Porter Capital Corp. v. Thomas

Decision Date03 August 2012
Docket Number2101203.
Citation101 So.3d 1209
PartiesPORTER CAPITAL CORPORATION and PORTER BRIDGE LOAN COMPANY, INC. v. Dennis R. THOMAS, M.D.
CourtAlabama Court of Civil Appeals

OPINION TEXT STARTS HERE

Robert W. Tapscott and Mindy Yoskin Kubs of Maynard, Cooper & Gale, P.C., Birmingham, for appellants.

William H. Philpot, Jr., Mobile; and Michael L. Edwards of Balch & Bingham LLP, Birmingham, for appellee.

PITTMAN, Judge.

Porter Capital Corporation (“Porter Capital”) and Porter Bridge Loan Company, Inc. (“Porter Bridge”), appeal from an order of the Jefferson Circuit Court denying their motions to compel arbitration of the counterclaims asserted against them by Dennis R. Thomas, M.D. We affirm.

Factual and Procedural Background

On October 10, 2007, Porter Capital entered into a commercial-financing agreement and a security agreement with Athlon Pharmaceuticals, Inc. (“Athlon”). Pursuant to those agreements, Porter Capital agreed to provide Athlon with accounts-receivable financing and to authorize loan disbursements up to $3.5 million on a revolving line of credit. Athlon granted Porter Capital a security interest in its personal property, trade fixtures, inventory, and equipment. In addition to the financing agreement and the security agreement, Porter Capital and Athlon also executed a stand-alone arbitration agreement (“the first arbitration agreement”) on October 10, 2007.

On the same day, Thomas, a Mobile physician who is a 5% shareholder of Athlon, executed a guaranty of Athlon's obligations under the commercial-financing agreement. The guaranty agreement included the following provision:

“19. No Jury Trial[Thomas] hereby irrevocably and unconditionally waives, and Porter Capital by its acceptance of this Guaranty irrevocably and unconditionally waives, any and all right to trial by jury in any action, suit or counterclaim arising in connection with, out of or otherwise relating to this Guaranty.”

Thomas did not sign an arbitration agreement on October 10, 2007.

On December 13, 2007, Porter Capital, Athlon, and Thomas executed a “Restated and Amended Commercial Financing Agreement” reflecting that Thomas had provided, as additional collateral securing Porter Capital's future advances to Athlon, a mortgage in the amount of $1.4 million on his principal residence in Mobile. On January 30, 2008, Athlon executed a promissory note in the amount of $1 million to Porter Capital; Porter Capital subsequently assigned the note to Porter Bridge. On April 3, 2008, Porter Capital, Athlon, and Thomas executed a second “Restated and Amended Commercial Financing Agreement,” reflecting that Thomas had provided, as additional collateral securing Porter Capital's future advances to Athlon, a second mortgage in the amount of $1.5 million on commercial property in Madison, Mississippi. In connection with the April 3, 2008, transaction, Thomas signed an arbitration agreement (“the second arbitration agreement”).

In July 2008, Thomas refinanced the mortgage on the Mississippi property and made a payment of $2.4 million on Athlon's indebtedness to Porter Capital. Neither Athlon nor Thomas made any further payments to Porter Capital, and in September 2008 Athlon filed a petition in the United States Bankruptcy Court for the Southern District of Mississippi, seeking relief under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101 et seq.

On July 24, 2009, Porter Capital filed an action in the Jefferson Circuit Court against Thomas, alleging breach of the guaranty agreement. On September 28, 2009, Thomas answered and counterclaimed, alleging breach of fiduciary duty and breach of the duty of good faith and fair dealing and demanding a jury trial on those claims. On the same day, Thomas issued a deposition notice to Ron Williamson, Porter Capital's vice president. On October 8, 2009, Porter Capital answered the counterclaims, asserted various affirmative defenses, and issued a deposition notice to Thomas. On October 13, 2009, Porter Capital filed an amended complaint adding Porter Bridge as a plaintiff; both plaintiffs then moved to strike Thomas's jury demand, citing the jury-waiver provision of Thomas's guaranty agreement. Thomas deposed Williamson, Porter Capital's vice president, on October 28, 2009.

On January 20, 2010, the circuit court granted Porter Capital's motion to strike Thomas's jury demand. On May 11–12, 2010, Thomas deposed Williamson for the second time. On May 17, 2010, Porter Capital deposed Thomas. In September 2010, counsel for Porter Capital and Porter Bridge submitted a proposed scheduling order to opposing counsel. On November 18, 2010, Porter Bridge moved to strike Thomas's jury demand.

