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University Toyota and University Chevrolet Buick GMC v. Hardeman

Supreme Court of Alabama

January 27, 2017

University Toyota and University Chevrolet Buick GMC
Beverly Hardeman and Vivian Roberts

         Appeal from Colbert Circuit Court (CV-15-900364)

          STUART, Justice.

         University Toyota and University Chevrolet Buick GMC (hereinafter referred to collectively as "the University dealerships") appeal the order of the Colbert Circuit Court allowing Beverly Hardeman and Vivian Roberts to pursue their claims against the University dealerships in arbitration proceedings conducted by the American Arbitration Association ("the AAA") instead of the Better Business Bureau of North Alabama ("the BBB"), the entity identified in the controlling arbitration agreements. We reverse and remand.


         In December 2011, Hardeman purchased a 2012 GMC Acadia sport-utility vehicle from Jim Bishop Buick in Tuscumbia; in April 2013, Roberts purchased a 2013 Toyota Tacoma pickup truck from Jim Bishop Toyota in Tuscumbia (Jim Bishop Buick and Jim Bishop Toyota are hereinafter referred to collectively as "the Jim Bishop dealerships"). In conjunction with their purchases of those vehicles, Hardeman and Roberts purchased service contracts entitling them to no-cost oil changes for as long as they owned their respective vehicles. The Jim Bishop dealerships thereafter provided Hardeman and Roberts free oil changes pursuant to those service contracts without issue.

         At some point in time, the Jim Bishop dealerships were sold and rebranded as the University dealerships. Initially, the University dealerships honored the no-cost oil-change service contracts sold by their predecessors in interest, the Jim Bishop dealerships; however, they eventually stopped providing no-cost oil changes to customers who held those contracts, such as Hardeman and Roberts. On October 29, 2015, Hardeman and Roberts filed a demand for arbitration with the BBB, the dispute-resolution entity identified in arbitration agreements they had executed when they purchased their vehicles, on behalf of themselves and all similarly situated individuals, based on the University dealerships' refusal to honor the service contracts sold by the Jim Bishop dealerships. The subject arbitration agreements provided, in relevant part:

"Buyer/lessee and dealer agree that all claims, demands, disputes, or controversies of every kind or nature between them arising from, concerning or relating to ... service contracts or other products purchased as an incident to the sale, lease or financing of the vehicle ... shall be settled by binding arbitration conducted pursuant to the provision[s] of the Federal Arbitration Act, 9 U.S.C. Section 1 et seq. ...
"Either party may demand arbitration by filing with the Better Business Bureau of North Alabama, P.O. Box 383, Huntsville, AL 35804, (256) 532-1437, a written demand for arbitration along with a statement of the matter in controversy."

         It appears, however, that the BBB informed Hardeman and Roberts that it did not conduct class-action arbitration proceedings, and they accordingly withdrew their arbitration demand.

         On December 2, 2015, Hardeman and Roberts filed a complaint in the Colbert Circuit Court naming as defendants the University dealerships and asserting breach-of-contract, conversion, and unjust-enrichment claims. Hardeman and Roberts also sought class certification of their claims, asserting that over 100 individuals had similarly been injured by the University dealerships' failure to honor certain service contracts sold by their predecessors in interest, the Jim Bishop dealerships. On January 17, 2016, the University dealerships moved the trial court to compel Hardeman and Roberts to arbitrate their claims in accordance with the arbitration agreements they had executed when they purchased their vehicles and accompanying service contracts. In support of that motion, the University dealerships submitted into evidence copies of the arbitration agreements and an affidavit from the former owner of the Jim Bishop dealerships authenticating the agreements and explaining the interstate nature of the underlying transactions with Hardeman and Roberts. Hardeman and Roberts thereafter filed a response opposing the University dealerships' motion to compel arbitration, asking the trial court to allow their action to proceed either in state court or, in the alternative, in an arbitral forum other than the BBB, i.e., one that would conduct class-action arbitration proceedings. On May 19, 2016, the trial court entered an order directing that Hardeman's and Robert's claims be sent to arbitration before the AAA with the AAA arbitrator to subsequently decide whether class-action arbitration was available to them. On May 26, 2016, Hardeman and Roberts did in fact initiate an arbitration proceeding before the AAA.

