Court: Supreme Court of Alabama; April 6, 2018; Alabama; State Supreme Court
Alfa Insurance Corporation and its affiliates seek a writ of mandamus from the Court to vacate a Montgomery Circuit Court order dated December 18, 2015, and to grant a protective order. The Court focuses on one key issue: whether the circuit court had jurisdiction to issue the December order and if it exceeded its discretion in not vacating it. The Court concludes that the circuit court exceeded its discretion in compelling discovery, thus rendering further discussion on other discovery issues unnecessary.
The case involves R.G. Bubba Howell, Jr. and M. Stuart Chip Jones, insurance agents for Alfa in Mississippi, who had agency agreements with arbitration and "errors and omissions" insurance provisions. Howell and Jones purchased E.O. insurance from Alfa Mutual General Insurance Corporation, which covered claims made against them for professional services, subject to certain exclusions such as intentional acts and claims by businesses owned by the insured.
In 2012, Alfa accused Howell and Jones of selling competing products, leading to Howell's resignation on December 31, 2012, and Jones's discharge on January 1, 2013. Following this, Howell and Jones initiated arbitration against Alfa on March 27, 2013, seeking benefits and damages. Alfa countered with claims against them for breach of contract and other allegations. Arbitrators awarded benefits to Howell and Jones in March 2014, but Alfa's counterclaims remained active. On May 23, 2014, they filed insurance claims under the E.O. policies, which Alfa denied on June 4, asserting such claims were excluded due to intentional torts. Alfa later dismissed its counterclaims against Howell and Jones without prejudice on July 9, 2014.
On November 13, 2014, Howell and Jones initiated legal action in the Montgomery Circuit Court against Alfa, citing breach of contract, bad faith, abuse of process, outrage, and conspiracy. They contended that Alfa violated E. O policies by denying defense and indemnity coverage for counterclaims known to be uncovered, thereby incurring substantial legal costs. Howell and Jones sought extensive discovery, including claims files, legal department documents, and communications related to their case, along with depositions of several Alfa legal counsels involved in the counterclaims.
On December 9, 2014, Alfa responded to the discovery requests, denying most admissions yet indicating ongoing discovery in compliance with Alabama procedural rules. Subsequently, on May 6, 2015, Howell and Jones moved to compel Alfa to respond to their discovery requests, to which Alfa objected, claiming attorney-client privilege and filed a motion to dismiss based on res judicata, asserting the claims were previously settled in arbitration.
On August 13, 2015, the circuit court granted the motion to compel, allowing Alfa three weeks to comply and denied Alfa's motion to dismiss. Alfa then filed a petition for a writ of mandamus on August 21, 2015, seeking to have the circuit court overturn its dismissal denial or compel discovery. Alfa reiterated its res judicata argument, and on August 27, 2015, requested an extension for filing an answer until discovery responses were due, which the circuit court subsequently granted.
On August 31, 2015, the court denied a petition for a writ of mandamus without an opinion. Following this, on September 3, 2015, Alfa submitted a "Motion to Compel Arbitration, Dismiss, and Stay Proceedings," citing an arbitration provision within the agency agreements. In its answer to the complaint, Alfa reserved its right to arbitrate in accordance with the Independent Exclusive Agency Agreement. Additionally, Alfa filed an "Objection to Discovery Request and Notice of Service of Discovery Documents," including a privilege log for items claimed to be protected under attorney-client privilege and the work-product doctrine.
On October 30, 2015, the circuit court denied Alfa's motion to compel arbitration and related requests. Subsequently, on November 2, 2015, Howell and Jones sent their first set of interrogatories and a second set of document requests to Alfa, seeking documentation related to counterclaims in arbitration against them, correspondence regarding claims for defense and indemnity, and any communications involving their attorney, Dennis Bailey.
