William D. Smallwood, Sr., et al. v. Holiday Development, LLC and Seaside Title, LLC

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REL: 11/13/2009 Notice: T h i s o p i n i o n i s s u b j e c t t o formal r e v i s i o n b e f o r e p u b l i c a t i o n i n t h e advance s h e e t s o f Southern R e p o r t e r . R e a d e r s a r e r e q u e s t e d t o n o t i f y t h e R e p o r t e r o f D e c i s i o n s , A l a b a m a A p p e l l a t e C o u r t s , 300 D e x t e r A v e n u e , M o n t g o m e r y , A l a b a m a 3 6 1 0 4 - 3 7 4 1 ( ( 3 3 4 ) 2 2 9 ¬ 0 6 4 9 ) , o f a n y t y p o g r a p h i c a l o r o t h e r e r r o r s , i n o r d e r t h a t c o r r e c t i o n s may b e made b e f o r e t h e o p i n i o n i s p r i n t e d i n Southern R e p o r t e r . SUPREME COURT OF ALABAMA OCTOBER TERM, 2009-2010 1081144 W i l l i a m D. Smallwood, S r . , e t a l . v. H o l i d a y Development, L L C , and S e a s i d e T i t l e , LLC 1081146 W i l l i a m D. Smallwood, S r . , e t a l . v. H o l i d a y Development, L L C , and S e a s i d e T i t l e , LLC Appeals from Baldwin C i r c u i t Court (CV-06-1271 and CV-06-1299) 1081144, 1081146 STUART, Justice. William and D. Smallwood, business Sr., entities Development, LLC, and that various other contracted with to purchase u n i t s i n i t s planned condominium development i n G u l f Shores ( t h e s e business entities purchasers") Title, Baldwin and the sue escrow Holiday agent to Development their a l l e g i n g breach their the the and motion of Holiday pursuant contracts signed approximately two arbitration, the proceedings share o f the those Seaside deposits, o f c o n t r a c t and Holiday "the in fraud, Title Development the from because, not quality. arbitration compelled the to as and a l l e g e d , t h e c o n s t r u c t i o n o f San C a r l o s was promised On escrow funds Carlos individuals referred holding Holiday San seeking a r e s t r a i n i n g order p r o h i b i t i n g Seaside the purchasers pay hereinafter to C i r c u i t Court, releasing of are united LLC, individuals by years Development, to each of after arbitrator because Holiday case had dismissed and had trial in However, been r e f e r r e d to the arbitration failed to pay i t s s t a t e d that i t would f i n a n c i a l l y u n a b l e t o do 2 court provisions purchasers. Development had a r b i t r a t i o n fees f e e s b e c a u s e i t was arbitration the the the so. not At 1081144, some 1081146 point during the arbitration, Seaside funds to either Development's After motion Title Holiday released argued the Development arbitrator or parties were purchasers' directly the purchasers dismissed filed f o r a d e f a u l t judgment Development the to in escrow Holiday creditors. the proceedings, two-year p e r i o d opposed court to the t r i a l motion that arbitration an amended c o m p l a i n t i n the the the for a trial court. default and a Holiday and r e q u i r e d by t h e c o u r t was judgment the F e d e r a l A r b i t r a t i o n A c t , 9 U.S.C. § 1 e t s e q . ( " t h e F A A " ) , t o enforce the order entered by the a r b i t r a t o r order o f d i s m i s s a l e x a c t l y as April 24, 2009, t h e t r i a l request order and d i s m i s s e d to c l a r i f y against Seaside a p p e a l ; we From court the record dismissed what were Holiday On Development's the purchasers dismissed. done. an modified i t s had The asserted purchasers remand. before the and S e a s i d e i t was also to enter had I t subsequently the claims and arbitrator court granted the case. Title reverse Development was that the and us, i t appears purchasers' Title claims that against because i t understood r e q u i r e d t o do 3 so p u r s u a n t the trial Holiday that t o t h e FAA. that Such 1081144, an 1081146 understanding Court indicating arbitration that was l i k e l y unless t h e award following that grounds based courts on s t a t e m e n t s must the aggrieved should be enumerated enforce party vacated awards properly based i n § 10(a) made b y upon made i n establishes one o f the o f the FAA: "1) w h e r e t h e a w a r d was p r o c u r e d f r a u d , o r undue m e a n s ; "2) where there was evident partiality corruption i n the a r b i t r a t o r s , or either them; "3) where t h e a r b i t r a t o r s were g u i l t y o f m i s c o n d u c t in refusing t o postpone the hearing, upon s u f f i c i e n t c a u s e shown, o r i n r e f u s i n g t o h e a r evidence pertinent and material to the controversy; o r o f any other m i s b e h a v i o r by which the rights o f any p a r t y have been prejudiced; or "4) See where t h e a r b i t r a t o r s exceeded t h e i r powers, o r so i m p e r f e c t l y e x e c u t e d them t h a t a mutual, final, and d e f i n i t e award upon t h e s u b j e c t m a t t e r s u b m i t t e d was n o t made." Hereford 200 9) Court the this v . D.R. ("[B]ecause should grounds demonstrated court's Horton, the decision specified i n § that decision has not argued or of 10(a) of t h e [FAA], to relief this she has n o t from the a r b i t r a t o r ' s 4 that (Ala. o f t h e a r b i t r a t o r on a n y o f she i s e n t i t l e d confirming corruption, I n c . , 13 S o . 