PITTMAN, Judge.
Porter Capital Corporation ("Porter Capital") and Porter Bridge Loan Company, Inc. ("Porter Bridge"), appeal from an order of the Jefferson Circuit Court denying their motions to compel arbitration of the counterclaims asserted against them by Dennis R. Thomas, M.D. We affirm.
On October 10, 2007, Porter Capital entered into a commercial-financing agreement and a security agreement with Athlon Pharmaceuticals, Inc. ("Athlon"). Pursuant to those agreements, Porter Capital agreed to provide Athlon with accounts-receivable financing and to authorize loan disbursements up to $3.5 million on a revolving line of credit. Athlon granted Porter Capital a security interest in its personal property, trade fixtures, inventory, and equipment. In addition to the financing agreement and the security agreement, Porter Capital and Athlon also executed a stand-alone arbitration agreement ("the first arbitration agreement") on October 10, 2007.
On the same day, Thomas, a Mobile physician who is a 5% shareholder of Athlon, executed a guaranty of Athlon's obligations under the commercial-financing agreement. The guaranty agreement included the following provision:
Thomas did not sign an arbitration agreement on October 10, 2007.
On December 13, 2007, Porter Capital, Athlon, and Thomas executed a "Restated and Amended Commercial Financing Agreement" reflecting that Thomas had provided, as additional collateral securing Porter Capital's future advances to Athlon, a mortgage in the amount of $1.4 million on his principal residence in Mobile. On January 30, 2008, Athlon executed a promissory note in the amount of $1 million to Porter Capital; Porter Capital subsequently assigned the note to Porter Bridge. On April 3, 2008, Porter Capital, Athlon, and Thomas executed a second "Restated and Amended Commercial Financing Agreement," reflecting that Thomas had provided, as additional collateral securing Porter Capital's future advances to Athlon, a second mortgage in the amount of $1.5 million on commercial property in Madison, Mississippi. In connection with the April 3, 2008, transaction, Thomas signed an arbitration agreement ("the second arbitration agreement").
In July 2008, Thomas refinanced the mortgage on the Mississippi property and made a payment of $2.4 million on Athlon's indebtedness to Porter Capital. Neither Athlon nor Thomas made any further payments to Porter Capital, and in September 2008 Athlon filed a petition in the United States Bankruptcy Court for the Southern
On July 24, 2009, Porter Capital filed an action in the Jefferson Circuit Court against Thomas, alleging breach of the guaranty agreement. On September 28, 2009, Thomas answered and counterclaimed, alleging breach of fiduciary duty and breach of the duty of good faith and fair dealing and demanding a jury trial on those claims. On the same day, Thomas issued a deposition notice to Ron Williamson, Porter Capital's vice president. On October 8, 2009, Porter Capital answered the counterclaims, asserted various affirmative defenses, and issued a deposition notice to Thomas. On October 13, 2009, Porter Capital filed an amended complaint adding Porter Bridge as a plaintiff; both plaintiffs then moved to strike Thomas's jury demand, citing the jury-waiver provision of Thomas's guaranty agreement. Thomas deposed Williamson, Porter Capital's vice president, on October 28, 2009.
On January 20, 2010, the circuit court granted Porter Capital's motion to strike Thomas's jury demand. On May 11-12, 2010, Thomas deposed Williamson for the second time. On May 17, 2010, Porter Capital deposed Thomas. In September 2010, counsel for Porter Capital and Porter Bridge submitted a proposed scheduling order to opposing counsel. On November 18, 2010, Porter Bridge moved to strike Thomas's jury demand.
