Birmingham News Co. v. Lynch

• Decision Date: 23 February 2001
• Citation: Birmingham News Co. v. Lynch, 797 So. 2d 440 (Ala. 2001)
• Parties: The BIRMINGHAM NEWS COMPANY et al. v. Clifford W. LYNCH.
• Court: Alabama Supreme Court

797 So.2d 440

The BIRMINGHAM NEWS COMPANY et al. v. Clifford W. LYNCH.

1992184.

Supreme Court of Alabama.

February 23, 2001.

Gilbert E. Johnston, Jr., and James P. Pewitt of Johnston, Barton, Proctor & Powell, L.L.P., Birmingham, for appellants.

D. Leon Ashford, Bruce J. McKee, and Matthew C. Minner of Hare, Wynn, Newell & Newton, Birmingham, for appellee.

PER CURIAM.

Clifford W. Lynch sued the Birmingham News Company ("the News") and several of its employees. The defendants moved to compel arbitration of Lynch's claims. The court denied their motion. The defendants appeal from the order denying their motion to compel arbitration. We affirm in part; reverse in part; and remand.

On August 30, 1998, Lynch entered into two agreements with the News to serve as a commercial dealer or distributor of newspapers. Each agreement contained an arbitration clause.

The News became dissatisfied with Lynch's performance under the agreements, and on July 1, 1999, it terminated Lynch's contracts. Lynch thereafter filed a multicount complaint against the News and certain employees who had worked for the News at relevant times.¹ The defendants filed a "Motion to Stay Civil Action and to Compel Arbitration," supported by affidavits purporting to establish a sufficient relationship between the agreements and interstate commerce to call for the application of the Federal Arbitration Act, 9 U.S.C. § 1 et seq. ("the FAA"). The trial court denied the motion, without stating reasons.

I. Applicability of the FAA

In a recent case, Ex parte Stewart, 786 So.2d 464 (Ala.2000), this Court held that the FAA applied to similar contracts between distributors and the News. Lynch, with commendable candor, concedes that Stewart would require that we apply the FAA to the agreements in this case. Lynch, however, asks us to reevaluate the relationship between these agreements and interstate commerce and to overrule Stewart. We decline to do so. Thus, we hold that the FAA applies to Lynch's agreements with the News.²

II. Applicability of the Arbitration Agreement to the Complaint

Lynch concedes, assuming the applicability of the FAA, that Counts One and Five, alleging breach of contract and unjust enrichment, respectively, are subject to arbitration. Because we hold that the FAA does apply, Counts One and Five are subject to arbitration and the trial court's order must be reversed insofar as it denied arbitration as to the claims stated in those two counts.

A. Whether the News's Termination of the Agreements Affected the Scope of the Arbitration Clause

Lynch contends that even if the FAA applies, his tort claims are not arbitrable because, he contends, they are outside the scope of what he describes as "the narrow and unique arbitration clause at issue." The arbitration clause in each contract reads:

"10. Arbitration:

"Except as herein provided, and as provided in any other provision of this Agreement, all claims and controversies arising out of this contract shall be submitted to arbitration for determination. It is agreed, however, that, if either party shall terminate this contract by reason of the alleged breach thereof by the other party, the sole issues for determination shall be whether or not the termination was valid, whether or not either party shall be entitled to money damages, and, if so, the amount thereof, which issues only shall be submitted to arbitration. It is expressly agreed that in case of such termination, neither party shall be entitled to have this Agreement reinstated nor to be restored to his or its status thereunder, notwithstanding the fact that it may be determined that the termination by the other party was not warranted...."

(Emphasis added.)

Lynch contends that the language of the arbitration clause must be construed in accordance with general contract principles and that, by application of those principles, the agreements, which were drafted by the News, must be construed so as to deny arbitration. Specifically, Lynch maintains that the commitment to arbitration of all claims and controversies "arising out of the agreements is limited by the second sentence, which, according to Lynch, means that when the contract is terminated the only issue that is arbitrable is the validity of the termination. Lynch contends that the six counts of his complaint that state tort claims do not involve the sole issue whether the termination was valid. Hence, under Lynch's reasoning, his six counts stating tort claims are beyond the scope of the arbitration clause.

