Title: Paw Paw's Camper City, Inc. et al. v. Leroy Hayman and DianaHayman
Citation: N/A
Docket Number: 1050873
State: Alabama
Issuer: Alabama Supreme Court
Date: May 18, 2007

REL: 05/18/2007 Paw Paw's Camper City
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)
242-4621), 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, 2006-2007
_________________________
1050873
_________________________
Paw Paw's Camper City, Inc., et al.
v.
Leroy Hayman and Diana Hayman
Appeal from Mobile Circuit Court
(CV-05-1079)
LYONS, Justice.
Paw Paw's Camper City, Inc., and its employees, Terri
Myers and Randy Blackmon (collectively referred to as "the
sellers"), appeal from the trial court's order denying their
motion to compel arbitration.  We affirm.  
1050873
2
I. Factual Background and Procedural History
Paw Paw's Camper City, Inc., is a Mississippi corporation
engaged in the business of selling motor homes.  It maintains
a dealership in Mobile County.  During the events made the
basis of this case, Myers was employed by Paw Paw's Camper
City as a salesperson and Blackmon was employed as a sales
manager.  
In January 2005, Paw Paw's Camper City was holding an
off-site sale of its motor homes in Mobile.  Diana Hayman
visited the off-site sale and expressed to Myers an interest
in purchasing a 2005 Holiday Rambler Scepter motor home.
Several days after Diana Hayman had viewed the motor home, her
husband, Leroy Hayman, visited the off-site sale to view the
motor home.  Leroy Hayman expressed an interest in purchasing
the motor home and began negotiating the terms of the purchase
price with Myers.  
After the Haymans had completed a consumer credit
application, the lender approved the Haymans' purchase of the
Holiday Rambler Scepter; the payments were to be $1,900 per
month for a term of 240 months.  The Haymans state that they
rejected those terms and informed the sellers that they would
1050873
The terms of the purchase price were based in part on a
1
down payment of $70,166.81 made by the Haymans.  The down
payment consisted of $60,166.81 in equity the Haymans received
on a trade-in of a recreational vehicle they had purchased in
2003 from Paw Paw's Camper City and $10,000 in cash.
3
not pay more than $1,500 per month for a term of 240 months to
purchase the motor home.  
The sellers say that on January 31, 2005, they informed
the Haymans that they could sell the Holiday Rambler Scepter
to them for approximately $1,300 per month, but that in order
"to make the deal work," the sale documents had to be
completed that day.  Leroy Hayman testified that he had
estimated the monthly payments on the motor home to be
approximately 
$1,500 
and 
that 
the 
sellers' 
offer 
of
approximately $1,300 per month was "cheaper than [he] thought
it was going to be."   The Haymans agreed to purchase the
1
Holiday Rambler Scepter, and, on January 31, 2005, they
executed several documents, including a retail buyer's order.
The retail buyer's order is a preprinted form that contains a
section in which the terms of the sale are to be inserted,
including the amount of the monthly payment and the length of
the financing term.  The retail buyer's order also contains
the following arbitration provision:
1050873
4
"Any 
claim, 
dispute, 
or 
other 
matter 
in
question, arising out of or related to this
agreement or the vehicle which is the subject of
this agreement, or any defect, complaint or problem
arising out of said vehicle, shall be subject to
mediation as a condition precedent to arbitration or
the institution of legal or equitable proceedings by
either party.  In the event that the claim, dispute
or the other matter in question between the parties
is not resolved by mediation, [it] shall be decided
by arbitration which, unless the parties mutually
agree otherwise, shall be in accordance with the
rules 
of 
the 
American Arbitration Association
currently in effect at the time the claim, dispute
or other matter arises.  The demand for arbitration
shall be filed in writing with the other party to
this agreement and with the American Arbitration
Association.  The parties shall share the mediator's
fee and any filing fees for mediation and/or
arbitration equally.  Mediation and/or arbitration
shall be held in Mobile County.  The order rendered
by the arbitrator shall be final, and judgment may
be entered upon it in accordance with applicable law
in any court having jurisdiction thereof."
