Title: MUTUAL ASSUR, INC. v. Wilson

State: alabama

Issuer: Alabama Supreme Court

Document:

716 So. 2d 1160 (1998)
MUTUAL ASSURANCE, INC.
v.
Charles E. WILSON.
1970030.

Supreme Court of Alabama.
May 1, 1998.
*1161 Thomas W. Christian, LaBella S. Alvis, and Rhonda Pitts Chambers of Rives & Peterson, P.C., Birmingham, for appellant.
Warren B. Lightfoot, Madeline H. Haikala, and Robin H. Graves of Lightfoot, Franklin & White, L.L.C., Birmingham, for appellee.
HOUSTON, Justice.
This action arose out of a contract dispute between Dr. Charles E. Wilson and his medical liability insurance carrier, Mutual Assurance, Inc. The issue presented is whether that dispute is arbitrable, pursuant to a predispute arbitration provision contained in Dr. Wilson's insurance policy.
The following facts govern our resolution of this case: Dr. Wilson, who is a licensed Alabama physician, practices medicine in Lauderdale County, which borders the states of Mississippi and Tennessee. Dr. Wilson is also licensed to practice in Mississippi, and he treats patients from Mississippi and Tennessee in his Lauderdale County office. Mutual Assurance is an Alabama corporation with its principal place of business in Birmingham. After six of his patients had filed separate actions against him for damages, based on allegations that he had negligently injected a caustic cleaning solution into their bladders during surgery, Dr. Wilson turned to Mutual Assurance to handle their claims. Dr. Wilson also retained an attorney who was not affiliated with Mutual Assurance to represent him.
Dr. Wilson's insurance policy provided for a $25,000 deductible per "medical incident." The policy also provided that "[t]he Company shall not make a settlement without the written consent of the Named Insured provided that: (1) The Named Insured shall not unreasonably withhold consent." When he learned that Mutual Assurance was attempting to settle the six malpractice actions, Dr. Wilson, through his attorney, informed Mutual Assurance that he would consent to settle the claims on two conditions, one of which was that he be allowed to make a one-time payment of $25,000 in order to "settle all of the cases." This correspondence came after Mutual Assurance had notified Dr. Wilson by letter that it would expect a $150,000 payment from him, i.e., the $25,000 deductible times the six medical negligence claims brought against him. Mutual Assurance rejected the conditions proposed by Dr. Wilson. Dr. Wilson nonetheless agreed to allow Mutual Assurance to settle the claims even though he and Mutual Assurance continued to disagree as to whether the policy called for a $25,000 deductible or a $150,000 deductible.
*1162 Mutual Assurance eventually requested that Dr. Wilson submit their contract dispute to arbitration, pursuant to the arbitration provision contained in the policy. That provision reads as follows:
Dr. Wilson, through his attorney, refused to submit the dispute to arbitration. Immediately thereafter, and without filing a written notice of a demand for arbitration with the Atlanta regional office of the American Arbitration Association, Mutual Assurance filed an action for a declaratory judgment in the Lauderdale Circuit Court, seeking an order compelling Dr. Wilson to arbitrate the contract dispute. Mutual Assurance sought alternative relief in the form of a judgment for $150,000 in accordance with its interpretation of the policy.[1] Dr. Wilson answered the complaint and asserted various affirmative defenses. Dr. Wilson also filed a counterclaim, based on allegations of breach of contract and fraud. Mutual Assurance answered the counterclaim, raised certain affirmative defenses, and served 21 requests for admission on Dr. Wilson, many of which related to the issue concerning the arbitrability of the dispute. Dr. Wilson responded to these requests. Mutual Assurance filed a separate motion seeking to compel Dr. Wilson to arbitrate. After receiving briefs and conducting a hearing, the trial court denied that motion, holding:
Mutual Assurance appealed.[2] We reverse and remand.
In Companion Life Ins. Co. v. Whitesell Manufacturing, Inc., 670 So. 2d 897, 899 (Ala.1995), this Court stated:
In Ex parte Merrill Lynch, Pierce, Fenner & Smith, Inc., 494 So. 2d 1, 2-3 (Ala.1986), this Court elaborated on the considerations a court must take into account in determining whether one has waived the right to arbitrate:
