Regions Bank v. Baldwin County Sewer Service, LLC
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Morgan Keegan & Company, Inc. and Regions Bank (hereinafter referred to collectively as "Regions") appealed an order of the Baldwin Circuit Court which granted in part and denied in part their motions to compel arbitration in an action filed against them by Baldwin County Sewer Service, LLC ("BCSS"). In 2001 BCSS began discussing with AmSouth Bank ("AmSouth"), the predecessor-in-interest to Regions Bank, options to finance its existing debt. AmSouth recommended that BCSS finance its debt through variable-rate demand notes ("VRDNs").1 In its complaint, BCSS alleged that in late 2008 it received a notice of a substantial increase in the variable interest rates on its 2002, 2003, 2005, and 2007 VRDNs, which constituted BCSS's first notice that the interest-rate-swap agreements recommended by Regions did not fix the interest rate on the VRDNs but, instead, exposed BCSS to "an entirely new increased level of market risk in the highly complex derivative market." BCSS sued Regions Bank and Morgan Keegan asserting that Regions falsely represented to BCSS that swap agreements fixed BCSS's interest rates on all the BCSS debt that had been financed through the VRDNs. Following a hearing on the motions to compel arbitration, the trial court entered an order in which it granted the motions to compel arbitration as to BCSS's claims concerning the credit agreements but denied the motions to compel arbitration as to BCSS's claims concerning the failure of the swap transactions to provide a fixed interest rate. The trial court reasoned that the "Jurisdiction" clause in a master agreement, in combination with its merger clause, "prevent[ed] any argument that the VRDN arbitration agreement applies to disputes concerning the swap agreements" and that those clauses demonstrated that it was "the parties' intention, as it relates to the interest-swap agreement and any transaction related to that agreement, that the parties would not arbitrate but instead [any dispute] would be resolved by proceedings in a court of competent jurisdiction." Upon review, the Supreme Court concluded that Regions presented evidence of the existence of a contract requiring arbitration of the disputes at issue. The Court reversed the order of the trial court denying the motions to compel arbitration of BCSS's claims concerning the master agreement and the swap agreement and remanded the case for further proceedings.
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REL: 09/21/2012 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 be 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 SPECIAL TERM, 2012 1101508 Regions Bank and Morgan Keegan & Company, Inc. v. Baldwin County Sewer S e r v i c e , LLC 1101512 Morgan Keegan & Company, Inc. v. Baldwin County Sewer S e r v i c e , LLC Appeals from Mobile C i r c u i t (CV-10-902196) Court 1101508 and 1101512 MURDOCK, J u s t i c e . Morgan Regions Keegan Bank "Regions") granting & Company, (hereinafter Inc. ("Morgan referred to a p p e a l f r o m an o r d e r Keegan"), and collectively o f the Baldwin C i r c u i t as Court i n p a r t and d e n y i n g i n p a r t t h e i r m o t i o n s t o c o m p e l a r b i t r a t i o n i n an a c t i o n f i l e d a g a i n s t them b y B a l d w i n C o u n t y Sewer S e r v i c e , LLC ("BCSS"). We reverse the t r i a l court's order. I. According complaint, to the & Procedural allegations History made i n 2001 BCSS b e g a n d i s c u s s i n g ("AmSouth"), options Facts the p r e d e c e s s o r - i n - i n t e r e s t to finance i t s e x i s t i n g debt. by BCSS with to in i t s AmSouth Regions AmSouth Bank Bank, recommended t h a t BCSS f i n a n c e i t s d e b t t h r o u g h v a r i a b l e - r a t e demand n o t e s ("VRDNs"). 1 As R e g i o n s e x p l a i n s i n i t s appellate brief: "VRDNs a r e b o n d s w i t h i n t e r e s t r a t e s t h a t r e s e t on a p e r i o d i c b a s i s , g e n e r a l l y w e e k l y , as i n t h i s c a s e . VRDN h o l d e r s have a r i g h t t o l i q u i d a t e t h e i r s e c u r i t y f o r par through a put or tender feature. A d e a l e r , c a l l e d a Remarketing Agent, r e s e l l s the VRDNs t e n d e r e d f o r p u r c h a s e t o new i n v e s t o r s . The Remarketing Agent a l s o determines the i n t e r e s t r a t e s p a i d b y t h e VRDN i s s u e r a f t e r e a c h r e s e t b y s e t t i n g R e g i o n s n o t e s t h a t VRDNs a r e a l s o known as " v a r i a b l e - r a t e demand o b l i g a t i o n s . " 1 2 1101508 a n d 1101512 t h e new i n t e r e s t r a t e a t t h e l o w e s t r a t e f o r w h i c h t h e VRDNs c a n s t i l l be r e s o l d a t p a r , t a k i n g i n t o account r e l e v a n t m a r k e t i n g c o n d i t i o n s and c r e d i t rating factors." Regions' b r i e f , pp. 5-6. BCSS a g r e e d t o f i n a n c e i t s debt through the issuance of VRDNs, a n d on M a r c h 15, 2002, BCSS i s s u e d i t s f i r s t s e r i e s o f VRDNs i n t h e amount o f $6.2 m i l l i o n . by a letter attached of credit from The VRDNs were AmSouth; a credit secured agreement to the l e t t e r of c r e d i t contained t h e terms g o v e r n i n g t h e VRDN t r a n s a c t i o n . AmSouth a l s o s e r v e d as t h e r e m a r k e t i n g a g e n t f o r t h e VRDNs. On O c t