Opinion ID: 1782635
Heading Depth: 1
Heading Rank: 3

Heading: analysis

Text: The primary issue presented by this petition is whether the trial court clearly abused its discretion in allowing Hyde to conduct discovery on the issue of the validity and enforceability of the arbitration provision. We hold that the trial court abused its discretion in allowing Hyde to conduct discovery without first making a factual showing as to why that discovery was justified. Therefore, we grant, in part, Greenstreet's petition. However, for the reasons set forth below, we also find it inappropriate, at this juncture, to grant that portion of Greenstreet's petition seeking a writ directing the trial court to compel arbitration of Hyde's claims. Accordingly, we deny that portion of Greenstreet's petition. We have repeatedly analogized a trial court's duty in ruling on a motion to compel arbitration to its duty in ruling on a motion for a summary judgment. See Southern Energy Homes, Inc. v. Harcus, 754 So.2d 622, 625-26 (Ala.1999), citing Allied-Bruce Terminix Cos. v. Dobson, 684 So.2d 102, 108 (Ala.1995); First Family Fin. Servs. v. Jackson, supra; Fleetwood Enters. v. Bruno, 784 So.2d 277 (Ala. 2000); Premiere Auto. Group, Inc. v. Welch, 794 So.2d 1078 (Ala.2001). Resolution of the issue presented by this petition requires us to further refine our application, by analogy, of the practice under Rule 56, Ala. R. Civ. P., dealing with a motion for summary judgment, to a motion to compel arbitration. While the summary-judgment procedure is not a perfect matrix for dealing with arbitration, many aspects of it are useful. The difficulty here lies in harmonizing the practice under Rule 56, where hearings without adequate time for discovery are inappropriate, with demands for arbitration, a method of dispute resolution where discovery is the exception and not the norm. At a trial on the issue whether a dispute is subject to arbitration, the party moving for arbitration has the burden of proving the existence of a contract containing an arbitration clause, in a transaction that substantially affects interstate commerce. See Sisters of the Visitation v. Cochran Plastering Co., 775 So.2d 759, 765 (Ala.2000). If the party moving to compel arbitration fails to make such a showing, the burden of proof does not shift to the opposing party and the motion should be denied. See Ex parte General Motors Corp., 769 So.2d 903 (Ala.1999) (holding that burden-shifting depends upon the movant's ultimate burden at trial). Greenstreet moved to compel arbitration of every claim asserted against it by Hyde. Rather than responding to the merits of the motion to compel, Hyde sought discovery on the issue of contract defenses applicable to the entire agreement, as well as discovery on those contract defenses applicable solely to the arbitration agreement. The trial court allowed discovery, but only on those contract defenses applicable to the arbitration agreement, obviously deferring its consideration of the motion to compel arbitration until limited discovery had been completed. In First Family Financial Services, supra, this Court addressed a claim substantially similar to the one presented to the trial court in the instant case. In First Family Financial Services, the defendant moved to compel arbitration, and Jackson, the plaintiff, sought discovery to prove that the arbitration agreement was unconscionable. However, Jackson presented no evidence in opposition to the motion to compel arbitration. The trial court denied the motion to compel arbitration; this Court reversed. Justice Lyons, writing for the Court, stated: The problem in this case is that Jackson did not present the substantial evidence [necessary to support a finding that an arbitration clause is unconscionable], but seeks the opportunity to create a record containing such evidence. Jackson asked for an opportunity to conduct discovery, but he offered no evidence whatever in opposition to First Family's motion to compel arbitration. Discovery is not necessary in order for a party to present evidence, such as the party's affidavit detailing the facts about which he has knowledge, or a compilation of information regarding the number of finance companies that will not make consumer loans without the borrower's signing an arbitration clause or agreement. We recently addressed a similar question in Fleetwood Enterprises, Inc. v. Bruno, 784 So.2d 277 (Ala. 2000). In that case, the plaintiff had requested an evidentiary hearing, but had submitted no evidence opposing the defendant's motion to compel arbitration. Justice Lyons, in a special concurrence in Fleetwood Enterprises, wrote: `It is well settled that a motion to compel arbitration is analogous to a motion for summary judgment. After a motion to compel arbitration has been made and supported, the burden is on the nonmovant to present evidence indicating that the supposed arbitration agreement is not valid or does not apply to the dispute in question. `None of [the plaintiff] Bruno's three responses to the motions to compel arbitration was supported by any evidentiary material. Bruno's requests for an evidentiary hearing, standing alone, are not the equivalent of submission of evidence. We do not permit a party to defeat an opposing party's motion for summary judgment simply by requesting an evidentiary hearing.... We cannot justify disparate procedural treatment based simply on the fact that the underlying facts of this case may, if properly presented, demonstrate unconscionability of an arbitration agreement.' 