Plaintiffs maintain that the Contract Claim
was not subject to arbitration.
¶36 Defendants respond that the Contract Claim “required
the interpretation and enforcement of the Operating Agreement”
because Plaintiffs alleged that the Operating Agreement
“imposed certain requirements on the sale and purchase of LLC
membership interests that governed the members’ conduct in
shaping and performing any buyout of interest.” Defendants
point to the complaint, which, in Defendants’ view, alleged that
“it was somehow a violation of the purchase agreement to not
sell the [Real Estate Company] shares with the [Clinic] shares as
required by” the Operating Agreement. They also point to the
complaint’s allegation that Artz and Vetmed breached the
purchase agreement “by not paying the ‘profits and accounts
receivable’ that were owed to Pasquarello,” emphasizing that
Pasquarello’s “right to profits and receivables arose out of the
Operating Agreement.”
20180971-CA 15 2020 UT App 123HITORQ v. TCC Veterinary Services
¶37 Applying the principles discussed above, we conclude
that the district court did not err in ordering the Contract Claim
into arbitration. On the face of the complaint, Plaintiffs’
allegations about the purchase agreement involved a dispute
about the enforcement or interpretation of the Operating
Agreement. The facts underpinning Plaintiffs’ claim regarding
breach of the purchase agreement included Artz and Vetmed’s
alleged failure to “pay HITORQ its share of the profits and losses
as well as the accounts receivable through the closing date, [and]
continue thereafter to pay HITORQ its share of accounts
receivable until they were paid in full.” The underlying facts also
included Artz and Vetmed preventing Pasquarello from
working after November 13, 2015. These allegations called into
question whether Plaintiffs’ membership rights under the
Operating Agreement had been respected, including whether
Plaintiffs had been properly paid under the Operating
Agreement and whether Pasquarello was entitled to work at the
Clinic under the terms of the Operating Agreement. In addition,
the Contract Claim involved Artz’s failure to draft a written
agreement with provisions for, among other things, “the
payment of accounts receivable” and “the sale of the Real Estate
membership.” These missing provisions of the written purchase
agreement implicated corresponding provisions of the Operating
Agreement.
¶38 Because many of the factual underpinnings of the
Contract Claim referenced the Operating Agreement, resolving
the Contract Claim could require ascertaining or explaining the
meaning of the Operating Agreement’s provisions. See
Interpretation, Black’s Law Dictionary (11th ed. 2019). In other
words, resolving allegations surrounding the Contract Claim
could require “construction of” and “reference to” provisions of
the Operating Agreement. See CardioNet, 751 F.3d at 175–76. As a
result, the fact that the purchase agreement did not itself include
an arbitration provision does not necessarily mean that the
Contract Claim did not fall within the Operating Agreement’s
arbitration provision.
20180971-CA 16 2020 UT App 123HITORQ v. TCC Veterinary Services
¶39 Moreover, it is significant that the Contract Claim sought
damages from Vetmed, a party to the Operating Agreement but
not alleged to be a party to the purchase agreement. By naming
Vetmed as a party to a cause of action that alleged violations of
the Operating Agreement, Plaintiffs apparently sought to
compel Vetmed’s compliance with the Operating Agreement. See
Enforcement, Black’s Law Dictionary (11th ed. 2019). Thus,
resolving the Contract Claim, as against Vetmed in particular,
also would require enforcement of the Operating Agreement.
¶40 We acknowledge that whether the Contract Claim
involved a dispute regarding the enforcement or interpretation
of the Operating Agreement, thus falling within its arbitration
provision, is a close call. But we construe the nature of the
Contract Claim broadly, given our strong policy in favor of
arbitration. See Central Fla. Invs., 2002 UT 3, ¶¶ 16, 24; Edwards,
2017 UT App 73, ¶ 13. And because Plaintiffs have not shown
that their allegations fell outside the scope of the arbitration
provision, they have not established error in the district court’s
decision. See Nelson v. Liberty Acquisitions Servicing LLC, 2016 UT
App 92, ¶ 20, 374 P.3d 27 (“On appeal, the burden is upon the
appellant to convince us that the trial court committed error.”
