Case Title: Hoover General Contractors - Homewood, Inc. v. Key

Citation: 

Docket Number: 1141208

State: alabama

Court: Alabama Supreme Court

Date: 2016-02-19T00:00:00Z

Document:
REL: 02/19/2016
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-
0649), of any typographical or other errors, in order that corrections may be made before
the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
OCTOBER TERM, 2015-2016
____________________
1141208
____________________
Hoover General Contractors - Homewood, Inc.
v.
Gary Key
Appeal from Winston Circuit Court
(CV-14-900108)
STUART, Justice.
Hoover General Contractors – Homewood, Inc. ("HGCH"),
appeals an order of the Winston Circuit Court denying HGCH's
motion to compel arbitration of its dispute with Gary Key
regarding work performed by HGCH on Key's house in Jasper
1141208
after that house was damaged by a fire.  We reverse and
remand.
I.
On August 16, 2013, Key's house was damaged by a fire. 
At the time of the fire, Key held a homeowner's insurance
policy 
issued 
by 
Trinity 
Universal 
Insurance 
Company 
providing
coverage for the house, the personal property in the house,
and any associated loss of use of the house.  On January 13,
2014, Key executed a contract with HGCH providing that HGCH
would repair Key's house for a cost of $83,234.  That contract
also contained the following arbitration clause:
"Any dispute arising out of or relating to this
agreement or the breach thereof, and if said dispute
cannot be settled through direct discussion, the
parties agree to participate in binding arbitration. 
The BBB Community Mediation Center, an independent,
neutral, third party is named as the binding
arbitration service.  A volunteer BBB arbitrator
will render a decision he/she considers to be fair
and just.  The fee for arbitration will be paid by
both parties at the current rate of the BBB of North
Alabama Community Mediation Center.  This agreement
affects legal rights of both parties as they are
agreeing to resolve the dispute between them
described above by binding arbitration, rather than
litigation in any court other than for claims that
fall within the jurisdiction of small claims court. 
The arbitrators are empowered to award damages in
accordance 
with 
Section 
1.5 
(Limitations 
of
Liability) and may not award punitive damages."
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HGCH thereafter began the work on Key's house.
At some point, Key became dissatisfied with HGCH's work. 
Key was also dissatisfied with the service and valuation of
his loss provided by Trinity Universal and, on September 4,
2014, Key sued HGCH and Trinity Universal, asserting breach-
of-contract, negligence/ wantonness, 
suppression, conversion,
and tort-of-outrage claims against both defendants, as 
well as
a bad-faith-failure-to-pay claim against Trinity Universal. 
On September 9, 2014, HGCH sent counsel for Key a letter
denying that it had failed to perform work it had been paid
for and denying that it had allowed building materials
intended to be used in Key's house to be damaged.  HGCH also
stated that it had met with Key that same day, that Key wanted
it to resume work on his house, and that HGCH was ready to do
so, but that Key was "having difficulty managing the payment
process to [HGCH] that is necessary to continue the repairs." 
Accordingly, HGCH asked counsel to contact it to discuss
possible solutions to managing the payment process so it could
finish the repairs to Key's house.  On September 16, 2014,
HGCH, acting pro se, filed a copy of this letter with the
trial court.  On October 16, 2014, HGCH filed notice with the
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trial court that it had retained counsel, as well as a
separate answer providing, in toto: "Comes now the defendant,
[HGCH], by and through counsel and for answer to the complaint
states as follows:  1. The defendant pleads general denial."
On November 20, 2014, Key amended his complaint to assert
a slander-of-title claim against HGCH resulting from a lien
HGCH had recorded on Key's house with the Walker County
Probate Judge on October 28, 2014.  On December 3, 2014, HGCH
filed an answer to Key's amended complaint in which it again
stated, in whole, that "[t]he defendant pleads general
denial."  
On March 4, 2015, HGCH, asserting for the first time that
an arbitration agreement existed that encompassed its dispute
with Key, moved the trial court to compel Key to arbitrate his
claims pursuant to the terms of the arbitration clause in
their contract.  On May 28, 2015, Key filed its opposition to
HGCH's motion to compel arbitration, arguing that HGCH had
waived any right to rely on the arbitration clause in their
contract inasmuch as HGCH had failed to assert any right to
arbitration or to plead arbitration as an affirmative defense
in any of its three previous "answers" –– the September 9
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1141208
letter filed with the trial court, the October 16 answer, or
the December 3 answer to Key's amended complaint.  That same
day, HGCH filed an amended answer asserting various
affirmative 
defenses, 
including 
arbitration. 
 
