Ex parte Jim ALLEN and Sea Star, Inc.
(Re Frank C. Hardigree and Camco, L.L.C. v. Sentell Engineering, Inc., et al.)
Jim Allen and Sea Star, Inc.
v.
Frank C. Hardigree and Camco, L.L.C.
1991656 and 1991707.
Supreme Court of Alabama.
April 20, 2001.*669 James H. Anderson and Micheal S. Jackson of Beers, Anderson, Jackson, Nelson, Hughes & Patty, P.C., Montgomery, for Jim Allen and Sea Star, Inc.
William D. Coleman and James N. Walter, Jr., of Capell & Howard, P.C., Montgomery, for Jim Allen.
Roger C. Foster of Rives & Peterson, P.C., Birmingham, for Sentell Engineering, Inc.
Thomas T. Gallion III and Jamie Austin Johnston of Haskell, Slaughter, Young & Gallion, L.L.C., Montgomery, for Frank C. Hardigree and Cameo, L.L.C.
WOODALL, Justice.
These proceedings challenge orders of the Montgomery Circuit Court denying the motions of Jim Allen and Sea Star, Inc., (1) to transfer this action to Elmore County (case 1991656), and (2) to compel arbitration of the dispute (case 1991707). We reverse the order in case 1991707. In case 1991656, we deny the petition as moot.
This dispute arose out of the execution on August 11, 1997, of an "Agreement" by (1) Jim Allen, as President of Sea Star, Inc., (2) Frank C. Hardigree, personally, and (3) Frank C. Hardigree, as "managing *670 member" of Cameo, L.L.C. ("Cameo"). The Agreement purported to govern the conduct of the parties in constructing and operating a "Golf and Country Club" of "resort quality" in the Emerald Mountain community of Elmore County ("the Project"). The Project was to include an "eighteen hole golf course, driving range,... putting green, ... a maintenance building and a golf cart storage building... a golf clubhouse, parking lot, and bar and grill." The clubhouse was to "include a pro shop, a minimum seventy-five seat bar and grill, approximately six thousand feet ... of above ground heated and cooled space and a parking lot," at a minimum cost of $500,000. The total cost of the Project was to exceed $3,500,000.
Sea Star agreed to convey to Cameo approximately 200 acres in "fee simple determinable" (the "Property") on which Cameo was to construct the Project. In consideration of this conveyance, Sea Star was to receive from Cameo or its successors (1) $1.00 at the time of closing, and (2) five percent "of all gross revenues ... from all activities conducted on the [p]roperty or originating from the ... Project... including ... all golf course activities, greens fees, pro shop sales and rentals, food and beverage sales and restaurant activities." This five-percent return was to "run with the Property" in perpetuity. In the event the Project ceased to operate and generate the five-percent fee, the Property was to revert to Sea Star in fee simple absolute.
For its part, Cameo agreed to "construct, maintain, operate and manage the Project to meet the standards of the top 5% (from a quality of maintenance, operations, landscaping, general appearance and management standpoint) of other golf and country clubs within a radius of one hundred (100) miles of the Property." Cameo "warrant[ed] ... that the [Project would] remain as a private club which permits the sale of private memberships but also remains open to the public on a priced daily fee basis." Cameo was to employ "Ward W. Northrup or a comparable golf course architect," to develop a "master plan and golf course general layout."
On October 31, 1997, the parties executed and recorded a warranty deed with various exhibits, containing the essential provisions of the Agreement. Thereafter, Cameo employed Sentell Engineering, Inc. ("Sentell"), to develop the Project, and construction began under the direction of Golf Engineering Group, Inc., a Florida company affiliated with Ward Northrup.
On June 17, 1999, the parties executed a "Release Agreement," which recited that Cameo was "approaching completion of the [Project contemplated] by the Agreement," and that questions had arisen as to whether Sea Star "and/or Allen [had] breached [their] obligations under the Agreement." The Release Agreement purported to release Sea Star and Allen from liability for any acts or omissions occurring before the date thereof.