The arbitration clause can be read in either of two ways. On the one hand, the clause could mean that in the event of termination the contract requires arbitration of the issue of the validity of the termination only, and that any claim for money damages, and all other issues, including any issues not arising from an alleged wrongful termination, are subject to litigation and not to arbitration. On the other hand, the clause could mean that any arbitration of issues arising from an alleged wrongful termination is restricted to the validity of the termination and to any claim for money damages, and that in no event would arbitration of issues arising from an alleged wrongful termination lead to an award requiring reinstatement, even if a party had been wrongfully terminated.

Under traditional rules of contract construction, if a court finds an ambiguity in a contract, the trier of fact determines which competing meaning governs, construing the agreement against the party that drafted it. When an arbitration agreement is at issue, however, this Court is not permitted to resolve the case pursuant to that rule of construction, because the FAA precludes a court from applying general rules of contract construction in a manner that would disfavor arbitration. Justice See addressed this issue in Oakwood Acceptance Corp. v. Hobbs, 789 So.2d 847 (Ala.2001):

"In applying general Alabama rules of contract interpretation to the language of an arbitration agreement subject to the Federal Arbitration Act (`FAA'), this Court must, in accordance with the federal substantive law on arbitration, resolve any ambiguities as to the scope of the arbitration agreement in favor of arbitration. See Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) (§ 2 of the FAA `create[s] a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act' and `establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration'); Mitsubishi Motors Corp. v. Soler Chrysler Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985) (in construing an arbitration agreement within the coverage of the FAA, `as with any other contract, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability'); Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 475, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989) (`in applying general state-law principles of contract interpretation to the interpretation of an arbitration agreement within the scope of the Act, due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration' (citation omitted)); see also Homes of Legend, Inc. v. McCollough, [776 So.2d 741 (Ala.2000)]."

789 So.2d at 852.

We therefore are required to adopt that interpretation of the arbitration clause whereby any arbitration of issues arising from an alleged wrongful termination is restricted to the validity of the termination and to any claim for money damages, and under which in no event would arbitration of issues arising from an alleged wrongful termination lead to an award requiring reinstatement, even if a party had been wrongfully terminated. This construction requires that we apply that portion of the arbitration clause requiring arbitration of "all claims and controversies arising out of this contract" to our resolution of the issue of the arbitrability of the six counts in the complaint that state tort claims.

B. Counts Two, Three, and Seven (Alleging Fraud; Conspiracy; and Deceptive Trade Practices)

Count Two alleges fraud in the inducement; Count Three alleges a civil conspiracy. Lynch concedes that his conspiracy claim is derivative of his fraud claim; hence, if Count Two (fraud) is arbitrable, so is Count Three (conspiracy). Lynch contends that Count Two can be read to allege misrepresentations made subsequent to the execution of the agreements in order to induce him to continue with his distribution of newspapers for the News. The balance of the allegations of fraud stated in Count Two relate to fraud in the inducement. Lynch concedes, again with commendable candor, that, pursuant to Old Republic Insurance Co. v. Lanier, 644 So.2d 1258 (Ala.1994) (an agreement for arbitration of claims "arising out of" a contract requires arbitration of claims of fraud in the inducement), he is required to arbitrate Counts Two and Three if we determine, as we have done, that the portion of the arbitration clause requiring arbitration of "all claims and controversies arising out of this contract" applies to those counts. Hence, the claims stated in Counts Two and Three are subject to arbitration, and the trial court's order must be reversed insofar as it denies arbitration as to Counts Two and Three—provided, however, that Lynch still has the right to proceed outside of arbitration to the extent that these counts allege representations separate from and made after the agreements had been entered.

Count Seven alleges violations of the Deceptive Trade Practices Act, § 8-19-1 et seq., Ala.Code 1975, although it only incorporates other allegations of the complaint. Because Count Seven merely incorporates allegations...