Subsequently, 
on
June 2, 2015, Key moved the trial court to strike that amended
answer.  
On  June 5, 2015, HGCH filed counterclaims against Key,
including a breach-of-contract claim and a claim seeking to
enforce the lien previously recorded with the Walker County
Probate Judge.  HGCH also separately filed a second motion to
compel arbitration, and both parties thereafter filed
additional memoranda with the trial court arguing the
arbitration issue.  On June 26, 2015, the trial court denied
HGCH's motion to compel arbitration; HGCH now appeals that
order.
II.
Our standard of review of a ruling denying a motion to
compel arbitration is well settled:
"'This Court reviews de novo the denial of a
motion to compel arbitration.  Parkway Dodge, Inc.
v. Yarbrough, 779 So. 2d 1205 (Ala. 2000).  A motion
to compel arbitration is analogous to a motion for
a summary judgment.  TranSouth Fin. Corp. v. Bell,
739 So. 2d 1110, 1114 (Ala. 1999).  The party
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seeking to compel arbitration has the burden of
proving the existence of a contract calling for
arbitration and proving that the contract evidences
a transaction affecting interstate commerce.  Id. 
"[A]fter a motion to compel arbitration has been
made and supported, the burden is on the non-movant
to present evidence that the supposed arbitration
agreement is not valid or does not apply to the
dispute in question."  Jim Burke Automotive, Inc. v.
Beavers, 674 So. 2d 1260, 1265 n. 1 (Ala. 1995)
(opinion on application for rehearing).'"
Elizabeth Homes, L.L.C. v. Gantt, 882 So. 2d 313, 315 (Ala.
2003) (quoting Fleetwood Enters., Inc. v. Bruno, 784 So. 2d
277, 280 (Ala. 2000)).  In this case, it is undisputed that a
contract calling for arbitration exists and that the
transaction that is the subject of that contract affects
interstate commerce.  Accordingly, the sole issue in this
appeal is whether Key established that the 
subject 
arbitration
clause does not apply to his dispute with HGCH because HGCH
allegedly waived its right to invoke that clause.
III.
Key argues that HGCH has waived its right to enforce the
arbitration clause in their contract because 1) HGCH did not
assert arbitration as an affirmative defense in any of its
first three pleadings, and 2) HGCH, he argues, has
substantially invoked the litigation process so that he would
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now be prejudiced if forced to submit his claims to
arbitration.  With regard to Key's first argument, we note
that Rule 8(c), Ala. R. Civ. P., does list "arbitration and
award" as an affirmative defense that should be asserted when
"pleading to a preceding pleading."  Inasmuch as arbitration
is an affirmative defense, Key argues that HGCH waived that
affirmative defense by not asserting it in its first three
pleadings.  In support of this argument, Key cites Ex parte
Liberty National Life Insurance Co., 858 So. 2d 950, 953 (Ala.
2003), in which this Court stated that "[t]ypically, if a
party fails to plead an affirmative defense, that defense is
deemed to have been waived."  (Citing Robinson v. Morse, 352
So. 2d 1355, 1356 (Ala. 1977), citing in turn 5 Wright &
Miller, Federal Practice & Procedure § 1278, pp. 339-52.) 
However, as noted in the very next sentence of the Ex parte
Liberty National opinion, "there are exceptions to 
this rule." 
858 So. 2d at 953.  One such exception involves arbitration.
This Court has repeatedly noted that the Federal
Arbitration Act, 9 U.S.C. § 1 et seq., sets forth a strong
federal policy in favor of arbitration and that there exists
a strong presumption against finding that a party has waived
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1141208
the right to compel arbitration; accordingly, any party
seeking to establish such a waiver bears a heavy burden.  See,
e.g., O'Neal v. Bama Exterminating Co., 147 So. 3d 403, 408
(Ala. 2013).  In light of these principles, we have stated
that a party's failure to assert the existence of an
arbitration clause in an initial pleading does not 
irrevocably
bar that party from subsequently invoking that clause.  See Ex
parte Hood, 712 So. 2d 341, 346 (Ala. 1998) ("[W]e would also
affirm that simply failing to plead in one's answer that a
plaintiff's claims are subject to arbitration will not in
itself constitute a waiver."), and Ex parte Merrill Lynch,
Pierce, Fenner & Smith, Inc., 494 So. 2d 1, 3 (Ala. 1986)
("'Whether participation in an action is a waiver of the right
