
    LIBERTY FINANCE, INC. v. Ethel CARSON.
    1990400.
    Supreme Court of Alabama.
    Aug. 4, 2000.
    Opinion Overruling Rehearing March 30, 2001.
    Jennifer M. Busby and Richard C. Keller of Burr & Forman, L.L.P., Birmingham, for appellant.
    James M. Sims of Kirkpatrick & Associates, Anniston, for appellee.
   COOK, Justice.

The defendant Liberty Finance, Inc., appeals from the denial of its motion to compel arbitration. We affirm.

The plaintiff Ethel Carson sued Liberty Finance, Inc., and CNL/Insurance America, Inc., alleging fraud in connection with a consumer loan she had obtained and insurance she had purchased in connection with the loan. Her complaint alleged that she had negotiated a loan from Liberty Finance in the amount of $4,725.55, plus interest, and that she was required to purchase credit-life insurance and credit-disability insurance on the loan. The premium for the credit insurance was added to the loan balance and was included in the amount financed through Liberty Finance. The total amount paid over the 35-month period of the loan, including finance charges, was represented to the plaintiff to be $6,672.37. The plaintiff alleges that at the same time, Liberty Finance, acting as agent of the defendant CNL, sold her automobile insurance on her 1986 Buick Park Avenue and her 1986 Oldsmobile Brougham; the automobiles were the collateral used for the loan. She alleges that Liberty Finance knew that the collateral was insured by another insurance company and that additional insurance would be of no benefit to her. The annual interest rate disclosed to the plaintiff was 23.84%.

The plaintiffs complaint contained counts alleging (1) the fraudulent sale of credit insurance and automobile insurance; (2) the fraudulent sale of excessive property insurance; (3) a fraud regarding the price of insurance; (4) a Mini-Code violation in regard to the sale of insurance; and (5) a civil conspiracy. The complaint also contained a request that the plaintiff be allowed to proceed as a class representative and contained a request for a declaratory judgment in regard to some class-action issues. Liberty Finance answered the complaint, asserting 60 defenses. It also moved to stay proceedings and to compel arbitration. The trial judge held a hearing on the motion to compel arbitration and denied it on the basis that the arbitration provision contained in Liberty Finance’s loan document was too narrow to embrace the plaintiffs claims, stating specifically “The fraud claims of plaintiff in the present case do not relate to any dispute, controversy, or claim arising out of or relating to any benefits or coverage or the breach thereof, but instead arise from the alleged requirement that plaintiff purchase unneeded insurance.” (Emphasis in original.) The order reads as follows:

