Case Title: Modern Woodmen of America v. McElroy

Citation: 815 So. 2d 520

Docket Number: 1990656, 1990657

State: alabama

Court: Alabama Supreme Court

Date: 2001-04-27T00:00:00Z

Document:
815 So. 2d 520 (2001)
MODERN WOODMEN OF AMERICA
v.
Bettina McELROY and Wayne McElroy.
Gregory L. Bowen
v.
Bettina McElroy and Wayne McElroy.
1990656 and 1990657.

Supreme Court of Alabama.
April 27, 2001.
*521 Ollie L. Blan, Jr., and W. Gregory Smith of Spain & Gillon, L.L.C., Birmingham, for appellant Modern Woodmen of America.
Vernon L. Wells II and Barry A. Brock of Walston, Wells, Anderson & Bains, L.L.P., Birmingham, for appellant Gregory L. Bowen.
L. Andrew Hollis, Jr., and Steven W. Couch of Pittman, Hooks, Dutton & Hollis, P.C., Birmingham, for appellee.
JOHNSTONE, Justice.
This opinion decides consolidated appeals from the trial judge's denial of the motions of Modern Woodmen of America (Modern Woodmen) and its agent Gregory Bowen to compel arbitration of the claims of Bettina McElroy and Wayne McElroy (the plaintiffs). We affirm.
On June 9, 1998, the plaintiffs applied to purchase a health insurance policy from Celtic Life Insurance Company (Celtic) through its agent, defendant Gregory Bowen.[1] The plaintiffs gave Bowen a check for $128 to pay the first month's premium for the Celtic policy. The plaintiffs also signed an automatic bank authorization to have the monthly premiums withdrawn from their account for direct payment to Celtic. On November 12, 1998, the Celtic policy lapsed for failure to pay monthly premiums. The record supports an inference that the automatic bank draft authorization was somehow changed to pay premiums on two life insurance policies issued by Modern Woodmen instead of premiums on the Celtic health insurance policy.
On May 28, 1999, the plaintiffs sued Celtic, Modern Woodmen, and Bowen. In their initial complaint, the plaintiffs alleged that, although they agreed to purchase, and did purchase, a Celtic health insurance policy from Celtic's agent Bowen and paid him the first month's premium for the Celtic policy, Bowen did not use that money to pay for the Celtic policy but instead used that money to purchase the two separate life insurance policies from Modern *522 Woodmen, which the plaintiffs neither intended nor applied to purchase. The plaintiffs specifically alleged the following facts:
(Complaint, C.R.5.) The plaintiffs asserted claims of fraudulent misrepresentation, fraudulent suppression, and conspiracy and collusion among the defendants Celtic, Modern Woodmen, and Bowen to defraud the plaintiffs in purchasing health and life insurance policies. They asserted also claims of conversion and negligent hiring and supervision of Bowen by both Celtic and Modern Woodmen.
Celtic answered and admitted selling the plaintiffs a health insurance policy in June 1998 and cancelling that policy in November 1998 for the plaintiffs' failure to pay premiums. Celtic denied the other allegations and asserted the defense that the plaintiffs' complaint should be dismissed because they had agreed to arbitrate any disputes. On August 9, 1999, the plaintiffs moved to dismiss their claims against Celtic without prejudice. Two days later, the trial judge granted the motion and dismissed those claims without prejudice.
On August 13, 1999, both Modern Woodmen and Bowen separately answered the plaintiffs' complaint and asserted, among other defenses, that the plaintiffs' action should be dismissed because the plaintiffs had agreed to binding arbitration. (C.R.54, 69.) In his answer, Bowen admitted that, on June 9, 1998, he sold the plaintiffs a Celtic health insurance policy, which lapsed in November 1998 for failure to pay premiums. Additionally, regarding the Modern Woodmen life insurance policies,
(Bowen's Answer, C.R. 71.)
On August 18, 1999, Modern Woodmen and Bowen moved to compel arbitration on the basis of the arbitration provision contained only in the Celtic policy reading:
