                                                                                          01/25/2019
               IN THE COURT OF APPEALS OF TENNESSEE
                           AT NASHVILLE
                                August 8, 2018 Session

   MELO ENTERPRISES, LLC ET AL. v. D1 SPORTS HOLDINGS, LLC

              Appeal from the Chancery Court for Williamson County
                      No. 46199 Deanna B. Johnson, Judge
                     ___________________________________

                           No. M2017-02294-COA-R3-CV
                       ___________________________________

This appeal follows the trial court’s denial of a motion to compel arbitration as to a claim
for fraudulent inducement. For the reasons stated herein, namely that there was no
agreement to arbitrate such a claim, we affirm.


 Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed
                                  and Remanded

ARNOLD B. GOLDIN, J., delivered the opinion of the Court, in which RICHARD H.
DINKINS J., joined and W. NEAL MCBRAYER, J joined and filed a separate concurring
opinion.

Ryan A Kurtz, Atlanta, Georgia, and Robert F. Parsley and Megan B. Welton,
Chattanooga, Tennessee, for the appellant, D1 Sports Holdings, LLC.

Garrett P. Swartwood, Knoxville, Tennessee, for the appellees, Melo Enterprises, LLC,
Austin Sports & Entertainment, Inc., OACM Sports Holdings,LLC, and D1 Sports
Training of Baltimore, LLC.

                                        OPINION

                 BACKGROUND AND PROCEDURAL HISTORY

       The genesis of this case is traceable to July 18, 2014, when the Appellant D1
Sports Holdings, LLC (“D1 Holdings”), a Tennessee limited liability company, organized
another Tennessee limited liability company, D1 Sports Training of Baltimore, LLC (“D1
Baltimore”). D1 Baltimore was organized for the purpose of establishing an athletic
training facility in Baltimore, Maryland, and subsequent to its formation, three of the
Appellees in this matter purchased membership interests in the new legal entity.
Appellee Austin Sports & Entertainment, Inc. (“Austin Sports”), a Maryland corporation,
acquired its membership interests the same month that D1 Baltimore was formed. In its
Unit Purchase Agreement, Austin Sports acquired 300 units of membership interests for a
purchase price of $200,000 and other consideration. In October 2014, Appellee Melo
Enterprises, LLC (“Melo Enterprises”), a company formed under the laws of Delaware,
entered into its own Unit Purchase Agreement, acquiring 550 units of membership
interests in D1 Baltimore for $500,000 and other consideration. Following the purchase
agreements entered into by Austin Sports and Melo Enterprises, an additional acquisition
of membership interests in D1 Baltimore occurred in June 2015, when Orthopaedic
Associates of Central Maryland, P.A., entered into a Unit Purchase Agreement on behalf
of its to-be-formed affiliate OACM Sports Holdings, LLC (“OACM Sports”). This latest
agreement involved the purchase of 150 units of membership interests in D1 Baltimore
for $150,000. OACM Sports was duly organized in Maryland on June 9, 2015.

        According to Austin Sports, Melo Enterprises, and OACM Sports (collectively the
“Investor Plaintiffs”), D1 Holdings made certain representations prior to the entry of the
Unit Purchase Agreements that all or some of their investments would be paid to and held
by D1 Baltimore and used for its benefit. The present dispute ensued as a result of these
alleged representations. On May 10, 2017, a complaint was filed against D1 Holdings in
the Williamson County Chancery Court by the Investor Plaintiffs and D1 Baltimore. The
filed complaint contained a count for fraudulent misrepresentations, wherein it was
asserted that “D1 Holdings intended its fraudulent misrepresentations to induce the
Investor Plaintiffs to enter into the Unit Purchase Agreements,” a count for declaratory
relief, and an alternative count for conversion on behalf of D1 Baltimore. Among other
things, the Investor Plaintiffs sought to have the trial court rescind the Unit Purchase
Agreements.

      Specifically regarding the fraud that allegedly precipitated the entry of the Unit
Purchase Agreements, the complaint stated in part as follows:

             15. Despite the representations of D1 Holdings, and unknown to the
      Investor Plaintiffs, D1 Holdings had no intention at the time of making its
      representations . . . of using the investor contributions for the benefit of D1
      Baltimore or to establish, construct or operate a training facility in
      Baltimore, Maryland. Instead, D1 Holdings engaged in a fraudulent
      scheme to divest money from the Investor Plaintiffs for the use and benefit
      of D1 Holdings and not for the business of D1 Baltimore.

