author: HOUSTON, Justice.

text:
    Charlie MASON et al. v. ACCEPTANCE LOAN COMPANY, INC., et al. Charlie Thigpen et al. v. Acceptance Loan Company, Inc., et al.
    1010563 and 1010564.
    Supreme Court of Alabama.
    Sept. 27, 2002.
    Rehearing Applications Denied Nov. 22, 2002.

      Jere L. Beasley, W. Daniel Miles III, and C. Lance Gould of Beasley, Allen, Crow, Methvin, Portis & Miles, P.C., Montgomery; Terry L. Butts of Cervera, Ralph & Butts, Troy; and Thomas R. Fields III and Will R. Kelly, Hayneville, for appellants.
    Lamar C. Johnson of Gilmore Law Office, Grove Hill, for appellee Acceptance Loan Company, Inc.
    W. Michael Atchison, Rik S. Tozzi, and Brian A. Dodd of Starnes & Atchison, L.L.P., Birmingham, for appellee Protective Life Insurance Company.
    Bibb Allen and Richard E. Smith of Christian & Small, L.L.P., Birmingham, for appellee CNL Insurance America, Inc.
   HOUSTON, Justice.

This is an appeal from an order of the Lowndes Circuit Court granting the defendants’ motions to compel arbitration; it involves, among other things, the effect of the plaintiffs’ alleged mental retardation on their ability to contract. We affirm.

I. Facts

Charlie Mason, Charlie Thigpen, and others (hereinafter collectively referred to as “the plaintiffs”) sued Acceptance Loan Company, Inc., Protective Life Insurance Company, and CNL Insurance America, Inc. (hereinafter collectively referred to as “the defendants”), in the Lowndes Circuit Court, asserting various claims stemming from the solicitation and sale of insurance to the plaintiffs in conjunction with consumer loans they obtained from Acceptance. Specifically, the plaintiffs purchased credit-life and disability insurance from Protective Life and automobile insurance from CNL. The defendants each filed a motion to compel arbitration, seeking to enforce arbitration agreements signed by the plaintiffs in connection with each consumer loan and each application for insurance. The trial court granted the defendants’ motions; this appeal followed.

II. Analysis

Our analysis is governed by the following now familiar standards:

“This Court reviews the [grant or] denial of a motion to compel arbitration de novo. Green Tree Fin. Corp. v. Vintson, 753 So.2d 497, 502 (Ala.1999); Patrick Home Ctr., Inc. v. Karr, 730 So.2d 1171, 1172 (Ala.1999). The party seeking to compel arbitration has the initial burden of proving the existence of a contract calling for arbitration and proving that the contract evidences a transaction substantially affecting interstate commerce.[] TranSouth Fin. Corp. v. Bell, 739 So.2d 1110, 1114 (Ala.1999); Sisters of the Visitation v. Cochran, 775 So.2d 759 (Ala.2000). ‘[A]fter a motion to compel arbitration has been made and supported, the burden is on the nonmov-ant to present evidence that the supposed arbitration agreement is not valid or does not apply to the dispute in question.’ Jim Burke Auto., Inc. v. Beavers, 674 So.2d 1260, 1265 n. 1 (opinion on application for rehearing) (Ala.1995).”

American Gen. Fin., Inc. v. Morton, 812 So.2d 282, 284-85 (Ala.2001).

It is undisputed that each plaintiff entered into at least one arbitration agreement and that most of the plaintiffs entered into multiple arbitration agreements. There is also no dispute concerning whether the plaintiffs’ claims fall within the scope of those agreements. Instead, the plaintiffs contend that the trial court erred in compelling arbitration because, they say, (1) the defendants did not offer sufficient evidence indicating that the transactions substantially affected interstate commerce, (2) the various contracts that contained the arbitration agreements are void under Ala.Code 1975, § 8-1-170, because, they argue, the plaintiffs suffer from mental retardation that renders them “insane,” (3) the plaintiffs were fraudulently induced into signing the arbitration agreements, and (4) the arbitration agreements are unconscionable. As discussed below, we find these arguments unpersuasive.

A. Effect of Transactions on Interstate Commerce

In granting the defendants’ motions to compel arbitration, the trial court relied on two uncontroverted affidavits. One of those affidavits was from Leon Michael Schmitt, a vice president of Protective Life. It reads as follows:

“1. My name is Leon Michael Schmitt. I am over the age of twenty-one (21) years, and have personal knowledge of the following facts:
“2. I am employed by Protective Life Insurance Company (‘Protective’) as Vice President, Administration, Financial Institutions Insurance Division. In this capacity I am responsible for all aspects of credit life insurance sold by Protective.
“3. I have reviewed the complaint in this case, the Certificate of Insurance issued to the plaintiffs, the ‘Credit Insurance Disclosure Statement’ signed by the plaintiffs and the plaintiffs’ policy history. I am familiar with Protective’s operating procedures in regard to policies of credit life insurance such as that purchased by the plaintiffs.
“4. Protective regularly sends and receives policy forms, and other information regarding the type of policy at issue in this lawsuit, across state lines, via the U.S. Mail, faxes, phones and computer/electronic transfer.
“5. Protective has policyholders throughout the United States, in all fifty states. Protective regularly mails and receives policy forms across state lines.
“6. When individuals purchase credit life insurance, the policy form and premium payments are remitted across state lines, through the U.S. Mail, to North Carolina.
“7. In the event a claim is made by any beneficiary not living in North Carolina, all claim forms are mailed by the beneficiary, across state lines, to Protective’s office in North Carolina. All examination of the claim is done by an examiner located in North Carolina. The claims examination necessarily entails the transfer of information across state lines via phone lines and the U.S. Maü.
“8. When a claim is paid, the claim checks are issued in North Carolina and then mailed, across state lines, to the named beneficiary.
“9. Should any questions regarding the policy arise, policyholders are instructed to contact Protective’s North Carolina office, across state lines, using a 1-800 customer service telephone number.
“10. Protective uses premiums collected on insurance policies to support its interstate activities.”

