Ryan's Family Steakhouse, Inc. v. Kilpatric

• Decision Date: 15 December 2006
• Docket Number: 2040557.
• Citation: 966 So.2d 273
• Parties: RYAN'S FAMILY STEAKHOUSE, INC., d/b/a Fire Mountain Restaurant v. Donna KILPATRIC.
• Court: Alabama Court of Civil Appeals

966 So.2d 273

RYAN'S FAMILY STEAKHOUSE, INC., d/b/a Fire Mountain Restaurant v. Donna KILPATRIC.

2040557.

Court of Civil Appeals of Alabama.

December 15, 2006.

Joseph H. Driver and Tom S. Roper of Carr, Allison, Pugh, Howard, Oliver & Sisson, P.C., Birmingham, for appellant.

J. Barton Warren of Warren & Simpson, P.C., Huntsville, for appellee.

PER CURIAM.

The defendant, Ryan's Family Steakhouse, Inc., d/b/a Fire Mountain Restaurant ("Ryan's"), appeals the trial court's order denying Ryan's motion to compel the plaintiff, Donna Kilpatric, to arbitrate her claims against Ryan's. We reverse and remand.

Kilpatric was an employee of Ryan's. When Kilpatric applied for employment with Ryan's, she signed an arbitration agreement with Employment Dispute Services, Inc. ("EDSI"). The arbitration agreement stated that Ryan's and EDSI had entered into a contract "to arbitrate and resolve any and all employment-related disputes between [Ryan's] employees (and job applicants) and [Ryan's] under EDSI's program." The arbitration agreement stated that "employment-related disputes between [Kilpatric] and [Ryan's] shall be resolved through arbitration." The agreement also stipulated that Ryan's was a third-party beneficiary of the agreement between Kilpatric and EDSI and that Kilpatric was a third-party beneficiary of the contract between Ryan's and EDSI. At the time Kilpatric signed the arbitration agreement, she received a copy of the rules and regulations governing the arbitration agreement.

On May 18, 2004, Kilpatric sued Ryan's, seeking workers' compensation benefits and asserting a claim of retaliatory discharge. On June 24, 2004, Ryan's answered Kilpatric's complaint and began conducting initial discovery.

On August 20, 2004, Ryan's filed a motion to stay the proceedings and to compel arbitration of Kilpatric's claims pursuant to the arbitration agreement between Kilpatric and EDSI. On January 26, 2005, the trial court denied Ryan's motion to compel arbitration of Kilpatric's claims. The trial court's order stated, in pertinent part:

"The Court has independently reviewed the arbitration agreement and finds the arbitration agreement to be unconscionable, patently biased and grossly favorable to [Ryan's] having overwhelming bargaining power . . . . Additionally, the Court finds [Ryan's] has waived its right to seek arbitration by unduly delaying filing its motion to compel arbitration until after it obtained all discovery from [Kilpatric] and then, after receiving such discovery, making a decision to avoid litigation in State Court by compelling arbitration."

Ryan's timely appealed the denial of its motion to compel arbitration to the supreme court. See Rule 4(d), Ala. R.App. P. ("An order granting or denying a motion to compel arbitration is appealable as a matter of right ...."). The supreme court transferred the appeal to this court, pursuant to § 12-2-7(6), Ala.Code 1975. This court heard oral arguments on this case on April 4, 2006.

Standard of Review

"We review de novo the denial of a motion to compel arbitration. Springhill Nursing Homes, Inc. v. McCurdy, 898 So.2d 694, 696 (Ala.2004). The party seeking to compel arbitration has the burden of proving both that a contract calling for arbitration exists and that the contract evidences a transaction affecting interstate commerce. McCurdy, 898 So.2d at 696. Once this prima facie showing has been made, the burden then shifts to the party opposing arbitration to present substantial evidence indicating that the supposed arbitration agreement is either invalid or inapplicable to the dispute as to which arbitration is being sought. Unum Life Ins. Co. of America v. Wright, 897 So.2d 1059, 1081 (Ala.2004)."

Patriot Mfg., Inc. v. Jackson, 929 So.2d 997, 1000 (Ala.2005).

Analysis

The appeal presents these issues: (1) whether the arbitration agreement is valid; (2) whether the arbitration agreement calls for the arbitration of workers' compensation claims; (3) whether Ryan's waived its right to compel arbitration; (4) whether the arbitration agreement is unconscionable; and (5) whether general public-policy arguments against the arbitration of workers' compensation claims foreclose Ryan's from compelling the arbitration of Kilpatric's workers' compensation claim. The trial court denied Ryan's motion to compel arbitration on the grounds of waiver and unconscionability. Subject to certain exceptions that are not present in this case, this court may affirm a trial court's judgment on any valid legal ground, regardless of whether it was considered or rejected by the trial court. Liberty Nat'l Life Ins. Co. v. University of Alabama Health Servs. Found., P.C., 881 So.2d 1013, 1020 (Ala.2003);¹ and Ex parte Ryals, 773 So.2d 1011, 1013 (Ala.2000). Therefore, in addition to waiver and unconscionability, we will consider the other issues raised by Kilpatric as arguments for affirmance of the trial court's order.