o b e r 1, 2003, a n d on May 1, 2005, BCSS i s s u e d two a d d i t i o n a l s e r i e s o f VRDNs f o r $4.875 m i l l i o n and $14.2 m i l l i o n , r e s p e c t i v e l y , t h a t were s t r u c t u r e d i n t h e same f a s h i o n as t h e 2002 t r a n s a c t i o n . BCSS a l l e g e s that i n 2005, after t h i r d s e r i e s o f VRDNs, AmSouth a d v i s e d called interest-rate-swap pay the issuance of the BCSS t o e x e c u t e a s o - t r a n s a c t i o n t h a t w o u l d a l l o w BCSS t o a f i x e d r a t e o f i n t e r e s t on t h e 2002, 2003, a n d 2005 VRDNs r a t h e r than t o continue t o be e x p o s e d t o t h e v a r i a b l e i n t e r e s t rates As R e g i o n s e x p l a i n s on t h o s e b o n d s . brief: 3 i n i t s appellate 1101508 and 1101512 "A swap can c o v e r a l l o r p a r t o f t h e p r i n c i p a l o f an i s s u e r ' s bonds and s y n t h e t i c a l l y f i x a l l o r p a r t o f the v a r i a b l e i n t e r e s t r a t e e x p o s u r e . Under the terms of a swap, the i s s u e r a g r e e s t o pay the swap provider a F i x e d R a t e i n e x c h a n g e f o r t h e swap p r o v i d e r p a y i n g a F l o a t i n g R a t e on some o r a l l o f the u n d e r l y i n g debt." R e g i o n s ' b r i e f , p. On May (footnotes 2005, 24, 13 BCSS omitted). and AmSouth I n t e r n a t i o n a l Swap D e a l e r s A s s o c i a t i o n ISDA on a Master Agreement by 2005 VRDNs. "notional" ("the $20.085 m i l l i o n -- t h e t o t a l o f t h e r e m a i n i n g d e b t f i n a n c e d 2003, and based an of 2002, agreement") into amount the master 2 entered BCSS a l l e g e s that AmSouth r e p r e s e n t e d t o BCSS t h a t t h e ISDA m a s t e r a g r e e m e n t w o u l d have the e f f e c t of fixing d e b t o f $20.085 In 2006, continued AmSouth merged with i t r e l a t i o n s h i p with million on the remaining million. 2007, BCSS i s s u e d $17.3 BCSS's i n t e r e s t r a t e that another f r o m R e g i o n s Bank t o Regions series were s e c u r e d w h i c h was Regions of Bank, Bank. On VRDNs i n t h e and BCSS June 28, amount of through a letter of credit attached a credit agreement " T h e I n t e r n a t i o n a l Swap D e a l e r s A s s o c i a t i o n , now known as t h e I n t e r n a t i o n a l Swap and D e r i v a t i v e s A s s o c i a t i o n , i s a g l o b a l t r a d e a s s o c i a t i o n t h a t d e v e l o p e d a master agreement f o r i n t e r e s t r a t e and c u r r e n c y e x c h a n g e swaps." Caiola v. C i t i b a n k , N.A., New Y o r k , 295 F.3d 312, 317 n.1 (2d C i r . 2002) . 2 4 1101508 a n d 1101512 that was substantially the same as a g r e e m e n t s b e t w e e n BCSS a n d AmSouth. the the previous credit Morgan K e e g a n s e r v e d as r e m a r k e t i n g a g e n t f o r t h e 2007 s e r i e s o f VRDNs. Subsequently, with Regions August BCSS entered Bank t h a t into consisted 17, 2007, a n d A u g u s t an i n t e r e s t - r a t e swap o f two t r a n s a c t i o n s 2 1 , 2007, f o r t h e t o t a l dated amount f i n a n c e d t h r o u g h t h e i s s u a n c e o f t h e 2007 s e r i e s o f VRDNs. The 2007 interest-rate-swap agreements t h a t transactions incorporated memorialized those t h e ISDA m a s t e r a g r e e m e n t , c h a n g i n g o n l y a s c h e d u l e t h a t c o n t a i n e d a d d i t i o n a l c o n t r a c t t e r m s . BCSS alleges t h a t R e g i o n s r e p r e s e n t e d t o BCSS t h a t t h e 2007 swap a g r e e m e n t w o u l d have t h e e f f e c t o f f i x i n g BCSS's i n t e r e s t r a t e on t h e $17.3 m i l l i o n In received debt. i t s complaint, a notice BCSS alleges that i n late of a s u b s t a n t i a l increase 2008 i t i n the v a r i a b l e i n t e r e s t r a t e s on i t s 2002, 2003, 2005, and 2007 VRDNs, w h i c h c o n s t i t u t e d BCSS's agreements first recommended notice that by R e g i o n s the interest-rate-swap d i d not f i x the i n t e r e s t r a t e on t h e VRDNs b u t , i n s t e a d , e x p o s e d BCSS t o "an e n t i r e l y new increased derivative level of market market." 5 risk i n the h i g h l y complex 1101508 a n d 1101512 The VRDNs clause, c r e d i t agreement a s s o c i a t e d ("the 2007 c r e d i t a g r e e m e n t " ) which s t a t e s , i n p e r t i n e n t with t h e 2007 s e r i e s o f contains an a r b i t r a t i o n part: "(a) Any c o n t r o v e r s y , claim or dispute or issue r e l a t e d t o o r a r i s i n g f r o m (A) t h e i n t e r p r e t a t i o n , n e g o t i a t i o n , execution, assignment, a d m i n i s t r a t i o n , repayment, modification, or extension of this A g r e e m e n t o r a n y F i n a n c i n g D o c u m e n t ; (B) a n y c h a r g e or cost incurred under t h i s Agreement o r any Financing D o c u m e n t ; (C) t h e c o l l e c t i o n o f any amounts due u n d e r t h i s A g r e e m e n t o r a n y a s s i g n m e n t t h e r e o f ; (D) a n y a l l e g e d t o r t r e l a t e d t o o r a r i s i n g out o f t h i s Agreement o r any F i n a n c i n g Document; o r (E) a n y b r e a c h o f a n y p r o v i s i o n o f t h i s A g r e e m e n t o r any Financing Document, shall be s e t t l e d by arbitration i n accordance with the Commercial Arbitration Rules of the American A r b i t r a t i o n Association." The c r e d i t a g r e e m e n t s f o r t h e 