The Haymans allege that at the time they signed the retail
buyer's order, the section containing the amount of the
monthly payments and the length of the financing term was
blank.  Leroy Hayman testified that Blackmon represented to
them that the secretary who would insert the amounts in those
blanks was unavailable and that the section containing the
terms of the sale would be completed later.  
The Haymans returned to Paw Paw's Camper City on February
5, 2005, and were given a copy of the sale documents,
1050873
5
including a copy of the retail buyer's order.  The Haymans say
that at that point they discovered that the section of the
retail buyer's order relating to the financing terms had been
completed to indicate that their monthly payments on the
Holiday Rambler Scepter were $1,341.77 for a term of 300
months.  The Haymans informed the sellers that they had not
agreed to a financing term of 300 months but had agreed to a
financing term of only 240 months.  The Haymans refused to
accept delivery of the motor home because of the 300-month
financing term.  The Haymans contend that the sellers have
retained their down payment of $70,166.81.  
The Haymans allege that an agreement to purchase the
motor home with a financing term of 240 months was reached
between them and the sellers; that at the time they signed the
retail buyer's order, the section specifying the financing
terms had not been completed; and that the financing term of
300 months was added by the sellers after the Haymans had
signed the document.  The sellers contend that the parties
agreed to a financing term of 300 months and that that term
was listed in the retail buyer's order at the time the Haymans
signed the document.
1050873
6
The Haymans filed this action on March 25, 2005; their
complaint alleged breach of contract, fraud in the inducement
of a contract, and fraud in the procurement of an arbitration
agreement. 
 
Soon 
thereafter, 
the 
Haymans 
served
interrogatories and requests for production upon the sellers.
The sellers answered the complaint on May 10, 2005, asserting
as an affirmative defense the arbitration provision and
reserving their right to seek a dismissal based on the
arbitration provision.  Nevertheless, the sellers also
asserted a counterclaim and demanded a trial by jury.  
When the sellers failed to respond to their discovery
requests, the Haymans in July 2005 moved the trial court for
sanctions and to hold the sellers in contempt; they again
moved for sanctions and contempt in January 2006.  At no time
during these discovery disputes did the sellers suggest that
any of the claims made the basis of the Haymans' discovery
requests were subject to resolution by arbitration.  The
sellers served their own interrogatories and requests for
production in July 2005.  In response to a motion for a trial
setting filed by the Haymans on December 28, 2005, the trial
court imposed a 60-day deadline for completing discovery and
1050873
7
set the matter for trial on April 3, 2006.  Again, the sellers
interposed no objection that any of the claims made the basis
of discovery was subject to arbitration.  On December 28,
2005, the Haymans took the depositions of two employees of Paw
Paw's Camper City, Inc.  On February 1, 2006, the sellers
deposed the Haymans.  Both the sellers and the Haymans called
upon the trial court on numerous occasions to intercede during
these depositions in order to settle disputes that arose
between the parties.  Again, the sellers interposed no
objection that any of the claims made the basis of the
discovery was subject to arbitration.  On February 6, 2006,
the sellers filed a motion to compel arbitration and to stay
further discovery.  
II. Standard of Review
Where, as here, no ore tenus testimony is taken before
the trial court, we review de novo a determination that a
party has waived its right to arbitration.  Hales v.
ProEquities, Inc.,  885 So. 2d 100, 105 (Ala. 2003).  
III. Analysis
A. Waiver of Arbitration by Substantial Invocation of the
Litigation Process
1050873
8
Our review of the issue whether a party has waived its
right to arbitration by substantially invoking the litigation
process is governed by the standard enunciated in Companion
Life Insurance Co. v. Whitesell Manufacturing, Inc., 670 So.
2d 897, 899 (Ala. 1995):
"It is well settled under Alabama law that a
party may waive its right to arbitrate a dispute if
it substantially invokes the litigation process and
thereby substantially prejudices the party opposing
arbitration.  Whether a party's participation in an
action amounts to an enforceable waiver of its right
to arbitrate depends on whether the participation
bespeaks of an intention to abandon the right in
favor of the judicial process and, if so, whether
the opposing party would be prejudiced by a
subsequent 
order 
requiring 
it 
to 
submit 
to
arbitration.  No rigid rule exists for determining
what constitutes a waiver of the right to arbitrate;
the determination as to whether there has been a
waiver must, instead, be based on the particular
facts of each case."
