Utah Court of Appeals
When do business disputes fall within operating agreement arbitration clauses? Hitorq v. TCC Veterinary Services Explained
Summary
Veterinary practice partners disputed the scope of an operating agreement’s arbitration clause after a failed buyout. The district court compelled arbitration of breach of contract, good faith, and dissolution claims, finding they involved enforcement or interpretation of the operating agreement.
Practice Areas & Topics
Analysis
In Hitorq v. TCC Veterinary Services, the Utah Court of Appeals addressed when business disputes must be arbitrated under operating agreement provisions, even when styled as separate contract or statutory claims.
Background and Facts
Three veterinarians operated a veterinary clinic through limited liability companies. When a planned buyout failed, the selling veterinarian sued for breach of the purchase contract, breach of good faith and fair dealing, and dissolution of the companies. The defendants moved to compel arbitration under the operating agreement’s provision requiring arbitration of disputes “regarding the enforcement or interpretation of this Agreement.”
Key Legal Issues
The central issue was whether claims styled as breach of a separate purchase agreement and statutory dissolution fell within the operating agreement’s arbitration provision. The court also addressed whether an election to purchase in lieu of dissolution could be stayed for court valuation when the underlying dissolution claim was in arbitration.
Court’s Analysis and Holding
The court applied the principle that arbitrability depends on “the factual underpinnings of the claim rather than the legal theory alleged in the complaint.” For the contract claim, the court found that allegations about profits, accounts receivable, and membership rights required interpretation of operating agreement provisions. The good faith claim similarly depended on operating agreement terms regarding distributions and expulsion procedures. Even the dissolution claim, though statutory, was based on allegations that defendants denied membership rights established by the operating agreement, thus requiring its enforcement and interpretation.
Practice Implications
This decision demonstrates that Utah courts liberally construe arbitration provisions in favor of arbitrability. Practitioners cannot avoid arbitration simply by styling claims as breach of separate agreements or statutory violations if the factual basis requires interpreting the agreement containing the arbitration clause. The case also clarifies that election-to-purchase proceedings under Utah’s LLC Act are part of dissolution proceedings and subject to arbitration when the underlying dissolution claim is arbitrable.
Case Details
Case Name
Hitorq v. TCC Veterinary Services
Citation
2020 UT App 123
Court
Utah Court of Appeals
Case Number
No. 20180971-CA
Date Decided
August 20, 2020
Outcome
Affirmed
Holding
Claims that involve the factual underpinnings requiring enforcement or interpretation of an operating agreement are subject to arbitration even when styled as separate contract or statutory claims.
Standard of Review
Correctness for questions of law including motion to compel arbitration and statutory interpretation
Practice Tip
When drafting complaints involving business disputes, consider whether factual allegations reference or depend on operating agreement provisions, as this may trigger arbitration clauses regardless of how claims are styled.
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