2003 a n d 2005 contain substantively identical l i k e w i s e r e f e r t o "any F i n a n c i n g clause i n t h e c r e d i t agreement s e r i e s o f VRDNs arbitration Document." clauses The a r b i t r a t i o n f o r t h e 2002 s e r i e s o f VRDNs provides: "(a) Any c o n t r o v e r s y o r c l a i m b e t w e e n o r among t h e p a r t i e s hereto i n c l u d i n g but not l i m i t e d t o those a r i s i n g out of or r e l a t i n g t o t h i s instrument, a g r e e m e n t o r document o r a n y r e l a t e d instruments, a g r e e m e n t s o r d o c u m e n t s , i n c l u d i n g any c l a i m b a s e d on o r a r i s i n g f r o m an a l l e g e d tort, s h a l l be determined by b i n d i n g a r b i t r a t i o n i n accordance w i t h the F e d e r a l A r b i t r a t i o n A c t (or i f n o t a p p l i c a b l e , the applicable state law), the Commercial A r b i t r a t i o n R u l e s , and t h e ' S p e c i a l R u l e s ' s e t f o r t h 6 that 1101508 and 1101512 below. In the e v e n t o f any inconsistency, the S p e c i a l Rules s h a l l c o n t r o l . J u d g m e n t upon any a r b i t r a t i o n a w a r d may be e n t e r e d i n any c o u r t h a v i n g j u r i s d i c t i o n . Any p a r t y t o t h i s A g r e e m e n t may b r i n g an action, including a summary or expedited p r o c e e d i n g , t o c o m p e l a r b i t r a t i o n o f any controversy or c l a i m t o which t h i s Agreement a p p l i e s i n any court having j u r i s d i c t i o n over such a c t i o n . " 3 The 2007 c r e d i t a g r e e m e n t d e f i n e s "Financing Documents" as " t h e S e r i e s 2007 N o t e s , t h e 2007 i n d e n t u r e , t h e 2007 L e t t e r of C r e d i t , t h i s Agreement, the Guaranty A g r e e m e n t s , and F u t u r e S e c u r i t y Documents a n d / o r any o t h e r w r i t i n g d e l i v e r e d a t any t i m e by any Financing P a r t i c i p a n t t o t h e Bank r e l a t i n g t o t h e 2007 L e t t e r o f C r e d i t o r any Hedge A g r e e m e n t , o r t o e v i d e n c e o r s e c u r e any o f t h e O b l i g a t i o n . " (Emphasis added.) and The c r e d i t agreements f o r the 2005 s e r i e s o f VRDNs c o n t a i n identical or 2002, 2003, substantively In i t s m o t i o n t o c o m p e l a r b i t r a t i o n , R e g i o n s Bank r e p r e s e n t e d t h a t " [ e ] a c h o f t h e C r e d i t A g r e e m e n t s ... c o n t a i n s a v i r t u a l l y i d e n t i c a l a r b i t r a t i o n a g r e e m e n t " and t h a t "the 2002 p r o v i s i o n d i f f e r s o n l y c o s m e t i c a l l y -- t h e r e i s no substantive difference." In i t s r e s p o n s e t o R e g i o n s Bank's m o t i o n , BCSS d i d n o t d i s p u t e t h i s a s s e r t i o n , and, i n f a c t , i t q u o t e d t h e l a n g u a g e o f t h e a r b i t r a t i o n c l a u s e i n t h e 2007 c r e d i t a g r e e m e n t as r e p r e s e n t a t i v e o f t h e a r b i t r a t i o n c l a u s e s i n "[e]ach of the agreements." In i t s order, the t r i a l c o u r t d i d n o t n o t e any d i f f e r e n c e i n t h e w o r d i n g o f t h e a r b i t r a t i o n c l a u s e s , and i t d i d n o t r e n d e r i t s d e c i s i o n on t h a t b a s i s . S i m i l a r l y , on a p p e a l no i s s u e i s r a i s e d by any o f t h e p a r t i e s r e g a r d i n g the d i f f e r e n c e i n w o r d i n g between the a r b i t r a t i o n clause i n the 2002 c r e d i t a g r e e m e n t and the a r b i t r a t i o n c l a u s e s i n the o t h e r c r e d i t agreements. Thus, f o r p u r p o s e s of t h i s a p p e a l , we c o n s i d e r t h e d i f f e r e n c e s i n w o r d i n g t o be inconsequential. 3 7 1101508 and 1101512 i d e n t i c a l d e f i n i t i o n s o f t h e t e r m " F i n a n c i n g Documents," a l l i n c l u d i n g t h e same r e f e r e n c e t o "any The Hedge A g r e e m e n t . " 2007 c r e d i t a g r e e m e n t d e f i n e s a "Hedge A g r e e m e n t " as "any a g r e e m e n t b e t w e e n t h e A c c o u n t P a r t y and t h e Bank now e x i s t i n g o r h e r e a f t e r e n t e r e d i n t o , w h i c h p r o v i d e s f o r an i n t e r e s t r a t e o r commodity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, c r o s s - c u r r e n c y rate swap, c u r r e n c y o p t i o n , o r any c o m b i n a t i o n of, or option with respect to, these or similar t r a n s a c t i o n s , f o r the purpose of hedging the Account Party's exposure to f l u c t u a t i o n s i n i n t e r e s t r a t e s , c u r r e n c y v a l u a t i o n s o r commodity p r i c e s . " (Emphasis added.) The other credit agreements contain i d e n t i c a l d e f i n i t i o n s o f t h e t e r m "Hedge A g r e e m e n t . " The ISDA m a s t e r " G o v e r n i n g Law" agreement that provides contains a section t h a t " [ t ] h i s Agreement w i l l g o v e r n e d by and c o n s t r u e d i n a c c o r d a n c e w i t h t h e l a w in the Schedule." The entitled schedules be specified a t t a c h e d t o t h e ISDA m a s t e r a g r e e m e n t i n 2005 and 2007 p r o v i d e t h a t " [ t ] h i s A g r e e m e n t w i l l be the g o v e r n e d by State of and New construed York i n accordance w i t h the without reference to choice laws of of law doctrine." The ISDA m a s t e r a g r e e m e n t a l s o c o n t a i n s a c l a u s e "Jurisdiction" that provides: 8 entitled 1101508 and 1101512 "(b) J u r i s d i c t i o n . W i t h r e s p e c t t o any s u i t , a c t i o n or proceedings relating to this Agreement ('proceeding'), each p a r t y i r r e v o c a b l y : " ( i ) submits t o the j u r i s d i c t i o n of the English courts, i f this Agreement i s e x p r e s s e d t o be g o v e r n e d by E n g l i s h l a w , o r to the n o n - e x c l u s i v e j u r i s d i c t i o n of the c o u r t s o f t h e S t a t e o f New Y o r k and t h e U n i t e d S t a t e s D i s t r i c t Court l o c a t e d i n the B o r o u g h o f M a n h a t t a n i n New Y o r k C i t y , i f t h i s A g r e e m e n t i s e x p r e s s e d t o be g o v e r n e d by t h e l a w s o f t h e S t a t e o f New Y o r k ; and " ( i i ) w a i v e s any o b j e c t i o n w h i c h i t may have a t any t i m e t o t h e l a y i n g o f venue o f any P r o c e e d i n g s b r o u g h t i n any s u c h c o u r t , w a i v e s any c l a i m t h a t s u c h P r o c e e d i n g s have b e e n b r o u g h t i n an i n c o n v e n i e n t f o r u m and f u r t h e r waives the r i g h t to o b j e c t , w i t h r e s p e c t to such Proceedings, t h a t such c o u r t does n o t have any j u r i s d i c t i o n o v e r such p a r t y . " N o t h i n g i n t h i s Agreement p r e c l u d e s e i t h e r p a r t y f r o m b r i n g i n g P r o c e e d i n g s i n any o t h e r j u r i s d i c t i o n ( o u t s i d e , i f t h i s A g r e e m e n t i s e x p r e s s e d t o be g o v e r n e d by E n g l i s h l a w , t h e C o n t r a c t i n g S t a t e s , as d e f i n e d i n S e c t i o n 1(3) o f t h e C i v i l Jurisdiction and Judgments Act 1982 or any modification, e x t e n s i o n or re-enactment t h e r e o f f o r the time b e i n g i n force) nor w i l l the b r i n g i n g of Proceedings i n any one o r more j u r i s d i c t i o n s p r e c l u d e t h e b r i n g i n g o f P r o c e e d i n g s i n any o t h e r j u r i s d i c t i o n . " The contain which schedules a provision attached to the concerning the provides: 9 ISDA "Waiver master of agreement Jury Trial," 1101508 and 1101512 "(d) Waiver of Jury Trial. Each p a r t y hereby i r r e v o c a b l y waives, to the f u l l e s t e x t e n t p e r m i t t e d by a p p l i c a b l e l a w , any and a l l r i g h t s i t may have t o t r i a l by j u r y i n r e s p e c t t o any p r o c e e d i n g s a r i s i n g out of or relating to this Agreement or any T r a n s a c t i o n and a c k n o w l e d g e s t h a t i t and t h e o t h e r p a r t y have b e e n i n d u c e d t o e n t e r i n t o t h i s A g r e e m e n t by, among o t h e r t h i n g s , t h e s e m u t u a l w a i v e r s . " The provides: ISDA m a s t e r a g r e e m e n t c o n t a i n s " E n t i r e Agreement. This e n t i r e a g r e e m e n t and u n d e r s t a n d i n g to and i t s subject m a t t e r and Default of the p a r t i e s w i t h Termination Events" respect communication for the the "Events agreement. i n c l u d e events t h a t c o n s t i t u t e a " C r e d i t Support of These Default": "(1) F a i l u r e by t h e p a r t y o r any C r e d i t S u p p o r t P r o v i d e r o f s u c h p a r t y t o c o m p l y w i t h o r p e r f o r m any a g r e e m e n t o r o b l i g a t i o n t o be complied with or p e r f o r m e d by i t i n accordance with any Credit S u p p o r t Document i f s u c h f a i l u r e i s c o n t i n u i n g a f t e r any a p p l i c a b l e g r a c e p e r i o d has e l a p s e d ; "(2) t h e e x p i r a t i o n o r t e r m i n a t i o n o f s u c h C r e d i t S u p p o r t Document o r t h e f a i l i n g o r c e a s i n g o f s u c h C r e d i t S u p p o r t Document t o be i n f u l l f o r c e and e f f e c t f o r the purpose of t h i s Agreement ( i n e i t h e r case o t h e r than i n accordance w i t h i t s terms) p r i o r to the s a t i s f a c t i o n of a l l o b l i g a t i o n s of such p a r t under each T r a n s a c t i o n to which such C r e d i t Support Document r e l a t e s w i t h o u t t h e w r i t t e n c o n s e n t o f t h e other p a r t y ; or 10 the thereto." ISDA m a s t e r a g r e e m e n t a l s o e x p l a i n s and that Agreement c o n s t i t u t e s supercedes a l l o r a l p r i o r writings with respect The a merger c l a u s e 1101508 and 1101512 "(3) the p a r t y or such C r e d i t Support Provider disaffirms, disclaims, repudiates or r e j e c t s , i n whole or i n p a r t , o r c h a l l e n g e s the v a l i d i t y o f , s u c h C r e d i t S u p p o r t Document." (Emphasis added.) The 2002, 2003, and 2005 c r e d i t a g r e e m e n t s a r e i n c l u d e d i n t h e l i s t o f " C r e d i t S u p p o r t Documents" i n t h e ISDA m a s t e r a g r e e m e n t . On S e p t e m b e r 29, 2010, BCSS s u e d R e g i o n s Bank and Morgan Keegan i n t h e B a l d w i n C i r c u i t C o u r t . asserted ISDA that master Regions falsely agreement and Among o t h e r t h i n g s , BCSS represented the August t o BCSS t h a t 2007 swap the agreement i n c o r p o r a t i n g t h e ISDA m a s t e r a g r e e m e n t f i x e d BCSS's interest r a t e s on a l l t h e BCSS d e b t t h a t h a d b e e n f i n a n c e d t h r o u g h t h e VRDNs. Both compel clauses Regions arbitration in the Bank and Morgan of a l l claims credit contended that i t s claims swap agreement subject to provide Keegan based agreements. concerning a fixed 4 filed motions on the In response, to arbitration BCSS t h e f a i l u r e o f t h e 2007 interest rate were not to arbitration. Morgan Keegan a r g u e d i n t h e t r i a l c o u r t t h a t i t c o u l d enforce t h e a r b i t r a t i o n p r o v i s i o n s b e c a u s e BCSS's claims against i t are i n e x t r i c a b l y intertwined with i t s claims a g a i n s t R e g i o n s Bank. BCSS d i d n o t d i s p u t e t h i s a s s e r t i o n . 