197 So. 3d 971
Ala.2015Background
- Reedstrom was an insured under an executive/entity/employment-practices liability policy issued to his employer, Mountain Lakes Behavioral Healthcare (MLBHC), which contained a broad arbitration clause incorporating the AAA commercial rules.
- MLBHC sued and obtained a judgment against Reedstrom; Reedstrom sought coverage and defense from Federal Insurance, which denied coverage and refused defense.
- Reedstrom then sued Federal Insurance in state court for breach of the insurance contract, seeking amounts corresponding to the judgment against him and defense fees.
- Federal Insurance moved to compel arbitration under the policy’s arbitration provision; the trial court denied the motion without a stated rationale; Federal Insurance appealed.
- The central contested threshold questions were (a) whether Federal Insurance waived its right to arbitrate and (b) whether a nonsignatory (Reedstrom) could be compelled to arbitrate under the policy.
Issues
| Issue | Plaintiff's Argument (Reedstrom) | Defendant's Argument (Federal Ins.) | Held |
|---|---|---|---|
| Whether arbitrability (waiver) must be decided by court or arbitrator | Federal Insurance waived arbitration by its conduct; court should decide waiver | Arbitration clause (incorporating AAA rules) delegates arbitrability to the arbitrator | Court held delegation to arbitrator was clear (AAA Rule 7(a)); arbitrator decides waiver |
| Whether nonsignatory may be compelled to arbitrate | Reedstrom (nonsignatory) cannot be forced to arbitrate because he did not sign the policy | The policy’s incorporation of AAA rules delegates threshold questions, including signatory issues, to arbitrator | Court held signatory/nonsignatory threshold was delegated to arbitrator and thus not for the court to resolve |
| Validity/existence of arbitration agreement | Reedstrom contended he was not a party to the agreement | Federal Insurance showed the policy existed and Reedstrom was an insured under it | Court treated existence of arbitration contract as established; dispute over application delegated to arbitrator |
| Whether trial court properly denied motion to compel arbitration | Reedstrom urged denial based on waiver and nonsignatory status | Federal Insurance argued trial court erred by resolving arbitrability issues the arbitration clause committed to arbitrators | Court reversed: trial court erred; must compel arbitration and let arbitrator decide threshold issues |
Key Cases Cited
- Anderton v. Practice-Monroeville, P.C., 164 So.3d 1094 (Ala. 2014) (explains when courts vs. arbitrators decide waiver and nonsignatory issues; delegation exception)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (U.S. 1995) (requires clear and unmistakable evidence to assign arbitrability to arbitrator)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (U.S. 2002) (distinguishes procedural vs. substantive arbitrability)
- CitiFinancial Corp. v. Peoples, 973 So.2d 332 (Ala. 2007) (AAA‑rule incorporation indicates intent to delegate arbitrability)
- Chris Myers Pontiac‑GMC, Inc. v. Perot, 991 So.2d 1281 (Ala. 2008) (judicial notice of AAA commercial rules)
- Elizabeth Homes, L.L.C. v. Gantt, 882 So.2d 313 (Ala. 2003) (standard of review for orders denying motions to compel arbitration)