Both substantial invocation of the litigation process and
prejudice must be present to establish waiver.  Ex parte
Merrill Lynch, Pierce, Fenner & Smith, Inc.,  494 So. 2d 1
(Ala. 1986).  Because of the strong federal policy applicable
to 
arbitration 
proceedings 
set 
forth 
in 
the 
Federal
Arbitration Act, 9 U.S.C. § 1 et seq., one seeking to
establish a waiver of arbitration bears a heavy burden.
SouthTrust Bank v. Bowen,  [Ms. 1040411, December 8, 2006] ___
1050873
9
So. 2d ___ (Ala. 2006); Mutual Assurance, Inc. v. Wilson, 716
So. 2d 1160 (Ala. 1998).  
B. Substantial Invocation of the Litigation Process
The sellers rely on Ex parte Merrill Lynch, Pierce,
Fenner & Smith, Inc., supra, for the proposition that a delay
of over one year from the filing of the complaint is
insufficient evidence of waiver of arbitration.  As we noted
in Companion Life Insurance Co., "waiver must ... be based on
the particular facts of each case."  670 So. 2d at 899.  We
explained in Ex parte Merrill Lynch why the one-year period in
that case was deemed reasonable:  
"Plaintiff, however, waited nearly ten months before
she filed notice with the court that she was opting
out 
of 
the 
class 
in 
the 
pending 
federal
multidistrict litigation in New York.  Defendants
had no reason to seek arbitration before plaintiff's
opt-out, as they could have reasonably believed that
plaintiff would obtain her relief in the federal
suit, 
and, 
consequently, 
that 
the 
action 
in
Jefferson County would then be dismissed." 
 
494 So. 2d at 3.  The circumstances here -- a lapse of
approximately 10 months between commencing the action and
filing a motion to compel arbitration, during which both sides
conducted extensive discovery and the case was set for trial
1050873
The dissenting opinion does not acknowledge that the case
2
was set for trial without objection from the sellers.  
10
without objection from the sellers  –- are simply not remotely
2
comparable to the circumstances in Ex parte Merrill Lynch. 
The sellers note that in Ex parte Merrill Lynch, the
Court held that "'"[m]erely answering on the merits, asserting
a counterclaim (or cross-claim) or participating in discovery,
without more, will not constitute a waiver."'"  494 So. 2d at
3 (quoting Clar Prods., Ltd. v. Isram Motion Pictures, 529 F.
Supp. 381, 383 (S.D.N.Y. 1982), quoting in turn Dempsey &
Assocs., Inc. v. S.S. Sea Star, 461 F.2d 1009, 1018 (2d Cir.
1972)).  But, as we stated in Voyager Life Ins. Co. v. Hughes,
841 So. 2d 1216, 1219-20 (Ala. 2001), waiver may be found as
early as filing an answer on the merits.  In Terminix
International Co. v. Jackson, 669 So. 2d 893, 896 (Ala. 1995),
we noted that we had previously stated in Ex parte Costa &
Head (Atrium), Ltd., 486 So. 2d 1272, 1277 (Ala. 1986) (citing
Dempsey & Assocs., Inc., supra, and Gavlik Constr. Co. v. H.F.
Campbell Co., 526 F.2d 777 (3d Cir. 1975)), that "'[t]he
joining of issue on the merits, assertion of a counterclaim or
cross-claim, or engaging in discovery, alone, is not
sufficient to create a waiver.'"  Yet, in Terminix, the
1050873
11
plaintiff's complaint set forth claims of breach of contract
and fraud, and the motion to compel arbitration was directed
only to the breach-of-contract claim.  Here, the motion to
compel arbitration is directed to both the breach-of-contract
claim and the claim of fraud in the inducement of the entire
contract and was filed after all the pretrial activity
described in Terminix, plus, a factor not found in Terminix,
after the case had been set for trial without objection from
the party moving to compel arbitration.  Again, "waiver must
... be based on the particular facts of each case."  Companion
Life Ins. Co., 670 So. 2d at 899.   