4 11 1101508 and 1101512 F o l l o w i n g a h e a r i n g on t h e m o t i o n s t o c o m p e l a r b i t r a t i o n , the it trial granted court entered the motions claims concerning to compel failure to on A u g u s t 9, compel 2011, arbitration as i n which to BCSS's the c r e d i t agreements but d e n i e d the motions arbitration of the an o r d e r as to BCSS's claims swap t r a n s a c t i o n s t o p r o v i d e concerning a fixed the interest rate. The in ISDA m a s t e r a g r e e m e n t , i n c o m b i n a t i o n w i t h i t s m e r g e r the clause, t r i a l c o u r t reasoned t h a t the " J u r i s d i c t i o n " " p r e v e n t [ e d ] any argument t h a t the agreement a p p l i e s t o d i s p u t e s c o n c e r n i n g and as i t relates transaction related would not resolved arbitrate by jurisdiction." to the to that but proceedings interest-swap in "the [any a the dispute] court parties' agreement agreement, t h a t instead arbitration t h e swap a g r e e m e n t s " t h a t t h o s e c l a u s e s d e m o n s t r a t e d t h a t i t was intention, any VRDN of and parties would be competent 5 R e g i o n s Bank and Morgan K e e g a n a p p e a l e d t h e t r i a l order clause p u r s u a n t t o R u l e 4 ( d ) , A l a . R. App., P., which court's permits S p e c i f i c a l l y w i t h r e s p e c t t o Morgan K e e g a n , t h e t r i a l c o u r t r u l e d t h a t "Morgan K e e g a n may a r b i t r a t e the claims a g a i n s t i t t o t h e same e x t e n t R e g i o n s [ B a n k ] can compel arbitration." BCSS d i d n o t a p p e a l t h i s a s p e c t o f t h e t r i a l court's order. 5 12 1101508 and 1101512 appeals of a t r i a l c o u r t ' s order " g r a n t i n g or denying a motion to compel separate arbitration appeal " pursuant c o n s o l i d a t e d t h e two Morgan to appeals Keegan Rule 4(d). f o r the purpose also filed This a Court of w r i t i n g one opinion. II. The p a r t i e s agree procedure denying App. P., novo." [Ms. Standard of Review by which a motion and t h a t "[a] d i r e c t t o seek review of this Court reviews the proper [an o r d e r g r a n t i n g o r t o compel a r b i t r a t i o n ] , Rule 4 ( d ) , A l a . lower R. court's order de A u t o Owners I n s . , I n c . v. B l a c k m o n I n s . A g e n c y , I n c . , 1100769, M a r c h 2, 2012] III. A t t h e o u t s e t , we case appeal i s the i s to be So. 3d , ( A l a . 2012). Analysis note t h a t the p a r t i e s decided under New York law c h o i c e - o f - l a w p r o v i s i o n i n t h e ISDA m a s t e r agree that because of this the agreement. Regions argues t h a t the a r b i t r a t i o n c l a u s e s i n the c r e d i t agreements are s u f f i c i e n t l y b r o a d i n t h e i r intended reach to a p p l y t o d i s p u t e s c o n c e r n i n g t h e ISDA m a s t e r a g r e e m e n t and t h e 2007 swap a g r e e m e n t . The arbitration c l a u s e s i n the credit agreements r e q u i r e t h a t " [ a ] n y c o n t r o v e r s y , c l a i m or d i s p u t e 13 1101508 or and issue 1101512 r e l a t e d to or a r i s i n g f r o m ... the i n t e r p r e t a t i o n , n e g o t i a t i o n , e x e c u t i o n , assignment, a d m i n i s t r a t i o n , repayment, m o d i f i c a t i o n , or extension o f t h i s A g r e e m e n t o r any Financing Document," "any a l l e g e d t o r t r e l a t e d t o o r a r i s i n g o u t o f t h i s Agreement o r any F i n a n c i n g Document," and "any b r e a c h o f any p r o v i s i o n o f t h i s A g r e e m e n t o r any F i n a n c i n g Document" must be arbitrated. In a d d i t i o n , the c r e d i t agreements expressly d e f i n e " F i n a n c i n g Documents" t o i n c l u d e "any Hedge A g r e e m e n t . " The c r e d i t agreements likewise define "Hedge A g r e e m e n t " i n c l u d e "any a g r e e m e n t b e t w e e n [BCSS] and existing into, or h e r e a f t e r entered [ R e g i o n s Bank] which provides "hedge agreements" are " f o r the purpose of now f o r an i n t e r e s t r a t e o r commodity swap," and i t f u r t h e r e x p l a i n s such to that hedging [BCSS's] e x p o s u r e t o f l u c t u a t i o n s i n i n t e r e s t r a t e s . " BCSS a r g u e d t o t h e t r i a l court -- and the t r i a l court a g r e e d -- t h a t t h e m e r g e r c l a u s e i n t h e ISDA m a s t e r a g r e e m e n t precludes any arbitration application clauses to the ISDA agreement i n the c r e d i t agreements and of the that the j u r i s d i c t i o n c l a u s e i n t h e ISDA a g r e e m e n t e v i n c e s an i n t e n t i o n by t h e p a r t i e s t o s u b m i t d i s p u t e s c o n c e r n i n g t h a t agreement t o a court, f o r a bench trial. The 14 trial court stated that, 1101508 and "[u]nder 1101512 New York law, a merger clause prevents the c o n s i d e r a