In this week's Alabama Weekly Law Update, we bring you an Eleventh Circuit Court of Appeals opinion dealing with the enforceability of arbitration agreements. We also review an Alabama Supreme Court decision addressing a trial court's discretion to consider new legal arguments in a post-judgment hearing.
Dasher v. RBC Bank (USA), No. 13-10257, 2014 WL 504704 (11th Cir. Feb. 10, 2014)
This case arises out of multidistrict litigation in which customers sued RBC Bank for allegedly charging excessive overdraft fees. In this opinion, the Eleventh Circuit Court of Appeals considered whether RBC could compel arbitration against the bank-customer plaintiffs.
The original account agreement between the customers and RBC included an arbitration clause. However, when PNC Financial Services Group, Inc. acquired RBC, PNC and the customers entered into new account agreements that did not include arbitration.
RBC filed a motion to compel arbitration. The district court denied RBC's motion concluding that the new agreement, without an arbitration clause, superseded the original agreement. RBC appealed to the Eleventh Circuit Court of Appeals.
On appeal, RBC's first argument was that the Federal Arbitration Act (FAA) creates a presumption in favor of arbitration. In response, the Court held that the FAA presumption does not apply to questions of whether an arbitration agreement exists; rather, the presumption only applies to questions of interpretation and scope. In this case, the issue was whether a valid arbitration agreement existed, not the scope or interpretation of the arbitration agreement. Therefore, the Court looked to applicable state contract law to determine this question. Based on applying North Carolina law, the Court found that the second account agreement completely superseded the first account agreement. Since the second agreement did not include an arbitration clause, there was no arbitration agreement between the parties, and the presumption in favor of arbitration did not apply.
RBC also argued that the second agreement's failure to mention arbitration did not invalidate the arbitration clause in the first agreement. The Court noted that when a contract supersedes a previous contract, it supersedes all provisions of that contract. Therefore, the arbitration clause in the first agreement did not survive since the entire agreement had been superseded by the second agreement.
RBC further supported its appeal by relying on the termination clause in the first agreement which stated that all transactions occurring before termination are subject to the agreement, even after termination. However, the Court explained that the first agreement was superseded, not terminated, so the termination clause did not apply.
Additionally, RBC claimed that the second agreement should only apply prospectively, not retroactively. The Court noted, though, that the language of the second agreement included a statement that it should govern "at all times", which includes the past, present and future. Because RBC drafted the agreement, the Court construed the language narrowly against RBC.
For these reasons, the Eleventh Circuit affirmed the district court's refusal to compel arbitration.
Alfa Mutual Insurance Company v. Culverhouse, No. 1121127, (Ala. Feb. 14, 2014)
Corey Culverhouse, a self-employed general contractor, constructed a house for himself. In connection with financing the construction, he obtained a homeowner's insurance policy with Alfa Mutual Insurance Company through his insurance agent, William Koch.
In July 2009, a fire completely destroyed the house. Culverhouse submitted a claim and proof of loss. Alfa questioned the support for the claim and examined Culverhouse under oath. During the examination, Culverhouse admitted that some of the information he submitted was inaccurate, and he was unable to explain how he arrived at the values for certain items. Alfa offered to settle, but Culverhouse declined and demanded that Alfa pay the policy limits.
Culverhouse then filed suit against Alfa and Koch. In his complaint, Culverhouse made numerous claims including a breach of contract claim, and Alfa counterclaimed that Culverhouse voided the insurance policy by making untrue statements. The trial court initially dismissed all claims.
Culverhouse then filed a post-judgment motion to have the trial court amend its order on the grounds that Culverhouse did not clearly argue his position. Upon reconsideration, Culverhouse presented new legal arguments, and the trial court allowed Culverhouse's breach of contract claim to proceed. Alfa and Koch appealed claiming that the trial court improperly revived the breach of contract claim.
On appeal, the key issue considered by the Alabama Supreme Court was whether the trial court improperly allowed Culverhouse to make new legal arguments in his post-judgment motion after the trial court had already made its original decision.
In citing previous cases, the Supreme Court held that a trial court may consider new legal arguments in a post-judgment motion if there is sufficient justification. In some cases, trial courts give an explanation of the justification for allowing additional arguments, but in other cases, they do not. In any event, appellate courts give trial courts significant discretion in determining whether post-judgment arguments may be considered, regardless of whether a justification is given in the trial court's opinion.
Therefore, the Supreme Court deferred to the trial court and affirmed the decision to allow Culverhouse's breach of contract claim to proceed.