3 d 3 7 5 , 3 8 1 [the appellant] vacate by the trial decision."); 1081144, Horton 2008) an 1081146 Homes, I n c . ("We reiterate arbitration limited to Mattel, that award Code Inc., grounds modifying R. C i v . P. an U.S. terms (outlining review of [FAA] is and § grounds of review Hall Assocs., 128 Ct. [of the S. FAA], in an §§ 10 award, one."). and a court See procedure § also 'must' modified, names Rule for seeking in 1402 Section 11 9 L.L.C. 1396, 11. while in listed Street , 9 the award ' u n l e s s ' i t i s vacated, the the courts enumerated in § 10 the d e c i s i o n and above are arbitrator's its (Ala. the 10 those 71B, Ala. review of award). that case, of correcting an present those 57 6, for vacating Collectively, to judicial 2 enumerated on prescribed' or n. grounds 552 'as arbitration principle desiring 467 to an a r b i t r a t i o n corrected 462, subject 1975."); confirm for a party 2d based ("Under t h e lists So. i n a proceeding (2008) or 999 which encompasses the 6-6-14, A l a . v. Shaner, arguments U.S.C. § 10, § v. required decision of the has one been entered rationale two underlying 5 stands to confirm unless FAA arbitrator the authority and of for give the established. orders i t . On the effect grounds In the articulating January 28, 1081144, 2009, the findings 1081146 arbitrator and entered an order making the following order: "1. H o l i d a y Development, LLC, i s i n b r e a c h of t h e arbitration agreements between Holiday and the [purchasers]. I t i s u n d i s p u t e d t h a t H o l i d a y has failed to pay the deposit for arbitrator compensation ('Deposit') r e q u i r e d by t h e A m e r i c a n A r b i t r a t i o n A s s o c i a t i o n pursuant to the C o n s t r u c t i o n Industry Dispute Resolution Procedures. Through c o u n s e l , H o l i d a y has i n d i c a t e d t h a t i t cannot pay the Deposit. F a i l u r e t o pay i s a m a t e r i a l breach of the a r b i t r a t i o n agreements between the [purchasers] and H o l i d a y . "2. A t t h e h e a r i n g , c o u n s e l f o r Seaside [Title, L L C , ] i n d i c a t e d t h a t h i s c l i e n t may be w i l l i n g t o p o s t t h e D e p o s i t owed b y H o l i d a y . I t i s ordered t h a t S e a s i d e s h a l l have u n t i l F e b r u a r y 11, 2009, t o pay t h i s Deposit on b e h a l f o f H o l i d a y . I f the D e p o s i t i s p a i d , t h e n t h i s m a t t e r w i l l be s c h e d u l e d f o r a h e a r i n g as soon as p o s s i b l e . " 3 . I n t h e e v e n t S e a s i d e d o e s n o t p a y t h e D e p o s i t on or before February 11, 2009, this case shall a u t o m a t i c a l l y be r e m a n d e d to the Baldwin County C i r c u i t Court of the S t a t e of Alabama f o r f u r t h e r proceedings. "4. [The p u r c h a s e r s ' ] r e q u e s t f o r a d e f a u l t j u d g m e n t is denied. The A r b i t r a t o r does not have t h e l e g a l a u t h o r i t y t o e n t e r a d e f a u l t i n t h i s m a t t e r due t o the f a i l u r e of H o l i d a y to pay the D e p o s i t . " 5 . I n t h e e v e n t o f t h e r e m a n d n o t e d i n P a r a g r a p h 3, then this arbitration will be closed. The Arbitrator's f e e s and e x p e n s e s i n t h i s m a t t e r t o t a l $1,900.00. F i f t y percent (50%) o f t h e s e f e e s and e x p e n s e s o r $ 9 5 0 . 