The following day, the parties executed an instrument purporting to amend the Agreement. The amendment contained an arbitration clause that provided in pertinent part:
"Any dispute between the Parties hereto or between any of the Parties and any owner or affiliate of any other Party hereto with respect to the subject matter of this Agreement ... shall be submitted to mandatory, binding arbitration in accordance with the Rules of Procedure for Arbitration of [the] American Arbitration Association...."
Nevertheless, On October 22, 1999, Hardigree and Cameo filed a complaint in Montgomery Circuit Court against Sea Star, Allen, and Sentell. On November 29, 1999, Allen, Sea Star, and Sentell moved to *671 transfer the cause to Elmore County. On January 7, 2000, the trial court denied their motion, stating no reasons for its order.
On January 24, 2000, Allen and Sea Star moved to compel arbitration of the dispute, and, contemporaneously, filed with the American Arbitration Association a demand for arbitration. On April 21, 2000, the trial court denied their motion to compel arbitration.
On June 1, 2000, Allen and Sea Star petitioned this Court for a writ of mandamus directing the trial court to vacate its order denying their motion to transfer the cause to Elmore County (case 1991656). Also, on June 1, 2000, Allen and Sea Star appealed from the order of the trial court denying their motion to compel arbitration (case 1991707). Because disposition of the appeal resolves the arguments raised in the mandamus petition, we shall first address the appeal.
I. Case 1991707the Appeal
"This Court reviews de novo the denial of a motion to compel arbitration." Fleetwood Enters., Inc. v. Bruno, 784 So.2d 277 (Ala.2000). Allen and Sea Star contend that the Federal Arbitration Act, 9 U.S.C. § 1 et seq., controls this case and requires the arbitration of this dispute. They are correct "if (1) there is a written agreement calling for arbitration, ... and (2) the contract containing the arbitration agreement `substantially affects interstate commerce.'" Marshall Durbin Farms, Inc. v. Fuller, 794 So.2d 320, 323 (Ala. 2000). "A motion to compel arbitration is analogous to a motion for a summary judgment." Ex parte Caver, 742 So.2d 168, 172 n. 4 (Ala.1999). Therefore, "[t]he party seeking to compel arbitration has the burden of proving the existence" of these two elements. Id.
"`[A]fter a motion to compel arbitration has been made and supported, the burden [shifts to] the non-movant to present evidence that the supposed arbitration agreement is not valid or does not apply to the dispute in question.'" Fleetwood Enters., 784 So.2d at 280, quoting Jim Burke Automotive, Inc. v. Beavers, 674 So.2d 1260, 1265 n. 1 (Ala.1995) (emphasis omitted).
It is undisputed that the claims of Hardigree and Cameo against Allen and Sea Star are within the scope of the arbitration provision. Hardigree and Cameo, however, contend that the transaction does not substantially affect interstate commerce. The record contains the affidavit of Jim Allen, which states in pertinent part:
"3. Willard Byrd & Associates of Atlanta, Georgia prepared the initial concept design for the golf course. Hardigree and Cameo used this concept design prepared in Georgia for the basic design and layout of the golf course.
"4. It was contemplated at the time that Sea Star, Hardigree and Cameo entered into the Agreement that the actual design, layout and construction of the golf course would be performed by individuals and companies from other states. Section 3.4 of the Agreement specified that Ward W. Northrup would be the golf course architect. Mr. Northrup resided in Florida. His company, Golf Engineering Group, Inc. was also located in Florida. Golf Engineering Group, Inc. served as the contractor in charge of construction of the [Project].
"5. Ward Northrup and/or Scott Willoughby-Ray of Golf Engineering Group, Inc. traveled to Elmore County, Alabama from Florida on numerous occasions prior to the signing of the Agreement. I met with Mr. Northrup *672 and/or Mr. Willoughby-Ray at the [Project] site on at least ten occasions prior to signing the Agreement. In addition, Mr. Northrup was present at the closing when the Agreement was signed by the parties. Subsequent to signing the Agreement, I met at the [Project] site with Mr. Northrup, Mr. Willoughby-Ray and/or other employees of Golf Engineering Group, Inc. from Florida on at least five occasions.
