Opinion
No. 1002021.
Decided June 28, 2002.
Appeal from Jefferson Circuit Court, Bessemer Division (CV-2000-291).
William T. Chesser ("Chesser") appeals from the trial court's order compelling him to arbitrate the claims he has made against defendants AmSouth Bank, N.A. ("AmSouth"), and Protective Life Insurance Corporation of Alabama ("Protective Life"). We affirm in part and reverse in part.
Facts and Procedural History
On May 4, 1998, Chesser purchased a used 1995 GMC truck from Premiere Chevrolet, Inc., in Bessemer. AmSouth financed the purchase of the truck. After negotiating the terms of his purchase with a salesperson, Chesser met with Chris Ferguson, the business manager at Premiere Chevrolet, to finalize the necessary paperwork and to complete the sale. At that time, Chesser executed a buyer's order, an installment sales contract and security agreement, and an application for credit-disability and credit-life insurance coverage from Protective Life.
The buyer's order provided:
"Purchaser acknowledges the vehicle has been traveling in interstate commerce and had an impact on interstate commerce. In the event any dispute(s) under the terms of this contract or sale arise, (including, but not limited to, the terms of agreement, the condition of the motor vehicle sold, the conformity of the motor vehicle sold to the contract, the representations, promises, undertakings or covenants made by Premiere Chevrolet, Inc. in connection with the sale of the motor vehicle, or otherwise dealing with the motor vehicle, any terms of financing in connection therewith, or any terms of any credit life and/or disability insurance purchased simultaneously herewith, or extended service or maintenance agreements(s), Premiere Chevrolet, Inc. and the purchaser(s) agree to submit such dispute(s) to binding arbitration, pursuant to the provisions of 9 U.S.C. § 1, Et Seq., and according to the commercial rules of the American Arbitration Association then existing, in Bessemer, Alabama."
Similarly, the retail installment contract contained the following provision:
"[A]ny controversy, claim, dispute, or disagreement arising out of, in connection with, or relating to (1) the interpretation, negotiation, execution, collateralization, administration, repayment, modification, or extension of this Agreement or any assignment thereof; (2) any charge or cost incurred pursuant to this Agreement; (3) the collection of any amounts due under this Agreement or any assignment thereof; (4) an alleged tort relating in any way to this Agreement, collateral under this Agreement or any insurance or mechanical repair contract purchased pursuant to this Agreement; or (5) any breach of any provision of this Agreement, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. . . ."
Finally, the certificate of insurance Chesser received when he applied for the credit-life and credit-disability insurance coverage provided:
"The issuance of this coverage takes place in and substantially affects interstate commerce. Any dispute, controversy, or cause of action by the Policyholder, you or your beneficiary, or their respective assigns (each referred to in this Arbitration section as `claimant') arising out of or relating in any way to, this insurance, or to the sale or solicitation of this insurance, shall be settled by arbitration under the provisions of the Federal Arbitration Act, 9 U.S.C. § 1, et seq. Such arbitration shall be governed by the rules of the American Arbitration Association. . . ."
Approximately seven months after he purchased the truck, Chesser underwent heart surgery and was unable to continue making the installment payments due on the AmSouth loan. Chesser contacted Premiere Chevrolet and told them that he wished to make a claim for benefits under the credit-disability policy he had purchased from Protective Life when he purchased the truck. Pursuant to Chesser's request, Premiere Chevrolet forwarded Chesser's claim to Protective Life. Protective Life subsequently denied Chesser's claim and refunded to AmSouth, as the lienholder on the vehicle, the $1,141.38 premium. AmSouth subsequently repossessed the truck on April 29, 1999, after Chesser failed to make the payments. Chesser maintains that although AmSouth received the refunded premium before it repossessed the truck, AmSouth failed to apply the refunded premium to the arrearage he owed on the loan. After it repossessed the truck, AmSouth hired RMS Remarketing Services to prepare the truck for sale at an automobile auction in Moody, Alabama.
On March 22, 2000, Chesser sued AmSouth, Protective Life, and Ferguson, alleging breach of contract, fraud, negligent failure to obtain insurance, wrongful possession and conversion, and bad-faith refusal to pay. AmSouth responded by asserting that it was entitled to arbitrate Chesser's claims, and it moved to stay the action pending arbitration or, alternatively, to dismiss the action. Ferguson also moved to dismiss the action and to compel arbitration. Protective Life answered the complaint, denying all allegations. After the parties had briefed and argued the motions to compel arbitration, the trial court granted the motions. Although Protective Life's attorneys had previously notified Chesser that it would not seek to enforce the arbitration provision contained in the certificate of insurance, it moved for a joint and consistent disposition after being served with the other parties' motions to compel arbitration. Accordingly, the trial court's order stated:
"Motion to compel arbitration by AmSouth Bank and joined in by the other defendants is granted. This case is stayed and is ordered to arbitration. The case is dismissed due to the arbitration. Costs taxed as paid."
This appeal followed.
Analysis
"`[T]he standard of review of a trial court's ruling on a motion to compel arbitration at the instance of either party is a de novo determination of whether the trial judge erred on a factual or legal issue to the substantial prejudice of the party seeking review.'" Vann v. First Cmty. Credit Corp., [Ms. 1010113, March 8, 2002] ___ So.2d ___, ___ (Ala. 2002) (quoting Ex parte Roberson, 749 So.2d 441, 446 (Ala. 1999)).
