Ex parte Hopper

• Decision Date: 15 January 1999
• Docket Number: No. 1970259.,1970259.
• Parties: Ex parte Jerold HOPPER and Renaa Hopper. (Re Jerold Hopper and Renaa Hopper v. Woodmen of the World Life Insurance Society et al.)
• Court: Alabama Supreme Court

736 So.2d 529

Ex parte Jerold HOPPER and Renaa Hopper.

(Re Jerold Hopper and Renaa Hopper v. Woodmen of the World Life Insurance Society et al.)

No. 1970259.

Supreme Court of Alabama.

January 15, 1999.

Dissenting Opinion on Overruling of Rehearing May 28, 1999.

Tom Dutton, Jeffrey C. Kirby, and Chris T. Hellums of Pittman, Hooks, Dutton & Hollis, P.C., Birmingham, for petitioners.

Finis E. St. John IV of St. John & St. John, Cullman; and Thomas T. Gallion III of Haskell, Slaughter & Gallion, Montgomery, for respondents.

Jere L. Beasley, W. Daniel "Dee" Miles III, and Joseph H. "Jay" Aughtman of Beasley, Wilson, Allen, Crow & Methvin, P.C., Montgomery, for amicus curiae Alabama Trial Lawyers Ass'n, in support of the petitioners.

KENNEDY, Justice.

Jerold and Renaa Hopper petition this Court for a writ of mandamus directing the Cullman Circuit Court to vacate its order compelling them to arbitrate their claims against the Woodmen of the World Life Insurance Society (the "Society"). We grant the petition.

On January 10, 1997, Jerold and Renaa Hopper sued the Society and Douglas King, its agent, alleging fraud and deceit. In their complaint, the Hoppers state that King induced them to cash in their three existing insurance policies with the Society and to replace them with a new policy, as part of a "special program." They allege that King represented that the new policy would provide them with additional insurance coverage while attaining a greater long-term cash value at a faster rate.¹ The Hoppers claim that these representations were untrue and that the Society and King converted the cash value of their original policies for their own purposes.

On May 15, 1997, the Society filed a motion to compel the Hoppers to submit their claims for resolution under the Society's newly adopted alternative dispute resolution ("ADR") procedure. The Society's ADR procedure includes binding arbitration as its final step. On May 16, 1997, the trial court granted the Society's motion. The Hoppers' subsequent motion for a reconsideration of that ruling was denied on June 4, 1997. At that time, a hearing had not been held on the issue of arbitration, and the Society had not yet submitted a copy of the purported ADR agreement or any information concerning its terms or its incorporation into the Hoppers' policy. On June 30, 1997, the Hoppers filed a second motion for reconsideration. The trial court granted the motion and set a hearing on the Society's motion to compel, for October 2, 1997. After the hearing, the trial court again granted the Society's motion to compel the Hoppers to submit to the Society's ADR procedure, including binding arbitration. The Hoppers' final motion for reconsideration was denied on October 28, 1997.

A petition for the writ of mandamus is the appropriate method of challenging a trial court's order compelling arbitration. Ex parte Gates, 675 So.2d 371 (Ala. 1996). The writ of mandamus is an extraordinary remedy, requiring a showing of (1) "a clear legal right in the petitioner to the order sought; (2) an imperative duty upon the respondent to perform, accompanied by a refusal to do so; (3) lack of another adequate remedy; and (4) properly invoked jurisdiction of the court." Id. at 374 (quoting earlier cases).

The evidence indicates that the Society is a Nebraska-based, fraternal-benefit organization and that is governed by a representative body known as the "national convention." In compliance with § 27-34-29(a), Ala.Code 1975, the Society's standard certificate of insurance, which it issued to the Hoppers, provides that the contract between it and its insureds includes not only the certificate itself but the Society's articles of incorporation, its constitution, and its laws. The certificate further states that "[t]he Articles of Incorporation and the Constitution and Laws and any amendments to them are binding on the member and the beneficiary, but will not take away or reduce any of the benefits of [the] certificate."

Relying on this language in the certificate and on § 27-34-29(c), Ala.Code 1975, the Society argues that the Hoppers should be compelled to arbitrate. Section 27-34-29(c) provides:

"Any changes, additions or amendments to the charter or articles of incorporation, constitution or laws duly made or enacted subsequent to the issuance of the certificate shall bind the member and the beneficiaries and shall govern and control the agreement in all respects the same as though such changes, additions or amendments had been made prior to, and were in force at the time of, the application for membership; except, that no change, addition or amendment shall destroy or diminish benefits which the society contracted to give the member as of the date of issuance."

