Paragon Ltd., Inc. v. Boles
Decision Date | 21 December 2007 |
Docket Number | 1061255. |
Parties | PARAGON LIMITED, INC. v. Emily BOLES. |
Court | Alabama Supreme Court |
Ellen H. Dover of Marks & Weinberg, P.C., Birmingham, for appellant.
John M. Aaron, Alabaster, for appellee.
Paragon Limited, Inc. ("Paragon"), appeals from an order of the trial court holding that Paragon waived its right to compel Emily Boles to submit her claims against it to arbitration. We reverse and remand.
On April 15, 2005, Boles and Paragon entered into a contract pursuant to which Paragon was to construct a residence for Boles. On August 22, 2006, Boles sued Paragon, claiming that it had breached the construction contract because Paragon failed to complete the construction of the house and had allegedly overcharged Boles for the work it had completed. On October 23, 2006, Paragon filed an answer to Boles's complaint. The answer denied Boles's claims, asserted various defenses, asserted various counterclaims against Boles, and asserted a third-party claim against Compass Bank, who is not a party to this appeal. One of the counterclaims sought to enforce a lien that Paragon had filed on August 25, 2006, against the property that was the subject of the construction contract. The answer also asserted that the construction contract contained a valid and enforceable arbitration clause, which required that any dispute related to the contract be settled by arbitration. Contemporaneously with filing its answer, Paragon filed a "motion to compel arbitration or, alternatively, to stay action pending arbitration," which further detailed Paragon's claim that Boles must submit her claims against it to arbitration. Boles filed a motion in opposition to arbitration.
On January 9, 2007, the trial court conducted a hearing on the motion to compel arbitration and at the end of the hearing requested that each party submit a proposed order to the court. On February 21, 2007, the trial court entered the order submitted by Boles, holding that Paragon had waived its right to arbitration because it filed the lien against the property. Specifically, the trial court held:
On March 22, 2007, Paragon filed a motion to alter, amend, or vacate the order, which the trial court denied on May 9, 2007. On May 23, 2007, Paragon appealed.
"We review the trial court's grant or denial of a motion to compel arbitration de novo." Title Max of Birmingham, Inc. v. Edwards, 973 So.2d 1050, 1052 (Ala. 2007).
The trial court and both parties appear to agree that the construction contract contains a valid arbitration clause and that that clause encompasses any claim related to the contract, including the claims brought by Boles in the present case. The trial court explicitly held that Paragon and Boles "had a contract and in that contract there was an [a]rbitration [c]lause." However, the trial court held that Paragon had waived its right to enforce the arbitration clause because it "substantially invok[ed] the litigation machinery prior to demanding arbitration" and "used the litigation process to its benefit and to the disadvantage of [Boles]." This holding was based solely on the fact that Paragon had filed a lien against the property that was the subject of the contract.
On appeal, Paragon disputes the trial court's holding and alleges that it did not waive its right to arbitration. In her response brief, Boles does not respond to Paragon's argument. Instead, Boles raises a new argument. Boles alleges that Paragon cannot maintain an action to enforce any provision of the construction contract because, in a separate administrative proceeding, Paragon entered into a consent agreement with the Alabama Home Builders Licensure Board in which Paragon admitted that it had undertaken to construct Boles's residence without holding a required license and, thus, under § 34-14A-14, Ala.Code 1975, Paragon cannot maintain any action to enforce the provisions of the residential-home-building contract.1
First, this Court must decide whether the trial court erred when it held that Paragon had waived its right to arbitration by filing a lien against the property.
Companion Life Ins. Co. v. Whitesell Mfg., Inc., 670 So.2d 897, 899 (Ala.1995). Thus, "[i]n order to demonstrate that the right to arbitrate a dispute has been waived, the party opposing arbitration must demonstrate both (1) that the party seeking arbitration substantially invoked the litigation process, and (2) that the party opposing arbitration would be substantially prejudiced by an order requiring it to submit to arbitration." SouthTrust Bank v. Bowen, 959 So.2d 624, 633 (Ala.2006). Furthermore, "[o]ur cases continue to make it clear that, because of the strong federal policy favoring arbitration, a waiver of the right to compel arbitration will not be lightly inferred, and, therefore, that one seeking to prove waiver has a heavy burden." Mutual Assurance, Inc. v. Wilson, 716 So.2d 1160, 1164 (Ala.1998).
Paragon argues that it did not substantially invoke the litigation process by filing a lien against the property and that Boles has not carried her heavy burden of showing that, because the lien was filed, she would be substantially prejudiced by an order requiring her to submit her claims to arbitration. This Court has never specifically decided whether filing a lien constitutes a substantial invocation of the litigation process for purposes of a motion to compel arbitration, or whether a party opposing arbitration would be substantially prejudiced if she is required to submit to arbitration after the other party files a lien against the property that is the subject of the contract containing the arbitration clause. However, this Court has suggested, albeit in dicta, that filing an answer and a cross-claim for a mechanic's lien, while simultaneously filing a motion to compel arbitration, does not substantially prejudice the party opposing arbitration. Eastern Dredging & Constr., Inc. v. Parliament House, L.L.C., 698 So.2d 102, 104 (Ala.1997). But cf. Ex parte Prendergast, 678 So.2d 778 (Ala.1996) (...
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