ARONOV REALTY BROKERAGE INC. v. Morris

Citations: 838 So. 2d 348; 2002 WL 734345Docket: 1001292, 1001650, 1001733 and 1010456

Court: Supreme Court of Alabama; April 26, 2002; Alabama; State Supreme Court

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In the case Aronov Realty Brokerage, Inc. v. Dorothy D. Morris, the Supreme Court of Alabama addressed the appeals of multiple defendants—Aronov Realty Brokerage, Benjamin Vance, Havenwood Village, Inc. (and associated individuals), and Elizabeth Maxwell—regarding the trial court's refusal to compel arbitration in response to a complaint filed by Dorothy D. Morris. Morris's complaint, initiated on August 25, 2000, in the Montgomery County Circuit Court, included allegations of fraud, negligence, misrepresentation, breach of fiduciary duty, and other claims related to her purchase of a condominium unit. The defendants were accused of making false representations about the unit and its amenities, which were not completed as promised. Maxwell was later added as a defendant when Morris amended her complaint, alleging that she had acted as an agent for Aronov and Havenwood during the sale. The complaint included a 'Real Estate Purchase/Sales Contract' that detailed the sale terms, including Morris as the purchaser and the condominium's price and location. The court ultimately affirmed the trial court's decision not to compel arbitration.

Morris signed an agreement on April 29, 1998, with Maxwell as a witness. On May 8, 1998, Benjamin Vance signed the agreement for Havenwood Village, Inc., again with Maxwell as a witness. The agreement included a binding arbitration clause stipulating that any disputes following the closing of the property and delivery of the deed must be resolved through arbitration, waiving the parties' rights to pursue litigation. The arbitration would be governed by the Commercial Arbitration Rules of the American Arbitration Association, with the arbitrator's decision being final and enforceable in court. The agreement also specified that no party would be liable for indirect or consequential damages.

Additionally, a handwritten section titled 'additional provisions' required the seller to provide a four-year home warranty, a satisfactory termite inspection letter, a survey at closing, and proof of condo insurance with specified coverage amounts. The purchaser was also required to verify the condo fee details. 

An 'Addendum To Purchase Agreement' was attached, signed by Morris and Vance, with Maxwell witnessing. The addendum, dated April 29, 1998, included agreements for the seller to sod the backyard, install specific fixtures and repairs, and paint the front door. Morris's complaint indicated that the closing occurred on June 3, 1998, as confirmed by a 'Settlement Statement' signed by Janice Vance and Morris. The language suggests that Morris's condominium was substantially completed by the agreement date.

On September 21, 2000, A. Aronov filed a motion to dismiss Morris's complaint and compel arbitration, asserting that the arbitration clause in their agreement mandated arbitration for Morris’s claims. Aronov claimed the condominium sale involved interstate commerce due to the use of out-of-state materials and services, including appraisal and insurance from out-of-state companies. On February 16, 2001, Aronov submitted supporting materials for the motion, and on February 26, 2001, Morris filed a "supplement" to her objection, which included legal arguments but no documentary evidence. The trial court denied Aronov's motion on March 5, 2001.

Benjamin Vance filed a similar motion on April 26, 2001, adopting Aronov's arguments, but Morris did not respond. The court denied Vance's motion on May 8, 2001. Havenwood filed its motion on May 21, 2001, also incorporating Aronov's materials, with no response from Morris, and the court denied it on June 1, 2001. Maxwell submitted her motion on October 12, 2001, referencing Morris's complaint but not previous supporting materials. Morris did not respond, and the court denied Maxwell's motion on October 18, 2001. 

On appeal, the defendants contended that the trial court erred in denying their motions to compel arbitration. The court's review of such denials is de novo, with established case law indicating that the burden is on the party seeking arbitration to prove the existence of an arbitration contract affecting interstate commerce. If a prima facie case is established, the burden shifts to the opposing party to provide evidence against the enforcement of the arbitration agreement.