The sellers contend that their extensive involvement in
the litigation process is justifiable based upon our precedent
relegating to the court, and not the arbitrator, a claim of
fraud in the procurement of the arbitration clause, separate
from the issue of fraud in the inducement of the entire
agreement.  See, e.g., Investment Mgmt. & Research, Inc. v.
Hamilton, 727 So. 2d 71 (Ala. 1999).  The sellers further
contend that the motion to compel arbitration was filed just
two days after the depositions of the Haymans in which, they
say, they discovered for the first time that the claim of
1050873
12
fraud in the procurement of the arbitration clause had no
basis in fact.  
Hamilton differs from this proceeding in that in that
case no claim was presented as to fraud in the inducement of
the entire contract.  Further, it does not deal with a waiver
of the right to arbitration by substantial invocation of the
litigation process.  Although the issue of fraud in the
procurement of the arbitration agreement is a question for the
court to resolve, the sellers offer no explanation for their
failure to obtain an early resolution of this issue by
immediately moving to compel arbitration and attaching
affidavits of their representatives establishing an agreement
to arbitrate.  At that juncture it would have been incumbent
upon the Haymans to bring forth evidence of fraud in the
procurement of the arbitration agreement.  If the Haymans
failed to do so, the motion would have been due to be granted.
If the Haymans submitted affidavits in opposition to the
sellers' motion to compel arbitration, the sellers could have
sought discovery limited to that necessary to resolve the
dispute as to arbitrability falling within the province of the
trial court.  See Ex parte Bill Heard Chevrolet, Inc., 927 So.
1050873
13
2d 792, 798 (Ala. 2005), for a thorough analysis of the proper
course of conduct for a party exposed to discovery on all
issues in an action when that party has the contractual right
to resolution of disputes by arbitration.  Yet the sellers
offer  no justification for their acquiescence in, and indeed
participation in, preparation for trial of all issues and for
their agreement to defer the deposition of the key witnesses
on the issue of fraud in the procurement of the arbitration
agreement until shortly before trial.  
C. Prejudice
Having found that there has been a substantial invocation
of the litigation process, we now address the issue of
prejudice.  The Haymans point out that "[t]he pure cost to the
plaintiffs, just for the [four] depositions, has been more
than $1650."  The sellers criticize the Haymans' statement
that they have expended $9,400 in this litigation for its lack
of specificity in identifying additional costs that would not
have been incurred in arbitration.  The sellers hypothesize in
their brief to this Court that "the minimal discovery which
was conducted prior to [the sellers'] seeking to compel
arbitration would also have been conducted in arbitration."
1050873
14
The sellers offer no authority for the proposition that we may
take judicial notice of their speculation that an arbitrator
in this proceeding would have allowed the same degree of
discovery that took place in the Mobile Circuit Court before
the sellers filed their motion to compel arbitration, and we
decline to do so.  For all that appears, the arbitrator would
have exercised its discretion in favor of allowing no
discovery.  
Moreover, the difficulty in quantifying the degree of
preparation for a jury trial, as opposed to a trial before an
arbitrator, was discussed in a special writing in Hales v.
ProEquities, Inc.,  supra, as follows:
"The 
Haleses' 
assertions 
that 
they 
were
substantially prejudiced in preparing for a jury
trial, 
as 
opposed 
to 
arbitration, 
are 
not
accompanied by any specific details.  However, it is
difficult to quantify such activity.  I have not
been away from the practice of law so long as to
forget that the details essential to adequate
preparation for trial before a jury are more
elaborate than when the trial is before the court or
the case is presented to an arbitrator."  
885 So. 2d at 107-08 (Lyons, J., concurring specially).  As
the Court stated in Hales, "'[p]rejudice has been found in
situations where the party seeking arbitration allows the
opposing party to undergo the types of litigation expenses
1050873
15
that arbitration was designed to alleviate.'"  885 So. 2d at
105-06 (quoting Morewitz v. West of England Ship Owners Mut.
Protection & Indem. Ass'n, 62 F.3d 1356, 1366 (11th Cir.
