Richards v. Allianz Life Ins. Co.

• Decision Date: 07 October 2002
• Docket Number: No. 22,093.,22,093.
• Citation: 133 N.M. 229,62 P.3d 320,2003 NMCA 1
• Parties: Stephen T. RICHARDS, Plaintiff-Appellee, v. ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA, Defendant-Appellant.
• Court: Court of Appeals of New Mexico

62 P.3d 320

133 N.M. 229

2003 NMCA 1

Stephen T. RICHARDS, Plaintiff-Appellee, v. ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA, Defendant-Appellant.

No. 22,093.

Court of Appeals of New Mexico.

October 7, 2002.

Certiorari Denied December 17, 2002.

Lawrence M. Pickett, Pickett & Murphy, Las Cruces, NM, for Appellee.

Stephen S. Hamilton, Jeff L. Martin, Montgomery & Andrews, P.A., Santa Fe, NM, Barbara P. Berens, Jennifer L. Frisch, Kelly & Berens, P.A., Minneapolis, MN, for Appellant.

Certiorari Denied, No. 27,791, December 17, 2002.

OPINION

BUSTAMANTE, Judge.

{1} Appellee, Stephen T. Richards (Richards), was a long-time agent for Allianz Life Insurance of North America (Allianz). A dispute arose between them concerning commissions due Richards. Allianz filed a demand for arbitration of the issue. In response, Richards filed an application with the district court to stay the arbitration asserting that the agreement relied upon by Allianz was not enforceable against him. Allianz appeals from the district court's judgment granting Richards' application and denying Allianz's motion to compel arbitration. We have jurisdiction to hear the appeal under NMSA 1978, § 44-7-19 (1971)¹ of the Uniform Arbitration Act, NMSA 1978, §§ 44-7-1 to -22 (1971).

{2} Allianz argues that (1) the district court should have allowed an arbitrator to decide the validity of the arbitration clause in the first instance; (2) the district court erroneously determined that Allianz failed to satisfy the pre-termination notice provisions of the two 1960s contracts that had preceded the 1996 agreement containing the arbitration clause; (3) the 1996 agreement superceded the 1960s contracts, or at least modified them, for purposes of compelling arbitration; (4) Richards either waived his challenge to the enforceability of the 1996 agreement or modified the pre-existing contracts; (5) the 1996 agreement was not entered into as a result of duress; (6) the 1996 agreement is supported by consideration; and (7) the agreement is not voidable based on misrepresentation. We reverse and remand to the district court with instructions to enter a judgment granting Allianz's motion to compel arbitration.

FACTUAL AND PROCEDURAL BACKGROUND

{3} Richards entered into an agent's contract with Fidelity Union Life Insurance Company (Fidelity) on June 20, 1966. This contract contained a provision allowing for termination by either party with a thirty day written notice. The 1966 contract also permitted modification if it was in writing and signed by two home office executives. In 1968 Richards entered into another contract with Fidelity, establishing him as a general agent with the company. This contract contained a similar modification provision, but allowed for termination with a fifteen day written notice. Allianz purchased Fidelity in the 1970s, and assumed all of Fidelity's rights and obligations under the 1966 and 1968 contracts. Richards became disabled after a serious automobile accident in 1986, but continued to be classified as an active agent.

{4} Much of the dispute in the district court concerned the adequacy of notice to Richards under the termination provisions of the 1966 and 1968 contracts. Allianz's evidence was that it began in 1994 to disseminate notices informing its agents that all existing agent contracts would terminate on December 31, 1995. Richards denied he received any notice of termination of the 1960s contracts prior to December 21, 1995. The district court resolved this factual dispute in Richards' favor. Allianz argues there is no substantial evidence to support this finding, but we disagree. Thus, our analysis of the case will assume that Richards first received effective notice of the termination of his 1960s agent's contracts on December 21, 1995.

{5} The December 21 notice was prompted by a telephone conversation between Richards and an Allianz manager a few days earlier. The Allianz manager informed Richards that he would lose access to information and materials necessary to service his policyholders if he did not execute a new "service agreement" with Allianz. The new service agreement was enclosed with the December 21 notice of termination. The district court found that Richards signed the service agreement under duress on December 28, 1995. The effective date of this service agreement was January 1, 1996, (the 1996 agreement).

{6} In May 2000 Allianz filed an arbitration claim after a dispute developed over commissions. Richards responded by filing in the district court an application to stay arbitration. Although Richards initially maintained that he had never signed the 1996 agreement, he thereafter admitted he had signed it but took the position that the agreement failed to comply with the notice provisions of the 1960s contracts, lacked consideration, and was signed under duress. The district court agreed with Richards on all of these points, and this appeal followed.

