Old Republic Ins. Co. v. Lanier

• Decision Date: 29 April 1994
• Citation: 644 So.2d 1258
• Parties: OLD REPUBLIC INSURANCE COMPANY, et al. v. Tom LANIER, d/b/a J.T. Lanier & Associates, and Chattawood Insurance Company, Inc. 1921387.
• Court: Alabama Supreme Court

Page 1258

644 So.2d 1258

OLD REPUBLIC INSURANCE COMPANY, et al. v. Tom LANIER, d/b/a J.T. Lanier & Associates, and Chattawood Insurance Company, Inc.

1921387.

Supreme Court of Alabama.

April 29, 1994.

Rehearing Denied June 17, 1994.

Richard H. Gill and J. Fairley McDonald, III of Copeland, Franco, Screws & Gill, P.A., Montgomery, for appellants.

William J. Baxley and Charles A. Dauphin of Baxley, Dillard, Dauphin & McKnight, Birmingham, for appellees.

SHORES, Justice.

This is an appeal from an order that partially denied motions to compel arbitration under the Federal Arbitration Act, 9 U.S.C. § 1 et seq. ("FAA"). The basic issue presented is whether claims of fraud in the inducement and of conversion and interference with business relationships arose out of contracts containing arbitration clauses and are, thus, subject to arbitration under the FAA. We hold that the claim of conversion and interference with business relationships is not subject to the FAA.

The following facts are undisputed:

Tom Lanier, doing business as J.T. Lanier & Associates, and Chattawood Insurance Company, Inc. ("Chattawood"), sued Old Republic Insurance Company, Old Republic Union Insurance Company, Charles D. Jordan, Chancy-Stoutamire, Inc., Rickie Wayne Chancy, and Jeffrey R. Stoutamire. The disputes in this case center around three contracts containing arbitration provisions: an "agency agreement" between Lanier & Associates and Capitol Fire & Marine Insurance Company; an "agency agreement" between Lanier & Associates and Old Republic Insurance Company; and a "quota share reinsurance agreement" between Chattawood Insurance Company and Capitol Fire & Marine Insurance Company. ¹ In count one, Lanier basically alleged fraud in the inducement of his agency contracts with the insurance companies, contending that Old Republic Insurance Company ("Old Republic"), Old Republic Union Insurance Company ("Old Republic Union"), and Charles D. Jordan misrepresented that Lanier would enjoy exclusive agency status in connection with an insurance program being developed to service the logging industry. ² In count two (breach of contract), Lanier alleged that Old Republic and Old Republic Union breached their respective agency agreements with him, and that Old Republic Union breached its reinsurance agreement with Chattawood. In Count three (conversion), Lanier alleged that Old Republic and Old Republic Union converted for their own use Lanier's clients and information pertaining to those clients' accounts, thus interfering with his business relationships. ³

In response to the complaint, Old Republic, Old Republic Union, and Jordan moved the trial court to stay the action and to compel arbitration pursuant to the Federal Arbitration Act. Specifically, the appellants contended that each agreement contained an arbitration provision obligating the parties to submit to arbitration any dispute arising out of the particular agreement at issue. On May 13, 1993, the trial court granted the motion to stay and ordered arbitration as to the breach of contract claims, but denied the motion as to the claims of fraud in the inducement and of conversion and intentional interference with business relationships. ⁴ Old Republic Insurance Company, Old Republic Union Insurance Company, and Charles D. Jordan appeal, arguing that the trial court impermissibly restricted the arbitration clauses in question. ⁵

The parties present a single issue on appeal: Do the disputes between the parties fall within the arbitration provisions of their contracts? If so, the FAA will apply. In this case, the appellants argue that the arbitration clauses are broad and were designed to cover any disputes between the parties. On the other hand, the appellees argue that the language of the arbitration clauses limits the scope of disputes to which arbitration was intended to apply. The parties dispute what claims or collateral issues were covered by the arbitration provisions of the contracts.

Under Alabama law, the specific enforcement of a predispute arbitration agreement violates public policy unless federal law preempts state law. See § 8-1-41(3), Ala.Code 1975; Wells v. Mobile County Bd. of Realtors, Inc., 387 So.2d 140, 144 (Ala.1980); Bozeman v. Gilbert, 1 Ala. 90, 91 (1840). "However, if an arbitration agreement is voluntarily entered into and is contained in a contract that involves interstate commerce, then the FAA preempts state law and renders the agreement enforceable." Allied-Bruce Terminix Companies, Inc. v. Dobson, 628 So.2d 354, 355 (Ala.1993), cert. granted, 510 U.S. 1190, 114 S.Ct. 1292, 127 L.Ed.2d 646 (1994) citing A.G. Edwards & Sons, Inc. v. Syvrud, 597 So.2d 197 (Ala.1992); see, Ex parte Alabama Oxygen Co., 433 So.2d 1158 (Ala.1983), vacated, 465 U.S. 1016, 104 S.Ct. 1260, 79 L.Ed.2d 668 (1984).

