Johnson v. Jefferson County Racing Ass'n

• Decision Date: 27 June 2008
• Docket Number: 1061398.
• Parties: Debra JOHNSON v. JEFFERSON COUNTY RACING ASSOCIATION, INC., d/b/a The Birmingham Race Course.
• Court: Alabama Supreme Court

1 So.3d 960

Debra JOHNSON v. JEFFERSON COUNTY RACING ASSOCIATION, INC., d/b/a The Birmingham Race Course.

1061398.

Supreme Court of Alabama.

June 27, 2008.

Matthew H. Lembke, Michael R. Pennington, and Marc James Ayers of Bradley Arant Rose & White, LLP, Birmingham, for appellant.

William M. Slaughter, J. Michael Rediker, and Peter J. Tepley of Haskell Slaughter Young & Rediker, LLC, Birmingham; and J. Mark White, Augusta S. Dowd, and William M. Bowen, Jr., of White Arnold Andrews & Dowd, P.C., Birmingham; and John M. Bolton III and Charlana W. Spencer of Sasser Bolton Stidham & Sefton, P.C., Montgomery, for appellee.

SEE, Justice.

Debra Johnson appeals a Jefferson Circuit Court order compelling her to arbitrate her claims against the Jefferson County Racing Association, Inc., d/b/a The Birmingham Race Course ("JCRA"), and dismissing her action. We affirm in part and reverse in part.

Facts and Procedural History

Johnson brought the present action following this Court's decision in Barber v. Jefferson County Racing Ass'n, Inc., 960 So.2d 599, 604 (Ala.2006), in which we determined that an activity advertised as "Quincy's MegaSweeps" ("the MegaSweeps") initiated by Innovative Sweepstakes Systems, Inc., at the Birmingham Race Course "involve[d] the use of slot machines," a gambling device that is illegal in Alabama.¹ Johnson sued JCRA pursuant to § 8-1-150(a), Ala.Code 1975,² on her own behalf and on behalf of a class of similarly situated persons, seeking to recover money that she, and others, had paid to participate in the MegaSweeps.

JCRA moved the trial court to compel Johnson to arbitrate her claims and to dismiss Johnson's action. JCRA argued that by participating in the MegaSweeps, Johnson had assented to the arbitration provision found in the "official rules" for the MegaSweeps ("the MegaSweeps contract").³ Johnson opposed JCRA's motion, arguing that JCRA could not establish a valid contract calling for arbitration. Specifically, Johnson argued that the MegaSweeps contract amounted to a contract founded on a gambling consideration and that, therefore, the contract is void and unenforceable under § 8-1-150(a), Ala. Code 1975. Johnson alternatively argued that, even if the MegaSweeps contract is not void in its entirety, because one of the MegaSweeps rules includes a void-where-prohibited-by-law provision, the arbitration clause found in those rules is void and unenforceable.

The trial court noted that "the crux of [Johnson]'s complaint is that the agreement as a whole, including the arbitration provision, was rendered void or invalid by the Court's holding in Barber [v. Jefferson County Racing Ass'n, Inc., 960 So.2d 599 (Ala.2006)]." Relying on the United States Supreme Court's decision in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006), the trial court then determined that because Johnson's challenge was to the MegaSweeps contract as a whole, rather than the arbitration clause specifically, the issue of the validity of the contract was to be decided by the arbitrator. The trial court then dismissed Johnson's action and ordered that she arbitrate her claims.

Johnson moved the trial court to alter, amend, or vacate its order under Rule 59(e), Ala. R. Civ. P. In her motion, Johnson reasserted and clarified the arguments she had made in her brief opposing JCRA's motion to compel arbitration, but she also argued that the trial court should have stayed the action pending arbitration instead of dismissing it. The trial court denied her motion. Johnson now appeals, arguing that neither the MegaSweeps contract nor the arbitration clause itself is valid or enforceable. Alternatively, Johnson argues that, even if we conclude that the arbitration clause is valid and enforceable, the trial court should have stayed, rather than dismissed, her action pending the outcome of arbitration.

Analysis

I. Order Compelling Arbitration

Johnson argues that the trial court erred when it compelled her to arbitrate her claims against JCRA because, she says, the MegaSweeps contract is void ab initio and because, she argues, the arbitration clause itself is void.