"6. It was also contemplated at the time that Sea Star, Hardigree and Camco entered into the Agreement that the vast majority of materials, equipment, machinery and supplies necessary to construct the golf course, clubhouse and other facilities would come from states other than Alabama. Based upon my personal experience in the real estate development business, I estimate that substantially more than 50% of the materials, equipment, machinery and supplies used in constructing the golf course, clubhouse and other facilities pursuant to the Agreement would be manufactured in states other than Alabama and transported into this State.
". . . .
"9. At the time the parties signed [the amendment] containing the arbitration agreement, Golf Engineering Group, Inc. of Florida had performed a significant portion of the design and construction work on the golf course and that work was on-going....
"10. In addition, Cameron Construction from Lincolnton, Georgia was hired to construct the bridges on the golf course."
Hardigree and Cameo do not refute the factual assertions in Allen's affidavit. The affidavit, coupled with the unavoidable inferences suggested by the Agreement itself, compels the conclusion that this transaction substantially affects interstate commerce.
This arbitration clause was contained in an amendment to an overarching agreement that encompassed a considerable number of subsidiary transactions. Some of these transactions indisputably involved out-of-state individuals and entities, including Ward Northrup, Scott Willoughby-Ray, and their Florida-based company, as well as Willard Byrd & Associates of Atlanta, Georgia.[1]
Allen and Sea Star have demonstrated the existence of an arbitration agreement in a written contract that substantially affects interstate commerce. This showing is sufficient to shift the burden to Hardigree and Cameo to present evidence that the arbitration agreement is not valid or does not apply to this dispute. Jim Burke Automotive, Inc. v. Beavers, 674 So.2d 1260, 1265 n. 1 (Ala.1995).
In attempting to carry this burden, Hardigree and Cameo present only one argument that merits discussion. They contend that Allen and Sea Star waived the right to compel arbitration. This is so, they argue, because Allen and Sea Star challenged venue of the cause before moving to compel arbitration. Hardigree and Cameo argue that Allen and Sea Star "substantially invok[ed] the litigation process," and that they were "substantially prejudice[d]" thereby. Brief of Appellees, at 8-9 (quoting Companion Life Ins. Co. v. Whitesell Mfg., Inc., 670 So.2d 897, 899 (Ala.1995)).
None of the cases cited by Hardigree and Cameo, however, supports this proposition. *673 Instead, the opposite result is compelled by Thompson v. Skipper Real Estate Co., 729 So.2d 287 (Ala.1999), wherein we held: "A defendant has the right to have the proper venue established before it has any obligation to move to compel arbitration." Id. at 292. (Emphasis added.)[2]
That case arose out of an action commenced by James W. Thompson and Michelle K. Thompson against, among others, Skipper Real Estate Company ("Skipper"). Id. at 288. The action proceeded according to the following chronology:
"The Thompsons filed their complaint on June 5, 1997. The defendants were served with the complaint on July 1, 1997. The defendants' attorney filed a notice of appearance on July 16, 1997. On July 29, 1997, the defendants filed a motion to transfer the action from Mobile County to Baldwin County. On that same date, the defendants served the plaintiffs with a set of interrogatories. On August 19, 1997, the Thompsons filed a brief in opposition to the defendants' motion to transfer the action, requesting that the Mobile Circuit Court delay its ruling until they had completed discovery with respect to the venue issue. On January 7, 1998, the Thompsons took the depositions of George Skipper and Susan Harmon. Harmon was the office manager and closing agent for Skipper Real Estate Company. In those depositions, Skipper and Harmon were asked questions pertaining to the venue issue, as well as questions pertaining to the merits of the fraud and breach-of-contract claims. Skipper and Harmon were also questioned about the arbitration provision in the sales contract. At one point during Skipper's deposition, the defendants' attorney, in response to a question posed by the Thompsons' attorney, stated:
"`You're assuming that I'll be defending Mr. Pullian and other defendants on the merits of this case. We're simply at the threshold of transferring the case to Baldwin County. Right now, the defendants are unified. If we ever get to that issue, provided arbitration allows us to, you'll then probably discover that the defendants will have different attorneys on the merits....'
