Commercial Arbitration Issues - Rainbow Cinemas, LLC v. Consolidated Construction Co. of Ala.


Rainbow Cinemas, LLC v. Consolidated Construction Co. of Ala., [Ms. 1160070, June 16, 2017] __ So. 3d __ (Ala. 2017). The Court reverses a Madison Circuit Court order denying a motion to compel arbitration concerning a commercial construction contract, which incorporated the "American Institute of Architects – General Conditions of the Contract for Construction," which, in turn, in its section concerning "Dispute Resolution," incorporated a "binding dispute resolution" provision adopting the construction industry arbitration rules of the American Arbitration Association.

The opinion sets forth the standard of review of a ruling denying a motion to compel arbitration.

"This Court reviews de novo the denial of a motion to compel arbitration. Parkway Dodge, Inc. v. Yarbrough, 779 So. 2d 1205 (Ala. 2000). A motion to compel arbitration is analogous to a motion for a summary judgment. TranSouth Fin. Corp. v. Bell, 739 So. 2d 1110, 1114 (Ala. 1999). The party seeking to compel arbitration has the burden of proving the existence of a contract calling for arbitration and proving that the contract evidences a transaction affecting interstate commerce. Id. 'After a motion to compel arbitration has been made and supported, the burden is on the non-movant to present evidence that the supposed arbitration agreement is not valid or does not apply to the dispute in 1160070 question.' Jim Burke Automotive, Inc. v. Beavers, 674 So. 2d 1260, 1265 n. 1 (Ala. 1995) (opinion on application for rehearing)."

"Elizabeth Homes, L.L.C. v. Gantt, 882 So. 2d 313, 315 (Ala. 2003) (quoting Fleetwood Enters., Inc. v. Bruno, 784 So. 2d 277, 280 (Ala. 2000))."

Ms. * 7-8 (quoting SSC Montgomery Cedar Crest Operating Co. v. Bolding, 130 So. 3d 1194, 1196 (Ala. 2013)).

To avoid the arbitration provisions, the plaintiff alleged fraud in the inducement. The Supreme Court explains that "[t]o avoid arbitration, '[a] party must provide substantial evidence of fraud in the inducement, particularly related to the arbitration clause.' " Ms. * 9 (quoting Massey Auto., Inc. v. Norris, 895 So. 2d 215, 218 (Ala. 2004)). " '[M]erely alleging fraudulent inducement as to the arbitration clause in an agreement' does not allow a party to avoid the arbitration agreement." Ms. * 10 (quoting Ex parte Perry, 744 So. 2d 859, 863 (Ala. 2004)). The Court holds that the plaintiff failed to present substantial evidence of fraudulent inducement related to the arbitration clause.

The Court also rejects the plaintiff's contention on appeal that the architectural and construction defendants could not satisfy the conditions precedent necessary to require arbitration of the claims. The Court, citing Brasfield & Gorrie, L.L.C. v. Soho Partners, L.L.C., 35 So. 3d 601 (Ala. 2009) (Ms. * 12-15), determines it was for the arbitrator and not the trial court to decide whether conditions precedent to arbitration in a contract have been met.

Finally, the Court rejects the plaintiff's argument that it could not be compelled to arbitrate its claims against non-signatories to the contract. This argument was rejected on authority of Anderton v. Practice-Monroeville, P.C., 164 So. 3d 1094 (Ala. 2014):

"In Anderton, ... we recognized the general rules that apply in arbitration cases providing that ... nonsignatory issues of the type raised by [CCC] should be resolved by the trial court before the underlying dispute is sent to arbitration if, in fact, arbitration is ultimately determined to be the proper forum for the dispute. However, we also recognized that these general rules have their exceptions. ...

" '....'