784 So. 2d at 281-82 (Lyons, J., concurring specially) (citations and footnotes omitted). First Family Fin. Servs., 786 So.2d at 1130. Because Jackson offered no evidence in opposition to First Family's motion to compel arbitration, we held in First Family Financial Services that the trial court had erred in denying the defendant's motion to compel arbitration. Id. However, as previously noted, the application by analogy of the practice under Rule 56, Ala. R. Civ. P., dealing with motions for summary judgment, to motions to compel arbitration, is not a perfect fit. Under certain circumstances, the evidence necessary to challenge the enforceability of an arbitration provision may be exclusively within the other party's possession. Under those circumstances, the party opposing arbitration will be unable or virtually unable to obtain the necessary evidence except through discovery. Thus, if, before allowing that party to conduct discovery, this Court requires that party to present substantial evidence of the defenses to arbitration that party expects to uncover during discovery, such a requirement could well eliminate the very defenses recognized by federal law (and hence by Alabama law) as legitimate defenses against a properly supported motion to compel arbitration. Such a result would be untenable. We are mindful that discovery is not a tool by which a party may annoy, embarrass, or unduly burden the opposing party. Rule 26, Ala. R. Civ. P. While a showing of good cause is not ordinarily required in order to justify discovery in a civil action, in a case ostensibly subject to arbitration, as established by a properly supported motion to compel, to require a party to present some degree of factual specificity as to the necessity of the discovery does not impose an unreasonable burden. However, to require, without exception, that a plaintiff present substantial evidence of what she expects to find during discovery on the issue whether the agreement to arbitrate is enforceable, before allowing her to conduct that discovery, seems unreasonably harsh. In an attempt to resolve the issues presented by this petition, we must balance these competing interests and shifting burdens of production. We hold that once a moving party has satisfied its burden of production by making a prima facie showing that an agreement to arbitrate exists in a contract relating to a transaction substantially affecting interstate commerce, the burden of persuasion shifts to the party opposing arbitration. If that party presents no evidence in opposition to a properly supported motion to compel arbitration, then the trial court should grant the motion to compel arbitration. Additionally, if the party opposing a properly supported motion to compel arbitration desires discovery, that party must present a factually based predicate before a right to conduct discovery regarding matters that could invalidate the agreement to arbitrate arises. See Ex parte Dickinson, 711 So.2d 984 (Ala.1998); Premiere Auto. Group v. Welch, 794 So.2d 1078 (Ala.2001); and Ex parte Jim Burke Auto., Inc., 776 So.2d 118 (Ala.2000). At a minimum, a party opposing a properly supported motion to compel arbitration and seeking discovery on issues that could invalidate the arbitration agreement must provide an affidavit describing the circumstances that are within its knowledge and that are relevant to its claimed defenses to arbitration. Where information beyond the knowledge of the opposing party is essential to the resolution of the issue and discovery regarding that information is necessary, the trial court and the parties should turn to Rule 56(f), to the extent practicable, as it deals with the circumstances appropriate for continuing a hearing on a motion for summary judgment. An accumulated body of precedent exists under Rule 56(f) that should guide the trial court in disposing of the issue of the necessity for discovery on matters that might provide a basis for defending against a motion to compel arbitration. We acknowledge that, at first blush, this Court's holding in First Family Financial Services appears to dispose of the issues presented by this petition. However, First Family Financial Services and the instant case are distinguishable. In First Family Financial Services, the plaintiff opposed the motion to compel arbitration on its merits and also asked for discovery. The trial court entered an order denying arbitration, based upon a waiver. This Court found the waiver insufficient and reversed, requiring arbitration. While this fact was not specifically addressed in the opinion, the plaintiff's effort to obtain further discovery did not satisfy the requirements of Rule 56(f). A party's failure to submit contradictory evidence before a court rules on a motion for summary judgment limits the record to matters before the court at the time of the ruling. Moore v. Glover, 501 So.2d 1187 (Ala.1986). In First Family Financial Services, we did not remand for discovery on the arbitration issues, because the plaintiff had made an insufficient evidentiary showing before the trial court ruled on the motion to compel. In this case, unlike in First Family Financial Services, the trial court has not ruled on the motion to compel arbitration. Neither Hyde nor the trial court had the benefit of our holding in First Family Financial Services when the trial court ordered limited discovery. Under these circumstances, we find it inappropriate to issue a writ directing the trial court to compel arbitration. Thus, we deny Greenstreet's request for a writ of mandamus directing the trial court to grant Greenstreet's motion to compel arbitration. [2] However, we direct the trial court to immediately set for a hearing Greenstreet's motion to compel arbitration. If that motion is properly supported and if Hyde does not formally oppose that motion, then the circuit court is directed to grant it. We also find it inappropriate to allow the trial court's order, allowing Hyde to conduct limited discovery into the validity and enforceability of the arbitration provision, to stand. Hyde offered nothing in opposition to Greenstreet's motion to compel arbitration, and the trial court did not require any degree of factual specificity from Hyde in support of her request for discovery. Under the factually-based-predicate standard established herein, it would be a clear abuse of the trial court's discretion to allow Hyde to conduct discovery without a factual showing as to why that discovery was justified. For these reasons, Greenstreet is entitled to a portion of the relief it seeks. The Walker Circuit Court is directed to vacate its order allowing discovery in Hyde's action. However, because neither Hyde nor the trial court had the benefit of this Court's detailed analysis regarding the factually-based-predicate standard at the time the discovery order was issued, [3] we believe it is appropriate to allow Hyde an opportunity to meet that factually-based-predicate standard in order to establish her right to the discovery she seeks. However, any further proceedings involving discovery on the issue of arbitrability shall be consistent with this opinion.