"The Mobile Circuit Court entered an order on January 30, 1998, transferring the case to Baldwin County. Three months and eight days later, on May 8, 1998, the defendants moved the Baldwin Circuit Court to compel the Thompsons to arbitrate their claims. On May 14, 1998, the Baldwin Circuit Court dismissed the Thompsons' complaint and ordered that their claims be arbitrated. On May 20, 1998, the Thompsons filed a brief in opposition to the motion to compel, and on May 21, 1998, they filed a motion to alter, amend, or vacate the judgment of dismissal. The court denied that motion [and the Thompsons appealed]."
Id. at 289 (emphasis added). The trial court dismissed the Thompsons' complaint. One of the issues on appeal was whether Skipper had waived the right to compel arbitration.
Before addressing that issue, the Court set forth a number of general principles:
*674 "`"It is well settled under Alabama law that a party may waive its right to arbitrate a dispute if it substantially invokes the litigation process and thereby substantially prejudices the party opposing arbitration. Whether a party's participation in an action amounts to an enforceable waiver of its right to arbitrate depends on whether the participation bespeaks an intention to abandon the right in favor of the judicial process and, if so, whether the opposing party would be prejudiced by a subsequent order requiring it to submit to arbitration. No rigid rule exists for determining what constitutes a waiver of the right to arbitrate; the determination as to whether there has been a waiver must, instead, be based on the particular facts of each case....
"`. . . .
"`"The general rule with regard to waiver of one's right to arbitrate was stated in American Dairy Queen Corp. v. Tantillo, 536 F.Supp. 718 (M.D.La.1982):
"`"`It is well settled that there is a strong federal policy favoring arbitration and a waiver of the right to compel arbitration will not be lightly inferred [Citations omitted.]'
"`"536 F.Supp. at 720. The court went on to say:
"`"`Therefore, the burden on one seeking to prove waiver is a heavy one. The question of what constitutes a waiver of the right of arbitration depends on the facts of each case.'"'"
729 So.2d at 290-91 (emphasis added).
Holding that no waiver had occurred, this Court affirmed the trial court's judgment. In so doing, it acknowledged that "a little over 11 months [had] elapsed between the date the Thompsons filed their complaint and the date the defendants filed their motion to compel arbitration." Id. at 292. Nevertheless, the Court considered it "significant ... that the parties spent almost eight of those months litigating the venue issue." Id. (emphasis added). The Court stated:
"Our survey of the caselaw does not indicate that the mere filing of a motion to transfer an action to the proper venue; the filing of one set of interrogatories with such a motion; and the participation in two depositions, partly for the purpose of resolving the venue issue, constitutes a waiver of a right to compel arbitration."
Id. Moreover, the Court noted, the Thompsons had learned by deposition taken in January 1998, that is, only seven months after the complaint was filed, that Skipper was contemplating arbitration.
The Court was unconvinced by the affidavit of the Thompsons' attorney, which was submitted for the purpose of demonstrating prejudice. It reasoned that the "attorney [had] spent a great deal of his [time] on th[e] case litigating the venue issue," id. at 293, which, it had concluded, Skipper was entitled to resolve "before it [had] any obligation to move to compel arbitration." Id. at 292.
Thompson controls this case. Indeed, the facts of this case are more compelling than those in Thompson. First, there has been no discovery in this case, while in Thompson, Skipper "served the plaintiffs with a set of interrogatories" before moving to compel arbitration. Second, in this case, the plaintiffs learned of the defendants' intention to arbitrate 94 days after the complaint was filed, while in Thompson, seven months elapsed before the plaintiffs received any such notice. Moreover, the legal resources of Hardigree and Cameo have been expended on nothing but the issues of venue and arbitration, neither *675 of which forms a basis for prejudice under Thompson.[3]
Indeed, if Thompson stands for anything, it stands for the proposition that Allen and Sea Star had a right to seek a judicial determination that the Elmore Circuit Court was the proper forum in which to resolve the arbitration issue. In other words, under the clear mandate of Thompson, there was, as a matter of law, no waiver of the right to compel arbitration.[4]
In short, the trial court erred in denying the motion of Allen and Sea Star to compel arbitration. That order is, therefore, reversed, and the cause is remanded.