(C.R.84.) (Emphasis added.) Neither Bowen nor Modern Woodmen contends that the Modern Woodmen life insurance policies purportedly sold to the plaintiffs contained any arbitration provisions. Rather, Modern Woodmen and Bowen rely solely on the arbitration provision in the Celtic policy as the contractual basis for compelling arbitration of the plaintiffs' claims. In the motions to compel, Modern Woodmen and Bowen assert that Modern Woodmen was incorporated with its principal place of business in Illinois and that Celtic also was incorporated with its principal place of business in Illinois. Modern Woodmen and Bowen assert further that the "plaintiffs' claims clearly `arise out of, in connection with, or relate to' the Celtic Life policy, and the alleged misconduct of Bowen and Modern Woodmen in connection therewith." (C.R.85.)
Six days after Modern Woodmen and Bowen moved to compel arbitration, the trial court granted their motions without conducting a hearing. Thereafter, claiming that they had not had sufficient time to respond to the motions to compel, the plaintiffs moved for reconsideration of the trial judge's order compelling arbitration. The plaintiffs argued that the arbitration provision in the Celtic policy applied only to dealings and communications concerning the Celtic health insurance policy and not to dealings and communications concerning the Modern Woodmen life insurance polices. The trial judge granted the plaintiffs' motion to reconsider and conducted a hearing on October 29, 1999. On November 12, 1999, the plaintiffs amended their complaint and removed all references to the Celtic policy and to Celtic Life Insurance Company and eliminated their "conspiracy and collusion" claim. Modern Woodmen and Bowen moved to strike the plaintiffs' amended complaint on the ground that the plaintiffs amended their complaint merely to avoid arbitration.
On November 24, 1999, the trial court vacated its August 24, 1999, order compelling arbitration of the plaintiffs' claims and denied the defendants' motions to compel arbitration. The order of the trial court explains:
(C.R.275-77.) (Emphasis added.)
On appeal, both Modern Woodmen and Bowen argue that the trial court erred in allowing the plaintiffs to amend their complaint to remove all references and claims regarding the Celtic policy and in considering that amended complaint as a basis for denying the motions to compel arbitration. Modern Woodmen and Bowen *525 complain that the plaintiffs amended their complaint solely to avoid arbitration of their claims.
Rule 15(a), Ala. R. Civ. P., provides:
The Committee Comments to the rule (on the 1973 adoption of the rule) state:
(Citations omitted.) This Court has stated that:
Boros v. Baxley, 621 So. 2d 240, 245 (Ala.), cert. denied, 510 U.S. 997, 114 S. Ct. 563, 126 L. Ed. 2d 463 (1993). This Court has also stated, "`[A]mendments are to be freely allowed and refusal of an amendment must be based on a valid ground.'" Stallings v. Angelica Uniform Co., 388 So. 2d 942, 946-47 (Ala.1980) (citations omitted).
The amendment challenged by Modern Woodmen and Bowen was filed 90 days after the trial court had granted the plaintiffs' motion to dismiss their claims against Celtic. The plaintiffs were not obligated to persist in proving allegations about Celtic and its policy that they did not need to prove to establish their claims against Modern Woodmen and Bowen. Likewise justice did not require the trial court to compel the plaintiffs to maintain and to prove allegations that were superfluous to the claims the plaintiffs were still pursuing against the remaining defendants, Modern Woodmen and Bowen, who have not pleaded or proven that the allegations about Celtic or its policy constitute part of any substantive defense. Modern Woodmen and Bowen have not established that they were prejudiced by the amendment in any way recognized by law. Although both Modern Woodmen and Bowen cite a few cases from other jurisdictions holding that parties cannot amend pleadings to avoid arbitration, those cases are not procedurally and factually analogous to the case before us. Thus the trial court did not abuse its discretion in allowing the plaintiffs to amend their complaint.