to arbitration depends on whether the participation bespeaks
an intention to abandon the right....  It has been held that
the service of an answer in an action on the contract does not
constitute waiver of the right to arbitration, even though the
answer does not set up the arbitration clauses as a defense
....  The mere serving of an answer and the making of a motion
to dismiss a complaint does not constitute a waiver.'")
(quoting 6 C.J.S. Arbitration § 37 (1975) (emphasis added)). 
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Rather, the appropriate test for determining whether 
there 
has
been a waiver is whether the party's actions as a whole have
substantially invoked the litigation process and whether the
party opposing arbitration would be prejudiced if forced to
submit its claims to arbitration subsequent to the other
party's actions invoking the litigation process.  O'Neal 147
So. 3d at 408.  Thus, Key's argument that HGCH waived its
right to enforce the arbitration clause solely because it did
not assert arbitration as an affirmative defense in its
initial pleadings is without merit; however, the facts
surrounding HGCH's participation in this action prior to
asserting a right to arbitration –– including its filing of
its first three pleadings –– are properly a matter for
consideration in the context of Key's second 
argument: Whether
HGCH waived its right to arbitration by 
substantially 
invoking
the litigation process.
Aside from its efforts to compel arbitration, HGCH's
participation in this case consists of filing three separate
pleadings, twice moving to continue the pretrial conference,
and filing counterclaims.  HGCH has not sought any discovery
from Key, nor has Key directed any discovery requests to
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1141208
HGCH.   No hearings have been held on any issue other than the
1
arbitration issue.  As our discussion of Key's first argument,
supra, indicates, the filing of an answer typically does not
constitute 
a 
substantial 
invocation 
of 
the 
litigation 
process. 
See Ex parte Dyess, 709 So. 2d 447, 453 (Ala. 1997) ("We agree
with [the respondent] that answering a complaint does not
'substantially invoke' the litigation process.").  Nor are we
inclined to assign much importance to the two motions filed by
HGCH seeking to continue the pretrial conference –– both of
which indicate that Key was not opposed to the requested
continuance.  See O'Neal, 147 So. 3d at 411 (holding that a
joint motion to continue the trial of the case was not
indicative of the appellee's substantially invoking the
litigation process so as to waive its right to arbitration).
Finally, we consider the effect of HGCH's filing of
counterclaims seeking to enforce a lien and alleging breach of
contract by Key.  Initially, we note that this Court has
stated that "[m]erely answering on the merits, asserting a
counterclaim (or cross-claim) or participating in discovery,
HGCH's codefendant Trinity Universal has begun the
1
discovery process with Key; however, there has been no
suggestion by any party that Key's claims against Trinity
Universal are subject to arbitration.
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without more, will not constitute a waiver [of the right to
arbitrate]."  Voyager Life Ins. Co. v. Hughes, 841 So. 2d
1216, 1219 (Ala. 2001) (internal quotation marks omitted)
(emphasis added).  In Paragon Ltd. v. Boles, 987 So. 2d 561,
562 (Ala. 2007), this Court addressed a situation similar to
the one presented in this case –– a plaintiff sued a
homebuilder; the homebuilder recorded a lien against the
plaintiff's property; and the homebuilder then asserted
counterclaims 
against 
the 
plaintiff, 
including 
a 
claim 
seeking
to enforce the recorded lien.   In concluding that the filing
of the lien and the counterclaim based on the lien did not
amount to a wavier of the right to arbitration, the Paragon
Court observed:
"Other 
jurisdictions 
have 
directly 
addressed 
the
specific issue now before this Court and have held
that filing a lien does not constitute a waiver of
the right to enforce an agreement to arbitrate. 
Stewart v. Covill & Basham Constr., LLC, 317 Mont.
at 153, 75 P.3d 1276 (2003); Homestead Savings &
Loan Ass'n v. Superior Court in & for Marin County,
195 Cal. App. 2d 697, 16 Cal. Rptr. 121 (1961).  In
Stewart, the Supreme Court of Montana reasoned that
filing a lien does not constitute a waiver of the