(cleaned up)). We therefore affirm the district court’s decision
that the Contract Claim was arbitrable.
2. The Good Faith Claim
¶41 Plaintiffs assert that the Good Faith Claim is not subject to
arbitration for the same reasons as the Contract Claim. See supra
¶ 35. They do little to distinguish the two claims.
¶42 On the other hand, Defendants address the claims
separately. They point out that the Good Faith Claim as stated in
the complaint asserted “an entitlement” to the Clinic Debt
Payments and that resolving whether Pasquarello was “entitled
to any salary or distribution” after she stopped working at the
Clinic “requires an interpretation” of the Operating Agreement’s
20180971-CA 17 2020 UT App 123HITORQ v. TCC Veterinary Services
provision “that a member ‘shall not receive salary and
disbursements’ for missed workdays.” Additionally, Defendants
point out that the Good Faith Claim alleged that “it was
somehow a breach for Artz to vote to expel Pasquarello from
[the Clinic].” According to Defendants, this too “required
interpretation of the Operating Agreement because the grounds
for expulsion and the procedure for expulsion are set forth” in
the Operating Agreement.
¶43 Applying the guiding principles set forth above, we
similarly conclude that the district court did not err in ordering
the Good Faith Claim into arbitration. Like the Contract Claim,
which also primarily rested on the purchase agreement, the
Good Faith Claim referenced provisions of the Operating
Agreement. See CardioNet, 751 F.3d at 175–76. Indeed, the Good
Faith Claim relied on allegations that Artz and Vetmed
wrongfully deprived Plaintiffs of the Clinic Debt Payments.
Because, as the complaint acknowledged, Plaintiffs’ entitlement
to the Clinic Debt Payments arose from the Operating
Agreement, this aspect of the Good Faith Claim involved
enforcing and ascertaining the meaning of the Operating
Agreement’s provisions regarding the Clinic Debt Payments. See
Enforcement, Black’s Law Dictionary (11th ed. 2019);
Interpretation, Black’s Law Dictionary (11th ed. 2019).
¶44 The Good Faith Claim also relied on and sought damages
for Artz and Vetmed’s expulsion of HITORQ as a member of the
Clinic. Liberally construing the nature of the Good Faith Claim,
see Edwards, 2017 UT App 73, ¶ 13, we agree with Defendants
that because the procedure and grounds for expulsion are
governed by the Operating Agreement, this aspect of the claim
also involved a dispute over enforcement or interpretation of the
Operating Agreement. Additionally, the fact that the Good Faith
Claim was raised against Vetmed, a party to the Operating
Agreement but not alleged to be a party to the purchase
agreement, further suggested that resolving the claim would
involve enforcement of the Operating Agreement.
20180971-CA 18 2020 UT App 123HITORQ v. TCC Veterinary Services
¶45 Like the Contract Claim, whether the Good Faith Claim
involved a dispute over the enforcement or interpretation of the
Operating Agreement is a close question. But again, Plaintiffs
have not sufficiently addressed the nature of the claim and have
not done enough to show error in the district court’s decision.
See Nelson, 2016 UT App 92, ¶ 20. Accordingly, we affirm the
district court’s decision that the Good Faith Claim was subject to
the arbitration provision.
3. Dissolution Claim
¶46 Plaintiffs assert that “the right to dissolve a Utah limited
liability company is based exclusively on statutory grounds.”
According to Plaintiffs, the Dissolution Claim “is based upon
and seeks to enforce the [Utah Revised Uniform Limited
Liability Company Act], not any provision of the Operating
Agreement.” Put differently, the Dissolution Claim “seeks a
specific remedy authorized by . . . statute” and “does not seek to
enforce any specific term of the Operating Agreement.”