“This case is before the court on a motion to compel arbitration filed by defendant, Liberty Finance, Inc.
“Plaintiff alleges in her complaint that she negotiated a loan with Liberty Finance and that at the time of the transaction, she was required to purchase credit life insurance and credit disability insurance on the loan. The premium for the credit insurance was added to the loan balance and included the amount financed by Liberty. Further, she alleges that Liberty also sold her automobile insurance on the two vehicles used as collateral for the loan and that these premiums were also added to the loan balance. Plaintiff further alleges that Liberty knew that the collateral was insured by a different insurance company and that the additional insurance was of no benefit to her but required her to purchase the insurance in order to obtain the loan.
“Plaintiff seeks to recover for fraud incident to the sale of the insurance, and also for a violation of the Mini-Code.
“The arbitration provision of the contract signed by plaintiff provides as follows:
“ ‘Any dispute, controversy or claim arising out of or relating to any benefits or coverage hereunder or the breach thereof, shall be settled by binding arbitration in accordance with the dispute resolution procedures for insurance claims of the American Arbitration Association and in accordance with the Federal Arbitration Act. The arbitration shall be held before an arbitrator appointed pursuant to the dispute resolution procedures for insurance claims. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. All statutes of limitation that would otherwise be applicable shall apply to any arbitration proceeding.
“ T (we): (1) have read; (2) understand; (3) received a copy of; and (4) accept the terms of the pre-dispute binding arbitration agreement which covers the following as pertain to loan number 171813.’
“Defendant Liberty Finance asserts that the arbitration provision is broad enough to cover plaintiffs claims in this action. Plaintiff contends that the provision is narrow and limited to its scope and does not cover her claims.
“In a recent case addressing the application of an arbitration provision to claims of fraud in the inducement, the Alabama Supreme Court held that the arbitration clause was applicable because the agreement was ‘broadly worded ..., encompassing “all controversies which may arise ..., including but not limited to those involving any transaction or the construction, performance, or breach of this or any other agreement between [Merrill Lynch and Kil-gore] ....’” [Merrill Lynch, Pierce, Fenner & Smith v. Kilgore, 751 So.2d 8, 11-12 (Ala.1999) ].
“The wording of the arbitration clause in the contract now before the court is decidedly less broad, making reference only to disputes arising out of or relating to benefits or coverage or the breach thereof. There is no reference to ‘all controversies arising between the parties’ but only a reference to disputes of a specific nature.
“The arbitration language before the court is more akin to that addressed by the Alabama Supreme Court in American Bankers Life Assurance Co. v. Rice Acceptance Co., 709 So.2d 1188 (Ala.1998), in which the Court found [the clause] to be too narrow to embrace a claim of fraud in the inducement of the contract. The pertinent language before the Supreme Court in that case was as follows: ‘In the event of a dispute or disagreement between the parties as to the meaning or interpretation of this Agreement, or any portion thereof ... at [the] option of either party, the matter in dispute or disagreement may be put to arbitration.... ’
“The fraud claims of plaintiff in the present case do not relate to any dispute, controversy, or claim arising out of or relating to any benefits or coverage or the breach thereof, but instead arise from the alleged requirement that plaintiff purchase unneeded insurance. Fully cognizant of the policy favoring arbitration and that ambiguities as to the scope of arbitration clauses should be resolved in favor of arbitration, the court finds that the arbitration clause before the court is not susceptible of any reasonable interpretation that covers the asserted claim.
“Accordingly, IT IS ADJUDGED that the motion to compel arbitration is denied.
“DATED OCTOBER 19,1999.
7s/ Randall Cole
“Circuit Judge”

The trial judge found the arbitration language in the present case akin to that addressed by this Court in American Bankers Life Assurance Co. v. Rice Acceptance Co., 709 So.2d 1188 (Ala.1998). The arbitration clause in American Bankers provided:

“In the event of any dispute or disagreement between the parties as to the meaning or interpretation of this Agreement, or any portion thereof, which cannot be resolved by mutual agreement between the parties within thirty (30) days after such dispute or disagreement arises, then and in such event, and at the option of either party, the matter in dispute or disagreement may be put to arbitration in accordance with the rule[s] of the American Arbitration Association, and subject to applicable provisions of the statutes of the state in which the customer is domiciled dealing with arbitration .... ”

Id. at 1189. In American Bankers, this Court affirmed the trial court’s denial of a motion to compel arbitration.- We determined that the arbitration clause was “clearly limited to the ‘meaning or interpretation’ of the contract.” Id. at 1191.

It is settled law that when an appellate court reviews on appeal a trial court’s denial of a motion to compel arbitration, the reviewing court applies a de novo standard of review. First Am. Title Ins. Corp. v. Silvernell, 744 So.2d 883, 886 (Ala.1999), citing Crimson Indus., Inc. v. Kirkland, 736 So.2d 597 (Ala.1999); Patrick Home Ctr., Inc. v. Karr, 730 So.2d 1171 (Ala.1999). Applying that standard of review, we conclude that the trial court properly denied Liberty Finance’s motion to compel arbitration.

Here, as in American Bankers, the arbitration clause has a very narrow coverage. The arbitration clause is limited to “[a]ny dispute, controversy or claim arising out of or relating to any benefits or coverage hereunder or the breach thereof.” It is clearly limited to disputes regarding the meaning or interpretation or breach of the agreement. Both the clause in American Bankers and the clause before us were written to address specific disputes, and they are not broad enough to encompass fraud claims. Resolution of the fraud claims presented in the instant case will not require an inquiry into the meaning of the loan document or the parties’ performance in regard to the terms of that document; thus, the fraud claims are not subject to the arbitration provision. Accordingly, we affirm the trial court’s order denying the motion to compel arbitration.

