AmSouth Bank v. Dees

• Citation: 847 So.2d 923
• Parties: AmSOUTH BANK v. Leffie Terrell DEES III and Yvette Dees.
• Decision Date: 04 October 2002
• Court: Supreme Court of Alabama

847 So.2d 923

AmSOUTH BANK v. Leffie Terrell DEES III and Yvette Dees.

1010361.

Supreme Court of Alabama.

October 4, 2002.

Edward A. Dean and Mary Carol Ladd of Armbrecht Jackson, LLP, Mobile, for appellant.

James Lynn Perry of Daniell, Upton, Perry & Morris, P.C., Mobile, for appellees.

HARWOOD, Justice.

I. Procedural History

On June 26, 2001, Leffie Terrell Dees III and Yvette Dees sued AmSouth Bank and Countrywide Home Loans, Inc., asserting claims of breach of contract, breach of fiduciary duty, unjust enrichment, fraud, suppression, deceit, negligence, wantonness, and conspiracy, allegedly arising from the wrongful handling of a mortgage loan. On August 23, 2001, AmSouth filed a motion to compel arbitration of the Deeses' claims on the basis that two agreements between it and them—a "Customer Agreement for Depository Account," associated with a checking account the Deeses opened on June 11, 1992, and a April 16, 1996, "AmSouth Equity Line of Credit Agreement"—contained arbitration clauses applicable to the dispute.¹ On September 10, 2001, the Deeses filed their "Response and Objection to Defendant, AmSouth Bank's Motion to Compel Arbitration and Defendant, Countrywide Home Loans, Inc.'s Joinder In Same and Motion to Strike" (hereinafter referred to as the "response").² On October 12, 2001, the trial court heard oral argument on AmSouth's motion to compel arbitration and, at the conclusion of the hearing, denied it both orally and by a terse entry on the case action summary stating "October 12, 2001—DENIED."³ On October 17, 2001, the court entered an order on the case action summary stating that Countrywide's joinder in seeking to compel arbitration was likewise denied. On November 9, 2001, AmSouth filed a notice of appeal from the denial of its motion.⁴ We reverse the order denying AmSouth's motion to compel arbitration and remand the cause.

II. Factual History

On February 4, 1994, the Deeses mortgaged their home to AmSouth Mortgage Company, Inc., to secure a 20-year loan in the amount of $55,090 (that mortgage is hereinafter referred to as "the first mortgage"). AmSouth Mortgage is not a party to this action. The mortgage documents provided for an annual interest rate of 7%. Neither the mortgage nor the underlying promissory note contained an arbitration clause. On October 31, 1994, AmSouth Mortgage assigned the mortgage to Countrywide.

On April 16, 1996, Mr. Dees entered into an "AmSouth Equity Line of Credit Agreement" (hereinafter referred to as the "credit agreement") in connection with obtaining a $15,000 line of credit. Although Mrs. Dees did not sign the credit agreement, she did sign a contemporaneously executed document captioned "Opening an AmSouth Equity Line of Credit Account"; that document identified her as an "account holder." The document stated in its introduction that "[AmSouth has] agreed to establish an open-end account for you...," and went on to explain her right to cancel the account upon taking certain steps. In describing this particular transaction in their complaint, the Deeses state the following: "On April 16, 1996, the Plaintiffs took out a home equity line of credit with AmSouth. Plaintiffs borrowed money on this line of credit." (Emphasis supplied.) The Deeses were given "special checks" to use to obtain advances from the line of credit. The credit agreement stated, in pertinent part:

"Section 2: How AmSouth Equity Line of Credit Checking Works. We will give you a supply of Special Checks. You authorize us to use the signatures on this Agreement in order to identify the signatures on your Special Checks. You may use a Special Check from time to time to obtain an Advance under your Account. A Special Check drawn on your account is a loan from us to you from the time it is posted to your Account, and you will owe us for the amount of the Special Check plus the applicable periodic finance charge.... We will be obligated to make Advances to you to pay Special Checks that comply with the terms of this Agreement up to the amount of your credit limit unless one of the events of default described in Section 20 of this Agreement has occurred."

Section 33 of the credit agreement contains an arbitration clause, which states, in pertinent part:

"Section 33: Arbitration. [A]ny controversy, claim, dispute, or disagreement arising out of, in connection with, or relating to this Agreement or your Loan shall be settled by arbitration in accordance with the then-current applicable Rules of the American Arbitration Association.... You and we specifically acknowledge and agree that this Agreement evidences, and your Loan is, a `transaction involving commerce' under the Federal Arbitration Act, and you and we hereby waive and relinquish any right to claim otherwise."

