Birmingham News Co. v. Horn

• Court: Supreme Court of Alabama
• Writing for the Court: HARWOOD, Justice.
• Citation: 901 So.2d 27
• Parties: The BIRMINGHAM NEWS COMPANY v. Sherry HORN. The Birmingham News Company v. Hugh Stewart. The Birmingham News Company v. Kameron Hyde. The Birmingham News Company v. Jesse Glass. The Birmingham News Company v. James McLendon. The Birmingham News Company v. Teresa McLendon.
• Decision Date: 11 June 2004

901 So.2d 27

The BIRMINGHAM NEWS COMPANY
v.
Sherry HORN.
The Birmingham News Company
v.
Hugh Stewart.
The Birmingham News Company
v.
Kameron Hyde.
The Birmingham News Company
v.
Jesse Glass.
The Birmingham News Company
v.
James McLendon.
The Birmingham News Company
v.
Teresa McLendon

1020552, 1020553, 1020554, 1020555,1020556, and 1020557.

Supreme Court of Alabama.

June 11, 2004.

Opinion Overruling Application for Rehearing November 24, 2004.

901 So.2d 30

Gilbert E. Johnston, Jr., James P. Pewitt, and Meredith McCollum Aldridge of Johnston Barton Proctor & Powell, LLP, Birmingham, for appellant

Ted Taylor, Leah O. Taylor, and Rhonda Pitts Chambers of Taylor & Taylor, Birmingham, for appellees.

HARWOOD, Justice.

This opinion addresses the appeals by The Birmingham News Company ("the News") of approximately $20 million in awards made by arbitrators to Sherry Horn, Hugh Stewart, Kameron Hyde, Jesse Glass, James McLendon, and Teresa McLendon ("the plaintiffs"). The plaintiffs are individuals who at one time had "dealer agreements" (hereinafter the "agreement") with the News to sell and distribute its newspapers to the public. The arbitration awards were based upon the plaintiffs' claims that the News wrongfully and illegally terminated those agreements. Five of the plaintiffs (Horn, Stewart, Hyde, Glass, and James McLendon), represented by the same law firm, initially brought their claims in the Jefferson Circuit Court. The News moved to compel arbitration of the claims as provided for in the arbitration provisions in the agreements. Each agreement, including the arbitration provision, is substantially the same. The trial court ordered the claims to arbitration, and three of the plaintiffs (Stewart, Hyde, and Horn) sought review of the trial court's order in this Court. This Court denied relief because the agreements affected interstate commerce sufficiently to invoke the provisions of the Federal Arbitration Act, 9 U.S.C. § 1 et seq. ("FAA"), to preempt state law barring the enforcement of predispute arbitration agreements. Ex parte Stewart, 786 So.2d 464 (Ala.2000); Birmingham News v. Horn, 790 So.2d 939 (Ala.2000). Teresa McLendon did not have a pending case, but she participated in arbitration along with the rest of the plaintiffs.

An arbitration panel composed of three arbitrators was selected in the manner prescribed in each agreement. The News selected J. Mark White as an arbitrator; the plaintiffs selected Donald Watkins; and Milton C. Davis was appointed by the chief judge of the United States Federal District Court for the Northern District of Alabama. The News does not challenge the manner of selection of the arbitrators or the arbitrators' qualifications or their fitness. In addition to providing for the

901 So.2d 31

selection of the arbitrators, each agreement contained in paragraph 10 the following language concerning 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. In any event, [the plaintiff] shall not claim any additional compensation for good will, but acknowledges that his entire compensation under this agreement is the difference between the wholesale and resale price of newspapers purchased and sold by him.... The award shall be effective and binding upon the parties if executed by two of the arbitrators. Judgement upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof."