¶47 Defendants counter that Plaintiffs grounded the
Dissolution Claim “in a very specific allegation that Artz and
Stiens had violated [their] membership rights that were set forth
in the [Clinic’s] Operating Agreement.” Defendants further
assert that because Plaintiffs “specifically grounded” the
Dissolution Claim in purported violations of the Operating
Agreement, Plaintiffs’ “alleged right to dissolution was
contingent upon a finding that the [Operating Agreement] was
being violated.” According to Defendants, the Dissolution Claim
asserted that “dissolution was necessary because Artz was
withholding salary and/or distributions” from Plaintiffs, and
that because the Operating Agreement provides that
“distributions are supposed to stop once a member stops”
working, it “was therefore necessary to interpret the Operating
Agreement to resolve” the Dissolution Claim.
20180971-CA 19 2020 UT App 123HITORQ v. TCC Veterinary Services
¶48 Because Plaintiffs insist that the Dissolution Claim
presented purely a statutory issue, we begin by laying out the
statute. It provides, in relevant part,
A limited liability company is dissolved, and its
activities and affairs must be wound up, upon the
occurrence of any of the following:
(1) an event or circumstance that the operating
agreement states causes dissolution; [or] . . .
(5) on application by a member, the entry by the
district court of an order dissolving the limited
liability company on the grounds that the
managers or those members in control of the
limited liability company:
(a) have acted, are acting, or will act in a
manner that is illegal or fraudulent; or
(b) have acted, are acting, or will act in a
manner that is oppressive and was, is, or
will be directly harmful to the applicant . . . .
Utah Code Ann. § 48-3a-701 (LexisNexis 2015).
¶49 Here, the Dissolution Claim alleged that good cause
existed for judicial supervision of the winding up of the
Companies. In making this claim, Plaintiffs seemed to invoke
section 48-3a-701(5)(b), alleging that Defendants acted “in a
manner that is illegal, oppressive, and directly harmful to
Plaintiffs.” Plaintiffs supported this ground for dissolution by
alleging that Defendants denied them “the rights and benefits in
both [Companies], changed the character, profits and losses of
the Clinic[,] and devalued . . . Plaintiffs’ membership.”
20180971-CA 20 2020 UT App 123HITORQ v. TCC Veterinary Services
¶50 Given these allegations as stated in the complaint, and the
related factual underpinnings, we conclude that the Dissolution
Claim involved “a dispute regarding the enforcement or
interpretation of this Agreement.” Plaintiffs tied the claim to
whether Defendants’ conduct was “illegal, oppressive, and
directly harmful to Plaintiffs,” and the specific conduct at issue
included whether Defendants denied Plaintiffs “the rights and
benefits of membership” in both Companies and denied them
the “profits and losses of the Clinic.” In fact, Plaintiffs agreed
before the district court that the basis for the Dissolution Claim
was that Plaintiffs, as members, were “not being granted the
distributions and the right[s] that [they were] entitled to under
the Operating Agreement.” Deciding whether Plaintiffs were
being granted distributions and receiving all to which they were
entitled under the Operating Agreement inherently involves
enforcing the Operating Agreement because it amounts to a
process of “compelling compliance with [the] . . . agreement.”
See Enforcement, Black’s Law Dictionary (11th ed. 2019). As
alleged, the claim also involved an interpretation of the
Operating Agreement’s provisions, which establish and define
Plaintiffs’ rights. Thus, because the factual underpinnings of the
Dissolution Claim—that Plaintiffs were being denied their rights
under the Operating Agreement—constituted a dispute over the
enforcement and the interpretation of the Operating Agreement,
the claim was subject to arbitration. See CardioNet, 751 F.3d at 173
(focusing on “the factual underpinnings of the claim” to decide
“whether a particular dispute falls within the scope of an
arbitration clause” (cleaned up)).