t i o n o f any o t h e r e v i d e n c e o f t h e p a r t i e s ' a g r e e m e n t , i n c l u d i n g an a r b i t r a t i o n c l a u s e f r o m a n o t h e r a g r e e m e n t . " trial 745 c o u r t c i t e d J a r e c k i v. N.E.2d 1006 Jarecki (2001), actually e f f e c t of a merger Shung Moo Louie, 95 N.Y.2d The 665, for this proposition. states the following with regard to clause: "The p u r p o s e o f a m e r g e r c l a u s e i s t o r e q u i r e the f u l l a p p l i c a t i o n of the p a r o l evidence r u l e i n order to bar the i n t r o d u c t i o n of e x t r i n s i c evidence to a l t e r , v a r y or c o n t r a d i c t the terms of the w r i t i n g ( M a t t e r o f P r i m e x I n t l . C o r p . v. W a l - M a r t S t o r e s , 89 N.Y.2d 594, 599 [ ( 1 9 9 7 ) ] ) . The m e r g e r c l a u s e a c c o m p l i s h e s t h i s p u r p o s e by e v i n c i n g t h e parties' intent that the agreement ' i s to be considered a completely i n t e g r a t e d w r i t i n g ' ( i d . , at 600). " 95 N.Y.2d a t 669, The Jarecki trial 745 N.E.2d a t 1009 (emphasis added). c o u r t a p p a r e n t l y understood the e x p l a n a t i o n i n t o mean t h a t n o t h i n g i n a n o t h e r c o n t r a c t can affect d i s p u t e s under the c o n t r a c t c o n t a i n i n g the merger c l a u s e , but this the i s not general case. In fact, "under language of a merger c l a u s e establish their the any i n t e n t of the contractual u n d e r an earlier ... New is York 'insufficient p a r t i e s to revoke o b l i g a t i o n s to submit to retroactively disputes agreement t o a r b i t r a t i o n . " 15 law, General arising' Motors 1101508 and 1101512 C o r p . v. F i a t S.p.A, 678 (quoting Primex Int'l N.Y.2d 594, 599, 657 The for Corp. this reason arbitrate disputes way v. 148 Wal-Mart (S.D. Stores, N.Y.S.2d 385, 679 is parties' that arising "the N.E.2d 624 N.Y. 2009) Inc., 89 (1997)). obligation to from the e a r l i e r agreements i n no i m p l i c a t e [ s ] the p a r o l evidence r u l e . " Bank J u l i u s B a e r & Co., 283 F. Supp. 2d 141, I d . a t 149. L t d . v. W a x f i e l d L t d . , 424 F.3d In 278, (2d C i r . 2 0 0 5 ) , t h e U n i t e d S t a t e s C o u r t o f A p p e a l s f o r t h e Second C i r c u i t reached the same c o n c l u s i o n argument a l m o s t i d e n t i c a l t o t h a t made by in rejecting BCSS: "Waxfield first argues that the Pledge Agreements' Merger Clause e f f e c t i v e l y v o i d e d the A r b i t r a t i o n Agreement because i t 'supersedes a l l p r i o r a g r e e m e n t s . ' ( e m p h a s i s a d d e d ) . We disagree, a l t h o u g h we c o n c e d e t h a t a l i t e r a l r e a d i n g o f t h e Clause would l e a d to t h a t r e s u l t . "... [A]s a l e g a l m a t t e r , t h a t i s n o t t h e way that merger clauses are typically understood. Rather, a merger c l a u s e a c t s o n l y t o r e q u i r e f u l l application of the p a r o l evidence r u l e t o the w r i t i n g i n q u e s t i o n -- h e r e , t h e P l e d g e A g r e e m e n t s . See A l b a n y Sav. Bank, FSB v. H a l p i n , 117 F.3d 669, 672 (2d C i r . 1 9 9 7 ) . B u t ' e n f o r c e m e n t o f t h e p a r t i e s ' o b l i g a t i o n s to a r b i t r a t e disputes ... does not i m p l i c a t e the p a r o l evidence r u l e i n connection w i t h t h e [ P l e d g e A g r e e m e n t s ] and, h e n c e , i s n o t p r e c l u d e d by t h e m e r g e r c l a u s e i n t h a t w r i t i n g . ' P r i m e x I n t ' l C o r p . v. W a l - M a r t S t o r e s , 89 N.Y.2d 594, 600, 679 N.E.2d 624, 627, 657 N.Y.S.2d 385, 388 (1997)." 16 an 1101508 a n d 1101512 In o t h e r the words, ISDA master constitutes swaps, i n this case, although ensures agreement the e n t i r e t h e merger that agreement as clause i n that contract to the i n t e r e s t - r a t e i t does n o t have any e f f e c t on t h e t e r m s o f t h e c r e d i t agreements, i n c l u d i n g t h e scope o f t h e a r b i t r a t i o n c l a u s e s i n those agreements. Both Movies BCSS and t h e t r i a l court & T e l e v i s i o n Productions RHI E n t e r t a i n m e n t N.Y. 2010) . seek to rely clause MAT GMBH & Co. P r o j e c t I V KG v. D i s t r i b u t i o n , L L C , 752 F. Supp. 2d 373 (S.D. The t r i a l c o u r t s t a t e d t h a t t h e MAT M o v i e s " r e j e c t e d an a t t e m p t t o impose an a r b i t r a t i o n earlier upon agreement between i n the subsequent the p a r t i e s agreement clause because which in dispute the e a r l i e r agreement latter." BCSS c l a i m s t h a t MAT M o v i e s d e m o n s t r a t e s t h a t t h e clause application agreements BCSS in of the the to disputes and ISDA master arbitration merged merger prevented merger from b e i n g f r o m an the was court agreement clauses in i n v o l v i n g t h e ISDA m a s t e r the t r i a l court make i n t o the MAT something broader than i t a c t u a l l y stands Movies prevents the credit agreement. stand f o r f o r , however. The c o u r t i n MAT M o v i e s was c o n c e r n e d w i t h w h e t h e r t h e f a c t that 17 1101508 the and 1101512 later agreement mentioned the (called earlier agreement") meant distribution agreement that agreement s e t t l e m e n t agreement. "the the settlement (called "the arbitration applied to agreement") distribution clause disputes in the concerning the The M A M o v i e s c o u r t s t a t e d g e n e r a l l y : MT " ' [ A ] s i s t h e c a s e i n a l l m e r g e r c l a u s e s , t h e r e f e r e n c e t o ... o t h e r documents [ i n c l u d i n g the c o n t r a c t w i t h the clause] assures simply documents and [subsequent] the prevents continued their Agreement.'" 