I. Existence of a Valid Arbitration Agreement

"In reviewing arbitration provisions, we apply general state-law contract principles." Capitol Chevrolet & Imports, Inc. v. Payne, 876 So.2d 1106, 1109 (Ala. 2003).

"A contract, lacking in mutuality, is unenforceable, because there is an absence of consideration moving, from one party to the other, Hill v. Rice, 259 Ala. 587, 67 So.2d 789 (1953), but when the promise of each party is legally sufficient consideration for the other's promise, there is no lack of mutuality, Lindner v. Mid-Continent Petroleum Corp., 221 Ark. 241, 252 S.W.2d 631 [(1952)].

"....

"... So long as there is a valuable consideration moving from one side to the other, or there are binding promises on the part of each party to the other, there is adequate consideration for a valid contract."

Marcrum v. Embry, 291 Ala. 400, 403, 282 So.2d 49, 51 (1973). "`[A] promise which is merely illusory, such as an agreement to buy only what the promisor may choose to buy, falls short of being a consideration for the promisee's undertaking, and neither is bound.'" Marcrum, 291 Ala. at 405, 282 So.2d at 53 (quoting Lindner v. Mid-Continent Petroleum Corp., 221 Ark. 241, 244, 252 S.W.2d 631, 632 (1952))

Kilpatric argues that the arbitration agreement between her and EDSI is unenforceable because, Kilpatric says, the arbitration agreement lacks mutuality of obligation between Kilpatric and EDSI and, therefore, lacks consideration. In support of this argument, Kilpatric relies on Penn v. Ryan's Family Steak Houses, Inc., 269 F.3d 753 (7th Cir.2001). In Penn, the plaintiff employee signed an arbitration agreement with EDSI stating that employment-related disputes between the employee and Ryan's would be resolved through arbitration. 269 F.3d at 755. Applying Indiana contract law, the United States Court of Appeals for the Seventh Circuit concluded that the arbitration agreement between the employee and EDSI lacked consideration in part because the agreement contained "only an unascertainable, illusory promise on the part of EDS[I]." 269 F.3d at 759. The court in Penn noted that, although the employee's obligations under the arbitration agreement were specific, EDSI's rules governing arbitration gave EDSI "the sole, unilateral discretion to modify or amend" those rules. 269 F.3d at 759. The court found that the arbitration agreement was "hopelessly vague and uncertain as to the obligation EDS[I] ha[d] undertaken." 269 F.3d at 760.

Kilpatric argues that the arbitration agreement in the present case, like the agreement in Penn, lacks mutuality of obligation and, therefore, lacks consideration. However, as Ryan's notes, the arbitration agreement in the present case is different from the agreement in Penn. In Penn, EDSI retained the right to change the arbitration rules at any time, making EDSI's obligations "unascertainable" and "illusory." 269 F.3d at 759. The rules governing the arbitration agreement between Kilpatric and EDSI state:

"These Rules and Procedures may be modified and amended from time to time by EDSI. However, in the event these Rules and Procedures are modified after a Claimant has signed an Agreement, the claimant shall have the option to have his or her claim adjudicated under the Rules and Procedures that were in effect on the date the Agreement was signed or the Rules and Procedures that are in effect on the date their claim is filed with EDSI."

(Emphasis added.) This provision is identical to a provision contained in the rules governing the EDSI arbitration agreement signed by a plaintiff employee in Gardner v. Ryan's, (No. 1:01CV00030, October 31, 2001) (W.D.Va.2001) (not reported in F.Supp.2d). In Gardner, the federal district court noted that the rules of the arbitration agreement in Penn did not contain this provision allowing the employee claimant to choose which set of arbitration rules would govern the arbitration process. Id. The district court concluded that EDSI's promise to provide an arbitration forum governed by a particular set of rules was not illusory or uncertain, unlike EDSI's promise in Penn. Id. The Gardner court therefore concluded that the arbitration agreement between the plaintiff employee and EDSI was enforceable. Id.

The arbitration agreement in the present case contains mutuality of obligation and adequate consideration between EDSI and Kilpatric. Unlike the arbitration agreement in Penn, which allowed EDSI the discretion to rewrite the rules of arbitration, the present arbitration agreement allows Kilpatric the option of selecting the set of arbitration rules and procedures in place at the time the arbitration agreement was executed. The arbitration agreement provides a forum for the resolution of disputes between Kilpatric and Ryan's, and the arbitration rules and procedures in place at the time of execution provide a comprehensive framework governing the arbitration process. Unlike the promise in Penn, EDSI's promise to provide an arbitration forum with ascertainable rules and procedures is not illusory....