0 0 s h a l l be p a i d f r o m t h e d e p o s i t made b y t h e [ p u r c h a s e r s ] w i t h t h e AAA [American A r b i t r a t i o n A s s o c i a t i o n ] and f i f t y p e r c e n t (50%) o r 6 1081144, 1081146 $ 950.00 s h a l l b e p a i d f r o m t h e d e p o s i t s made b y Seaside Title[, LLC,] with the AAA. The [ p u r c h a s e r s ] and S e a s i d e s h a l l have t h e r i g h t to recover a l l of these funds from Holiday i n the c i r c u i t court action. H o l i d a y i s l i a b l e f o r such costs. The unused balance of the arbitrator compensation d e p o s i t s p a i d by t h e [ p u r c h a s e r s ] and S e a s i d e s h a l l be r e f u n d e d t o them." On March 27, 2009, the arbitrator entered a "final order" stating: "On J a n u a r y 2 8 , 2 0 0 9 , I o r d e r e d t h a t t h i s m a t t e r s h a l l be r e m a n d e d t o [ t h e ] B a l d w i n C o u n t y C i r c u i t Court of the State of Alabama for further proceedings i n the event Seaside T i t l e [ , LLC,] d i d n o t p o s t t h e p o r t i o n o f t h e D e p o s i t owed b y H o l i d a y Development, LLC, i n t h i s m a t t e r . According to the r e c o r d s o f t h e A m e r i c a n A r b i t r a t i o n A s s o c i a t i o n , no payment has been received. Therefore, this arbitration proceeding is dismissed without p r e j u d i c e and t h i s case i s remanded t o t h e B a l d w i n County C i r c u i t Court f o r the S t a t e of Alabama f o r further proceedings." It i s evident intent was Holiday these to terminate Development's arbitration Circuit from fees and two orders that the a r b i t r a t i o n failure to to "remand" Court f o r the purchasers trial c o u r t was pay the the arbitrator's proceedings based i t s share case to to prosecute of on the the Baldwin their claims there. The the arbitrator's r e q u i r e d by t h e FAA t o g i v e e f f e c t decision. I t appears 7 that the t r i a l to court 1081144, was 1081146 cognizant entering an enforce the dismissal correct erred of that order granting final of the that The proper of claims the arbitrator would necessary against purchasers' further prove claims proceedings their for claims the i s reversed give against and the and to enforced, i t repeating d i s m i s s i n g the schedule and case. to the the to order "further pursue their Seaside order the seeking was simply by Title. dismissing cause purchasers Holiday to court so purchasers court's by trial be do been so "motion should Development trial to the do and court to give e f f e c t have Holiday the order i t could f o r the t r i a l Accordingly, Title. However, a l t h o u g h way proceedings" arbitrator" the that by to of arbitrator the i t attempted Development's arbitrator's in concluding a c t i o n taken and Holiday order case. the the fact, an the i s remanded opportunity Development and for to Seaside 1 T h i s h o l d i n g i s c o n s i s t e n t w i t h our c a s e l a w i n d i c a t i n g t h a t , e v e n t h o u g h two p a r t i e s may h a v e c o n t r a c t u a l l y a g r e e d t o a r b i t r a t e any d i s p u t e s t h a t a r i s e b e t w e e n them, s u c h d i s p u t e s may n e v e r t h e l e s s be r e s o l v e d i n t h e c o u r t s y s t e m i f e i t h e r p a r t y waives i t s r i g h t to compel the other to a r b i t r a t e i t s claims. As we e x p l a i n e d i n C o m p a n i o n L i f e I n s u r a n c e Co. v. Whitesell Manufacturing, Inc., 670 So. 2d 8 97 , 899 (Ala. 1995): 1 "It is well settled under 8 Alabama law that a 1081144, 1081146 1 0 8 1 1 4 4 -- REVERSED AND REMANDED. 1 0 8 1 1 4 6 -- REVERSED AND REMANDED. Cobb, C . J . , and L y o n s , Bolin, and Murdock, J J . , concur. p a r t y may w a i v e i t s r i g h t t o a r b i t r a t e a d i s p u t e i f i t s u b s t a n t i a l l y invokes t h e l i t i g a t i o n p r o c e s s and thereby s u b s t a n t i a l l y p r e j u d i c e s the party opposing arbitration. Whether a p a r t y ' s p a r t i c i p a t i o n i n an a c t i o n amounts t o an e n f o r c e a b l e w a i v e r o f i t s r i g h t t o a r b i t r a t e d e p e n d s on w h e t h e r t h e p a r t i c i p a t i o n b e s p e a k s o f an i n t e n t i o n t o abandon t h e r i g h t i n f a v o r o f t h e j u d i c i a l process and, i f so, whether the opposing party would be p r e j u d i c e d by a subsequent order requiring i t to submit to arbitration. No r i g i d r u l e e x i s t s f o r d e t e r m i n i n g what c o n s t i t u t e s a w a i v e r o f t h e r i g h t t o a r b i t r a t e ; the d e t e r m i n a t i o n as t o whether t h e r e has been a w a i v e r m u s t , i n s t e a d , be b a s e d on t h e p a r t i c u l a r f a c t s o f each case." I n t h e p r e s e n t c a s e , H o l i d a y D e v e l o p m e n t was e x p r e s s l y t o l d that i f i td i d not pay i t s share of the a r b i t r a t i o n fees i t s c a s e w o u l d be " r e m a n d e d " t o t h e B a l d w i n C i r c u i t C o u r t f o r f u r t h e r p r o c e e d i n g s . With t h a t knowledge, H o l i d a y Development e l e c t e d not t o pay those fees. I t i s h a r d t o i m a g i n e more clear evidence o f an i n t e n t t o abandon the arbitration process. 9

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