American General Finance, Inc. v. Morton

• Citation: 812 So.2d 282
• Parties: AMERICAN GENERAL FINANCE, INC. v. Jimmy D. MORTON.
• Decision Date: 25 May 2001
• Court: Alabama Supreme Court

812 So.2d 282

AMERICAN GENERAL FINANCE, INC. v. Jimmy D. MORTON.

1991999.

Supreme Court of Alabama.

May 25, 2001.

Rehearing Denied August 31, 2001.

Robert H. Rutherford, F.A. Flowers III, and Richard C. Keller of Burr & Forman, L.L.P., Birmingham, for appellant.

Virginia R. Smith, Oneonta, for appellee.

HARWOOD, Justice.

American General Finance, Inc. ("AGF"), appeals from an order denying its motion to compel arbitration in an action brought against it by Jimmy D. Morton. The action sought compensatory and punitive damages for breach of contract, fraudulent suppression, and fraudulent misrepresentation, all arising out of Morton's purchase of a parcel of real estate from AGF. We affirm.

Facts

On August 23, 1996, in conjunction with Morton's purchase of a parcel of real estate from AGF, and the financing of that purchase, Morton received a "Statutory Warranty Deed" from AGF, and he executed for its benefit a "Note and Security Agreement" and a "First Mortgage." All of these documents were executed as interrelated components of the same transaction, i.e., Morton's purchase of the property and AGF's financing of the purchase.

An arbitration clause contained in the "Note and Security Agreement" reads, in pertinent part:

"Borrower(s) hereby acknowledge that the transactions evidenced by this agreement involve interstate commerce. Borrower(s) and Lender agree that, except as otherwise set forth in this provision, all claims, disputes, or controversies of every kind and nature between Borrower(s) and Lender shall be resolved by arbitration including (i) those based on contract, tort, or statute, (ii) those arising out of or relating to the transaction(s) evidenced by this agreement, the disclosures relating to this agreement, the Federal Disclosure Statement, any insurance certificates of policies, any documents executed at or about the same time this agreement was executed or (iii) those arising out of, or relating to any other prior proposed or actual loan or extension of credit (and the relationships which result from these transactions or any other previous transactions between Borrower(s) and Lender(s))."

After he purchased the real estate in 1996, Morton borrowed money from another company and with that money paid off his debt to AGF. When Morton attempted to record the satisfaction of the lien AGF had held, he was informed that the property had been sold in a tax auction, before he had purchased it, and that AGF thus had not owned the property when it purported to sell the property to him, but that he could reclaim the property by paying the back taxes. Morton contacted AGF about this problem, and AGF instructed him to return to its Gadsden office and pick up a check for the unpaid taxes. When Morton arrived at the Gadsden office, the manager refused to see him, and the manager did not respond to his calls in the following weeks. With the deadline to reclaim the property by paying the back taxes approaching, Morton again contacted the AGF office; one of the AGF employees instructed him to pay the taxes and promised that AGF would reimburse him. After Morton paid the taxes, AGF refused to reimburse him. This lawsuit followed.

Morton filed his complaint on August 24, 1998. AGF filed an answer on October 13, 1998, alleging that Morton was barred from suing, because of the arbitration clause. On December 7, 1999, AGF filed a motion to stay the proceedings and to compel arbitration. AGF attached to its motion (1) a copy of the "note and security agreement" that contained the arbitration clause quoted above; (2) an affidavit purporting to establish that the sale of the real estate had involved interstate commerce, (3) orders from seven other cases in Alabama where AGF's arbitration agreements had been enforced by trial courts; and (4) a copy of American General Finance v. Manley, 729 So.2d 260 (Ala. 1998), which is based on Ex parte McNaughton, 728 So.2d 592 (Ala.1998). This Court's decision in McNaughton does not contain any analysis of the requirement imposed by the Federal Arbitration Act ("FAA") that, to be subject to the FAA, an arbitration agreement must appear in a contract evidencing a "transaction involving interstate commerce." McNaughton addresses only the doctrines of mutuality of remedy and unconscionability as defenses to the enforcement of an arbitration agreement. The trial court denied the motion to compel arbitration, on June 7, 2000, finding, in pertinent part:

"[T]here is no evidence before the [c]ourt of how a sale of Blount County, Alabama land by a company in Gadsden to a man from Oneonta, Alabama, involves interstate commerce.

". . . .

"[T]here is no doubt that the arbitration clause is broad enough to encompass not only the note and security agreement but also the documents that were executed as part of the same transaction, i.e., the deed and mortgage...."

The sole issue before us is whether the trial court erred in denying AGF's motion to compel arbitration.