The Hoppers argue that arbitration should not be compelled because (1) they say they did not enter into a valid arbitration agreement waiving their right to a judicial resolution of their claims, and (2) they say that, even assuming there was a valid waiver, the arbitration policy went into effect after they had commenced their action against the Society and the retroactive application of the arbitration procedure would wrongfully deprive them of protected rights and would violate public policy.

I.

In addressing the Hoppers' contention that they did not voluntarily waive their constitutional right to a judicial resolution of their claims, this Court must determine whether a valid and enforceable arbitration agreement exists between the parties. If we determine that a valid arbitration agreement exists, we must then consider whether the plaintiffs' specific claims are included within the scope of that arbitration agreement. It is clear that the broad language of the Society's ADR procedure encompasses the fraud claims raised by the Hoppers. Less clear, however, is whether the Hoppers effectively agreed to be bound by the ADR procedure, which was adopted as an amendment to a document incorporated into their original insurance contract. Despite the fact that courts have had before them a large number of cases involving binding arbitration, the threshold issue in such cases—the existence and effectiveness of the agreement to arbitrate— has rarely been addressed in much detail. In most cases, the arbitration provision is contained within a contract or within a document attached to or referenced by the contract. Under those circumstances, the issue has been resolved by determining whether the parties signed the document and whether the document forms a valid, enforceable contract under state contractlaw principles. See Ex parte Dickinson, 711 So.2d 984 (Ala.1998). This case, however, presents the question whether an arbitration agreement will be enforced when it is adopted by one of the parties pursuant to a provision in the original contract allowing for unilateral amendments. Neither this Court nor the United States Supreme Court has addressed this issue or tested the effectiveness of an arbitration provision arising under these facts. Although we would normally look to the language of the Federal Arbitration Act, the FAA provides little guidance beyond the requirement that the arbitration agreement be in writing.²

Recognizing that an agreement to arbitrate is a civil waiver of a party's rights to a judicial resolution under our State and Federal Constitutions, we hold that the Hoppers did not assent to the arbitration procedure adopted by the Society. See Allstar Homes, Inc. v. Waters, 711 So.2d 924 (Ala.1997).³ When the Hoppers signed their original contract for insurance, none of the documents mentioned in that original contract contained an arbitration provision. Although the Hoppers' certificate of insurance did incorporate future amendments to the governing laws of the Society, a provision of this kind is not enough to put the Hoppers on notice that by signing their application for insurance they were agreeing to mandatory, binding arbitration. The Hoppers' agreement to allow the Society to make certain unilateral changes to their insurance agreement does not provide the clear and unmistakable evidence required to show that the Hoppers voluntarily waived their constitutional rights to a judicial resolution. See Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972); D.H. Overmyer Co. v. Frick Co., 405 U.S. 174, 92 S.Ct. 775, 31 L.Ed.2d 124 (1972); Prudential Ins. Co. of America v. Lai, 42 F.3d 1299 (9th Cir.1994), cert. denied, 516 U.S. 812, 116 S.Ct. 61, 133 L.Ed.2d 24 (1995) (holding that agreeing to a standard securities form incorporating the NASD Code provisions, which made no specific reference to the fact that those provisions require arbitration, is not a knowing waiver of the right to a judicial resolution).

When a court is addressing the scope of an arbitration provision, it resolves every question in favor of arbitration, but the opposite is true when a court is addressing the threshold issue whether a party has voluntarily waived the right to a judicial resolution by entering into an agreement to arbitrate. See Fuentes v. Shevin, supra, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556; D.H. Overmyer Co. v. Frick Co., supra, 405 U.S. 174, 92 S.Ct. 775, 31 L.Ed.2d 124; First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). It is a central tenet of constitutional law that "courts indulge every reasonable presumption against waiver." Aetna Insurance Co. v. Kennedy, 301 U.S. 389, 393, 57 S.Ct. 809, 81 L.Ed. 1177 (1937). "[A] waiver of constitutional rights in any context must, at the very least, be clear." Fuentes, 407 U.S. at 95,92 S.Ct. 1983.

This Court has consistently recognized the requirement that, in order to be required to arbitrate, the parties must have expressed an intent to arbitrate. In the recent case of Ex parte Beasley, 712 So.2d 338, 341 (Ala.1998), this Court stated that "[a]bsent [the plaintiff's] signature on a document [containing] a valid...