On November 3, 2015, Howell and Jones notified their intent to subpoena records from law firms Rushton Stakely Johnston Garrett, P.A., and Jackson Lewis P.C., requesting all materials related to the insurance claims made by Chip Jones and Bubba Howell against Alfa. In response, on November 6, 2015, Alfa moved to quash these subpoenas. On November 9, 2015, Alfa appealed the denial of its motion to compel arbitration (Alfa Ins. Corp. v. Howell, No. 1150151). On November 11, 2015, Howell and Jones filed a second motion to compel production of Alfa’s complete discovery files and to compel the issuance of the subpoenas. Finally, on November 12, 2015, Alfa filed a motion to stay all proceedings pending the outcome of its appeal.
On December 8, 2015, the circuit court held oral arguments regarding a motion to stay and motions to compel discovery. The next day, Howell and Jones filed a third motion to compel Alfa to fully respond to interrogatories and requests for production. On December 18, 2015, the circuit court issued an order: denying the motion to stay, granting the second motion to compel (ordering Alfa to produce coverage opinion letters and related correspondence within ten days), and granting motions to compel subpoenas for non-parties Rushton, Stakely, Johnson, Garrett, and Jackson Lewis, with specific limitations on the information to be produced. The deadline for Alfa to comply was set for December 28, 2015. On December 21, 2015, Alfa filed an emergency motion to stay the circuit court's order, claiming lack of jurisdiction due to pending arbitration appeals. The following day, Howell and Jones submitted subpoenas for document production. On December 28, 2015, the court granted Alfa’s emergency motion to stay.
Subsequently, on September 29, 2017, the court affirmed the circuit court’s order denying arbitration. On October 10, 2017, Alfa sought to set aside the December 18, 2015, order and requested a protective order, which the circuit court denied on October 16, 2017. Alfa filed a petition for writ of mandamus and an emergency motion to stay on October 24, 2017. The court granted the emergency motion on December 8, 2017. The standard for mandamus relief requires a clear legal right, an imperative duty on the respondent, lack of alternative remedies, and proper jurisdiction. Mandamus can direct a trial court to vacate a void judgment or order, with the standard of review focusing on whether the trial court exceeded its discretion.
Alfa contends that the circuit court's December 18, 2015, order compelling discovery should be annulled, claiming the court exceeded its discretion by allowing such discovery on noncollateral matters while an appeal regarding the denial of a motion to compel arbitration was pending. Generally, filing a notice of appeal transfers jurisdiction to the appellate court, limiting the trial court to acting only on collateral matters. Although orders regarding motions to compel arbitration are not final judgments, they do invoke a stay of trial proceedings, except for collateral issues, upon timely appeal notice. Rule 8(b) of the Alabama Rules of Appellate Procedure outlines that a party seeking a stay must first request it from the trial court, unless impracticable, and may subsequently approach the appellate court if needed. Alfa filed a motion to stay discovery in the circuit court on November 12, 2015; however, the court denied the motion and granted the motions to compel on December 18, 2015. Following this, Alfa submitted an emergency motion to stay proceedings to the appellate court on December 21, 2015, which was granted on December 28, 2015. The circuit court maintained partial jurisdiction on December 18, 2015, to adjudicate the motion to stay, assessing whether the motions to compel were collateral to the arbitration issue on appeal.
The circuit court's decision to allow discovery to proceed was deemed inappropriate, as it exceeded its discretion while an appeal regarding arbitration was pending. According to Alabama law, discovery is generally stayed during an appeal of arbitration issues, except for inquiries about arbitration participation. The circuit court allowed discovery related to substantive claims instead of limiting it to collateral issues pertinent to the arbitration appeal. Howell and Jones argued that any error was harmless and that vacating the orders would waste judicial resources, but they did not provide supporting case law. The court noted that the situation is fluid, with potential adjustments in discovery scope, but emphasized that the circuit court's prior orders allowing noncollateral discovery were improper. Consequently, the December 18, 2015, order granting motions to compel discovery is to be vacated, along with the October 16, 2017, order denying Alfa's motion to set aside the earlier order. Alfa's only recourse at this stage is through a petition for a writ of mandamus. The petition is granted, and a writ is issued, directing the circuit court to vacate its previous orders. The appeal concerning the motion to stay pending arbitration is reviewed de novo, with the current situation justifying the writ of mandamus as the appropriate form of review.