AFFIRMED.

HOUSTON, LYONS, BROWN, JOHNSTONE, and ENGLAND, JJ„ concur

HOOPER, C.J., and MADDOX and SEE, JJ., dissent.

HOOPER, Chief Justice

(dissenting).

I must respectfully dissent. The arbitration provision is not limited to “[a]ny dispute, controversy or claim arising out of or relating to any benefits or coverage hereunder or the breach thereof .” The entire arbitration provision signed by Ethel Carson reads as follows:

“PRE-DISPUTE BINDING ARBITRATION AGREEMENT
“ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO ANY BENEFITS OR COVERAGE HEREUNDER OR THE BREACH THEREOF, SHALL BE SETTLED BY BINDING ARBITRATION IN ACCORDANCE WITH THE DISPUTE RESOLUTION PROCEDURES FOR INSURANCE CLAIMS OF THE AMERICAN ARBITRATION ASSOCIATION AND IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT. THE ARBITRATION SHALL BE HELD BEFORE AN ARBITRATOR APPOINTED PURSUANT TO THE DISPUTE RESOLUTION PROCEDURES FOR INSURANCE CLAIMS. JUDGEMENT UPON THE AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ALL STATUTES OF LIMITATION THAT WOULD OTHERWISE BE APPLICABLE SHALL APPLY TO ANY ARBITRATION PROCEEDING.
“I (WE): (1) HAVE READ; (2) UNDERSTAND; (3) RECEIVED A COPY OF; AND (4) ACCEPT THE TERMS OF THE PRE-DISPUTE BINDING ARBITRATION AGREEMENT WHICH COVERS THE FOLLOWING AS PERTAINS TO LOAN NUMBER 171813
“ *LOAN CONTRACT AGREEMENT
“ *ANY AND ALL INSURANCES
“ *ANY ELECTIVE MEMBERSHIPS”

Although this phrase was not included in the trial court’s quote of the arbitration provision, it is clear that the arbitration provision applies to “any and all insurances” pertaining to Carson’s loan. As the trial court stated, Carson’s claim against Liberty Finance arises from the alleged requirement that she purchase unneeded insurance in order to obtain a loan. Therefore, the arbitration provision embraces Carson’s claims, and that provision should be enforced.

On Application for Rehearing

PER CURIAM.

APPLICATION OVERRULED.

MOORE, C.J., and HOUSTON, LYONS, BROWN, JOHNSTONE, WOODALL, and STUART, JJ., concur.

SEE and HARWOOD, JJ., dissent.

HARWOOD, Justice

(dissenting).

I respectfully dissent. I was not a member of this Court when the original opinion in this case was issued on August 4, 2000. I agree with the dissenting opinion of then Chief Justice Hooper. I write further, however, to express my disagreement with the Court’s opinion of August 4, 2000, affirming the order of the trial court.

The arbitration provision in question, contained in a contract signed by the plaintiff, provides in pertinent part that “[a]ny dispute, controversy or claim arising out of or relating to any benefits or coverage hereunder or the breach thereof, shall be settled by binding arbitration.” See 793 So.2d at 703. Further, it concludes with the acknowledgment by plaintiff that, in pertinent part,

“I ... (1) HAVE READ; (2) UNDERSTAND; (3) RECEIVED A COPY OF; AND (4) ACCEPT THE TERMS OF THE PRE-DISPUTE BINDING ARBITRATION AGREEMENT WHICH COVERS THE FOLLOWING AS PERTAINS TO [PLAINTIFF’S LOAN FROM DEFENDANT]
“*LOAN CONTRACT AGREEMENT
*ANY AND ALL INSURANCES
*ANY ELECTIVE MEMBERSHIPS.”

(Emphasis supplied.)