Our cases continue to make it clear that, because of the strong federal policy favoring arbitration, a waiver of the right to compel arbitration will not be lightly inferred, and, therefore, that one seeking to prove waiver has a heavy burden. Ex parte Dyess, 709 So. 2d 447 (Ala.1997); Ex parte Phelps, 672 So. 2d 790 (Ala.1995). The basic question for this Court is whether, based on the facts before it, the trial court, relying on the ground of waiver, abused its discretion in denying Mutual Assurance's request to compel arbitration. Companion Life, supra, at 899.
Mutual Assurance contends that there is nothing in the record from which one can reasonably conclude that it intended to abandon its right to seek arbitration in favor of pursuing an action for damages. It argues that the primary purpose of its declaratory judgment action was to compel Dr. Wilson to arbitrate their contract dispute. Mutual Assurance maintains that it had a legal right to seek a court order compelling arbitration when, it says, it became evident that, because of Dr. Wilson's refusal to cooperate, its pursuing arbitration through the American Arbitration Association would be a vain or useless act. Dr. Wilson contends that Mutual Assurance failed to follow the contractual requirement that it notify the American Arbitration Association of its desire to arbitrate and that, instead, it invoked the judicial process in order to litigate the merits of the contract dispute. Dr. Wilson suggests that he has been prejudiced by Mutual Assurance's filing the declaratory judgment action.
After carefully considering the record and the briefs, we conclude that the trial court abused its discretion in holding that Mutual Assurance had waived its right to compel arbitration. The record indicates that Mutual Assurance resorted to the judicial process only after Dr. Wilson had rejected its request to submit their contract dispute to arbitration. Mutual Assurance was certainly following an acceptable procedure when it filed its declaratory judgment action, the primary purpose of which was to compel Dr. Wilson to arbitrate. See Allied-Bruce Terminix Cos. v. Dobson, 684 So. 2d 102 (Ala. 1995) (on remand from the United States Supreme Court) (noting that the procedure set out in § 4 of the Federal Arbitration Act, *1165 9 U.S.C. § 1 et seq. ("FAA"), for seeking a court order compelling arbitration is applicable in state courts). The mere act of filing a declaratory judgment action for the purpose of determining the issue of arbitrability does not, as a matter of law, constitute a waiver of one's right to arbitrate. Furthermore, merely engaging in limited discovery, most of which was directed toward the arbitration issue, has been held insufficient, without more, to constitute a waiver. Ex parte Merrill Lynch, Pierce, Fenner & Smith, supra.
We further note that it is not apparent on the record that the American Arbitration Association possessed any authority judicial in nature to compel Dr. Wilson to participate in the arbitration process. In light of the circumstances here presented, we are not persuaded by Dr. Wilson's argument that an intent on Mutual Assurance's part to abandon its right to arbitrate can be inferred from its decision not to file with that association a notice of intent to arbitrate. From all that appears in the record, this would have been a useless act on Mutual Assurance's part. Alabama law does not require the performance of a vain or useless act. Owens v. National Security of Alabama, Inc., 454 So. 2d 1387 (Ala.1984); Goldman v. Jameson, 290 Ala. 160, 275 So. 2d 108 (1973); Rayborn v. Housing Authority of Washington County, 276 Ala. 498, 164 So. 2d 494 (1964).
Furthermore, we are not persuaded by Dr. Wilson's assertion that he was prejudiced by Mutual Assurance's resort to the judicial process. As previously noted, Mutual Assurance filed its declaratory judgment action only after Dr. Wilson had refused to submit the dispute to arbitration. It appears that Mutual Assurance had little recourse but to seek a court order compelling Dr. Wilson to comply with the arbitration provision contained in the policy. It would be one thing if Mutual Assurance had belatedly sought to compel arbitration after filing an action for damages under the policy; it is quite another to seek judicial assistance in compelling the specific performance of a material contract provision, concomitant with a request for alternative relief in the form of money damages. Prejudice may be predicated on the former, but not the latter.[3]