On appeal, the parties do not argue that these contracts do not evidence a transaction involving interstate commerce. "Therefore, the policies and provisions of the FAA govern all questions of the validity, interpretation, construction, and enforceability of the arbitration agreement." Blount Int'l, Ltd. v. James River-Pennington, Inc., 618 So.2d 1344 (Ala.1993). The FAA "requires courts to enforce privately negotiated agreements to arbitrate, like other contracts, in accordance with their terms." Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 478, 109 S.Ct. 1248, 1255, 103 L.Ed.2d 488 (1989). Whether arbitration applies to a dispute between parties "is to be determined by the contract entered into by the parties." Drake Bakeries, Inc. v. Local 50, American Bakery & Confectionary Workers Int'l, 370 U.S. 254, 256, 82 S.Ct. 1346, 1348, 8 L.Ed.2d 474 (1962). Therefore, "a party cannot be required to submit to arbitration any dispute he has not agreed to submit." A.G. Edwards & Sons, Inc. v. Clark, 558 So.2d 358, 362 (Ala.1990). In the event of ambiguity or uncertainty over applicability of an arbitration clause, the strong Federal policy embodied in the Federal Arbitration Act requires a reviewing court to resolve any ambiguities or uncertainties in favor of arbitration. Volt Info. Services, supra, 489 U.S. at 475, 109 S.Ct. at 1253-54. In addition, "[t]he courts are not to twist the language of the contract to achieve a result which is favored by federal policy but contrary to the interest of the parties." Goldberg v. Bear, Stearns & Co., 912 F.2d 1418, 1419-20 (11th Cir.1990).

Our analysis must, therefore, begin with the language of the arbitration provisions. Article IX of the agency contract between Old Republic and J.T. Lanier & Associates, in pertinent part, reads as follows:

"As a condition precedent to the institution of any action at law or in equity hereon, any dispute arising out of this Agreement shall be submitted to the decision of a board of arbitration composed of two arbitrators and an umpire meeting in the City of Chicago, Illinois, unless otherwise agreed."

(C.R. 54.) ⁶ Article XVII of the "Quota Share Reinsurance Agreement" between Chattawood and Old Republic Union states in pertinent part:

"(a) As a condition precedent to any right of action hereunder, any dispute arising out of the Agreement shall be submitted to the decision of a board of arbitration composed of two arbitrators and an umpire, meeting in the City of Chicago, Illinois unless otherwise agreed."

(C.R. 69.)

The trial court narrowly construed the arbitration clauses, holding the following:

"1. The language of Article IX of the Agency Contract is narrowingly [sic] drawn and the arbitrable matters are restricted to disputes or controversies relating to interpretation of the Agency Agreement and matters of performance. Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress, Int'l, Ltd., 803 F.Supp. 1358 (N.D.Ill.1992) . Therefore, the only claim which is subject to arbitration is the claim for breach of contract, and the claims for fraud in the inducement, conversion and intentional interference with business relationships are not subject to arbitration.

"2. The same reasoning and holding applies to the language in Article XVII of the Quota Share Reinsurance Agreement. In addition, the Court finds that the reinsurance agreement has a 'slight' nexus with interstate commerce; therefore, matters relating to its interpretation and performance under it are subject to arbitration."

(C.R. 121.) ⁷

The trial court based its holding on Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress, Int'l, Ltd., 803 F.Supp. 1358 (N.D.Ill.1992). The language of the arbitration provision interpreted in Sweet Dreams was as follows: "Any disputes arising out of the agreement shall be settled and determined by [arbitration]." Sweet Dreams, 803 F.Supp. at 1359. In that case, the district court held that the agreement to arbitrate was limited to matters involving contract interpretation or performance when it referred to controversies under or arising out of the contract. This narrow interpretation of the arbitration provision was reversed by the Court of Appeals for the Seventh Circuit in Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress Int'l, Ltd., 1 F.3d 639 (7th Cir.1993).

The Seventh Circuit held that "any dispute between contracting parties that is in any way connected with their contract could be said to 'arise out of' their agreement and thus be subject to arbitration under a provision employing this language." Id. at 642. Based upon this broad interpretation and the federal presumption in favor of arbitration, the Seventh Circuit concluded that the fraudulent inducement count and the intentional interference with business relationships count were "related to the subject matter of the arbitration clause and [were] subject to arbitration under it." Id. at 643. The arbitration provisions at issue in this case specifically state that "any dispute arising out of this Agreement shall be submitted to the decision of a board of arbitration." Count one of Lanier's...