1995)).  The Haymans have amply shown prejudice from
participating in full-blown pretrial discovery addressing all
the issues in the case.  
Although a party asserting that the other party has
waived the right of arbitration by participating in pretrial
preparation bears a heavy burden and operates in face of a
presumption against a waiver of the right to arbitrate,
SouthTrust Bank v. Bowen, supra, a line must be drawn
somewhere, and, if it is not drawn here, we should revise our
standard to state that a party asserting pretrial waiver bears
a virtually impossible burden and faces an irrebuttable
presumption.  
IV. Conclusion
Because 
the 
Haymans 
have 
shown 
both 
substantial
invocation of the litigation process by the sellers and
prejudice, we conclude that the sellers have waived their
right to arbitration.  The order of the trial court denying
1050873
16
the sellers' motion to compel arbitration is due to be
affirmed. 
AFFIRMED. 
Cobb, C.J., and Woodall, Parker, and Murdock, JJ.,
concur.
Smith, J., concurs in the result.
See, Stuart, and Bolin, JJ., dissent.
1050873
17
BOLIN, Justice (dissenting).
Because I believe that the sellers have not waived their
right to compel arbitration, I must respectfully dissent.
This Court has stated:
"It is well settled under Alabama law that a
party may waive its right to arbitrate a dispute if
it substantially invokes the litigation process and
thereby substantially prejudices the party opposing
arbitration.  Whether a party's participation in an
action amounts to an enforceable waiver of its right
to arbitrate depends on whether the participation
bespeaks an intention to abandon the right in favor
of the judicial process, and, if so, whether the
opposing party would be prejudiced by a subsequent
order requiring it to submit to arbitration.  No
rigid rule exists for determining what constitutes
a 
waiver 
of 
the 
right 
to 
arbitrate; 
the
determination as to whether there has been a waiver
must, instead, be based on the particular facts of
each case."
Companion Life Ins. Co. v. Whitesell Mfg., Inc., 670 So. 2d
897, 899 (Ala. 1995).  Thus, in order to establish a waiver of
the right to arbitrate a dispute, the party opposing
arbitration must demonstrate both (1) that the party seeking
to compel arbitration has substantially invoked the litigation
process and (2) that the party opposing arbitration would be
substantially prejudiced by an order compelling arbitration.
SouthTrust Bank v. Bowen, [Ms. 1040411, December 8, 2006] __
So. 2d __ (Ala. 2006).  Because there is no rigid rule for
1050873
18
determining what constitutes a waiver of the right to
arbitrate, the determination as to whether there has been a
waiver must be based on the particular facts of each case.
Voyager Life Ins. Co. v. Hughes, 841 So. 2d 1216 (Ala. 2001).
Thus, the trial judge's determinations should be given
substantial weight on appeal.  Id.  However, a presumption
exists against a finding that a party has waived its right to
compel arbitration.  Bowen.  Further, "[o]ur 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."  Mutual
Assurance, Inc. v. Wilson, 716 So. 2d 1160, 1164 (Ala. 1998).
The Haymans argue on appeal that the sellers have waived
their right to arbitrate because, they say, the sellers have
substantially invoked the litigation process by filing a
counterclaim and requesting a jury trial; by participating
extensively in the discovery process, including filing, and
responding to, a number of motions relating to discovery; by
participating in the taking of four depositions; and by
waiting approximately 10 months from the date the complaint
1050873
19
was filed and 56 days before the case was to be tried before
moving to compel arbitration.  "'"Merely answering on the
merits, 
asserting 
a 
counterclaim 
(or 
cross-claim) 
or
participating in discovery, without more, will not constitute
a waiver."'" Ex parte Merrill Lynch, Pierce, Fenner & Smith,
494 So. 2d 1, 3 (Ala. 1986) (quoting Clar Prods., Ltd. v.
Isram Motion Pictures, 529 F. Supp. 381 (S.D.N.Y. 1982)). "But
... '"'the earliest point at which waiver of the right to
arbitration may be found "is when the other party files an
answer on the merits."'"'"  Hughes, 841 So. 2d at 1219-20
(quoting Wilson, 716 So. 2d at 1164, quoting other cases).