         On June 3, 2016, the University dealerships moved the trial court to alter, amend, or vacate its May 19 order, arguing that the subject arbitration agreements required any arbitration proceedings between the parties to be conducted by the BBB and that Hardeman and Roberts had no right, contractual or otherwise, to engage in class-action arbitration proceedings. After becoming aware that Hardeman and Roberts had initiated the AAA arbitration proceeding, the University dealerships also moved both the trial court and the AAA to stay those proceedings until their pending motion to alter, amend, or vacate the trial court's May 19 order was decided. Hardeman and Roberts opposed the University dealerships' motions, and, on August 19, 2016, the trial court entered its final order, stating:

"In the above-styled case, [Hardeman and Roberts] claim that [the University dealerships] failed to honor lifetime oil change contracts to customers who purchased cars from their dealership[s]. The dealership[s] [were] sold, and [the University dealerships] deny any responsibility for the contracts. [Hardeman and Roberts] seek to enforce the contract for themselves, and any other customers similarly situated.
"At the time of [Hardeman's and Roberts's] purchase[s], ... arbitration agreement[s] [were] signed. The agreement[s] state[] that arbitration would be through the [BBB]. [Hardeman and Roberts] state, however that [the] BBB has refused, or is not capable of, making the initial determination as to whether they will be allowed to proceed as a class action.
"As a result of [the] BBB's inability to make this determination, [Hardeman and Roberts] asked this court for an order allowing arbitration to proceed through [the] AAA. [The University dealerships] object and request that the case proceed with a case-by-case arbitration with [the] BBB.
"After hearing arguments, this court does order that the parties shall begin arbitration with [the] AAA. The arbitrator should first determine whether [Hardeman and Roberts] may proceed as a class. If the arbitrator selected through the AAA determines that the parties may not proceed to seek a global settlement, arbitration by [the] AAA shall cease immediately. The parties, at that point, must seek arbitration through [the] BBB, on a case-by-case basis, in accordance with the agreement."

         On August 23, 2016, the University dealerships filed their notice of appeal to this Court.[1]


         In BankAmerica Housing Services v. Lee, 833 So.2d 609 (Ala. 2002), this Court considered a similar case in which the appellant had succeeded in the trial court in its attempt to compel arbitration but thereafter filed an appeal to this Court arguing that the trial court had compelled arbitration in a manner inconsistent with the governing arbitration provision. We stated then that we would review the order compelling arbitration de novo to determine whether the trial court, although granting the requested relief, had nevertheless committed an error substantially prejudicing the party seeking review. Lee, 833 So.2d at 617.


         It is undisputed in this case (1) that Hardeman's and Roberts's purchases of automobiles and service contracts from the Jim Bishop dealerships affected interstate commerce; (2) that both Hardeman and Roberts executed arbitration agreements in conjunction with their purchases; (3) that those arbitration agreements are valid;[2] and (4) that those arbitration agreements encompass the underlying dispute regarding the University dealerships' responsibility to honor the service contracts purchased by Hardeman and Roberts. Thus, it is also undisputed that the University dealerships were entitled to have the arbitration agreements enforced and their motion to compel arbitration granted. Elizabeth Homes, L.L.C. v. Gantt, 882 So.2d 313, 315 (Ala. 2003). The issue before this Court is whether the trial court, though granting the motion to compel arbitration, properly enforced the arbitration agreements inasmuch as it did not require Hardeman and Roberts to arbitrate their claims before the BBB, the forum agreed to by the parties. For the reasons that follow, we must answer that inquiry in the negative.

         In American Express Co. v. Italian Colors Restaurant, ___ U.S. ___, 133 S.Ct. 2304 (2013), the Supreme Court of the United States emphasized that arbitration agreements are simply a species of contract and, like all contracts, must be enforced according to their terms:

"Congress enacted the [Federal Arbitration Act, 9 U.S.C. § 1 et seq., ] in response to widespread judicial hostility to arbitration. See AT&T Mobility [LLC v. Concepcion], [563 U.S. 333');">563 U.S. 333, 339 (2011)]. As relevant here, the Act provides:
"'A written provision in any maritime transaction or contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.' 9 U.S.C. § 2.
"This text reflects the overarching principle that arbitration is a matter of contract. See Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 67 (2010). And consistent with that text, courts must 'rigorously enforce' arbitration agreements according to their terms, Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 221 (1985), including terms that 'specify with whom [the parties] choose to arbitrate their disputes, ' Stolt-Nielsen [S.A. v. AnimalFeeds Int'l Corp.], [559 U.S. 662');">559 U.S. 662, ] 683 [(2010)], and 'the rules under which that arbitration ...

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