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Nation v. Lydmar Revocable Trust

Supreme Court of Alabama

September 22, 2017

Jimmy E. Nation et al.
v.
Lydmar Revocable Trust

         Appeal from Jefferson Circuit Court (CV-14-905312)

          PARKER, Justice.

         Jimmy E. Nation, Oliver D. McCollum, James P. Pickle, James W. Nation, Micah J. Nation, and Benjamin J. Chemeel II (hereinafter collectively referred to as "the defendants") appeal the Jefferson Circuit Court's denial of their motion to compel arbitration of a breach-of-contract claim filed against them by the Lydmar Revocable Trust ("Lydmar").

         Facts and Procedural History

         Lydmar owned a 75% membership interest in Aldwych, LLC. On March 27, 2008, Lydmar and the defendants entered into an agreement ("the agreement") pursuant to which Lydmar agreed to sell its membership interest in Aldwych, LLC, to the defendants for a purchase price of $1, 550, 000. The defendants paid Lydmar $900, 000 at the time the agreement was executed and simultaneously executed two promissory notes for the balance of the purchase price.

         The agreement contains a section entitled "Arbitration, " which states:

"16.1 This Agreement provides for binding arbitration, which is the final, exclusive and required forum for the resolution of all disputes that may occur between the parties ... that are based on a 'legal claim.' If the dispute cannot be resolved and the matter is based upon a legal claim, the parties ... may initiate the arbitration process at any time, even if suit has already been filed. A dispute is based upon a 'legal claim' and is subject to this agreement if it arises or involves a claim under any federal, state or local statute, regulation, or common law doctrine. ...
"16.2 The rules and procedures to be used by the parties are based on the rules of the American Arbitration Association ('AAA'). The parties hereto reserve the right to mutually agree to modify or expand these rules and procedures.
"16.3 The arbitrator shall follow the rules of law of the State of Alabama, any applicable Federal law, any applicable statute of limitations, and any rules stated in the Agreement. The arbitrator shall have the authority to grant any remedy or relief that the arbitrator deems just and equitable and which is consistent with applicable law.
"16.4 The expenses of witnesses or experts for either side shall be paid by the party requiring the presence of such witnesses. Each side shall pay its own legal fees and expenses.
"16.5 To the fullest extent available under the law, the parties ... hereby waive their right to a trial before a jury for a legal claim, even if a court holds the other provisions of this Agreement unenforceable."

         Additionally, the promissory notes contain nearly identical arbitration provisions to the one in the agreement.

         On December 31, 2014, Lydmar sued the defendants asserting that the defendants had breached the agreement and the accompanying promissory notes. Specifically, Lydmar alleged that the defendants had breached their promises to repay the notes by failing to make the required payments. On March 5, 2015, the defendants filed an answer to Lydmar's complaint and asserted counterclaims alleging fraud, breach of contract and/or failure of consideration, fraudulent transfer of assets, and constructive trust.

         At the request of the parties, the circuit court delayed setting the matter for a bench trial until they had an opportunity to resolve the case without a trial. The parties' attempts failed. Accordingly, on May 31, 2016, the defendants filed a motion to compel arbitration of Lydmar's breach-of-contract claim. Lydmar did not file a response to the defendants' motion to compel arbitration.

         On July 7, 2016, the circuit court granted the defendants' motion to compel arbitration. The circuit court's order states, in pertinent part: "The cou[rt] finds a valid arbitration agreement governs the promissory note issues of [Lydmar's] claims and allegations.[1] Further, the written agreement involves interstate commerce and is within the provisions of the Federal Arbitration Act." The circuit court further ordered the clerk of the circuit court to place the case on the circuit court's administrative docket "pending further orders of this court."

         However, after the circuit court ordered the arbitration of Lydmar's claim, neither the defendants nor Lydmar initiated the arbitration process. Accordingly, on February 6, 2017, the defendants filed with the circuit court a motion to dismiss Lydmar's breach-of-contract claim; the motion was based on Lydmar's failure to initiate the arbitration proceedings. The defendants argued that it was Lydmar's responsibility to initiate the arbitration process and that Lydmar had failed to take any action toward fulfilling its responsibility to do so. Accordingly, citing Rule 41(b), Ala. R. Civ. P., the defendants requested that Lydmar's claim be dismissed without prejudice. On March 2, 2017, Lydmar filed a response to the defendants' motion to dismiss. Lydmar did not contest the existence of the arbitration provisions requiring arbitration of its claim, but argued only that, under the Commercial Arbitration Rules of the American Arbitration Association ("AAA"), the defendants, and not Lydmar, had the responsibility to initiate the arbitration process. Because the defendants failed to do so in a reasonable time, Lydmar argued, the case was due to be returned to the active docket of the circuit court so that Lydmar could litigate its claim against the defendants in that court.

         On March 15, 2017, the circuit court denied the defendants' motion to dismiss. In the same order, the circuit court ordered the clerk of the circuit court to return the case to the active docket. Although not expressly stated in the order, it appears that the circuit court, by returning the case to the active docket, effectively reversed its own order entered on July 7, 2016, granting the defendants' motion to compel arbitration. On March 22, 2017, the circuit court entered a scheduling order setting the case for a bench trial to occur during the week of June 5, 2017. The defendants appealed.

         Standard of Review

         Our standard of review of a ruling on a motion to compel arbitration is well settled:

"'"This Court reviews de novo the denial of a motion to compel arbitration. Parkway Dodge, Inc. v. Yarbrough, 779 So.2d 1205 (Ala. 2000). A motion to compel arbitration is analogous to a motion for a summary judgment. TranSouth Fin. Corp. v. Bell, 739 So.2d 1110, 1114 (Ala. 1999). The party seeking to compel arbitration has the burden of proving the existence of a contract calling for arbitration and proving that the contract evidences a transaction affecting interstate commerce. Id. '[A]fter a motion to compel arbitration has been made and supported, the burden is on the non-movant to present evidence that the supposed arbitration agreement is not valid or does not apply to the dispute in question.' Jim Burke Automotive, Inc. v. Beavers, 674 So.2d 1260, 1265 n. 1 (Ala. 1995) (opinion on application for rehearing)."'"

Chris Myers Pontiac-GMC, Inc. v. Perot, 991 So.2d 1281, 1282-83 (Ala. 2008) (quoting Elizabeth Homes, L.L.C. v. Gantt, 882 So.2d 313, 315 (Ala. 2003), quoting in turn Fleetwood Enters., Inc. v. ...


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