In Terminix International Co. v. Jackson, 669 So. 2d 893
(Ala. 1995), the plaintiffs agreed to purchase a house from a
third party.  At the closing, the third party showed the
plaintiffs a document that had been prepared by Terminix
indicating that Terminix had inspected the house and had
observed existing termite damage; a graph attached to the
document specifically described the nature and extent of the
damage.  The third party assigned to the plaintiffs his rights
in a termite bond he had previously acquired from Terminix.
This bond contained an arbitration clause, which provided that
1050873
20
any dispute arising out of or relating to the termite bond
would be settled by arbitration.
Subsequently, the plaintiffs discovered substantial
termite damage to the house and sued Terminix, alleging fraud
and breach of contract.  The plaintiffs alleged that Terminix
had misrepresented the nature of the termite damage and had
breached the termite bond by failing to repair their house in
accordance with the terms of the bond.  Terminix moved to
compel 
arbitration 
of 
the 
plaintiffs' 
breach-of-contract 
claim
pursuant to the arbitration clause in the termite bond.  The
plaintiffs argued in response to the motion to compel
arbitration that Terminix had waived its right to arbitration
because Terminix did not move to compel arbitration until
seven months after the action against it was filed, because
Terminix filed requests for admissions, interrogatories, and
requests for production of documents, because five depositions
had been taken by the parties, and because the plaintiffs had
spent over $900 in deposition expenses.
In concluding that the plaintiffs had failed to establish
that Terminix had waived its right to compel arbitration, this
Court determined that the plaintiffs were placed on notice of
1050873
This Court in Jackson also relied on the fact that the
3
discovery expenses incurred by the plaintiffs would not be
wasted because the discovery conducted between the parties
would be necessary to adjudicate the plaintiffs' nonarbitrable
fraud claims.
21
Terminix's arbitration rights when Terminix answered the
plaintiffs' complaint and pleaded the arbitration clause as a
defense, thereby not evincing "'an intent to abandon the right
to seek arbitration.'" Jackson, 669 So. 2d at 896 (quoting Ex
parte Merrill Lynch, 494 So. 2d at 3).   Here, the sellers,
3
like the defendant in Jackson, supra, answered the complaint
asserting as an affirmative defense the arbitration provision
contained in the "Retail Buyer's Order." The sellers
specifically stated that they reserved their right to seek a
dismissal of the Haymans' claims based on the arbitration
provision and that they were not waiving that right by
answering the complaint.  
In Investment Management & Research, Inc. v. Hamilton,
727 So. 2d 71 (Ala. 1995), Charles Brashier, a representative
of Investment Management & Research, Inc. ("IMR"), approached
Douglas 
Hamilton 
about 
opening 
a 
securities-investment 
account
with IMR.  Hamilton agreed and opened the account with IMR;
the account was managed by Brashier.  Subsequently, Hamilton
1050873
22
alleged  that Brashier stole $200,000 Hamilton had given
Brashier for the securities-investment account.
Hamilton sued IMR and Brashier, alleging various theories
of recovery, including a claim that he was fraudulently
induced to open and maintain his IMR investment account and to
continue to invest moneys with IMR through Brashier.  A
customer agreement Hamilton signed contained an arbitration
agreement.  IMR moved to compel arbitration. Hamilton opposed
the motion by arguing that he had been fraudulently induced to
sign the customer agreement; therefore, he argued, he was not
bound by an arbitration clause in a contract that, as a result
of fraud, was due to be rescinded, revoked, or declared void.
The trial court  denied IMR's motion to compel arbitration and
to stay the action pending arbitration.
In reversing the trial court's denial of the motion to
compel arbitration, this Court stated:
"Citing Prima Paint Corp. v. Flood & Conklin
Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed. 2d
1270 (1967), and the Alabama decisions that have
applied the holding in Prima Paint, IMR argues that
whether 
the 
customer agreement, including the
arbitration provision contained therein, is a valid,
enforceable 
contract 
must 
be 
resolved 
by
arbitration.