"... The Anderton Court ... addressed the nonsignatory issue ..., stating:

" 'The question whether an arbitration provision may be used to compel arbitration of a dispute between a nonsignatory and a signatory is a question of substantive arbitrability (or, under the Supreme C o u r t ' s terminology, simply "arbitrability"). In First Options [of Chicago, Inc. v. Kaplan], 514 U.S. [938,] 943–46 [(1995)], the Supreme Court analyzed the question whether an arbitration agreement binds a nonsignatory as a question of arbitrability. See also Howsam [v. Dean Witter Reynolds], 537 U.S. [79,] 84 [(2002)] (noting that in First Options the Supreme Court held that the question "whether the arbitration contract bound parties who did not sign the agreement" is a question of arbitrability for a court to decide). More recently, the United States Court of Appeals for the Eighth Circuit succinctly addressed the threshold issue before us. In Eckert/Wordell Architects, Inc. v. FJM Properties of Willmar, LLC, 756 F.3d 1098 (8th Cir. 2014), a nonsignatory sought to compel arbitration of a dispute with a signatory, as in this case. The court stated:

" ' "Whether a particular arbitration provision may be used to compel arbitration between a signatory and a nonsignatory is a threshold question of arbitrability. SeeHowsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84–85, 123 S. Ct. 588, 154 L. Ed. 2d 491 (2002) (delineating potentially dispositive threshold issues between 'questions of arbitrability' and 'procedural questions'). We presume threshold questions of arbitrability are for a court to decide, unless there is clear and unmistakable evidence the parties intended to commit questions of arbitrability to an arbitrator. Id. at 83, 123 S. Ct. 588; Express Scripts, Inc. v. Aegon Direct Mktg. Servs., Inc., 516 F.3d 695, 701 (8th Cir. 2008). We have previously held the incorporation of the AAA [ American Arbitration Association] Rules into a contract requiring arbitration to be a clear and unmistakable indication the parties intended for the arbitrator to decide threshold questions of arbitrability.... Eckert Wordell'sdrafting of the architectural services contract here to incorporate the AAA Rules requires the same result."

" '756 F.3d at 1100. See also Knowles v. Community Loans of America, Inc. (No. 12–0464–WS–B, Nov. 20, 2012) (S.D. Ala. 2012) (not reported in F. Supp. 2d) ("A question as to 'whether the arbitration contract bound parties who did not sign the agreement' is one that 'raises a "question of arbitrability" for a court to decide.' " (quoting Howsam, 537 U.S. at 84)).

" 'Like the Eighth Circuit, we have held "that an arbitration provision that incorporates rules that provide for the arbitrator to decide issues of arbitrability clearly and unmistakably evidences the parties' intent to arbitrate the scope of the arbitration provision." CitiFinancial Corp. v. Peoples, 973 So. 2d 332, 340 (Ala. 2007). See also Joe Hudson Collision Ctr. v. Dymond, 40 So. 3d 704, 710 (Ala. 2009) (concluding that an arbitrator decides issues of substantive arbitrability when the arbitration provision incorporated the same AAA rule as in the present case); and Wells Fargo Bank, N.A. v. Chapman, 90 So. 3d 774, 783 (Ala. Civ. App. 2012) (same). The relevant AAA rule incorporated by the arbitration provision provides: "The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement." Thus, although the question whether an arbitration provision may be used to compel arbitration between a signatory and a nonsignatory is a threshold question of arbitrability usually decided by the court, here that question has been delegated to the arbitrator. The arbitrator, not the court, must decide that threshold issue.'

"164 So. 3d at 1101–02. Thus, the law in Alabama is such that a trial court considering a motion to compel arbitration should resolve ... nonsignatory issues unless the subject arbitration provision clearly and unmistakably indicates that those arguments should instead be submitted to the arbitrator."

Ms. * 15-18 (quoting Federal Ins. Co. v. Reedstrom, 197 So. 3d 971, 974-76 (Ala. 2015)).

Accordingly, the Madison Circuit Court's order denying the motion to compel arbitration was reversed and the cause remanded for the circuit court to enter an order granting the motion.

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