A. Standard of Review

"We review the trial court's grant or denial of a motion to compel arbitration de novo." McKay Bldg. Co. v. Juliano, 949 So.2d 882, 884 (Ala.2006) (citing Bowen v. Security Pest Control, Inc., 879 So.2d 1139, 1141 (Ala.2003)). "`Initially, the party seeking to compel arbitration must prove 1) the existence of a contract calling for arbitration, and 2) that the contract "is `a contract evidencing a transaction involving commerce' within the meaning of the Federal Arbitration Act (FAA)."'" Owens v. Coosa Valley Health Care, Inc., 890 So.2d 983, 986 (Ala.2004) (quoting Hudson v. Outlet Rental Car Sales, Inc., 876 So.2d 455, 457 (Ala.2003), quoting in turn Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 53, 123 S.Ct. 2037, 156 L.Ed.2d 46 (2003), quoting in turn 9 U.S.C. § 2). "The moving party `must "`produce some evidence which tends to establish its claim.'"'" Edwards v. Costner, 979 So.2d 757, 761 (Ala.2007) (quoting Wolff Motor Co. v. White, 869 So.2d 1129, 1131 (Ala. 2003), quoting in turn Jim Burke Auto., Inc. v. Beavers, 674 So.2d 1260, 1265 (Ala. 1995), quoting in turn In re American Freight Sys., Inc., 164 B.R. 341, 345 (D.Kan.1994)). Finally, "[o]nce the moving party has supported his or her motion to compel arbitration, the nonmovant then has the burden to present evidence tending to show that the arbitration agreement is invalid or inapplicable to the case." McKay, 949 So.2d at 884 (citing Polaris Sales, Inc. v. Heritage Imports, Inc., 879 So.2d 1129, 1132 (Ala.2003)).

B. Existence of a Contract

Johnson argues that JCRA cannot meet its initial burden of demonstrating the existence of a contract calling for arbitration because, she argues, "under this Court's unanimous decision in Barber [v. Jefferson County Racing Ass'n, Inc., 960 So.2d 599 (Ala.2006)], the MegaSweeps contracts relied on by the JCRA are void ab initio."⁴ Johnson's brief at 15 (emphasis in the original).

Section 8-1-150(a), Ala.Code 1975, provides:

"All contracts founded in whole or in part on a gambling consideration are void. Any person who has paid any money or delivered any thing of value lost upon any game or wager may recover such money, thing, or its value by an action commenced within six months from the time of such payment or delivery."⁵

Johnson contends that the MegaSweeps contract is void under § 8-1-150 because, she says, this Court in Barber "held that, as a matter of Alabama law, playing the MegaSweeps involved the payment of consideration to gamble." Johnson's brief at 17. Johnson thus concludes that the arbitration clause in the MegaSweeps contract is unenforceable because, she argues, under Alabama law "`when a contract is utterly void, it does not have any existence even for the protection of one who relied and acted upon it without notice of its infirmity.'" Johnson's brief at 15 (quoting Metropolitan Life Ins. Co. v. Bramlett, 224 Ala. 473, 475, 140 So. 752, 753 (1932)). JCRA, however, argues that Johnson cannot avoid arbitration by challenging the validity or legality of the MegaSweeps contract as a whole, rather than the arbitration clause itself. JCRA is correct.

Recently, in Paragon Ltd., Inc. v. Boles, 987 So.2d 561, 567 (Ala.2007), this Court rejected an argument similar to the one Johnson now makes.⁶ In that case Emily Boles sued Paragon alleging that Paragon had breached a construction contract by failing to complete the construction of a house and overcharging Boles for the work it had completed. Paragon responded by arguing "that the construction contract contained a valid and enforceable arbitration clause, which required that any dispute related to the contract be settled by arbitration." 987 So.2d at 562. Boles argued in response that, "under § 34-14A-14, Ala.Code 1975,[⁷] Paragon [could] not maintain an action to enforce any provision of the contract, including the arbitration clause, because ... Paragon admitted [to the Alabama Home Builders Licensure Board] that it had engaged in the construction of Boles's residence without holding a required license." Paragon, 987 So.2d at 567.

This Court first noted in Paragon that Boles's argument, like Johnson's argument in the case now before us, "clearly attacks Paragon's ability to enforce the contract as a whole and does not specifically attack the arbitration clause within the contract." 987 So.2d at 567. This Court also stated that "[i]t is well established that challenges to the validity of the contract as a whole and not specifically to the arbitration clause within the contract must go to the arbitrator, not a court." Paragon, 987 So.2d at 567; see also Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) ("Accordingly, if the claim is fraud in the inducement of the arbitration clause itself—an issue which goes to the `making' of the agreement to arbitrate—the federal court may proceed to adjudicate it. But the statutory language does not permit the federal court to consider claims of fraud in the inducement of the contract generally." (footnotes omitted)). Relying on the United States Supreme Court decision in Buckeye Check Cashing, Inc. v. Cardegna, the same decision relied on by the trial court here, this Court in Paragon concluded that "the arbitration clause in the contract between Paragon and Boles is enforceable, and it is irrelevant whether Paragon's actions render the contract as a whole void. That question is for the arbitrator to decide, not this Court." Paragon, 987 So.2d at 568; see also Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. at 445-46, 126 S.Ct. 1204 ("Prima Paint and Southland [Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984)] ... establish[ed] three propositions. First, as a matter of substantive federal arbitration law, an...