Relying principally on its opinion in American Bankers Life Assurance Co. v. Rice Acceptance Co., 709 So.2d 1188 (Ala.1998), this Court held that this arbitration clause has a “very narrow coverage,” being “clearly limited to disputes regarding the meaning or interpretation or breach of the agreement.” 793 So.2d at 705. I disagree. The clause construed in American Bankers was indeed so limited, explicitly so, to-wit: “In the event of any dispute or disagreement between the parties as to the meaning or interpretation of this Agreement, or any portion thereof, ... the matter in dispute or disagreement may be put to arbitration.... ” 709 So.2d at 1189. (Emphasis supplied.)

I read the arbitration clause at issue in this case to be broader than that construed by this Court in American Bankers. Although the clause in American Bankers was restricted to any dispute or disagreement “as to” the “meaning or interpretation” of the agreement, the clause in the present case relates to any dispute, controversy, or claim “arising out of or relating to” any “benefits or coverage,” or to the breach thereof, and plaintiff specifically acknowledged her understanding that the clause “covers ... any and all insurances.” Contrary to the majority opinion, I cannot read this language as “clearly limit[ing]” the scope of the arbitration clause “to disputes regarding the meaning or interpretation or breach of the agreement.” 793 So.2d at 705. Under our caselaw, the phrase “arising out of or relating to” has a much broader reach. The clause in American Bankers did clearly limit its scope to disputes, etc., “as to the meaning or interpretation ” of the agreement, but the majority opinion simply states in conclusory fashion that the “scope” clause presented for interpretation and construction in this case is likewise “clearly” limited to disputes regarding “the meaning or interpretation,” as well as the “breach” of the agreement. This is an unwarranted transposition and extrapolation of the holding of American Bankers, which simply held that an arbitration clause that is expressly and explicitly limited to disputes or agreements concerning “the meaning or interpretation” of the agreement, is thereby indeed limited to the “meaning or interpretation” of the agreement. American Bankers, 709 So.2d at 1191. The clause at issue in this case nowhere uses the operative phrase “meaning or interpretation,” and yet this Court has attributed to it that very language, saying that “[i]t is clearly limited to disputes regarding the meaning or interpretation or breach of the agreement.” 793 So.2d at 705.

In Oakwood Acceptance Corp. v. Hobbs, 789 So.2d 847 (Ala.2001), this Court declared:

“In applying general Alabama rules of contract interpretation to the language of an arbitration agreement subject to the Federal Arbitration Act (‘FAA’), this Court must, in accordance with the federal substantive law on arbitration, resolve any ambiguities as to the scope of the arbitration agreement in favor of arbitration. See Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) (§ 2 of the FAA ‘create[s] a body of federal substantive law of arbi-trability, applicable to any arbitration agreement within the coverage of the Act’ and ‘establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration’); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985) (in construing an arbitration agreement within the coverage of the FAA, ‘as with any other contract, the parties’ intentions control, but those intentions are generously construed as to issues of ar-bitrability’); Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 475, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989) (‘in applying general state-law principles of contract interpretation to the interpretation of an arbitration agreement within the scope of the Act, due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration’ (citation omitted)); see Homes of Legend, Inc. v. McCollough, 776 So.2d 741 (Ala.2000).”

789 So.2d at 852. See also, Birmingham News Co. v. Lynch, [Ms. 1992184, Feb. 23, 2001]-So.2d-(Ala.2001).

This Court is thus obligated to construe the particular phrase at issue so as to resolve ambiguities as to the scope of the arbitration clause in favor of arbitration. Construing the clause in that manner, I conclude that the fraud claims asserted by the plaintiff Carson assert disputes, controversies, or claims “arising out of or relating to any benefits or coverage,” including “any and all insurances,” and, therefore, that those disputes, controversies, or claims are within the scope of the arbitration clause. As the majority opinion notes, the plaintiff is asserting “fraudulent sale of credit insurance and automobile insurance; ... the fraudulent sale of excessive property insurance; ... [and] a fraud regarding the price of insurance.” 793 So.2d at 703. How is it that these claims do not arise out of, or relate to, benefits under the loan agreement, including “any and all insurances”? 
      
      . She also sued a number of fictitiously named defendants.
     