Blanks v. TDS Telecommunications LLC

          Appeal from Cherokee Circuit Court (CV-18-900097)

          SELLERS, JUSTICE.

         Jason Blanks, Peggy Manley, Kimberly Lee, Nancy Watkins, Randall Smith, Trenton Norton, Earl Kelly, Jennifer Scott, and Alyshia Kilgore (hereinafter referred to collectively as "the customers") appeal from the denial of a motion to compel arbitration and a declaratory judgment entered in an action brought by TDS Telecommunications LLC, and its two affiliates, Peoples Telephone Company, Inc., and Butler Telephone Company, Inc. (hereinafter referred to collectively as "the Internet providers"). In the declaratory-judgment action, the trial court ruled that the Internet providers are not required to arbitrate disputes with the customers. We reverse and remand.

         Background

         The customers subscribe to Internet service furnished by the Internet providers; their relationship is governed by a written "Terms of Service."

         The customers allege that the Internet service they have received is slower than the Internet providers promised them. At the time the customers learned that their Internet service was allegedly deficient, the Terms of Service contained an arbitration clause providing that "any controversy or claim arising out of or relating to [the Terms of Service] shall be resolved by binding arbitration at the request of either party." The arbitration clause also incorporated the commercial arbitration rules of the American Arbitration Association ("the AAA"). The customers' attorney notified the Internet providers that he intended to initiate AAA arbitration proceedings with respect to the dispute regarding Internet speed.

         Soon after the Internet providers learned of the customers' plan to arbitrate, the Internet providers updated the Terms of Service. As part of the update, the arbitration clause was modified. Among other things, the clause now states that all disputes arising out of or relating to the Terms of Service must be submitted to "JAMS" for arbitration.^[1]Also included in the updated Terms of Service, however, is a provision expressly stating that the arbitration clause "does not apply to customers who receive services in Alabama or Georgia, and [the Internet providers] expressly [do] not consent to arbitration of any dispute, claim or controversy--regardless of when the dispute, claim, or controversy arose--for customers who receive services in Alabama or Georgia."^[2]

         The prior Terms of Service stated that the Internet providers could modify the terms at any time and in any manner, that such a modification becomes effective upon notice of the modification to the Internet providers' customers, and that the continued use of the Internet service constitutes acceptance of the modification. The customers do not dispute that, on the day the Terms of Service was updated, the Internet providers gave them notice of the update. They also do not dispute that they continued to use their Internet service after they received that notice.

         Notwithstanding the updated Terms of Service and its provision excluding the customers from arbitration, the customers indicated that they would continue to press for arbitration. Indeed, after the Terms of Service was updated, the customers filed arbitration demands with the AAA.

         The customers have taken the position that, if the Terms of Service is construed as allowing the Internet providers to modify the applicability of the arbitration clause to disputes that arose before the modification, the agreement would be rendered illusory and unenforceable. Thus, the customers argue that the Terms of Service should be read as allowing modification of the arbitration clause only as to disputes that arise after the modification.

         The Internet providers refused to participate in the arbitration proceedings. They also filed an action requesting the trial court to enter a judgment declaring that the updated Terms of Service is valid and applicable to the customers' claims regarding Internet speed and that the customers therefore cannot force the Internet providers to arbitrate those claims. In response to the Internet providers' complaint, the customers filed a motion to compel arbitration. In that motion, the customers argued that an arbitrator, not the trial court, should decide whether the arbitration exclusion in the updated Terms of Service is valid and applicable to their dispute and, therefore, whether the Internet providers should be required to arbitrate that dispute. The customers relied on precedent indicating that the incorporation of AAA rules into an arbitration agreement demonstrates intent to delegate gateway issues of "arbitrability" to an arbitrator.

         The trial court entered a judgment denying the motion to compel arbitration and "further adjudg[ing] that the modified Terms of Service [is] valid and enforceable as of [the date it was updated and notice was provided]." This appeal followed. The parties agree that this Court's standard of review is de novo. See Elizabeth Homes, L.L.C. v. Gantt, 882 So.2d 313, 315 (Ala. 2003) (de novo standard of review applies to the denial of a motion to compel arbitration). See also Raley v. Main, 987 So.2d 569, 575 (Ala. 2007) (de novo standard of review applied to a declaratory judgment that was based on documentary evidence and undisputed facts).

         Discussion

         "The party seeking to compel arbitration has the initial burden of presenting evidence of the existence of a contract calling for arbitration ...." Auto Owners Ins., Inc. v. Blackmon Ins. Agency, Inc., 99 So.3d 1193, 1195 (Ala. 2012). The customers point to the prior version of the Terms of Service, which contained an arbitration clause applicable to disputes with all the Internet providers' customers and which, the customers say, delegated issues of arbitrability to an arbitrator. The Internet providers, on the other hand, argue that the prior version of the Terms of ...