752 vitality being F. arbitration Supp of merged into 2d a t 378 R o s e n b l u m v. T r a v e l b y u s . c o m L t d . , 299 F.3d 657, 665 2002)). "this Specifically, standard Distribution Settlement merger from (7th C i r . Movies court explained the being and t h e r e b y merged assures into that earlier the that parts Agreement remain i n e f f e c t the (quoting language prevents clause Agreement Agreement Distribution t h e MAT those later of the I d . a t 378. I n t h i s case, the a r b i t r a t i o n c l a u s e i n the c r e d i t agreements i s worded b r o a d l y master enough agreement arbitration t o cover disputes concerning and t h e 2007 swap a g r e e m e n t . clause in the credit r e f e r e n c e s d i s p u t e s t h a t might a r i s e 18 agreements the ISDA Indeed, the expressly from f u t u r e agreements. 1101508 a n d 1101512 In c o n t r a s t , the c o u r t whether an a r b i t r a t i o n agreement disputes BCSS provided apply also that i n MAT M o v i e s was n o t c o n c e r n e d clause settlement that clause intention by t h e p a r t i e s t o a d j u d i c a t e agreement i n t h e ISDA in court agreement. the " J u r i s d i c t i o n " selection that distribution i t s requirement f o r a r b i t r a t i o n to the l a t e r contends i n the e a r l i e r with master rather forum- evinces disputes than 6 or agreement of an concerning submit them to a r b i t r a t i o n . The f o r u m - s e l e c t i o n c l a u s e p r o v i d e s , i n p e r t i n e n t p a r t , t h a t " [ w ] i t h r e s p e c t t o any s u i t , a c t i o n o r p r o c e e d i n g s relating to irrevocably this Agreement ('proceeding') ... s u b m i t s ... t o t h e n o n - e x c l u s i v e each party jurisdiction o f t h e c o u r t s o f t h e S t a t e o f New Y o r k " a n d e a c h p a r t y "waives any o b j e c t i o n w h i c h i t may h a v e " t o venue o r j u r i s d i c t i o n " o f venue o f any P r o c e e d i n g s b r o u g h t i n any s u c h court." BCSS The MAT M o v i e s c o u r t r e a d i l y a d m i t t e d t h a t "where a c l a i m a l l e g i n g b r e a c h o f one c o n t r a c t r e q u i r e s c o n s t r u c t i o n o f a n o t h e r c o n t r a c t w i t h an a r b i t r a t i o n c l a u s e o r i m p l i c a t e s t h e p a r t i e s ' r i g h t s o r o b l i g a t i o n s under t h e o t h e r c o n t r a c t , t h a t c l a i m may be g o v e r n e d b y t h e o t h e r c o n t r a c t ' s a r b i t r a t i o n clause." 752 F. Supp. 2d a t 378. I t was j u s t t h a t , i n t h a t c a s e , " [ c ] o n s t r u c t i o n o f t h e D i s t r i b u t i o n A g r e e m e n t [wa]s n o t r e q u i r e d t o r e s o l v e t h e p a r t i e s ' d i s p u t e " under t h e l a t e r s e t t l e m e n t agreement; t h e p a r t i e s ' " r i g h t s o r o b l i g a t i o n s u n d e r t h e D i s t r i b u t i o n A g r e e m e n t [were] n o t i m p l i c a t e d . " I d . a t 378-79. 6 19 1101508 and 1101512 argues t h a t t h i s clause provides f o r nonexclusive i n t h e c o u r t s o f New jurisdiction Y o r k o v e r any d i s p u t e c o n c e r n i n g t h e ISDA master agreement. Regions selection preclude correctly clause in the arbitration. notion that a similar to the observes, ISDA Courts master i n New forum-selection one here precludes clause to Julius & Co., f o r example, Appeals f o r the agreement Second C i r c u i t the that the agreement forum- does containing the application i n question. United States the language of In explained: "Under o u r c a s e s , i f t h e r e i s a r e a d i n g o f t h e v a r i o u s agreements t h a t p e r m i t s the Arbitration Clause t o r e m a i n i n e f f e c t , we must c h o o s e i t : '[T]he e x i s t e n c e of a b r o a d agreement t o a r b i t r a t e c r e a t e s a presumption of a r b i t r a b i l i t y which i s o n l y overcome i f i t may be s a i d w i t h p o s i t i v e a s s u r a n c e t h a t t h e a r b i t r a t i o n c l a u s e i s n o t s u s c e p t i b l e o f an interpretation t h a t covers the a s s e r t e d d i s p u t e . ' W o r l d C r i s a C o r p . v. A r m s t r o n g , 129 F.3d 71, 74 (2d Cir. 1997) (internal quotation marks omitted). M o r e o v e r , we ' c a n n o t n u l l i f y an a r b i t r a t i o n c l a u s e unless the forum selection clause specifically precludes arbitration.' Personal Sec. & Safety S y s t e m s v. M o t o r o l a , 297 F.3d 388, 396 n.11 (5th an Bank Court "We t u r n n e x t t o t h e Forum S e l e c t i o n C l a u s e . W a x f i e l d a r g u e s t h a t by a d m i t t i n g t h e p o s s i b i l i t y o f l i t i g a t i o n i n c o u r t , t h e Forum S e l e c t i o n Clause c o n s t i t u t e s a w a i v e r of the agreement t o a r b i t r a t e . H e r e , t o o , we d i s a g r e e . 20 not Y o r k have r e j e c t e d clause arbitration Baer the however, of 1101508 and 1101512 C i r . 