¶51 In summary, we conclude that Plaintiffs have not shown
error in the district court’s decisions regarding the Contract
Claim and the Good Faith Claim, and we conclude that the
Dissolution Claim involved ”a dispute regarding the
enforcement or interpretation of [the Operating Agreement].”
Consequently, Plaintiffs’ claims are all subject to the Operating
Agreement’s arbitration provision. We therefore affirm the
20180971-CA 21 2020 UT App 123HITORQ v. TCC Veterinary Services
district court’s grant of Defendants’ motion to compel the
arbitration of these claims. 4
II. Motion to Stay the Arbitration Proceedings
¶52 Plaintiffs next contend that the district court erred in
denying their request to stay the arbitration proceedings to value
their interest in the Companies. Specifically, Plaintiffs assert that
“the valuation proceeding,” which was triggered by the filing of
the notice of election to purchase, was not subject to the
arbitration provision. In Plaintiffs’ view, when they sought a
stay and asked the district court to determine the fair market
value of the Clinic, the court was required to grant the “stay to
allow a prompt fair market valuation of the member’s interest.”
Defendants counter that “[o]nce the [Dissolution Claim] was
ordered into arbitration, all decisions related to dissolution or
remedies in lieu of dissolution needed to be made by the
Arbitrator and not by the district court.” We agree with
Defendants.
¶53 Utah Code section 48-3a-702 provides that in a proceeding
to dissolve a company under Utah Code section 48-3a-701(5),
“the limited liability company may elect, or if it fails to elect, one
or more members may elect to purchase the interest in the
4. Plaintiffs also contend that the district court incorrectly denied
their motion to vacate the arbitration award and incorrectly
confirmed the arbitration award. In particular, Plaintiffs assert
“the arbitrator exceeded his authority by deciding the
dissolution and oral contract claims” because the claims “do not
concern the ‘enforcement or interpretation’” of the Operating
Agreement. This contention is thus tethered to Plaintiffs’ first
contention that the claims are not arbitrable. Indeed, Plaintiffs
tell us that the “sole focus for this Court is the arbitrability of
claims.” Because we reject Plaintiffs’ first contention, it follows
that this contention is likewise unavailing.
20180971-CA 22 2020 UT App 123HITORQ v. TCC Veterinary Services
limited liability company owned by the applicant member [i.e.,
the member seeking dissolution,] at the fair market value of the
interest.” Utah Code Ann. § 48-3a-702(1) (LexisNexis 2015).
Thus, in lieu of dissolution, the limited liability company or its
members instead may elect to purchase the interest of the
applicant member. See id.; see also id. § 48-3a-702(13) (stating that
after a court orders the purchase of the applicant member’s
interest, the court “shall dismiss the petition to dissolve the
limited liability company under Subsection 48-3a-701(5)”).
¶54 In this case, after Plaintiffs filed the Dissolution Claim and
thereby initiated dissolution proceedings under section
48-3a-701(5), two members of the Clinic—TCC and Vetmed—
invoked section 48-3a-702(1), filing notice of their election to
purchase HITORQ’s interest in the Clinic in lieu of the Clinic’s
dissolution. The election to purchase cannot be viewed in
isolation. Rather, the election to purchase filed under section
48-3a-702(1) flows from, and is intertwined with, the dissolution
proceeding initiated under section 48-3a-701(5). Although
Plaintiffs essentially view “the valuation proceeding” as distinct
from the Dissolution Claim, the election to purchase was filed in
response to, and as part of, the dissolution proceeding. See id.
§ 48-3a-702(1). Instead of commencing a separate “valuation
proceeding,” Artz and Vetmed’s election to purchase presented
an issue about the possible remedies for Plaintiffs’ claim that the
Companies should be dissolved. And once the Dissolution Claim
was before the arbitrator, the arbitrator was authorized to
address and resolve the election-to-purchase issue. See id.
