Blanks v. TDS Telecomms. LLC
| Decision Date | 06 September 2019 |
| Docket Number | 1180311 |
| Parties | Jason BLANKS et al. v. TDS TELECOMMUNICATIONS LLC, Peoples Telephone Company, Inc., and Butler Telephone Company, Inc. |
| Court | Alabama Supreme Court |
D. Frank Davis, John E. Norris, Wesley W. Barnett, Dargan M. Ware, and Kristan B. Rivers of Davis & Norris, LLP, Birmingham, for appellants.
Thomas J. Butler and Taryn E. Hodinka of Maynard, Cooper & Gale LLP, Birmingham; and Eric S. Mattson and Angelo J. Suozzi of Sidley Austin LLP, Chicago, Illinois, for appellees.
Jason Blanks, Peggy Manley, Kimberly Lee, Nancy Watkins, Randall Smith, Trenton Norton, Earl Kelly, Jennifer Scott, and Alyshia Kilgore (hereinafter referred to collectively as "the customers") appeal from the denial of a motion to compel arbitration and a declaratory judgment entered in an action brought by TDS Telecommunications LLC, and its two affiliates, Peoples Telephone Company, Inc., and Butler Telephone Company, Inc. (hereinafter referred to collectively as "the Internet providers"). In the declaratory-judgment action, the trial court ruled that the Internet providers are not required to arbitrate disputes with the customers. We reverse and remand.
The customers subscribe to Internet service furnished by the Internet providers; their relationship is governed by a written "Terms of Service."
The customers allege that the Internet service they have received is slower than the Internet providers promised them. At the time the customers learned that their Internet service was allegedly deficient, the Terms of Service contained an arbitration clause providing that "any controversy or claim arising out of or relating to [the Terms of Service] shall be resolved by binding arbitration at the request of either party." The arbitration clause also incorporated the commercial arbitration rules of the American Arbitration Association ("the AAA"). The customers' attorney notified the Internet providers that he intended to initiate AAA arbitration proceedings with respect to the dispute regarding Internet speed.
Soon after the Internet providers learned of the customers' plan to arbitrate, the Internet providers updated the Terms of Service. As part of the update, the arbitration clause was modified. Among other things, the clause now states that all disputes arising out of or relating to the Terms of Service must be submitted to "JAMS" for arbitration.1 Also included in the updated Terms of Service, however, is a provision expressly stating that the arbitration clause "does not apply to customers who receive services in Alabama or Georgia, and [the Internet providers] expressly [do ] not consent to arbitration of any dispute, claim or controversy--regardless of when the dispute, claim, or controversy arose--for customers who receive services in Alabama or Georgia."2
The prior Terms of Service stated that the Internet providers could modify the terms at any time and in any manner, that such a modification becomes effective upon notice of the modification to the Internet providers' customers, and that the continued use of the Internet service constitutes acceptance of the modification. The customers do not dispute that, on the day the Terms of Service was updated, the Internet providers gave them notice of the update. They also do not dispute that they continued to use their Internet service after they received that notice.
Notwithstanding the updated Terms of Service and its provision excluding the customers from arbitration, the customers indicated that they would continue to press for arbitration. Indeed, after the Terms of Service was updated, the customers filed arbitration demands with the AAA.
The customers have taken the position that, if the Terms of Service is construed as allowing the Internet providers to modify the applicability of the arbitration clause to disputes that arose before the modification, the agreement would be rendered illusory and unenforceable. Thus, the customers argue that the Terms of Service should be read as allowing modification of the arbitration clause only as to disputes that arise after the modification.
The Internet providers refused to participate in the arbitration proceedings. They also filed an action requesting the trial court to enter a judgment declaring that the updated Terms of Service is valid and applicable to the customers' claims regarding Internet speed and that the customers therefore cannot force the Internet providers to arbitrate those claims. In response to the Internet providers' complaint, the customers filed a motion to compel arbitration. In that motion, the customers argued that an arbitrator, not the trial court, should decide whether the arbitration exclusion in the updated Terms of Service is valid and applicable to their dispute and, therefore, whether the Internet providers should be required to arbitrate that dispute. The customers relied on precedent indicating that the incorporation of AAA rules into an arbitration agreement demonstrates intent to delegate gateway issues of "arbitrability" to an arbitrator.