On December 13, 2010, Thomas filed a second amended counterclaim, again alleging claims of breach of fiduciary duty and breach of the duty of good faith and fair dealing, but adding the following new claims, for which he sought compensatory and punitive damages and demanded a jury trial: (1) that Athlon was a mere instrumentality of Porter Capital and Porter Bridge; (2) that Porter Capital and Porter Bridge had liquidated Athlon's personal property in a commercially unreasonable manner; (3) that Porter Capital and Porter Bridge had made false representations of material fact in order to induce him to guarantee Athlon's loan and to increase the collateral securing that loan, which misrepresentations, Thomas alleged, he had discovered during the depositions of Williamson on October 28, 2009, and May 11–12, 2010; (4) that Porter Capital and Porter Bridge had fraudulently suppressed information that, Thomas said, they had been required to communicate to him, which information, he asserted, he had also discovered during the depositions of Williamson; (5) that Porter Capital and Porter Bridge had negligently or wantonly disclosed his personal financial information to banks without his authorization; and (6) that such disclosures violated his right of privacy.

On March 9, 2011, Porter Capital and Porter Bridge moved to compel arbitration or, in the alternative, to strike Thomas's third jury demand. Thomas responded to the motion on April 20, 2011, alleging that there was no arbitration agreement applicable to his counterclaims and that, even if there were such an agreement, Porter Capital and Porter Bridge had waived their right to arbitration by substantially invoking the litigation process. Thomas asserted that the issue of arbitration had not been raised in any pleading until March 9, 2011, 20 months after the parties had been actively litigating the case; that he had paid legal fees and expenses of more than $67,000 (of which approximately $5,000 had been costs related to depositions and filing fees); and that he would be substantially prejudiced if he were required to arbitrate his claims. Following a hearing on April 22, 2011, the circuit court entered an order on May 2, 2011, (a) denying the motion to compel arbitration and (b) granting in part and denying in part the motion to strike Thomas's jury demand.1

Counsel for Porter Capital and Porter Bridge did not learn of the entry of the May 2, 2011, order until June 28, 2011. On July 8, 2011, counsel moved for relief from the order pursuant to Rule 60(b), Ala. R. Civ. P., or, in the alternative, for an extension of time to file a notice of appeal, pursuant to Rule 77(d), Ala. R. Civ. P. On July 13, 2011, the circuit court denied the Rule 60(b) motion and granted the Rule 77(d) motion, extending the time for appeal to July 13.2 Porter Capital and Porter Bridge appealed to the Supreme Court of Alabama on July 13, 2011. The supreme court transferred the appeal to this court pursuant to § 12–2–7(6), Ala.Code 1975.

Standard of Review

[An appellate court reviews] de novo the trial court's grant or denial of a motion to compel arbitration. Bowen v. Security Pest Control, Inc., 879 So.2d 1139, 1141 (Ala.2003). Initially, the party seeking to compel arbitration has the burden of proving the existence of a contract calling for arbitration and proving that that contract evidences a transaction involving interstate commerce. Polaris Sales, Inc. v. Heritage Imports, Inc., 879 So.2d 1129, 1132 (Ala.2003). The moving party ‘must ‘produce some evidence which tends to establish its claim.’ ' Wolff Motor Co. v. White, 869 So.2d 1129, 1131 (Ala.2003)(quoting Jim Burke Auto., Inc. v. Beavers, 674 So.2d 1260, 1265 (Ala.1995), quoting in turn In re American Freight Sys., Inc., 164 B.R. 341, 345 (D.Kan.1994)). Once the moving party has properly supported his or her motion to compel arbitration, the burden then shifts to the nonmovant to present evidence tending to show that the arbitration agreement is invalid or inapplicable to the case. Polaris Sales, 879 So.2d at 1132.”

Edwards v. Costner, 979 So.2d 757, 761 (Ala.2007).

Discussion

Porter Capital and Porter Bridge (hereinafter collectively referred to as “the lenders”) argue on appeal, as they did in the circuit court, that Thomas's counterclaims are subject to arbitration under both the first and the second arbitration agreements. The lenders acknowledge here, as they did in the circuit court, that initially they waived arbitration by substantially invoking the litigation process. Nevertheless, employing the same argument that they advanced in the circuit court, the lenders point out that our supreme court has specifically recognized that a waiver of the right to arbitrate can be revoked under extraordinary circumstances—such as when unexpected events occur during the course of the litigation—that necessitate a determination that the right to arbitrate has been revived.3 The lenders contend that this is such a case because, they say, Thomas's second amended counterclaim adding six new claims against the lenders significantly changed the nature and course of the litigation.

In its May 2, 2011, order, the circuit court limited its consideration to the first arbitration agreement, stating that the lenders “do[ ] not [base their motion to compel] on the [second] ...

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