The line of credit was secured by a second mortgage of the same date on the Deeses' home, signed by both Mr. and Mrs. Dees. The mortgage document did not contain an arbitration clause. The annual interest rate of the line of credit was 1.5% above prime, which, at the time the agreement was executed, translated to an annual interest rate of 9.75%.

Mr. Dees subsequently requested an increase in the line-of-credit limit, and on June 10, 1997, he and Mrs. Dees signed an "Amendment to Adjustable-Rate Line of Credit Mortgage" (hereinafter referred to as the "amended second mortgage"). AmSouth increased the line of credit from $15,000 to $20,000. Subsequently, as the Deeses state in their complaint, "[b]y March 2001, ... the Deeses had fallen behind on the Equity Line." On March 13, 2001, AmSouth purchased the Deeses' first mortgage from Countrywide and increased the amount owing under the Deeses' line of credit to $72,352.20. This amount reflected the addition of $51,210.74 that AmSouth had paid Countrywide for the assignment of the first mortgage. AmSouth proceeded to charge the Deeses interest based on the higher interest rate applicable to the line of credit, instead of the 7% interest rate of the first mortgage. AmSouth did not seek the approval of the Deeses for that course of action.

III. Standard of Review

The issue in this case is whether the trial court erred in denying AmSouth's motion to compel arbitration of the Deeses' claims.

Our standard of review of the denial of a motion to compel arbitration is settled:

"Our caselaw holds that an appeal is the appropriate method for challenging a trial court's denial of a motion to compel arbitration. See A.G. Edwards & Sons, Inc. v. Clark, 558 So.2d 358, 360 (Ala.1990). This Court's review of a trial court's refusal to compel arbitration is de novo. See Ex parte Warrior Basin Gas Co., 512 So.2d 1364, 1368 (Ala. 1987)."

Crimson Indus., Inc. v. Kirkland, 736 So.2d 597, 600 (Ala.1999).

IV. Requirement of Effect on Interstate Commerce

Section 2 of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 2, provides in pertinent part:

"A written provision in ... 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."

Section 2 preempts conflicting Alabama law, including in particular Ala.Code 1975, § 8-1-41(3), which states that "[a]n agreement to submit a controversy to arbitration" cannot be specifically enforced.

However, the FAA applies to render enforceable a predispute arbitration agreement only if the contract containing the agreement, or the transaction the contract evidences, "substantially affects interstate commerce." Sisters of the Visitation v. Cochran Plastering Co., 775 So.2d 759, 766 (Ala.2000); accord Equifirst Corp. v. Ware, 808 So.2d 1, 4 (Ala.2001). The party moving to compel arbitration has the burden of proving that the contract in question evidences a transaction substantially affecting interstate commerce. Chesser v. AmSouth Bank, 846 So.2d 1082 (Ala.2002). Undertaking to carry that burden, AmSouth supported its motion with affidavits from four of its officers: a vice president serving as manager of its equity loan center; a senior vice president serving as wholesale funding manager; a senior vice president serving as manager of electronic banking; and a senior vice president serving as manager of deposit operations. Collectively, those affidavits set forth the following information concerning the effects of the equity-line-of-credit transaction on interstate commerce:⁵

"[1.] In connection with its decision on Mr. Dees's application for the Equity Line of Credit, AmSouth obtained a credit bureau report from Equifax, Inc. (`Equifax'). On information and belief, Equifax is a Georgia corporation with its principal place of business in Atlanta, Georgia.

"[2.] For AmSouth to approve the application for the Equity Line of Credit and the credit limit increase on same, AmSouth required proof that the residential real property pledged as security for the loan was insured. Proof of insurance was attached to the original Application and the Application for the Credit Limit Increase, indicating that the real property securing the loan was insured by State Farm Fire and Casualty Company. On information and belief, State Farm is an Illinois corporation with its principal place of business in Bloomington, Illinois.

"[3.] AmSouth purchased a title insurance policy in connection with the Equity Line of Credit Agreement and the Adjustable Rate Line of Credit Mortgage. This title insurance policy was issued by Commonwealth Land Title Insurance Company. On information and belief, Commonwealth is a Pennsylvania corporation with its principal place of business in Philadelphia, Pennsylvania. [The copy of the policy attached as an exhibit to the affidavit in question states that Commonwealth is `a Pennsylvania corporation.'] "In connection with the Dees Equity Line of Credit, AmSouth obtained a flood data certification with respect to the real

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