DISCUSSION²

A. Deciding Arbitrability in the First Instance

{7} Allianz maintains that the following language in the 1996 agreement required the issue of arbitrability to be decided in arbitration in the first instance: "Any controversy or claim arising out of or relating to this Agreement, including its interpretation, validity, scope and enforceability, or the breach of its terms, will be settled by arbitration."

{8} Relying on Shaw v. Kuhnel & Assocs., Inc., 102 N.M. 607, 698 P.2d 880 (1985), the district court ruled that the issue of arbitrability is a matter for the courts to decide. In Shaw, our Supreme Court took the opportunity to clarify the district court's role in addressing arbitrability. Looking at the language of the Act, and in particular Section 44-7-1, the Supreme Court concluded that:

an arbitration clause is enforceable and valid unless there are legal or equitable grounds for revoking it. It would be ridiculous and contrary to the statutory language to require parties to arbitrate an issue of fraud in the inducement only to have the arbitration clause declared invalid if such fraud is found to exist by the arbitrator.

Shaw, 102 N.M. at 608-09, 698 P.2d at 881-82. As Shaw notes, Section 44-7-2(A) specifically gives courts the power to determine the validity of an arbitration clause. Shaw, 102 N.M. at 609, 698 P.2d at 882. Allianz argues that parties should be free to contract away this statutory provision. However, this argument must assume that the contract is valid in the first place. If the contract is not valid, as alleged here, then the "ridiculous" scenario referred to in Shaw plays out. See id. at 608-09, 698 P.2d at 881-82.

{9} Allianz also maintains that Shaw was limited to situations involving fraud. Allianz supports this claim by referring to the second sentence quoted above. However, the reference to fraud merely reflects the facts of that particular case. Id. at 608, 698 P.2d at 881 (noting that the plaintiffs challenged the validity of the contract, and hence arbitrability, based on fraud). Allianz's position overlooks the first sentence of the above-quoted language and the underlying rationale of the analysis; i.e., that legal and equitable challenges to the validity of a contract and the arbitration clause contained therein are matters for the courts to decide in the first instance. Accord Guar. Nat'l Ins. Co. v. Valdez, 107 N.M. 764, 766-67, 764 P.2d 1322, 1324-25 (1988)

. Accordingly, we affirm the district court's decision to decide arbitrability.

B. Satisfying the Termination Provisions of the 1966 and 1968 Contracts

{10} The district court found that Allianz failed to properly terminate the 1966 and 1968 contracts in two respects: by failing to give adequate notice and by failing to have two Allianz representatives' signatures on the 1996 agreement. Most of the briefing in this appeal concerns these findings. However, as discussed below, we conclude that the 1996 agreement constituted a substitution of the earlier contracts; as a result, there is no need to decide whether notice and other technical termination provisions were satisfied. The issue does, however, become relevant for purposes of the economic duress analysis. For purposes of analysis, we assume, without deciding, that the district court's findings with respect to notice are supported by substantial evidence.

C. Substitution

{11} The district court's decision that the 1996 agreement "is not valid and is unenforceable" is based on two distinct grounds. Apparently determining that Richards was forced into a new contract that provided him no new benefits, the district court accepted economic duress and lack of consideration as good defenses to the validity of the 1996 agreement. The district court's other reason for invalidating the 1996 agreement was that it failed to comply with the termination and amendment provisions of the 1960s contracts. The two approaches are different in work and effect. The latter is viable only if the 1996 agreement cannot be seen as a substitute for the 1960s contracts. The former are potentially viable whether the 1996 agreement is considered a substitution or not. Thus, our analysis will first address whether the 1996 agreement was intended as a substitute for the 1960s contracts. If it was, the technical requirements of the earlier agreements, such as notice and signature, do not govern and are relevant only insofar as they pertain to Richards' other defenses.

{12} Parties to a contract may substitute a prior agreement with a new one. See Restatement (Second) of Contracts § 279 (1981) (hereinafter Restatement); Arthur Linton Corbin, Corbin on Contracts § 1293 (1962) (hereinafter Corbin). As noted by our federal district court,

This doctrine, the substitution of contracts, has been characterized in New Mexico as the doctrine of merger. Both stand for the proposition that, in the case of subsequent inconsistent contracts, the later contract governs. See Superior Concrete Pumping, Inc. v. David Montoya

...