             16. At or about the time the Unit Purchase Agreements were signed,
      D1 Holdings requested that the Investor Plaintiffs each wire funds directly
      to an account owned by D1 Holdings for the purchase price of the
      membership interests in D1 Baltimore. D1 Holdings represented at that
      time that all or a portion of the purchase price funds would be transferred to
      D1 Baltimore for use in the commencement of its operations. In reliance
                                            -2-
       upon the representations of D1 Holdings, Austin Sports caused the full
       amount of the purchase price under its Unit Purchase Agreement to be
       wired to D1 Holdings on or about July 21, 2014; Melo Enterprises caused
       the full amount of the purchase price under its Unit Purchase Agreement to
       be wired to D1 Holdings on or about October 29, 2014; and OACM Sports
       caused the full amount of the purchase price under its Unit Purchase
       Agreement to be wired to D1 Holdings on or about June 22, 2015.

              17. Upon information and belief, D1 Holdings never transferred to
       D1 Baltimore any portion of the purchase price paid by the Investor
       Plaintiffs.

              18. Instead, D1 Holdings kept the funds paid by the Investor
       Plaintiffs for its own use and benefit.

       Although D1 Holdings subsequently filed an answer to the complaint raising
several defenses on its behalf, one of these defenses—that the Plaintiffs’ claims were
subject to binding arbitration—soon became the central focus of the litigation. In a filing
submitted contemporaneous with its answer, D1 Holdings moved the trial court to
compel arbitration, stating that the “parties contractually agreed to arbitrate this dispute.”
Although D1 Holdings acknowledged that the Unit Purchase Agreements did not
themselves contain arbitration provisions, it noted that arbitration provisions were
included in D1 Baltimore’s Operating Agreement, a Management Agreement between
D1 Baltimore and D1 Holdings, and amendments thereto. It further argued that the “Unit
Purchase Agreements . . . incorporate[d] the Operating Agreement, or . . . the Amended
Operating Agreement” and that said operating agreements “incorporate and attach as
exhibits the Management Agreement and Amended Management Agreement,
respectively.” When the Investor Plaintiffs and D1 Baltimore filed a response opposing
D1 Holdings’ motion to compel arbitration, they set forth two principal arguments: (1)
the Unit Purchase Agreements did not contain or incorporate any agreement to arbitrate
and (2) in any event, because the agreements that D1 Holdings relied on contained a
Tennessee choice of law provision, Plaintiffs had the right to assert claims of fraudulent
inducement in a judicial forum.

        Following a hearing on D1 Holdings’ motion to compel arbitration, the trial court
entered a “Memorandum and Order” granting D1 Holdings partial relief. First, the trial
court concluded that the Unit Purchase Agreements contained language which was “an
unambiguous incorporation by reference of the terms, conditions, provisions, and
limitations of D1 Baltimore’s Operating Agreement or . . . the Amended Operating
Agreement.” As a result, the court held that the parties had agreed to arbitration and the
claims for conversion and declaratory relief should be arbitrated. However, in noting that
the underlying agreement contained a Tennessee choice of law provision, the trial court
cited to Frizzell Construction Co., Inc. v. Gatlinburg, L.L.C., 9 S.W.3d 79 (Tenn. 1999),
                                            -3-
and its progeny, and held that “Plaintiffs are entitled to a judicial determination of their
fraudulent inducement claim.” A timely notice of appeal was thereafter filed in this
Court by D1 Holdings pursuant to Tennessee Code Annotated section 29-5-319, allowing
an immediate interlocutory appeal of a decision denying arbitration.

                                      DISCUSSION

Scope of Appellate Review

        As a preliminary matter, it is necessary to consider the limits of our appellate
review. See Tenn. R. App. P. 13(b) (“The appellate court shall . . . consider whether the
trial and appellate court have jurisdiction over the subject matter, whether or not
presented for review[.]”). Broadly speaking, two general issues are raised for our
consideration in the present appeal. Whereas Appellant D1 Holdings challenges the trial
court’s failure to send the fraudulent inducement claim to arbitration, the Appellees
submit that the trial court’s decision to compel arbitration as to the remaining claims
should be reversed. In our opinion, the only cognizable issue in this appeal relates to
whether the trial court erred in declining to send the fraudulent inducement claim to
arbitration.

        In reaching the conclusion that the propriety of the trial court’s decision to compel
arbitration of claims is beyond our jurisdiction in this appeal, we observe that Tennessee
Code Annotated section 29-5-319 provides as follows:

       (a) An appeal may be taken from:
       (1) An order denying an application to compel arbitration made under § 29-
       5-303;
       (2) An order granting an application to stay arbitration made under § 29-5-
       303(b);
       (3) An order confirming or denying confirmation of an award;
       (4) An order modifying or correcting an award;
       (5) An order vacating an award without directing a re-hearing; and
       (6) A judgment or decree entered pursuant to this part.