II. Case 1991656the Mandamus Petition
Our disposition of case 1991707 renders moot the petition for writ of mandamus filed by Allen and Sea Star in case 1991656. Therefore, the petition is denied as moot.[5]
In summary, the order in case 1991707 is reversed and the cause is remanded. In case 1991656, the petition for writ of mandamus is denied as moot.
1991656DENIED AS MOOT.
1991707REVERSED AND REMANDED.
SEE, BROWN, HARWOOD, and STUART, JJ., concur.
HOUSTON and LYONS, JJ., concur in the rationale in part and concur in the judgment.
MOORE, C.J., concurs in the result.
LYONS, Justice (concurring in the rationale in part and concurring in the judgment).
I concur in the disposition of the issue of waiver in the majority opinion. I also concur in the determination that Jim Allen and Sea Star made a sufficient showing of a substantial effect on interstate commerce, although not necessarily in the rationale supporting that determination. The presence of the arbitration clause in what the majority calls an "overarching agreement," 798 So.2d at 672, is not as significant as the state of the record concerning the relationship between the matter before us and interstate commerce.
The complaint alleges that Sea Star conveyed 200 acres of land to Hardigree and Cameo in exchange for their agreement to build a golf course on the property. Sea Star was to receive a percentage of the *676 revenues. The complaint also alleges that Hardigree and CAMCO contracted with Golf Engineering Group, Inc., for the construction of the golf course. The affidavit of Allen establishes that Golf Engineering is "located" in Florida. The parties to this litigation are Alabama residents.
Major portions of Jim Allen's affidavit, submitted in support of the contention that the matter before us had a substantial effect on interstate commerce, deal with the contemplated effect on interstate commerce. However, as this Court noted in Sisters of the Visitation v. Cochran Plastering Co., 775 So.2d 759, 760 (Ala.2000), "In Allied-Bruce Terminix Companies v. Dobson, 513 U.S. 265, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995) (`Terminix'), the United States Supreme Court held that for an arbitration clause to be enforceable under the FAA the transaction to which the contract relates must turn out, in fact, to involve interstate commerce, regardless of the contemplation of the parties. Id. at 278, 115 S.Ct. 834." (Emphasis added.) Nevertheless, the affidavit speaks to conditions as they existed at the time of the third amendment to the agreement and it states that as of that time a "significant portion" of the design and construction of the golf course had already been performed. Then it states that, of the materials, equipment, and supplies that were being used in construction of the golf course as of that time, the "vast majority" were involved in interstate commerce. It then lists 10 items moving from other states.
Hardigree's affidavit, offered to contradict evidence indicating that the matter before us had a substantial effect on interstate commerce, describes activities of several Alabama contractors performing dirt work, clubhouse construction, irrigation, excavation work, and sodding. However, the affidavit does not quantify the relationship of this activity to the magnitude of the project as a whole. Nor does it give us a rationale for focusing our attention on the intrastate nature of the activities involved in these contracts and how they relate to the subject matter of the litigation. Finally, it does not contradict that portion of Allen's affidavit describing completion of a "significant portion" of the design and construction of the golf course, ostensibly involving the work of the same contractors described in Hardigree's affidavit, and the nexus between the work of these contractors and interstate commerce. Under the circumstances, I agree with the conclusion that Cameo and Hardigree did not adequately contradict Sea Star and Allen's showing, albeit marginal, that the matter before us had a substantial effect on interstate commerce.
HOUSTON, J., concurs.
MOORE, Chief Justice (concurring in the result).