§ 78B-11-122(3) (2018) (explaining that other than awards of
punitive damages and attorney fees, “an arbitrator may order
any remedies as the arbitrator considers just and appropriate
under the circumstances of the arbitration proceeding”). Hence,
the arbitrator, not the court, was called on to resolve the
election-to-purchase issue, and we agree with the district court
that when the Dissolution Claim was sent to arbitration, the
election-to-purchase issue was also compelled into arbitration.
20180971-CA 23 2020 UT App 123HITORQ v. TCC Veterinary Services
¶55 Because we have already determined that the district
court correctly ordered the Dissolution Claim into arbitration,
supra ¶¶ 48–50, we reject Plaintiffs’ position that “the valuation
proceeding” was not subject to the arbitration provision. We
thus affirm the court’s refusal to stay the arbitration proceedings.
III. Attorney Fees on Appeal
¶56 Defendants request that we award them the attorney fees
that they have incurred in defending this appeal. In so doing,
they rely on Buzas Baseball, Inc. v. Salt Lake Trappers, Inc., 925 P.2d
941 (Utah 1996), a case that rests on a statute that since has been
revised. See id. at 952–54 (citing Utah Code Ann. § 78-31a-16
(Michie 1992)). The current version of that statute authorizes this
court to award reasonable attorney fees on an appeal from an
order confirming an arbitration award. See Utah Code Ann.
§ 78B-11-126(3) (LexisNexis 2018) (“On application of a
prevailing party to a contested judicial proceeding under [the
sections governing confirmation, vacatur, and modification of an
arbitrator’s award], the court may add reasonable attorney fees
and other reasonable expenses of litigation incurred in [such a]
proceeding . . . .”); see also Duke v. Graham, 2007 UT 31, ¶ 30, 158
P.3d 540 (indicating that “[b]ecause an appeal is a contested
judicial proceeding after an arbitration award is made,” this
statute “also authorizes courts to award fees for appeals relating
to the validity of an arbitration award”).
¶57 The award of attorney fees under Utah Code section
78B-11-126(3) “is not automatic”; rather, the decision falls within
the discretion of the court. Duke, 2007 UT 31, ¶ 31. Our supreme
court has instructed that in exercising this discretion, courts
should take into consideration the competing policies
underlying the statute. Id. ¶¶ 31–32. On the one hand is the
“policy of finality,” which “favor[s] the enforceability of
arbitration awards and discourage[s] relitigation of valid
awards.” Id. ¶ 31 (cleaned up). On the other hand, courts “must
balance the need not to unduly burden parties with the threat of
20180971-CA 24 2020 UT App 123HITORQ v. TCC Veterinary Services
fees when they have legitimate concerns about the legal validity
of an award.” Id. For example, an “appeal that has little legal
support would likely merit an award of fees to discourage
unnecessary delays and costs in enforcing an award, while a
close case would not.” Id. ¶ 32.
¶58 Defendants have the burden to show why they are
entitled to attorney fees on appeal. See Utah R. App. P. 24(a)(9)
(“A party seeking attorney fees for work performed on appeal
must state the request explicitly and set forth the legal basis for
an award.”). But aside from citing Buzas Baseball and tersely
stating that they are entitled to such an award, they have done
little to support their request. Critically, Defendants have not
addressed the relevant policies and have not articulated why an
award of attorney fees on appeal is warranted under the
circumstances of this case, one in which we have determined
that two of Plaintiffs’ arguments are close calls. Without more,
and given that the award of attorney fees in this context is “not
automatic,” we decline to grant Defendants’ request. See Duke,
2007 UT 31, ¶ 31.
CONCLUSION
¶59 The district court did not err in ordering the parties to
arbitrate the Contract Claim, the Good Faith Claim, and the
Dissolution Claim. Similarly, the district court did not err in
declining to stay the arbitration proceedings. Accordingly, we
affirm.
20180971-CA 25 2020 UT App 123