A section of the Federal Arbitration Act ("the FAA"), 9 U.S.C. § 2, provides:
"A written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."
"To satisfy the interstate-commerce criterion, the involvement of, or effect on, interstate commerce must be substantial." Rogers Foundation Repair, Inc. v. Powell, 748 So.2d 869, 871 (Ala. 1999) (citing Southern United Fire Ins. Co. v. Knight, 736 So.2d 582, 585 (Ala. 1999)). Because the defendants sought to compel arbitration of Chesser's claims, they had the burden of proving that the various contracts called for arbitration and that the contracts evidenced a transaction that substantially affected interstate commerce. See Southern United Fire Ins. Co. v. Knight, 736 So.2d at 586.
The defendants maintain that they met their burden of proving that the transaction had a substantial effect on interstate commerce because the retail installment agreement signed by Chesser indicated that he wished to purchase credit-disability and credit-life insurance, that he wished to purchase an extended service contract, and that he promised to maintain comprehensive and collision automobile insurance. We agree. The credit-life and credit-disability insurance was purchased by Premier Chevrolet's forwarding a check to Protective Life in California. Similarly, the extended service contract was purchased by Premier Chevrolet's forwarding a check to "MS Dealer Service Corporation," which is headquartered in Florida. Finally, Chesser obtained comprehensive and collision insurance from State Farm Insurance, which is headquartered in Illinois.
Chesser's commitments to purchase the credit-life and credit-disability insurance, the extended service contract, and the comprehensive and collision insurance were made concurrently with his purchase of the vehicle. In fact, a portion of the loan proceeds was used to pay the premium on the credit-disability and credit-life insurance and to pay the cost of the extended service contract. "We cannot employ an unrealistically narrow construction of the `transaction' concept so as to limit our scrutiny to the event transpiring at the time of the sale."Green Tree Fin. Corp. v. Lewis, 813 So.2d 820, 824 (Ala. 2001). Considering the aggregate effects the transaction has on interstate commerce, we hold that this transaction substantially affected interstate commerce so as to invoke application of the FAA. Accordingly, we affirm the trial court's order compelling Chesser to arbitrate his claims against AmSouth.
Tefco Fin. Co. v. Green, 793 So.2d 755, 759 (Ala. 2001).
Unlike AmSouth, however, Protective Life expressly waived its right to arbitrate any claims Chesser made against it. On April 15, 1999, Horacio Calasanz, an employee of Protective Life's credit-insurance claim department, wrote a letter to Chesser; that letter stated:
"Please note that the group policy under which you have received coverage contains a binding arbitration clause covering all disputes relating to this coverage. Protective has agreed to waive the clause. This means that you may consider it void, and that it would not apply to any disputes relating to the insurance coverage you have received. If, despite Protective's offer to waive the arbitration clause, you would still like to submit to binding arbitration any dispute relating to this coverage, you may do so."
Protective Life did not move to compel arbitration in this case; rather, the trial court ordered Chesser to arbitrate his claims against Protective Life as a result of Protective Life's motion seeking a disposition with regard to the arbitration issue consistent with the trial court's disposition as to AmSouth and Ferguson. The claims of a non-signatory to a contract can be subject to arbitration if (1) the nonsignatory is a third-party beneficiary of the contract containing the arbitration clause or (2) the nonsignatory's claims are "intertwined with" and "related to" the contract. See Cook's Pest Control, Inc. v. Boykin, 807 So.2d 524, 527 (Ala. 2001).
Because Protective Life has not argued that it was a third-party beneficiary of the retail installment contract, we look to whether Chesser's claims against Protective Life were "intertwined with" and "related to" the retail installment contract. A simple reading of the complaint establishes that Chesser made breach-of-contract, bad-faith, fraud, and negligent-failure-to-procure-insurance claims against Protective Life. Each of these claims clearly arises out of and relates to the insurance contract between Chesser and Protective Life. Conversely, Chesser's claims against AmSouth for wrongful repossession and conversion specifically relate to the retail installment contract. Although Chesser applied for the credit-life and credit-disability insurance coverage when he purchased the vehicle, his claims against Protective Life arise from the insurance contract and, thus, are not intertwined with and related to the retail installment agreement. In addition to expressly waiving its right to arbitrate, Protective Life has wholly failed to demonstrate, or even to argue, that it is entitled to arbitrate Chesser's claims. We hold that the trial court erred by requiring Chesser to arbitrate his claims against Protective Life.
Accordingly, insofar as it compels arbitration of Chesser's claims against AmSouth, the trial court's order is affirmed; insofar as it compels arbitration of his claims against Protective Life, the trial court's order is reversed; and the case is remanded to the trial court for proceedings consistent with this opinion.
AFFIRMED IN PART; REVERSED IN PART; AND REMANDED.
Houston, See, Lyons, Harwood, and Stuart, JJ., concur.
Woodall, J., concurs in the result.
Moore, C.J., concurs in part and dissents in part.
Pursuant to my dissent in Selma Medical Center, Inc. v. Fontenot, [Ms. 1991793, August 3, 2001] ___ So.2d ___, ___ (Ala. 2001), I concur with the majority's decision to reverse the trial court's judgment in part (insofar as it compels arbitration of Chesser's claims against Protective Life), but I respectfully dissent from its decision to affirm the judgment in part (insofar as it compels arbitration of Chesser's claims against AmSouth).