1050873
23
"In Prima Paint, the Court considered the
question 'whether the federal court or an arbitrator
is to resolve a claim of "fraud in the inducement,"
under 
a 
contract 
governed 
by 
[the 
Federal
Arbitration Act] where there is no evidence that the
contracting parties intended to withhold that issue
from arbitration.'  388 U.S. at 396-97, 87 S.Ct.
1801.
"....
"'Having determined that the contract
in question is within the coverage of the
[Federal] Arbitration Act, we turn to the
central issue in this case: whether a claim
of fraud in the inducement of the entire
contract is to be resolved by the federal
court, or whether the matter is to be
referred to the arbitrators.  The courts of
appeals have differed in their approach to
this question.  The view of the Court of
Appeals for the Second Circuit ... is that
-- except where the parties otherwise
intend –- arbitration clauses as a matter
of federal law are "separable" from the
contracts in which they are embedded, and
that where no claim is made that fraud was
directed to the arbitration clause itself,
a broad arbitration clause will be held to
encompass arbitration of the claim that the
contract itself was induced by fraud.  The
Court of Appeals for the First Circuit, on
the other hand, has taken the view that the
question of "severability" is one of state
law, and that where a State regards such a
clause as inseparable a claim of fraud in
the inducement must be decided by the
court. [Citations omitted.]
"'With respect to cases brought in
federal 
court 
involving 
[contracts]
evidencing transactions in "commerce," we
1050873
24
think 
that 
Congress 
has 
provided 
an
explicit answer. That answer is to be found
in § 4 of the [Federal Arbitration] Act,
which provides a remedy to a party seeking
to compel compliance with an arbitration
agreement. Under § 4, with respect to a
matter within the jurisdiction of the
federal courts save for the existence of an
arbitration clause, the federal court is
instructed to order arbitration to proceed
once it is satisfied that "the making of
the agreement for arbitration or the
failure to comply [with the arbitration
agreement] is not in issue."  Accordingly,
if the claim is fraud in the inducement of
the arbitration clause itself -- an issue
which goes to the "making" of the agreement
to arbitrate -- the federal court may
proceed 
to 
adjudicate 
it. 
 
But 
the
statutory language does not permit the
federal court to consider claims of fraud
in 
the 
inducement 
of 
the 
contract
generally.'
"Prima Paint, 388 U.S. at 402-04, 87 S.Ct. 1801
(first and third emphasis added [in Hamilton];
second emphasis original).
"In Jones v. Merrill Lynch, Pierce, Fenner &
Smith, Inc., 604 So. 2d 332, 337 (Ala. 1991), we
held:
"'Since Prima Paint, it has become
clear that in cases involving claims of
fraud in the inducement of a contract
affecting interstate commerce, the court
must first determine whether the fraud
claim is directed solely at the arbitration
clause itself. Coleman v. Prudential Bache
Securities, Inc., 802 F.2d 1350, 1352 (11th
Cir. 1986).... If so, the party opposing
arbitration 
is 
entitled 
to 
a 
trial
1050873
25
involving state law issues relating to the
making of the arbitration clause.
"'If, however, ... the court concludes
that the claim of fraud actually bears upon
the 
entire 
agreement 
and 
upon 
the
activities of the parties in general, the
provision 
in 
§ 
2 
[of 
the 
Federal
Arbitration Act] regarding the revocation
of 
contracts 
does 
not 
preclude 
the
federally 
created 
right 
to 
specific
performance of the arbitration clause.
Were it otherwise, a skillfully crafted
complaint would, in every case, necessitate
a trial thus effectively eviscerating the
[Federal 
Arbitration 
Act] 
and 
circumventing
the strong policy favoring arbitration.'
"(Citations omitted.)
"Relying on Prima Paint and Merrill Lynch, this
Court, in Old Republic Ins. Co. v. Lanier, 644 So.
2d 1258 (Ala. 1994), reversed the trial court's
denial of the motion to compel arbitration as to the
claim of fraud in the inducement of the contract,
because that claim did not 'place in issue the
making of the arbitration clauses themselves.' 644
So. 2d at 1263.
"In Ex parte Lorance, 669 So. 2d 890 (Ala.