On December 13, 2010, Thomas filed a second amended counterclaim, again alleging claims of breach of fiduciary duty and breach of the duty of good faith and fair dealing, but adding the following new claims, for which he sought compensatory and punitive damages and demanded a jury trial: (1) that Athlon was a mere instrumentality of Porter Capital and Porter Bridge; (2) that Porter Capital and Porter Bridge had liquidated Athlon's personal property in a commercially unreasonable manner; (3) that Porter Capital and Porter Bridge had made false representations of material fact in order to induce him to guarantee Athlon's loan and to increase the collateral securing that loan, which misrepresentations, Thomas alleged, he had discovered during the depositions of Williamson on October 28, 2009, and May 11-12, 2010; (4) that Porter Capital and Porter Bridge had fraudulently suppressed information that, Thomas said, they had been required to communicate to him, which information, he asserted, he had also discovered during the depositions of Williamson; (5) that Porter Capital and Porter Bridge had negligently or wantonly disclosed his personal financial information to banks without his authorization; and (6) that such disclosures violated his right of privacy.
On March 9, 2011, Porter Capital and Porter Bridge moved to compel arbitration or, in the alternative, to strike Thomas's third jury demand. Thomas responded to the motion on April 20, 2011, alleging that there was no arbitration agreement applicable to his counterclaims and that, even if there were such an agreement, Porter Capital and Porter Bridge had waived their right to arbitration by substantially invoking the litigation process. Thomas asserted that the issue of arbitration had not been raised in any pleading until March 9, 2011, 20 months after the parties had been actively litigating the case; that he had paid legal fees and expenses of more than $67,000 (of which approximately $5,000 had been costs related to depositions and filing fees); and that he would be substantially prejudiced if he were required to arbitrate his claims. Following a hearing on April 22, 2011, the circuit court entered an order on May 2, 2011, (a) denying the motion to compel arbitration and
Counsel for Porter Capital and Porter Bridge did not learn of the entry of the May 2, 2011, order until June 28, 2011. On July 8, 2011, counsel moved for relief from the order pursuant to Rule 60(b), Ala. R. Civ. P., or, in the alternative, for an extension of time to file a notice of appeal, pursuant to Rule 77(d), Ala. R. Civ. P. On July 13, 2011, the circuit court denied the Rule 60(b) motion and granted the Rule 77(d) motion, extending the time for appeal to July 13.
Edwards v. Costner, 979 So.2d 757, 761 (Ala.2007).
Porter Capital and Porter Bridge (hereinafter collectively referred to as "the lenders") argue on appeal, as they did in the circuit court, that Thomas's counterclaims are subject to arbitration under both the first and the second arbitration agreements. The lenders acknowledge here, as they did in the circuit court, that initially they waived arbitration by substantially invoking the litigation process. Nevertheless, employing the same argument that they advanced in the circuit court, the lenders point out that our supreme court has specifically recognized that a waiver of the right to arbitrate can be revoked under extraordinary circumstances — such as when unexpected events occur during the course of the litigation — that necessitate a determination that the right to arbitrate has been revived.
In its May 2, 2011, order, the circuit court limited its consideration to the first arbitration agreement, stating that the lenders "do[] not [base their motion to compel] on the [second] April 3, 2008, agreement, but instead argue[] that [their] motion to compel is based on the [first] October 10, 2007, agreement to which Thomas was not a party." The lenders clearly relied upon both agreements, and the circuit court was mistaken in stating otherwise.
The circuit court concluded that Thomas was not bound by the first arbitration agreement because he was a nonsignatory. The circuit court did not reach the waiver issue or the revocation-of-waiver and revival issue because, having determined that the first arbitration agreement did not apply to Thomas and that the second arbitration agreement was not argued as a basis for the motion to compel, there was no basis for compelling arbitration in this case.
The lenders maintain that the circuit court erred in determining that Thomas was not bound by the first arbitration agreement; that the circuit court erred in failing to consider the second arbitration agreement and to determine that it required arbitration of Thomas's counterclaims; and that, although the lenders initially waived the right to arbitration, their waiver was later revoked and their right to arbitration was revived after Thomas filed the second amended counterclaim.
