Northcom, Ltd. v. James
| Decision Date | 09 May 1997 |
| Citation | 694 So.2d 1329 |
| Parties | NORTHCOM, LTD., et al. v. R. E. JAMES, et al. 1941697. |
| Court | Alabama Supreme Court |
Richard W. Whittaker, Enterprise, for appellants.
Joe C. Cassady, Enterprise, for appellees.
C. Lee Reeves and Sandra L. Vinik of Sirote & Permutt, P.C., Birmingham, for amici curiae 1st Franklin Financial Services, TransAmerica Financial Services, and Alabama Lenders Ass'n.
Laurence D. Vinson, Jr., of Bradley, Arant, Rose & White, L.L.P., Birmingham, for amici curiae Business Council of Alabama and National Federation of Independent Business.
John M. Galese, Birmingham; and Robert A. Huffaker and William H. Webster of Rushton, Stakely, Johnston & Garrett, P.A., Montgomery, for amici curiae Automobile Dealers' Ass'n of Alabama, Inc., and Alabama Independent Automobile Dealers' Ass'n in support of application for rehearing.
On Application for Rehearing
The opinion released on January 10, 1997, is withdrawn and the following is substituted as the opinion of the Court.
The defendants Northcom, Ltd., Jerry Oakley, and William R. McDonald III appeal from the denial of their motion to compel arbitration. The issues are whether the arbitration clause in the contract between the parties applies to their present dispute and whether the arbitration clause is unenforceable for lack of mutuality.
Oakley and McDonald are shareholders in Northcom, Ltd., and we will refer to all three appellants collectively as "Northcom." In 1986, Creative Broadcasting Service, Inc., sold two radio stations in Enterprise, Alabama, to Northcom. R.E. James, Roberta Gwenn James, and Kathy James Pittman were the principal owners of Creative Broadcasting, the licensee of the two radio stations, WLHQ-FM and WIRB-AM, at the time of the sale. A covenant not to compete is included within the sales contract and another, in a substantially similar form, is appended to the contract as "Exhibit F." By that covenant R.E. James, Roberta Gwenn James, and Kathy James Pittman, as stockholders of the seller, agreed not to compete with Northcom within a 100-mile radius of the stations for a period of six years, in consideration of $250,000, payable in 72 monthly installments. This consideration was in addition to the contract price for the sale of the radio stations.
In May 1994, R.E. James, Roberta Gwenn James, and Pittman (hereinafter "the plaintiffs") brought a breach of contract action, alleging that Northcom had failed to make the monthly installment payments. Northcom moved to compel arbitration, based on an arbitration agreement in the sales contract. The circuit court denied the motion to compel arbitration.
Paragraph 33 of the contract reads:
We conclude, based on Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995), that this contract "involv[es] commerce." First, the 100-mile territorial limitation affects the plaintiffs' ability to engage in the radio business not only in southeast Alabama, but in parts of Florida and Georgia as well. The radio stations broadcast into Florida and Georgia and receive advertising revenue from those states. The operation of these radio stations is subject to federal control in the form of FCC regulations. Therefore, the arbitration clause is subject to the Federal Arbitration Act, 9 U.S.C. § 1 et seq. ("the FAA").
The plaintiffs' first argument in support of the denial of the motion to compel arbitration is that the covenant not to compete is separate from the sales contract and therefore not subject to the arbitration clause in the sales contract. However, that argument cannot succeed, for a number of reasons. Paragraph 5 of the sales contract recites that "the price for the Purchased Assets shall be the sum of One Million One Hundred Thousand Dollars ($1,100,000) payable as follows." Paragraph 5(a) recites a $50,000 escrow deposit, paragraph 5(b) recites an $800,000 payment at the closing of the sale, and paragraph 5(c) recites: "In consideration of an Agreement Not to Compete in the form of Exhibit F attached hereto by and between Buyer and the stockholders of Seller, Buyer shall pay to the stockholders of Seller the sum of Two Hundred Fifty Thousand Dollars ($250,000)." Paragraph 9(a) of the sales contract gives a complete recitation of the covenant not to compete, although in a form different from that of the covenant as it is stated in Exhibit F. Paragraph 9(a) begins, "As an indispensable condition of this sale " (emphasis added), and then recites that "Seller covenants and agrees that neither it nor its ... principals" will for six years operate a radio station within 100 miles of the stations being sold. Finally, paragraph 37 provides that "All Appendices attached to this Agreement shall be deemed part of this Agreement."
The language of these provisions defeats the plaintiffs' argument that the sales contract and the covenant not to compete are separate contracts. The covenant not to compete is clearly part of the sales contract. Moreover, if it were not, it presumably would be rendered void by the operation of Ala.Code 1975, § 8-1-1(a), which voids covenants not to compete, other than as allowed in paragraphs (b) and (c) of that section. Section 8-1-1(b) allows the seller of a business to agree not to compete with the buyer under reasonable time and place limitations.
Because the covenant not to compete is part of the sales contract, this action alleging nonpayment of the consideration for that covenant is a "dispute arising under this agreement." The dispute over payment of the consideration for the covenant not to compete is within the scope of the arbitration provision.
The plaintiffs also argue that the covenant not to compete is invalid for lack of mutuality because, they say, the contract gives Northcom a right to an action in court while requiring them to arbitrate any claim of breach of the agreement. They quote paragraph 21 of the contract:
Note the absence of a right in the seller to bring an action for damages or for specific performance in the event of default by the buyer. Thus, on the face of the contract, Northcom may bring an action for either legal or equitable relief, at least based on a pre-closing default, while the absence in paragraph 21 of a specific provision allowing Creative Broadcasting or its stockholders to bring such an action would make any such action subject to the arbitration clause in paragraph 33.
More pertinently, because relating directly to the claim at issue here, the covenant not to compete itself gives Northcom a right to bring an action in court. Paragraph 9(a) includes the following:
"In view of the irreparable damages which might result from the breach of this agreement and the Seller's and its principals contained hereinabove [sic], Seller and its principals agree that Buyer, its successors and assigns, may obtain injunctive relief for any violation of those covenants and agreements imposed upon it or its principals herein as well as recovery of any monetary damages or any other remedy which may be allowed by law, and the use of injunctive relief shall not waive any claim for damages or any other remedy."
(Emphasis added.) No such provision applies to the failure of Northcom to make the monthly payments that are the consideration for the covenant not to compete.
Thus, in the two most significant circumstances likely to cause Northcom to seek relief against Creative Broadcasting or its stockholders--their failure or refusal to convey the radio stations as agreed or their breach of the agreement not to compete after having conveyed it--the contract gives Northcom a right to bring a civil action for either legal or equitable relief. No such right is given to Creative Broadcasting or its shareholders in the two most significant circumstances likely to cause them to seek relief against Northcom--Northcom's failure or refusal to purchase the radio stations as agreed or its failure, after having bought the stations, to pay for the stockholders' refraining from competing with it.
In support of their argument that such a lack of mutuality will invalidate an arbitration agreement, the plaintiffs cite Matterhorn, Inc. v. NCR Corp., 763 F.2d 866 (7th Cir.1985). Indeed, that opinion states: 1 763 F.2d at 868.
In its original opinion, this Court relied largely on Hull v. Norcom, Inc., 750 F.2d 1547 (11th Cir.1985), and held that the arbitration clause here is unenforceable because of lack of...
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