If the party opposing arbitration provides enough evidence to question the validity of an arbitration agreement, the issue must be decided by either the trial court or a jury if requested. A substantial effect on interstate commerce is required for the arbitration agreement to be enforceable. If the party seeking to enforce the agreement fails to demonstrate this substantial effect, the opposing party does not need to resist arbitration, and the motion should be denied. In the case at hand, Maxwell failed to support her motion to compel arbitration with any evidence or materials, merely referencing the agreement in Morris's complaint. She did not incorporate the prior evidentiary submissions by the remaining defendants and did not meet her burden of proof, leading to the affirmation of the trial court's denial of her motion. Aronov's motion to compel arbitration similarly fell short, failing to cite recent relevant decisions and not acknowledging the requirement for a substantial effect on interstate commerce established in a preceding case. Aronov argued that the Federal Arbitration Act applied due to the nature of the condominium transaction involving interstate commerce, citing various connections to out-of-state entities and materials, but did not successfully substantiate a substantial effect as required.

The sale of the condominium was subject to Federal regulations, particularly concerning Lead-Based Paint disclosure. Aronov's motion was unsupported by evidentiary submissions, although it attempted to provide supporting materials in its February 16, 2001, notice of filing. The attached documents included:

1. A Real Estate Purchase/Sales Contract from April 29, 1998, signed by the Plaintiff, featuring an arbitration clause (Exhibit 1).
2. An Addendum to the Purchase Agreement indicating the property was for those 55 years or older, compliant with the Housing for Older Persons (HOPA) exemption (Exhibit 2).
3. Section 100.305 of the Fair Housing Act (42 U.S.C. 3607) (Exhibit 3).
4. A Certificate of Liability Insurance for Havenwood Village Condominium Association from Cincinnati Insurance Company (Exhibit 5).
5. Documentation showing Cincinnati Insurance Company as a foreign corporation (Exhibit 6).
6. A HUD Settlement Statement dated June 3, 1998, signed by the Plaintiff, detailing insurance provisions (Exhibit 7).
7. 12 U.S.C. 2603 requiring completion of a HUD Settlement Statement (Exhibit 8).
8. Documentation indicating State Farm as a foreign corporation (Exhibit 9).
9. The Plaintiff's earnest money check dated April 29, 1998, for $1,000 from Regions Bank (Exhibit 10).
10. Documentation showing Regions Bank as a foreign corporation (Exhibit 11).
11. The Plaintiff's application for a home warranty from American Home Shield (Exhibit 12).
12. Documentation showing American Home Shield as a foreign corporation (Exhibit 13).
13. An affidavit by Barry Ross listed as Exhibit 14, which was not present in the record accompanying Aronov’s notice.

The only documents available for consideration regarding Aronov's motion to compel arbitration were the materials listed, excluding the Ross affidavit, which was notarized after Aronov’s motion was denied on March 5, 2001. Therefore, Aronov's assertions of interstate impact were unsupported by evidence, failing to demonstrate a substantial effect on interstate commerce.

Benjamin Vance and Havenwood incorporated Aronov's submissions in their motions to compel arbitration. Barry Ross's affidavit, attached to Havenwood's motion, includes several exhibits: Exhibit 'A' contains the Articles of Incorporation for Havenwood Village, Inc., and Exhibit 'B' includes those for Havenwood Village Condominium Association, Inc. It states that Benjamin Vance, Janice Vance, and Arthur Baylor were directors of the Condominium Association at its incorporation and when Dorothy Morris purchased the relevant property. Havenwood Village, Inc. served as the declarant that established the Havenwood Village Condominium (Exhibit 'C'). Exhibit 'D' is a certificate of insurance from Cincinnati Insurance Company covering the Condominium Association regarding the property in question, mentioned in the sales agreement. 

Marty Carter and John V. Johnson, both non-Alabama residents, were directors and incorporators of Havenwood Village, Inc. At the time of the transaction, they represented 70% of the ownership interest in the corporation, with Carter providing 99.8% of the initial capital for its stock subscription, which was used for the construction project relevant to the suit. In 1997, Havenwood Village, Inc. secured a line of credit from Merrill Lynch Business Financial Services for project funding. Notably, many building materials for the construction were sourced from out-of-state.

The transaction is also governed by the Federal Fair Housing Act, as noted in the purchase agreement's addendum (Exhibit 'E'). The court will assess whether the agreement reflects a transaction that significantly impacts interstate commerce, using five factors established in Sisters of the Visitation: citizenship of the parties, origin of tools and equipment, allocation of costs, movement across state lines, and degree of separability from other contracts. The analysis is fact-intensive, with the court having applied these factors in prior cases, including Brown v. Dewitt, Inc. Morris and Havenwood Village, Inc. were the only signatories to the agreement, with Morris being an Alabama resident and Havenwood Village, Inc. incorporated in Montgomery County, Alabama.