I write specially to distinguish between the postdispute arbitration agreement executed in this case and the predispute arbitration agreements that contracts often contain. A waiver of the right to a trial by jury must be made knowingly, willingly, and voluntarily. See Allstar Homes, Inc. v. Waters, 711 So.2d 924, 929 (Ala.1997). Predispute arbitration agreements are problematic in a number of ways, one of which is the fact that such contracts are signed well before any dispute arises between the parties. These predispute agreements are often vague and give little notice to the signing parties of the kinds of conflicts that will subject them to arbitration proceedings and the specific rights they are surrendering. Because predispute agreements are entered into before the grounds on which the waiver of rights is based can be known, there is no real "meeting of the minds," as contract law *677 requires between two parties who commit to a binding agreement.
Agreements entered into after a controversy arises avoid this problem because when they enter such agreements, the parties are aware of the kind of complaint they are allowing to proceed to arbitration in place of a jury trial. Sir William Blackstone, in his Commentaries on the Laws of England, presupposes in his exposition on arbitration that the parties would agree to submit their disputes to arbitration only after the disputes had arisen:
"Arbitration is where the parties, injuring and injured, submit all matters in dispute, concerning any personal chattels or personal wrong, to the judgment of two or more arbitrators, who are to decide the controversy.... [T]hereby the question is as fully determined, and the right transferred or settled, as it could have been by the agreement of the parties or the judgment of a court of justice."
3 William Blackstone, Commentaries on the Laws of England *16. Blackstone assumed that before the injuring and injured parties could agree to submit a grievance to arbitration, the controversy must have already arisen.
The parties to this case knowingly, willingly, and voluntarily waived their rights to a trial before a jury of their peers. Each side agreed to submit their disputes to binding arbitration, after a question had arisen as to whether one of the parties was in breach of contract. When they signed the agreement to arbitrate, the parties were represented by counsel, they were aware of the nature of the dispute that had already arisen, and they realized precisely the rights they were waiving. Therefore, I concur in the result reached todayto reverse the order of the trial court denying arbitration and to treat the petition for the writ of mandamus as moot.
NOTES
[1] This case is, therefore, the converse of Sisters of the Visitation v. Cochran Plastering Co., 775 So.2d 759 (Ala.2000), where the arbitration clause was contained in one of the subsidiary transactions.
[2] Hardigree and CAMCO also rely on Ex parte Bentford, 719 So.2d 778 (Ala.1998), overruling on other grounds recognized by, Green Tree Fin. Corp. of Alabama v. Vintson, 753 So.2d 497 (Ala.1999); Morrison Restaurants, Inc. v. The Homestead Village of Fairhope, Ltd., 710 So.2d 905 (Ala.1998); and Ex parte Smith, 706 So.2d 704 (Ala.1997). In none of those cases, however, was the movant's delay in seeking to compel arbitration attributableor in any way relatedto an effort to obtain a judicial determination of venue.
[3] In this respect, Thompson and this case are both distinguishable from Companion Life, on which Hardigree and CAMCO rely. In that case, Companion Life Insurance Company had, before seeking to compel arbitration, removed the cause to "the United States District Court for the Northern District of Alabama." Companion Life, 670 So.2d at 898. It did so in order to "assert[ ] that [the plaintiff's] state law claims were preempted by the Employee Retirement Income Security Act of 1974." 670 So.2d at 898. See also Thompson, 729 So.2d at 292 (distinguishing Companion Life on that ground).
[4] In this connection, we do not overlook the cases in which we have reviewed a trial court's determination of waiver under an abuse-of-discretion standard. See Thompson, supra; Companion Life, supra; Ex parte McKinney, 515 So.2d 693 (Ala.1987). However, the trial court has no discretion to deviate from a case that is directly on point.
[5] We have not overlooked Sentell, which, like Allen and Sea Star, moved to transfer the cause to Elmore County. Unlike Allen and Sea Star, however, Sentell did not file a mandamus petition. Instead, on July 13, 2000, after this Court ordered answers and briefs in case 1991656, and six months after the trial court denied its venue motion, Sentell filed an "Answer of Respondent Sentell Engineering, Inc." In its answer, it merely "adopt[ed] the position and brief of [Allen and Sea Star]." Thus, the only mandamus petition before this Court is that filed by Allen and Sea Star, containing arguments that are now moot.