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Alliance Investment Co., LLC v. Omni Construction Co., Inc.

Supreme Court of Alabama

March 15, 2019

Alliance Investment Company, LLC
v.
Omni Construction Company, Inc., a/k/a OCC, Inc; and KPS, LLC, a/k/a KP Sourcing, LLC

          Appeal from Madison Circuit Court (CV-17-900803)

          Bryan, Justice.

         This appeal concerns who has the power to determine the location of an arbitration proceeding -- an arbitrator or the Madison Circuit Court. We conclude that, under the facts of this case, the arbitrator has that power; thus, we reverse and remand.

         In 2015, KPS, LLC, a/k/a KP Sourcing, LLC ("Kroger"), entered into a contract ("the prime contract") with Omni Construction Company, Inc., a/k/a OCC, Inc. ("Omni"), in which Omni agreed to build a grocery store for Kroger in Madison, Alabama. Omni then entered into a subcontract ("the subcontract") with Alliance Investment Company, LLC ("Alliance"), in which Alliance agreed to perform concrete work on the construction project. A dispute later arose regarding the payment owed Alliance for its work on the project, and Alliance subsequently sued both Kroger and Omni in the circuit court, alleging several claims. Kroger and Omni jointly filed a motion to stay the circuit-court proceedings and to compel arbitration of Alliance's claims. The prime contract and the subcontract each contain an arbitration provision; in moving to compel arbitration, Kroger and Omni cited both arbitration provisions. Alliance did not oppose the motion to compel arbitration. On August 28, 2017, the circuit court stayed the circuit-court proceedings and ordered the parties to arbitrate the case "in accordance with the terms of their agreements."

         Alliance subsequently filed a demand for arbitration with the American Arbitration Association ("the AAA"). A dispute then arose regarding where the arbitration proceedings should he held. Alliance, an Alabama company, contended that the arbitration proceedings should be held in Alabama, while Kroger and Omni, which are both based in Ohio, contended that the arbitration proceedings should be held in Cuyahoga County, Ohio. Alliance argued that its claims are governed by a section of the arbitration provision in the subcontract regarding disputes that involve some aspect of the prime contract. That section requires such disputes to be resolved under the arbitration provision in the prime contract. The prime contract in turn requires disputes to be arbitrated in Alabama. However, Kroger and Omni argued that the claims are governed by a separate section of the arbitration provision in the subcontract that requires disputes to be arbitrated in Cuyahoga County, Ohio. On January 3, 2018, the AAA made an administrative determination that the arbitration would be held in Alabama and provided the parties with a list of potential arbitrators. Shortly thereafter, Kroger and Omni asked the AAA to reconsider its decision. On January 10, 2018, the AAA informed the parties that its administrative determination regarding the location of the arbitration proceedings would be subject to review by the arbitrator.

         However, on January 11, 2018, before the case could proceed to an arbitrator, Kroger and Omni filed in the circuit court a motion titled "Emergency Motion to Clarify Order Compelling Arbitration." In that motion, Kroger and Omni argued that the subcontract requires that the claims be arbitrated in Ohio. They further argued that the provision in the prime contract requiring arbitration to be held in Alabama is irrelevant. Accordingly, Kroger and Omni asked the circuit court to order the parties to arbitrate in Ohio. On January 22, 2018, the circuit court ordered that the arbitration proceedings be held in Ohio. In that order, the circuit court purported to amend its earlier order compelling arbitration. Alliance then appealed to this Court.

         This Court reviews de novo an order granting or denying a motion to compel arbitration. Cartwright v. Maitland, 30 So.3d 405, 408 (Ala. 2009). "'[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.'" AT & T Techs., Inc. v. Communications Workers of America, 475 U.S. 643, 648 (1986) (quoting United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960)). "[A]rbitrators derive their authority to resolve disputes only because the parties have agreed in advance to submit such grievances to arbitration." AT & T, 475 U.S. at 648-49.

         On appeal, Alliance argues that the circuit court lacked the authority to order, in its order of January 22, 2018, that the arbitration be held in Ohio. With respect to this argument, it is useful to discuss the procedural underpinnings of the circuit court's orders. Rule 4(d), Ala. R. App. P., provides that an order granting or denying a motion to compel arbitration is "appealable as a matter of right." Thus, as this Court stated in Bowater, Inc. v. Zager, 901 So.2d 658, 667 (Ala. 2004), an order granting or denying a motion to compel arbitration is "due recognition as a 'judgment' under Rule 54(a), Ala. R. Civ. P." Therefore, the circuit court's order of August 28, 2017, compelling arbitration is a judgment under the Alabama Rules of Civil Procedure. Of course, the finality of judgments is important, and a circuit court may revisit a final judgment only in accordance with the proper procedures for doing so; Alliance contends that those procedures were not followed here. Alliance argues that Kroger and Omni's "Emergency Motion to Clarify Order Compelling Arbitration" is in substance an untimely Rule 59(e), Ala. R. Civ. P., motion seeking to amend the August 28, 2017, judgment compelling arbitration. A Rule 59(e) motion to alter, amend, or vacate a judgment must be filed no later than 30 days after the entry of the judgment; Kroger and Omni filed their motion 136 days after the entry of the judgment compelling arbitration. Kroger and Omni counter that their motion was not a Rule 59(e) motion; rather, they say, it was a motion seeking a "clarification" of the judgment compelling arbitration that would not be subject to the 30-day time limit found in Rule 59(e). Although Kroger and Omni argue that the circuit court had the authority simply to clarify the order compelling arbitration, Alliance argues that the circuit court impermissibly amended the order compelling arbitration in response to an untimely Rule 59(e) motion. See, e.g., George v. Sims, 888 So.2d 1224, 1227 (Ala. 2004) (discussing the limits of a trial court's power to revisit a judgment and reversing a circuit court's order purporting to modify a judgment when the order was not entered in response to a timely postjudgment motion).