The remaining defendants, who are not signatories to the agreement, are either incorporated in Alabama or residents of Alabama. Consequently, the agreement pertains solely to local parties, lacking evidence of a transaction that significantly affects interstate commerce. Assertions regarding tools and equipment used in the project, made by Aronov, lacked supporting evidence, leaving unclear whether any tools or materials moved in interstate commerce. There is no information indicating the use of out-of-state contractors for the construction of the condominium unit, and the defendants failed to demonstrate the allocation of costs between out-of-state and in-state materials. Moreover, Morris's condominium unit is fixed in Alabama and cannot be moved across state lines. Efforts by the defendants to draw parallels to a previous case regarding interstate commerce effects are unfounded, as Morris's situation does not involve participation in any interstate commerce flow, distinguishing it from the cited precedent involving newspaper distribution.

The construction and sale of Morris's condominium unit concluded with its placement on the retail market as a completed project. The transaction involved Havenwood Village, Inc. selling a nearly finished condominium to Morris, which does not significantly impact interstate commerce despite the defendants' references to financing aspects of the building project. The court highlighted that the nature of interstate commerce in contracts is not determinative of whether a specific transaction affects it. The sale was localized: it involved an Alabama corporation selling to an Alabama resident, with all obligations performed within Alabama. 

The agreement included a four-year home warranty and required Morris to present proof of condominium insurance at closing, with her insurance from State Farm, a foreign corporation. The closing statement indicated the condominium's sales price was $106,000, with additional settlement charges and fees contributing to the total amount Morris owed at closing. Morris's payments, including a $1,000 earnest-money deposit and local taxes, were sourced from her Alabama savings, and there was no evidence of out-of-state financing. The court concluded that the $1,000 deposit was minimal compared to the total purchase price and thus did not substantially affect interstate commerce.

The transfer of the plaintiff's $1,000 earnest money from an Illinois bank to an Alabama payee does not demonstrate a substantial impact on interstate commerce related to a real estate transaction. Payments made by Morris and Havenwood Village, Inc. to State Farm for contents and flood insurance, totaling $431, and a $495 payment for a home warranty through American Home Shield, similarly lack a significant effect on interstate commerce, comprising less than one percent of the condominium's purchase price. The mere assertion in the agreement that the property has been involved in interstate commerce does not suffice to establish substantial effects, as illustrated by precedent cases. The arbitration clause pertains to claims between the purchaser and seller or against any real estate licensee, yet there is insufficient evidence regarding the status of Aronov and Maxwell as licensees. Consequently, the arbitration agreement does not apply to claims against nonsignatory defendants. The court cites a previous case asserting that there is no proof the transaction substantially affected interstate commerce, thus ruling out the applicability of the Federal Arbitration Act. Instead, Alabama law, specifically § 8-1-41(3), Ala. Code 1975, prohibits enforcing an arbitration agreement in this context. The defendants did not demonstrate that the transaction significantly impacted interstate commerce, leading to the affirmation of the trial court's denials of their motions to compel arbitration.

Bruce Griffith, operating as Griffith Appraisal Services, appealed a trial court's denial of his motion to compel arbitration, but the appeal (case no. 1001307) was dismissed at his request on September 4, 2001. Maxwell challenged the trial court's decision to add her as a defendant through a petition for a writ of mandamus, which was ultimately denied (Ex parte Maxwell, 812 So.2d 333 (Ala.2001)). Morris raised an objection to Aronov Realty Brokerage Inc.'s motion to dismiss on December 11, 2000, but no written record of this objection exists, leading to the possibility that it was made orally. The trial court had initially scheduled a hearing on Aronov's motion for December 18, 2000, but there is no record of this hearing occurring, and a subsequent hearing was set for March 5, 2001. Notably, the trial court did not provide any rationale for denying the motions to compel arbitration from the defendants. Additionally, while Aronov claimed Regions Bank was a foreign corporation, an earnest-money check indicated it was drawn from an account in Alabama, with the bank's name and state printed on it.