We also note that the trial court did not specifically rule that the FAA is applicable in this case. Although this Court will affirm a trial court's judgment if it is supported on any valid legal ground, even though the trial court may have given an erroneous reason to support its judgment, see Smith v. Equifax Services, Inc., 537 So. 2d 463 (Ala.1988), we decline to affirm the trial court's order denying Mutual Assurance's request to compel arbitration on the ground, urged by Dr. Wilson, that the FAA has no field of operation in this case. The FAA preempts contrary state law (based on statute and public policy) and renders enforceable a predispute arbitration agreement contained in a contract that "involves" interstate commerce. Jim Burke Automotive, Inc. v. Beavers, 674 So. 2d 1260 (Ala.1995); Lopez v. Home Buyers Warranty Corp., 670 So. 2d 35 (Ala.1995). Recently, in Hurst v. Tony Moore Imports, Inc., 699 So. 2d 1249 (Ala.1997), four Justices, in a plurality decision, explained that United States Supreme Court precedent indicates that an intrastate transaction nonetheless "involves" interstate commerce if it has virtually any tangible effect on the generation of goods or services for interstate markets and their distribution to the consumer. Hurst, supra, at 1255, 1257. The record in the present case indicates that although Mutual Assurance is an Alabama corporation and Dr. Wilson is licensed to practice in Alabama, the territorial reach of Dr. Wilson's policy extended beyond the Alabama state line. Dr. Wilson was licensed *1166 to practice in Alabama and in Mississippi. The liability policy issued by Mutual Assurance certainly made it possible, as a practical matter, for Dr. Wilson to practice medicine in Mississippi, and for him to treat Mississippi and Tennessee residents in Alabama. Thus, we think it is clear that Dr. Wilson's liability insurance policy had an "effect" on his ability to provide medical services in an interstate market.
For the foregoing reasons, the trial court's order denying Mutual Assurance's request to compel arbitration is reversed and the cause is remanded.
REVERSED AND REMANDED.
HOOPER, C.J., and MADDOX, COOK, SEE, and LYONS, JJ., concur.
SHORES, J., concurs in the result.
ALMON and KENNEDY, JJ., dissent.
KENNEDY, Justice (dissenting).
Although I agree with the majority's holding that this contract involves interstate commerce, I think the trial court correctly denied Mutual Assurance's motion to compel arbitration. Therefore, I dissent. The arbitration provision, which was drafted by Mutual Assurance, states that if the company elects to institute arbitration, "written notice shall be filed with the Atlanta Regional Office of the American Arbitration Association and the named insured." (Emphasis added.) However, Mutual Assurance failed to adhere to thisits owncontractual provision and filed this lawsuit to compel arbitration. As a matter of law, a party has no legal right to seek judicial enforcement of the provisions of its contract until it has fulfilled its own requirements under the express terms of the contract, and courts should not interfere with that principle. Moreover, I suspect that if the situation were reversed, and it was Dr. Wilson who had failed to comply with the prerequisites of the contract, then Mutual Assurance would be far less likely to claim that compliance was unnecessary or futile.
[1]  The complaint sought "an order from [the trial] court requiring binding arbitration pursuant to the terms of the insurance policy." The complaint alternatively sought "an award of damages should the matter not be ordered into binding arbitration."
[2]  See Allied-Bruce Terminix Cos. v. Dobson, 684 So. 2d 102, 104-05 (Ala.1995); Long v. Industrial Development Board of the Town of Vincent, 619 So. 2d 1387 (Ala.1993); A.G. Edwards & Sons, Inc., v. Clark, 558 So. 2d 358 (Ala.1990) (an appeal is the proper procedure by which to challenge an interlocutory order denying a motion to compel arbitration).
[3]  We note that we have considered Ex parte Companion Life Ins. Co., supra; Ex parte Prendergast, 678 So. 2d 778 (Ala.1996); and Ex parte Smith, supra, cited by Dr. Wilson. Although a finding of waiver was upheld in each of those cases, none of them is factually similar to the present case. In each of those cases, the Court held that there was sufficient evidence of delay in invoking the right to arbitration and resulting prejudice to the opposing party to warrant a finding of waiver. We can find no persuasive evidence that Mutual Assurance intended to abandon its right to seek arbitration in accordance with the arbitration provision contained in the policy or that Dr. Wilson was prejudiced by Mutual Assurance's filing its declaratory judgment action. To the contrary, it appears to us, as we have noted, that Mutual Assurance's primary objective in invoking the judicial process was to compel Dr. Wilson to arbitrate the dispute over the proper deductible after Dr. Wilson had refused to submit the matter to the American Arbitration Association for resolution.