         However, as Alliance further argues, regardless of how the order of January 22, 2018, is characterized, the circuit court lacked the authority to order the parties to arbitrate in Ohio for a separate reason. It is undisputed that the AAA's Construction Industry Arbitration Rules govern the arbitration in this case. Both the prime contract and the subcontract provide that disputes must be decided under the Construction Industry Arbitration Rules. Rule 9(a) of the Construction Industry Arbitration Rules provides that "[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement." At its core, the dispute here concerns the scope of the arbitration provisions in the prime contract and the subcontract. In sum, Alliance argued to the AAA and later to the circuit court that its claims are governed by a section of the arbitration provision in the subcontract regarding disputes that involve some aspect of the prime contract. That section provides that the arbitration of such disputes must be held pursuant to the arbitration provision in the prime contract, which requires that the arbitration proceedings be held in Alabama. Kroger and Omni, however, maintained that the section cited by Alliance does not apply and that Alliance's claims are actually governed by a separate section of the arbitration provision in the subcontract requiring that the arbitration proceedings be held in Ohio. Which argument is correct is not for this Court or the circuit court to decide; rather, that is an issue for the arbitrator to decide under Rule 9(a) of the Construction Industry Arbitration Rules. The circuit court lacked the authority to order that the arbitration proceedings be held in Ohio.

         Kroger and Omni argue that the circuit court's exercise of authority in its January 22 order is supported by Sterling Financial Investment Group, Inc. v. Hammer, 393 F.3d 1223 (11th Cir. 2004). In that case, agreements between an employer and its employee contained provisions that plainly required that arbitration of disputes be held in Florida. After the employer fired the employee, the employee initiated arbitration proceedings against the employer with the National Association of Securities Dealers ("the NASD"). Despite the arbitration provisions calling for the arbitration proceedings to be held in Florida, the NASD assigned the arbitration to a panel in Texas, at the employee's request and over the employer's objection. The employer then filed a motion in the federal district court asking that court to compel arbitration in Florida, pursuant to the terms of the arbitration provisions. The district court granted the employer's motion, and the employee appealed to the United States Court of Appeals for the Eleventh Circuit. That court determined that the NASD had disregarded the requirement in the arbitration provisions that the arbitration proceedings be held in Florida. Accordingly, the court concluded that the arbitration must be held in Florida.

         We note that this Court addressed Sterling Financial in Ex parte Johnson, 993 So.2d 875 (Ala. 2008). The relevant issue in Johnson was whether an arbitrator or a court should determine the availability of class-wide arbitration. After mobile-home owners initiated arbitration proceedings before the AAA against mobile-home companies, the companies filed declaratory-judgment actions asking a circuit court to determine whether class-wide arbitration was available under the terms of the arbitration agreements. In arguing to this Court that the circuit court could make that decision, the companies cited Sterling Financial. In response, this Court first noted that it "was not bound by the decisions of the United States Courts of Appeals or the United States District Courts." Johnson, 993 So.2d at 886. This Court then briefly distinguished the facts of Johnson from the facts of Sterling Financial. Id.[1]

         Similarly, we again note that we are not bound by Sterling Financial. Moreover, this case is distinguishable from Sterling Financial. In Sterling Financial, the employee contended that, because both parties had agreed that arbitration was appropriate, all decisions should be made by an arbitrator. The federal district court in Sterling Financial noted that the employee's argument was bolstered by a rule of the NASD's Code of Arbitration Procedure, which contained the governing rules in that case. The relevant rule stated: "'The Director shall determine the time and place of the first meeting of the arbitration panel and the parties'" and "'[t]he arbitrators shall determine the time and place for all subsequent meetings.'" 393 F.3d at 1225. However, there was no reference in Sterling Financial to an arbitration rule similar to the controlling rule in this case -- Rule 9(a) of the AAA's Construction Industry Arbitration Rules. Rule 9(a) broadly grants the arbitrator "the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement." That rule is distinct from any rule discussed in Sterling Financial in that it gives the arbitrator the power to decide which provision controls Alliance's claims, which in turn will determine whether the arbitration will be held in Alabama or Ohio. We do not find Sterling Financial to be persuasive.

         Accordingly, we reverse the circuit court's order of January 22, ...


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