Standard of Review

This Court reviews the denial of a motion to compel arbitration de novo. Green Tree Fin. Corp. v. Vintson, 753 So.2d 497, 502 (Ala.1999); Patrick Home Ctr., Inc. v. Karr, 730 So.2d 1171, 1172 (Ala.1999). The party seeking to compel arbitration has the initial burden of proving the existence of a contract calling for arbitration and proving that the contract evidences a transaction substantially affecting interstate commerce. TranSouth Fin. Corp. v. Bell, 739 So.2d 1110, 1114 (Ala.1999); Sisters of the Visitation v. Cochran, 775 So.2d 759 (Ala.2000). "[A]fter a motion to compel arbitration has been made and supported, the burden is on the nonmovant to present evidence that the supposed arbitration agreement is not valid or does not apply to the dispute in question." Jim Burke Auto., Inc. v. Beavers, 674 So.2d 1260, 1265 n. 1 (opinion on application for rehearing)(Ala.1995).

At the outset, we note that the trial court's finding that the arbitration agreement was broad enough to encompass all of the documents in Morton's purchase and financing transaction with AGF is supported by the evidence. In the context of arbitration litigation, this Court has held that "`two or more instruments executed contemporaneously by the same parties in reference to the same subject matter constitute one contract and should be read together.'" Quality Truck & Auto Sales, Inc. v. Yassine, 730 So.2d 1164, 1170 n. 8 (Ala.1999) (quoting with approval Haddox v. First Alabama Bank of Montgomery, N.A., 449 So.2d 1226, 1229 (Ala.1984)). See also Reynolds & Reynolds v. King Autos., Inc., 689 So.2d 1, 3 (Ala.1996) (documents must be considered together in determining the effect of an arbitration agreement contained in one of them, where they "arose from the negotiations to make a single purchase" and arose "from the same single transaction," despite arguments by the party opposing arbitration that "its claims were based solely on [a document] which did not contain an arbitration clause" and that that document "is the actual contract now at issue, and, thus, that the claims are not subject to the arbitration clause contained in the [other document]"). Moreover, Morton has not contested the trial court's finding that the arbitration agreement encompasses all of the transaction documents, and that finding is now the "law of the case." BIC Corp. v. Bean, 669 So.2d 840 (Ala.1995); Griner Drilling Serv., Inc. v. Jenkins, 497 So.2d 187 (Ala.Civ.App.1986). We conclude that the transaction in this case includes a contract calling for arbitration, so that the first requirement of TranSouth has been met.

We next consider the second element of TranSouth, as recently discussed in Hurst v. Tony Moore Imports, Inc., 699 So.2d 1249 (Ala.1997), and Sisters of the Visitation, supra, as it applies to the question whether AGF met its burden of proving that the transaction "involved" interstate commerce, as that term is used in the FAA.

The FAA provides:

"A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."

9 U.S.C. § 2.

"The [FAA], 9 U.S.C. § 1 et seq., preempts contrary state law (specifically, contrary law based on Ala.Code 1975, § 8-1-41(3) and public policy) and renders enforceable a written predispute arbitration agreement but only if that agreement appears in a contract evidencing a transaction that `involves' interstate commerce."

Southern United Fire Ins. Co. v. Knight, 736 So.2d 582, 585-86 (Ala.1999), citing Jim Burke Auto., Inc. v. Beavers, supra; Lopez v. Home Buyers Warranty Corp., 670 So.2d 35 (Ala.1995). In Hurst v. Tony Moore Imports, Inc., supra, this Court discussed "involvement" with interstate commerce:

"[I]n Allied-Bruce Terminix Cos. v. Dobson, [513 U.S. 265, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995)], the Supreme Court made it very clear that the words `involving commerce,' as used in § 2 of the FAA, are much broader than the often-found words of art `in commerce' and that they cover activities within the `flow' of interstate commerce as well as activities that merely have an effect on interstate commerce. Citing United States v. American Building Maintenance Industries, 422 U.S. 271, 276, 95 S.Ct. 2150, 2154, 45 L.Ed.2d 177 (1975), quoting Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 195, 95 S.Ct. 392, 398, 42 L.Ed.2d 378 (1974), the Court in Allied-Bruce Terminix defined `flow' to include `the generation of goods and services for interstate markets and their transport and distribution to the consumer.'

". . . .

"Based on Allied-Bruce Terminix and American Building Maintenance, we reaffirm Ex parte Williams[, 555 So.2d 146 (Ala.1989),] and Ex parte Warren[, 548 So.2d 157 (Ala.1989), cert. denied, Jim Skinner Ford, Inc. v. Warren, 493

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