Tenn. Code Ann. § 29-5-319. Although the Appellees concede that an appeal of a grant
of a motion to compel arbitration “may not be initiated” under this statute, they note that
the present appeal was initiated by Appellant D1 Holdings. They argue, as a result, this
allows them to raise their own issues pursuant to the Tennessee Rules of Appellate
Procedure. Specifically, the Appellees point to Rule 13(a) of the Tennessee Rules of
Appellate Procedure, which provides that “any question of law may be brought up for
review and relief by any party.” Tenn. R. App. P. 13(a).


                                            -4-
       We certainly do not question that the appellate rules of procedure permit an
appellee to raise his or her own appellate issues in response to an appeal initiated by
another party. This right, however, has no bearing on whether the raised issues are, in
fact, amenable to appellate review. If our consideration of an issue would run afoul of a
jurisdictional prohibition, then we cannot entertain it.

        Here, the Appellees seek to appeal the trial court’s decision to compel certain
claims to arbitration, but such a right is not afforded pursuant to the appeal provisions of
Tennessee Code Annotated section 29-5-319. See Peters v. Commonwealth Assocs., No.
03A01-9508-CV-00295, 1996 WL 93768, at *2-3 (Tenn. Ct. App. Mar. 5, 1996)
(discussing the limitations of Tennessee Code Annotated section 29-5-319 and noting
that appeal was premature when litigant sought to challenge the trial court’s order
compelling arbitration); Blue Water Bay at Center Hill, LLC v. Hasty, No. M2016-02382-
COA-R3-CV, 2017 WL 5665410, at *4 (Tenn. Ct. App. Nov. 27, 2017) (noting that the
first opportunity the appellant had to challenge the trial court’s prior decision to compel
arbitration came in an appeal following the trial court’s confirmation of the arbitrator’s
award). Therefore, we dismiss the appeal of the Appellees.

Fraudulent Inducement Claim
       Turning to D1 Holdings’ appeal, we begin by noting that the merits of the Investor
Plaintiffs’ fraudulent inducement claim are not before us. We are only concerned with
whether the trial court erred in denying D1 Holdings’ motion to compel arbitration as to
that claim. Where, as in this case, the basic facts do not appear to be in dispute, we
review the denial of a motion to compel arbitration de novo, with no presumption of
correctness. Wofford v. M.J. Edwards & Sons Funeral Home Inc., 490 S.W.3d 800, 807
(Tenn. Ct. App. 2015) (citation omitted).

       At its core, arbitration is a matter of contractual consent. Indeed, “[a] party cannot
be compelled to arbitrate in the absence of a contractual obligation.” River Links at Deer
Creek, LLC v. Melz, 108 S.W.3d 855, 859-60 (Tenn. Ct. App. 2002) (citations omitted);
see also Frizzell Constr. Co., Inc., 9 S.W.3d at 84 (“[P]arties may agree that only certain
issues will be submitted to arbitration or that they will not arbitrate at all.”). As explained
below, a contractual predicate for arbitration of the fraudulent inducement claim is
simply absent in this case.

       The Investor Plaintiffs’ fraudulent inducement claim involves allegations that “D1
Holdings intentionally made misrepresentations . . . to the Investor Plaintiffs,” that it
“knew . . . its misrepresentations . . . were false when made,” and that it intended its
misrepresentations to “induce the Investor Plaintiffs to enter into the Unit Purchase
Agreements.” The Investor Plaintiffs’ grievances are thus tied to the Investor Plaintiffs’
purchases of membership interests in D1 Baltimore and D1 Holdings’ conduct that
allegedly induced such purchases. Inasmuch as the Investor Plaintiffs are complaining
                                             -5-
about D1 Holdings’ conduct attendant to the entry of the Unit Purchase Agreements, we
look to see whether those agreements contain any provisions providing for arbitration of
disputes arising therefrom or related thereto. Notably, they do not.

        There is no dispute that the Unit Purchase Agreements are themselves devoid of
any specific arbitration provisions. Yet, the trial court concluded that an agreement to
arbitrate had been incorporated into those agreements by virtue of a provision that
provided as follows: “By purchasing the herein contemplated Units, Purchaser agrees to
be subject to and bound by the terms, conditions, provisions and limitations of this
Agreement, as well as the Operating Agreement of D1 Sports Training of Baltimore,
LLC.”1 According to the trial court, such language represented “an unambiguous
incorporation by reference of the terms, conditions, provisions, and limitations of D1
Baltimore’s Operating Agreement or, in the case of Melo Enterprises, LLC, the Amended
Operating Agreement.” Because the referenced operating agreements contained
arbitration provisions, the trial court reasoned that there had been a “clear expression” to
submit disputes to mandatory and binding arbitration.2