Modern Woodmen and Bowen argue further that the claims against them are subject to arbitration under the Federal Arbitration Act (FAA) because the claims are "arising out of, in connection with, or relating to" the Celtic health insurance policy. Modern Woodmen and Bowen contend that, although they are not signatories to the Celtic policy, they benefit from the arbitration provision in the Celtic policy because Bowen's actions, the gravamen of the plaintiffs' lawsuit, are "intertwined" *526 with his sale of the Celtic health insurance policy to the plaintiffs. Thus Modern Woodmen and Bowen claim that the plaintiffs are equitably estopped from seeking to avoid arbitration of their claims.
The plaintiffs argue that no valid arbitration agreement covers the claims asserted against Modern Woodmen and Bowen. The plaintiffs argue that the Celtic policy containing the arbitration provision applied to disputes between only the plaintiffs and Celtic or Bowen acting as Celtic's agent "arising out of, in connection with, or relating to" only the health certificate issued by Celtic.
TranSouth Fin. Corp. v. Bell, 739 So. 2d 1110, 1114 (Ala.1999). "`[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, 106 S. Ct. 1415, 89 L. Ed. 2d 648 (1986) (quoting United Steelworkers v. Warrior & Gulf Navig. Co., 363 U.S. 574, 582, 80 S. Ct. 1347, 4 L. Ed. 2d 1409 (1960)).
Blount Int'l, Ltd. v. James River-Pennington, Inc., 618 So. 2d 1344, 1346 (Ala. 1993). Further,
Ryan Warranty Servs., Inc. v. Welch, 694 So. 2d 1271, 1273 (Ala.1997).
In Ex parte Lovejoy, 790 So. 2d 933 (Ala.2000), this Court explained the parameters of the doctrine of equitable estoppel as it applies to a motion filed by a nonsignatory to a contract containing an arbitration provision, to compel arbitration of claims against the nonsignatory.
Ex parte Lovejoy, 790 So. 2d  at 937. In the case before us, the plaintiffs' claims against Modern Woodmen and Bowen are not "founded on, [or] intertwined with, the facts surrounding the underlying [Celtic] contract" containing the arbitration provision. The plaintiffs' claims arise out of Bowen's actions in purchasing for them two Modern Woodmen life insurance policies which the plaintiffs did not intend or apply to purchase. The plaintiffs' claims do not involve the Celtic policy. The plaintiffs do not "assert[ ] [any] breach of duty imposed or entailed by that contract." Likewise, the plaintiffs do not "allege[ ] conspiracy or agency between a nonsignatory and a signatory to" the contract. The only "signatories," or parties, to the contract are Celtic and the plaintiffs themselves. They do not sue Bowen as the agent of Celtic, only as the agent of Modern Woodmen; and they do not allege any conspiracy or agency between either of the nonsignatories, Modern Woodmen or Bowen, on the one hand, and any of the signatories, Celtic or either of the plaintiffs, on the other hand. Therefore the doctrine of equitable estoppel does not entitle either Modern Woodmen or Bowen to invoke the Celtic policy arbitration agreement.
Finally, Modern Woodmen and Bowen in his capacity as an agent for Modern Woodmen are utter strangers to the Celtic policy. The arbitration provision in the Celtic policy cannot contemplate that it would benefit a rival insurance company and its agent operating to the exclusion of Celtic itself. The only parties to the Celtic contract are Celtic and the plaintiffs, who no longer have a dispute between them to arbitrate. The arbitration provision does not say or imply that either Modern Woodmen or its agent Bowen is a third-party beneficiary.
Accordingly, we affirm the judgment of the trial court denying the motions of Modern Woodmen and Bowen to compel arbitration of the claims of the plaintiffs.
AFFIRMED.
MOORE, C.J., and HOUSTON, LYONS, and WOODALL, JJ., concur.
[1]  It is undisputed that Gregory Bowen was a licensed agent for both Celtic and Modern Woodmen at the time he sold the Celtic policy to the plaintiffs.