right to arbitrate because the 'filing of a
construction lien was not to advance litigation, but
rather to protect [the contractor's] statutorily
created security interest in the property.  Any
prejudice to [the homeowner] resulting from the
filing of the lien would have occurred whether the
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1141208
parties had arbitrated or litigated.' Stewart, 317
Mont. at 158, 75 P.3d at 1279. Similarly, in
Homestead Savings & Loan Ass'n, the California
District Court of Appeal reasoned as follows:
"'The time in which to file for record a
mechanic's lien is relatively short.  It
requires no action by the opposing party. 
It does preserve the status quo of the
property.  Under section 1200 of the Code
of Civil Procedure the real party in
interest had a right to file a separate
action to obtain a personal judgment
against the person personally liable for
such debt, notwithstanding his lien.  In
view of these circumstances, the filing of
a claim of lien is not inconsistent with,
or a repudiation of, arbitration of the
personal liability under the contract, and
is not a waiver of it.'
"195 Cal. App. 2d at 701, 16 Cal. Rptr. at 122.
"In the present case, the only way [the
homebuilder] could protect any interest it had in
the property against a third-party claim was by
filing a lien. [The homebuilder] was required to
file the lien within a relatively short period after
the last item of work was performed.  See §
35–11–215, Ala. Code 1975 (providing that the lien
must be filed within six months); see also §
35–11–221, Ala. Code 1975 (providing that '[a]ny
action for the enforcement of the lien declared in
this division must be commenced within six months
after the maturity of the entire indebtedness
secured thereby').  Filing the lien merely protected
[the homebuilder's] rights to the property.  Filing
the lien did not substantially invoke any litigation
concerning the construction contract."
987 So. 2d at 566.
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We similarly hold that HGCH's recording of a lien against
Key's property –– action, we note, taken in the office of the
Walker County Probate Judge, not in the trial court –– and
HGCH's filing of counterclaims, including a claim seeking to
enforce that lien, did not substantially invoke 
the 
litigation
process so as to waive HGCH's right to enforce the arbitration
clause in its contract with Key.  Moreover, having concluded
that none of HGCH's individual actions during the course of
this case substantially invoked the litigation process, we
also conclude that HGCH's actions in the aggregate have not
substantially invoked the litigation process.  
Inasmuch as we have concluded that HGCH did not
substantially 
invoke 
the 
litigation 
process, 
it 
is 
unnecessary
to fully consider the second prong of the test for determining
whether a party has waived its right to arbitration, that is,
whether the party opposing arbitration would be substantially
prejudiced by an order requiring it to submit to arbitration. 
We note in conclusion only that Key has submitted no evidence
in support of his claim that he would be substantially
prejudiced if he is compelled to arbitrate his claims.  This
Court has previously noted that "a party alleging prejudice is
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unlikely to prevail without presenting supporting evidence,"
Aurora Healthcare, Inc. v. Ramsey, 83 So. 3d 495, 501 (Ala.
2011); thus, it seems unlikely that the second prong of the
arbitration-waiver test would favor Key.
IV.
Six months after Key sued HGCH asserting claims stemming
from HGCH's work rebuilding Key's house after a fire, HGCH
moved the trial court to compel Key to arbitrate those claims
pursuant to an arbitration clause in the contract Key had
entered into with HGCH.  The trial court denied HGCH's motion
to compel; however, that denial was error because Key failed
to establish through substantial evidence that HGCH had 
waived
its right to arbitration by substantially invoking the
litigation process.  Accordingly, the order entered by the
trial court denying HGCH's motion to compel arbitration is
hereby reversed and the cause remanded for the trial court to
enter a new order compelling Key to arbitrate his claims
pursuant to the terms of his contract with HGCH. 
REVERSED AND REMANDED.
Parker, Shaw, Main, and Wise, JJ., concur.
Moore, C.J., recuses himself.
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