The trial court entered a judgment denying the motion to compel arbitration and "further adjudg[ing] that the modified Terms of Service [is] valid and enforceable as of [the date it was updated and notice was provided]." This appeal followed. The parties agree that this Court's standard of review is de novo. See Elizabeth Homes, L.L.C. v. Gantt, 882 So. 2d 313, 315 (Ala. 2003) (). See also Raley v. Main, 987 So. 2d 569, 575 (Ala. 2007) ().
"The party seeking to compel arbitration has the initial burden of presenting evidence of the existence of a contract calling for arbitration ...." Auto Owners Ins., Inc. v. Blackmon Ins. Agency, Inc., 99 So. 3d 1193, 1195 (Ala. 2012). The customers point to the prior version of the Terms of Service, which contained an arbitration clause applicable to disputes with all the Internet providers' customers and which, the customers say, delegated issues of arbitrability to an arbitrator. The Internet providers, on the other hand, argue that the prior version of the Terms of Service has been superseded by the updated version, excluding from arbitration any dispute with customers in Alabama, and is no longer in effect.
As they argued to the trial court, the customers argue on appeal that an arbitrator, not a court, should decide whether the Internet providers could validly modify the Terms of Service to exclude the customers' claims from arbitration. "The question of who is to decide whether a dispute is arbitrable is one that must necessarily precede the question of whether a dispute is arbitrable." VRG Linhas Aereas S.A. v. MatlinPatterson Glob. Opportunities Partners II L.P., 717 F.3d 322, 324 (2d Cir. 2013). Although questions of arbitrability are typically answered by courts, those questions should be sent to an arbitrator if there is clear and unmistakable evidence that the relevant parties intended an arbitrator to decide the issue of arbitrability. AT & T Techs., Inc. v. Communications Workers of America, 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) ; Eickhoff Corp. v. Warrior Met Coal, LLC, 265 So. 3d 216, 221 (Ala. 2018).
The customers assert that, "when an arbitration agreement incorporates the AAA rules, as the one at issue here does, a dispute about the applicability of that agreement should be decided by an arbitrator." The customers point to CitiFinancial Corp. v. Peoples, 973 So. 2d 332, 339 (Ala. 2007), which held that the incorporation into an arbitration agreement of the AAA's commercial arbitration rules demonstrates an intent that questions of arbitrability are to be delegated to an arbitrator. The Court's ruling in Peoples was based an AAA rule that provided arbitrators with the power to determine if an arbitration agreement exists, to define the scope of the arbitration agreement, and to opine on the validity of the arbitration agreement. Based on Peoples and later opinions reiterating its holding, the customers argue that the trial court in the present case should have sent the matter to an arbitrator to determine whether the arbitration exclusion in the updated Terms of Service applied retroactively to their dispute.3
Most of the cases discussing who settles issues of arbitrability involve questions of scope, i.e., whether a particular arbitration clause is broad enough to cover a particular dispute. The present case, however, involves the question of who should decide if the parties to an agreement containing an arbitration clause are no longer bound by that clause because an amended agreement has allegedly superseded the prior agreement and excludes the parties from arbitration.
The Alabama precedent most similar to the case at bar appears to be Managed Health Care Administration, Inc. v. Blue Cross & Blue Shield of Alabama, 249 So. 3d 486 (Ala. 2017). In 2006, Blue Cross and Blue Shield of Alabama entered into a contract with Managed Health Care Administration, Inc. ("MHCA"), whereby MHCA agreed to arrange for mental-health services for Blue Cross's insureds. 249 So. 3d at 487. The 2006 contract contained an arbitration clause that incorporated the AAA rules. Id. at 487-88.
In 2013, Blue Cross decided to replace MHCA with a different mental-health benefits manager, New Directions Behavioral Health, LLC. Accordingly, Blue Cross entered into a contract with New Directions. With Blue Cross's encouragement, New Directions also entered into a contract with MHCA, which delegated to MHCA some of New Directions' duties under its contract with Blue Cross. Like Blue Cross's 2006 contract with MHCA, the 2013 contracts contained arbitration provisions that incorporated the AAA rules.
There was affidavit testimony submitted to the trial court in Managed Health Care...
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