2 0 0 2 ) . I n t h e c i r c u m s t a n c e s p r e s e n t e d t o us i n t h i s a p p e a l , we c a n n o t s a y t h a t t h e Forum S e l e c t i o n C l a u s e , w h i c h does n o t e v e n m e n t i o n a r b i t r a t i o n , either 'specifically precludes' arbitration or contains a ' p o s i t i v e assurance' that t h i s dispute i s n o t g o v e r n e d by t h e A r b i t r a t i o n A g r e e m e n t . " 424 F.3d a t 283-84 Co. c o u r t f u r t h e r e x p l a i n e d how an a r b i t r a t i o n (emphasis added). c l a u s e c o u l d be The Bank J u l i u s B a e r & a forum-selection clause and harmonized: "The Forum S e l e c t i o n C l a u s e can be u n d e r s t o o d , as t h e T h i r d C i r c u i t d i d [ i n P a t t e n S e c u r i t i e s C o r p . v. Diamond G r e y h o u n d & G e n e t i c s , 819 F.2d 400 (3d C i r . 1987), abrogated on other grounds, Gulfstream A e r o s p a c e C o r p . v. Mayacamas C o r p . , 485 U.S. 271, 287, 108 S.Ct. 1133, 99 L.Ed.2d 296 ( 1 9 8 8 ) ] , as c o m p l e m e n t a r y t o an a g r e e m e n t t o a r b i t r a t e . The Forum S e l e c t i o n C l a u s e m e r e l y r e q u i r e s W a x f i e l d t o s u b m i t t o s u i t i n t h e c o u r t s o f New Y o r k . I t may be read, c o n s i s t e n t w i t h the A r b i t r a t i o n Agreement, i n s u c h a way t h a t t h e Bank and W a x f i e l d a r e r e q u i r e d to a r b i t r a t e t h e i r d i s p u t e s , but t h a t t o the e x t e n t t h e Bank f i l e s a s u i t i n c o u r t i n New Y o r k -- f o r example, to enforce an arbitral award, o r to challenge the validity or application of the a r b i t r a t i o n a g r e e m e n t -- W a x f i e l d w i l l n o t c h a l l e n g e e i t h e r j u r i s d i c t i o n o r v e n u e . I n a d d i t i o n , t h e Forum S e l e c t i o n C l a u s e makes no r e f e r e n c e t o a r b i t r a t i o n , and so i s a t l e a s t a m b i g u o u s . T h a t b e i n g so, ' [ d ] o u b t s [about a r b i t r a b i l i t y ] s h o u l d be r e s o l v e d i n f a v o r o f c o v e r a g e . ' W o r l d C r i s a C o r p . , 129 F.3d a t 74 ( i n t e r n a l q u o t a t i o n marks o m i t t e d ) . " Id. a t 285. I n C i t i g r o u p G l o b a l M a r k e t s I n c . v. VCG Special O p p o r t u n i t i e s M a s t e r Fund L t d . (No. 2 0 0 8 ) , n o t e 6 (S.D. (not r e p o r t e d i n F. Supp. 2 d ) , N.Y. 2008) 21 0 8 - C V - 5 5 2 0 ( B S J ) , Nov. 12, 1101508 a n d 1101512 aff'd, 598 F.3d 30 same r a t i o n a l e in (2d C i r . 2 0 1 0 ) , i n a case c o n c e r n i n g an ISDA m a s t e r a g r e e m e n t . A.P. Moller-Maersk (not r e p o r t e d 785 the court the " J u r i s d i c t i o n " this clause See a l s o K e l s o E n t e r s . L t d . v. A/S, 375 F e d . App'x 48, 50 (2d C i r . 2010) i n F . 3 d ) ; C h e n - O s t e r v . Goldman, S a c h s & Co., F. Supp. 2d 394, 402-03 (S.D. N.Y. 2 0 1 1 ) . Applying authorities, we f i n d t h a t t h e f o r u m - s e l e c t i o n ISDA agreement master followed clauses i n the c r e d i t does not override clause the these i n the arbitration agreements. F i n a l l y , BCSS c o n t e n d s t h a t t h e c l a u s e i n t h e ISDA m a s t e r agreement w a i v i n g a right that t o t h e ISDA m a s t e r the parties resolve jury disputes waiver to t r i a l i n court provides, jury r a t h e r than l a w , any a n d a l l r i g h t s to t h i s Agreement brief, p. litigation 34. intended i n arbitration. "[e]ach to The party i t may have t o t r i a l by a r i s i n g out of or r e l a t i n g " (Emphasis added.) Regions notes, requires agreement t o t h e f u l l e s t e x t e n t p e r m i t t e d by i n r e s p e c t t o any p r o c e e d i n g s As a l s o demonstrates i n pertinent part, that hereby i r r e v o c a b l y waives, applicable by j u r y the j u r y - t r i a l - w a i v e r nor precludes Indeed, jury-trial 22 clause arbitration." waivers often "neither Regions' accompany 1101508 and 1101512 arbitration provisions jury-trial-waiver application of in clause the contracts. by The itself arbitration agreements t o d i s p u t e s c o n c e r n i n g does clauses the I t s i m p l y r e p r e s e n t s what i t s t a t e s : of not in the prevent the credit ISDA m a s t e r a g r e e m e n t . a waiver o f any p o s s i b l e r i g h t t o a t r i a l by j u r y the language by t h e parties f o r d i s p u t e s between parties. IV. Conclusion Regions presented evidence requiring arbitration of of the e x i s t e n c e of a c o n t r a c t the disputes at issue. BCSS attempted to demonstrate t h a t the a r b i t r a t i o n c l a u s e s d i d not a p p l y t o d i s p u t e s o v e r t h e ISDA m a s t e r a g r e e m e n t and t h e 2007 swap a g r e e m e n t , b u t text is of the a r b i t r a t i o n not sufficient arbitrability. court i t s reasoning denying to claims concerning compatible c l a u s e s i n the c r e d i t overcome Therefore, the i s not motions we the the agreements and presumption in favor r e v e r s e the order of the to compel arbitration of of trial BCSS's t h e ISDA m a s t e r a g r e e m e n t and t h e 2007 swap a g r e e m e n t and remand t h e c a s e f o r p r o c e e d i n g s this with opinion. 23 consistent with 1101508 a n d 1101512 1101508 -- REVERSED AND REMANDED. 1101512 -- REVERSED AND REMANDED. Malone, C.J., and Woodall, B o l i n , and Main, 24 J J . , concur.
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