The parties do not disagree that the underlying transaction involves interstate commerce. They disagree about the existence of a contract calling for arbitration of Thomas's claims against the lenders. "`"`[A]rbitration is a matter of contract, and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.'"'" Custom Performance, Inc. v. Dawson, 57 So.3d 90, 97 (Ala.2010) (quoting Central Reserve Life Ins. Co. v. Fox, 869 So.2d 1124, 1127 (Ala. 2003), quoting in turn AT & T Techs., Inc. v. Commc'ns Workers of America, 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986), quoting in turn United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960)). "A party typically manifests its assent to arbitrate a dispute by signing the contract containing the arbitration provision." Smith v. Mark Dodge, Inc., 934 So.2d 375, 380 (Ala.2006).
In the present case, it is undisputed that Thomas did not sign the first arbitration agreement on October 10, 2007. That stand-alone agreement was signed only by a representative of Athlon (hereinafter referred to as "the borrower").
"`[I]n order for a person to be a third-party beneficiary of a contract, the contracting parties must have intended to bestow benefits on third parties.'" Edwards v. Costner, 979 So.2d at 763 (quoting Locke v. Ozark City Bd. of Educ., 910 So.2d 1247, 1251 (Ala.2005)). The intended benefits must be "`direct, as opposed to... incidental.'" Ex parte Dyess, 709 So.2d 447, 450 (Ala.1997) (quoting Weathers Auto Glass, Inc. v. Alfa Mut. Ins. Co., 619 So.2d 1328, 1329 (Ala.1993)). With respect to the third-party-beneficiary issue, the circuit court determined:
The lenders argue that the circuit court erred in concluding that Thomas was not a third-party beneficiary of the commercial-financing agreement between Porter Capital and the borrower. The lenders contend that, because Thomas was the borrower's shareholder who pledged almost $3 million in security for the borrower's loan — a shareholder who stood to benefit if the loan enabled the borrower to become financially successful, and, likewise, who risked the loss of valuable assets if the borrower defaulted on the loan — Thomas had a direct economic interest in the financing agreement between Porter Capital and the borrower.
The lenders contend that the circuit court's determination is contrary to the express terms of the guaranty agreement
The recital in paragraph 9 that Thomas considered it in his economic interest to guarantee the borrower's loan is not determinative. A guarantor does not gain third-party-beneficiary status because he intends to be directly benefited by his guaranty of a borrower's obligations to a lender; if he gains that status, it is because the lender and the borrower — the contracting parties — intended, at the time they executed their contract, to bestow a direct benefit on the guarantor. Cf. UBS Fin. Servs., Inc. v. Johnson, 943 So.2d 118, 122 (Ala.2006) ("Absent a showing that [financial-services firm] and [its customer] intended to benefit [the customer's sister] when they executed the agreement on opening [the customer's] account, [the customer's sister] cannot be considered a third-party beneficiary.... Therefore, [the customer's sister] is not bound by the arbitration provision of the agreement between [the financial-services firm] and [its customer].").
In the present case, nothing in the loan documents executed by the lenders and the borrower indicates that those parties intended to bestow a direct benefit on Thomas. Accordingly, any benefit to Thomas was incidental, as opposed to direct. See, e.g., McKinney-Green, Inc. v. Davis, 606 So.2d 393 (Fla.Dist.Ct.App. 1992) (holding that proposed guarantor, a 50% shareholder of subdivision corporation, was merely an incidental beneficiary of corporation's construction-loan agreement with mortgage broker); Numerica Sav. Bank, F.S.B. v. Mountain Lodge Inn Corp., 134 N.H. 505, 596 A.2d 131 (1991) (holding that guarantor, a 50% shareholder of corporation, was not a third-party beneficiary of corporation's original construction-loan agreement with bank); and Johnston v. Oregon Bank, 285 Or. 423, 591 P.2d 746 (1979) (holding that guarantor, the managing director and principal owner of stock in corporation that was a partner in lumber company, was only an incidental beneficiary of lumber company's loan agreement with bank).
The circuit court did not err in determining that Thomas was not a third-party beneficiary of the contract between the lenders and the borrower and, therefore, that the first arbitration agreement was not a "contract calling for arbitration" of Thomas's counterclaims against the lenders. See Polaris Sales, Inc. v. Heritage Imports, Inc., 879 So.2d 1129, 1132 (Ala. 2003).