After the parties completed extensive discovery, the arbitration panel heard the claims on September 25 through 27, and October 9, 2002. The panel heard testimony from many witnesses, accepted numerous depositions, and received into evidence more than 400 exhibits. The panel issued its 49-page decision on December 30, 2002, signed by Watkins and Davis; White wrote separately, concurring in part and dissenting in part from the award. The monetary awards to the individual plaintiffs, consisting of both compensatory and punitive damages, were in the amounts hereinafter explained. On January 8, 2003, the News filed notices of appeal in the cases with the circuit clerk of Jefferson County and also filed "Motion[s] to Vacate and Set Aside Arbitration Award." On January 13, 2003, the circuit clerk entered the arbitrators' awards as the judgments of the court. The trial court did nothing further, so that on January 23, 2003, pursuant to Ala.Code 1975, § 6-6-15,¹ the judgments became final. The News did not file any subsequent notice of appeal.

I. Findings and Conclusions of the Arbitration Panel

The decision of the arbitration panel contains detailed findings of fact and explicit legal conclusions underlying the awards. The panel determined that in 1959 the News instituted a "franchise" system pursuant to which its newspapers were sold to the public through a network of over 200 independent contractors, most of whom were known as "dealers." Each dealer purchased from the News a distribution "branch," i.e., a specified territory in which the dealer would have the exclusive right to distribute the newspapers. The dealers bought the newspapers from the News at a certain price and sold them to home subscribers or through vending machines or other retail outlets for a higher price, retaining the difference, which reimbursed them for their expenses and provided a profit.

The panel's decision discusses at some length the testimony and documentary evidence

901 So.2d 32

supporting its determination that the dealerships were franchises,² including a determination by the United States Internal Revenue Service that for tax purposes one of the dealerships was a franchise and evidence showing that the News educated its dealers on their respective duties as franchisees. The panel cited testimony showing that management employees of the News had often referred to the dealerships as franchises. The panel further determined that after the initial dealership franchises were created and sold by the News, the only way a person could become an independent dealer was to purchase an existing franchise from another dealer. The panel found that during the 40-year period from 1959 to 1999, dealership franchises were often sold by one dealer to a successor dealer with the knowledge and approval of the News, and the franchises were "a very marketable commodity." Moreover, the panel found that the frequency with which the franchises were sold had resulted in a standardized means of valuing a dealership franchise, using an amount representing three times the expected yearly income from that dealership franchise. The panel determined that the plaintiffs had purchased their dealership franchises from other dealers, at purchase prices ranging from $80,000 to $250,0000 per dealership franchise

With the exception of the specifics of the dealership territory, the agreements were standardized; the versions signed by the plaintiffs varied only slightly from the 1959 version. The agreement permitted the dealer to assign or transfer the rights granted by the agreement, subject to a right of first refusal by the News. Beginning in the 1970s, the agreements included a provision requiring that disputes between the News and a dealer be resolved by arbitration. Also, from 1959 until July or August 1999, each agreement contained in paragraph 8 an "automatic renewal" provision; that provision stated, in pertinent part:

"8. Term

"This agreement shall exist and be in force until the ____ day of ______, 19 ____, and thereafter shall be automatically renewed from year to year unless terminated by either party by giving the other party written notice of termination on or before thirty (30) days prior to the annual renewal date. In the event of the failure of either party to perform any of its obligations under this Agreement, the other party may terminate this Agreement upon prior written notice, subject, however to the provision of Paragraph 10 (the Arbitration Provision) herein. Notice shall be given hereunder by depositing the same in the United States Mail, postage prepaid, and addressed to the other party at his business address herein above set out."

(Emphasis original.) Generally, the blank date in this provision (hereinafter sometimes referred to as "paragraph 8") would be completed by inserting the date of the first anniversary of the execution of the agreement. Annual renewals would thereafter occur with reference to that date.

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The agreements required the dealers to maintain a reasonable level of circulation for their territories and to be responsible for the timely delivery of the newspapers. Dealers were responsible for delivering the newspapers to subscribers by specified times, and the News and the dealers maintained separate records concerning the number of newspapers dealers purchased from the News and subsequently sold and delivered to subscribers. In most cases the dealers were directly responsible for transactions with subscribers, including obtaining new subscriptions, maintaining old subscriptions, and collecting subscription payments. Dealers were compensated monthly based upon a calculation by the News of the difference between the dealers' wholesale purchases and the retail sales....