1995), this Court followed the rationale of Prima
Paint 
and 
affirmed 
the 
trial 
court's 
order
compelling arbitration in a tort/breach-of-contract
action:
"'[The petitioner] argues that "even
if the Court determines that the matter is
subject to arbitration, the arbitration
should be stayed until the Petitioner has
had an opportunity to adjudicate his
fraud-in-the-inducement claims which, if
successful, would void the arbitration
1050873
26
provision." [The petitioner's] argument,
however, is contrary to applicable law.  As
long as an arbitration clause is broad
enough to encompass claims of fraud in the
inducement of the contract in which it is
found, any claims as to fraud in the
inducement of the contract generally, as
opposed 
to 
the 
arbitration 
agreement
specifically, are subject to arbitration.
Prima Paint Corp. v. Flood & Conklin Mfg.
Co., 388 U.S. 395, 87 S. Ct. 1801, 18 L.Ed.
2d 1270 (1967); Coleman v. Prudential Bache
Securities, Inc., 802 F. 2d 1350 (11th Cir.
1986); Jones v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., 604 So. 2d 332 (Ala.
1991).  Here, the arbitration clause
states: "Any controversy or claim arising
out of or relating to this contract, or the
breach 
thereof, 
shall 
be 
settled 
by
a r b i t r a t i o n . . . . "  
C l e a r l y ,  
[ t h e
petitioner's] claims as to fraud in the
inducement of the contract "relat[e] to"
the contract, and the arbitration clause is
therefore broad enough to encompass those
claims.  [The petitioner] did not allege
any claims of fraud in the inducement
specific to the arbitration provision
itself.  Thus, all claims attacking the
contract 
on 
the 
basis 
of 
fraud,
suppression, deceit, etc., are subject to
arbitration.'
"669 So. 2d at 892-93 (emphasis in original).
"....
"The facts of this present case, however, place
it 
within 
the 
application 
of 
the 
principles
announced in Prima Paint.  Hamilton did not assert
a claim of fraud in the inducement as to the
arbitration clause; rather, Hamilton challenged the
IMR customer agreement as having been fraudulently
1050873
The Haymans testified in their depositions that the
4
sellers did not make any representations regarding the
arbitration agreement and, more importantly, the Haymans
stated that they did not read the "Retail Buyer's Order"
containing the arbitration provision before they signed it.
See Foremost Ins. Co. v. Parham, 693 So. 2d 409 (Ala. 1997).
27
induced.  In other words, Hamilton did not contend
that the execution of the arbitration provision
itself (i.e., apart from the execution of the other
provisions of the customer agreement) was induced by
fraud.
"To reiterate, when a claim of fraud in the
inducement is directed toward the arbitration clause
itself, the issue is adjudicated by the court.  On
the other hand, when a claim of fraud in the
inducement is directed toward the entire contract,
as 
in 
this 
case, 
the 
issue 
is 
subject 
to
arbitration. Because Hamilton claimed fraud in the
inducement 
of 
the 
customer-agreement 
contract
generally, as opposed to the arbitration clause
specifically, Hamilton's claims against IMR are
subject to arbitration according to the terms of the
customer agreement he signed."
Hamilton, 727 So. 2d at 74-78.
Here, the Haymans asserted a claim of fraud in the
procurement of the arbitration clause, a claim they knew when
they asserted it had no basis in fact.   Once the sellers
4
deposed the Haymans on February 1, 2006, and discovered for
the first time that the Haymans' claim asserting fraud in the
procurement of the arbitration agreement specifically had no
basis in fact, they immediately moved the trial court, on
1050873
28
February 6, 2006, to compel arbitration pursuant to the
arbitration agreement contained in the "Retail Buyer's Guide."
Based on this Court's decision in Hamilton, the sellers had no
basis on which to compel arbitration before February 1, 2006,
even as to the claims asserting fraud in the inducement of the
contract and breach of contract.  Therefore, because the
sellers promptly moved to compel arbitration after learning
that the Haymans' claim of fraud in the procurement of the
arbitration agreement had no basis in fact, I cannot conclude
that they waived the right to compel arbitration.
Based on the foregoing, I conclude that the sellers did
not waive their right to arbitration; therefore, I must
respectfully dissent.
See and Stuart, JJ., concur.