In order to determine whether the circuit court erred in denying the lenders' motion to compel arbitration, we must decide whether Thomas's counterclaims against the lenders fall within the scope of the second arbitration agreement — an agreement that Thomas signed but that the circuit court did not consider.
Edwards Motors, Inc. v. Hudgins, 957 So.2d 444, 447 (Ala.2006). In Homes of Legend, Inc. v. McCollough, 776 So.2d 741 (Ala.2000), our supreme court discussed the presumptions and rules of construction that apply in determining the scope of an arbitration agreement. The court stated:
Homes of Legend, 776 So.2d at 745-46.
The second arbitration agreement, a stand-alone document that Thomas signed on April 3, 2008, provided, in pertinent part:
The scope of the second arbitration agreement turns on the construction of two sentences that define and describe the term "claim":
(Emphasis added.) As the emphasized words in Sentence One indicate, the first sentence is a definitional provision: a "claim" means a matter in controversy between the lender and the borrower. Likewise, as the emphasized words in Sentence Two indicate, the second sentence is a descriptive provision that enumerates several specific (but not all-inclusive) examples of things that qualify as a "claim," without contradicting, in any manner, the definition set out in Sentence One, i.e., that a claim is a dispute between the lender and the borrower. There is no ambiguity, patent or latent, in the two sentences.
"`If the meaning of the contract can be discerned through a plain reading, the court will not twist the language in order to create ambiguities.' Shadrick v. Johnston, 581 So.2d 805, 810 (Ala.1991). The rule, applied by the federal courts, that ambiguities in arbitration clauses will be construed in favor of arbitration, arises only if there is an ambiguity." Ex parte Hagan, 721 So.2d 167, 173-74 (Ala. 1998) (emphasis added; footnote omitted).
Alabama Title Loans, Inc. v. White, 80 So.3d 887, 893 (Ala.2011) (quoting Title Max of Birmingham, Inc. v. Edwards, 973 So.2d 1050, 1054-55 n. 1 (Ala.2007)).
In Cook's Pest Control, Inc. v. Boykin, 807 So.2d 524 (Ala.2001), the plaintiff sued a hospital and Cook's, the hospital's pest-control-services provider, alleging that while she was a patient in the hospital she had been bitten by fire ants. Cook's produced its service contract with the hospital, which contract contained an arbitration clause, and moved to compel arbitration of the plaintiff's claims. The trial court denied the motion, and our supreme court affirmed, holding (1) that the patient was not a third-party beneficiary of the contract between the hospital and Cook's; (2) that the patient's claims were not intertwined with or related to the hospital's contract with Cook's; and (3) that "[t]he narrow scope of the arbitration agreement serves as an independent basis for affirming the trial court's order denying Cook's motion to compel arbitration of [the patient's] claims against Cook's." 807 So.2d at 527. The court explained the third holding as follows:
Id. (emphasis added).
We hold that the second arbitration agreement is limited to disputes between the lender and the borrower, and, therefore, it "is not susceptible of an interpretation that [it] covers the asserted dispute" between the lender and the borrower's shareholder or the lender and the borrower's guarantor. See Ex parte Colquitt, 808 So.2d 1018, 1024 (Ala.2001) ("[A] motion to compel arbitration should not be denied `unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.'" (quoting United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960))).
Despite the fact that the circuit court did not consider the second arbitration agreement, our de novo review convinces us that the circuit court's ultimate conclusion — that no agreement required
Our disposition of the first two issues raised by the lenders makes it unnecessary to reach the third issue. Accordingly, the judgment of the Jefferson Circuit Court is affirmed.
AFFIRMED.
THOMPSON, P.J., and BRYAN, THOMAS, and MOORE, JJ., concur.
Edwards v. Costner, 979 So.2d 757, 764 (Ala. 2007) (emphasis and bracketed language added).