        Having reflected on the trial court’s holding that an arbitration provision was
incorporated into the purchase agreements, we have come to the conclusion that our view
of the language cited by the trial court is decidedly different. No doubt, each of the Unit
Purchase Agreements references the “Operating Agreement” of D1 Baltimore. These
references, however, do not actually incorporate the terms of the Operating Agreement
(or amendment thereto) into the Unit Purchase Agreements. The language of the Unit
Purchase Agreements without question makes the Investor Plaintiffs bound by the
“Operating Agreement,” but importantly, the language does not state that the terms of the
“Operating Agreement” are incorporated into or are supposed to inform the Unit
Purchase Agreements. Properly understood, the purchase agreements merely include an
obligation to be bound by a separate agreement; they do not evidence an intent that the
provisions of the referenced separate agreement define and shape the understanding of
the purchase agreements.

       Certainly, the Unit Purchase Agreements could have contained language whereby
the arbitration provision of the Operating Agreement properly became a term that
augmented the meaning and application of the purchase agreements. As the federal
Eighth Circuit observed in a recent case that applied Tennessee law:


        1
           The language in Melo Enterprises’ Unit Purchase Agreement was only marginally different with
respect to this provision, as it merely omitted the qualifying phrase “of D1 Sports Training of Baltimore,
LLC.”
         2
           Of course, as has been referenced previously, the trial court ultimately denied the motion to
compel arbitration with respect to the fraudulent inducement claim, stating that “Tennessee courts may
not delegate fraudulent inducement claims to arbitration when, as here, the underlying agreement contains
a Tennessee choice of law provision.”
                                                  -6-
       Contracting parties can incorporate an entire agreement by, for example,
       referring to an attached agreement and saying its “terms” are incorporated
       without specifying the terms, or saying “both parties” are bound by its
       terms. See Staubach Retail Servs.–Se., LLC v. H.G. Hill Realty Co., 160
       S.W.3d 521, 523–25 (Tenn. 2005) (agreement incorporated all terms of a
       brokerage agreement by stating “[t]he terms and provisions of that certain
       Brokerage Agreement, an unexecuted photocopy of which is attached
       hereto ... and incorporated by reference, are incorporated into this Lease
       and made a part hereof” (emphasis in original)); Roger Miller [Music v.
       Sony/ATV Publ’g], 477 F.3d [383,] at 393 [(6th Cir. 2007)] (agreement
       incorporated all terms of Exhibit A, even those not addressing royalties, by
       stating that “the signing of separate [Exhibit A] agreements is hereby
       waived, and the terms and conditions as to royalties and the payment
       thereof shall be deemed part of the main agreement,” where previous
       agreements calling for the execution of Exhibit A agreements stated “both
       [parties] are to be bound by the terms, covenants, and conditions of [the
       Exhibit A agreement] as if herein fully set forth” (emphasis added)).

First Dakota Nat’l Bank v. Eco Energy, LLC, 881 F.3d 615, 618–19 (8th Cir. 2018).
Here, however, we are of the opinion that there is insufficient language to incorporate the
arbitration provision of the Operating Agreement into the Unit Purchase Agreements.
Again, the purchase agreements do not provide that the terms of the Operating
Agreement are incorporated3 into them, nor do the purchase agreements specify that the
purchasers are bound by additional terms as if set forth therein. The purchase agreements
simply include the obligation to be bound by a separate agreement, and there is
insufficient language included to reach the conclusion that the Operating Agreement is to
be considered a part of the purchase agreements. In other words, although the signatory
purchaser is deemed to be “subject to” and “bound by” the Operating Agreement by dint
of the purchaser’s decision and agreement to buy membership interests in D1 Baltimore,
the purchase agreements do not say that they, the purchase agreements, are actually
subject to such additional terms.

        In light of our conclusion that the Unit Purchase Agreements do not contain
arbitration provisions, whether by incorporation or otherwise, the fraudulent inducement
claim properly remains subject to judicial determination. The trial court’s ultimate denial
of the motion to compel arbitration of that dispute is therefore affirmed on that basis.




       3
         Elsewhere the Unit Purchase Agreements do specifically incorporate terms of another document
by reference. In section 5, the Unit Purchase Agreements provide that the Investor Representations and
Warranties “are incorporated herein by reference.”
                                                -7-
                                   CONCLUSION

       Although we do not have jurisdiction to specifically entertain the Appellees’
asserted grievances, we affirm the trial court’s holding that the fraudulent inducement
claim is not arbitrable.




                                               _________________________________
                                               ARNOLD B. GOLDIN, JUDGE




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