The other affidavit was from Doyle Kelly, president of CNL. It states:

“My name is Doyle Kelly. I am over 19 years of age and have personal knowledge of the facts and matters contained in this affidavit.
“I currently serve as President for CNL/Insurance America and have been employed with this company for 27 years. My office is located in Macon, Georgia.
“I have reviewed the complaint filed by the plaintiffs in this case, and I am familiar with the insurance policies issued by my company relating to the allegations raised by the plaintiffs. Our company issued a master policy to defendant Acceptance Loan Co., Inc. to be used by Acceptance in soliciting Limited Physical Damage insurance in the State of Alabama. Each of the plaintiffs from Alabama would have been issued an insurance certificate from CNL in Georgia. Each of the plaintiffs insurance transactions with CNL would have been an act involving interstate commerce.
“Attached to my Affidavit as Exhibits ... are true and correct copies of the arbitration agreements signed by each plaintiff in this proceeding with CNL.”

Based on these uncontroverted affidavits, we believe that the plaintiffs’ purchase of credit-life and disability insurance and automobile insurance in connection with obtaining loans through Acceptance clearly “involved” interstate commerce so as to enforce the arbitration agreements under the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (“FAA”). See 9 U.S.C. § 2 (providing that the FAA. applies to contracts “evidencing a transaction involving commerce”). Regarding the application of the FAA in the insurance context, we have held:

“Unquestionably, insurance transactions that stretch across state lines or intrastate insurance transactions that otherwise have the requisite (substantial) effect on interstate commerce constitute ‘Commerce among the several States,’ so as to make them subject to regulation by Congress under the Commerce Clause of the United States Constitution.”

Southern United Fire Ins. Co. v. Knight, 736 So.2d 582, 586 (Ala.1999) (citing United States v. South-Eastern Underwriters Ass’n, 322 U.S. 533, 546-47, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944) (holding that an insurer that conducts business across state lines is engaged in interstate commerce)). See Humana Inc. v. Forsyth, 525 U.S. 299, 307, 119 S.Ct. 710, 142 L.Ed.2d 753 (1999) (stating that “an insurance company doing business across state lines engages in interstate commerce” (citing South-Eastern Underwriters)).

In this case, Schmitt’s affidavit indicates, among other things, that the plaintiffs’ Protective Life insurance policies were issued from and are maintained at Protective Life’s office in North Carolina. Similarly, Kelly’s affidavit indicates that the plaintiffs’ CNL insurance policies were issued from and are maintained at CNL’s home office in Macon, Georgia.

Furthermore, it is undisputed that the plaintiffs’ transactions with Protective Life and CNL were the result of, and, in fact, were an integral part of, the plaintiffs’ loan transactions with Acceptance. The insurance was obtained through Acceptance as a part of a transaction in which the plaintiffs’ borrowed money from Acceptance. Therefore, because, as stated above, the plaintiffs’ transactions with Protective Life and CNL sufficiently “involve” interstate commerce, the transactions with Acceptance must likewise “involve” interstate commerce. See Green Tree Fin. Corp. v. Lewis, 813 So.2d 820, 824 (Ala.2001) (examining all relevant related transactions to determine whether a particular transaction “involved” interstate commerce).

We affirm the trial court’s finding that the defendants met their burden of proving the requisite effect on interstate commerce sufficient to bring the transactions within the provisions of the FAA.

B. Effect of Evidence of Plaintiffs’ Mental Retardation

The plaintiffs’ second argument is that, based on evidence indicating that all of the plaintiffs are mentally retarded, all of the contracts between the plaintiffs and the defendants are void under Ala.Code 1975, § 8-1-170, which provides that “all contracts of an insane person are void.” The defendants argue that this Court need not decide whether the trial court correctly found this provision inapplicable to the plaintiffs, because the question of the effect of the plaintiffs’ alleged mental retardation on the contract is one for an arbitrator, not the court. We disagree.

Generally, a challenge that concerns “ ‘the making of [a] contract in its entirety, rather than just ... the arbitration agreement itself ” is for an arbitrator, rather than a court, to resolve. Nations-Banc Invests., Inc. v. Paramore, 736 So.2d 589, 591 (Ala.1999) (quoting Anniston Lincoln Mercury Dodge v. Conner, 720 So.2d 898, 902 (Ala.1998)). However, a challenge to the very existence of the contract — as is the case when contracts are challenged as being “void” as opposed to “voidable” — is an issue for a court, not an arbitrator, to decide. As we recently explained in J.C. Bradford & Co. v. Vick, 837 So.2d 271, 273 n. 2 (Ala.2002):

“When a party is seeking to enforce an arbitration clause, the question whether a valid contract exists between the parties is to be decided by the trial court, not an arbitrator. Lee v. YES of Russellville, Inc., 784 So.2d 1022 (Ala.2000); Ex parte Payne, [741 So.2d 398 (Ala.1999)]; NationsBanc Invs., Inc. v. Paramore, 736 So.2d 589 (Ala.1999).

Therefore, whether the plaintiffs may avail themselves of § 8-1-170 is an issue that was properly addressed by the trial court and that may now be properly addressed by this Court. In .addressing this issue, we agree with the trial court that the plaintiffs are not properly characterized as “insane” for purposes of § 8-1-170.

In Shoals Ford, Inc. v. Clardy, 588 So.2d 879, 881 (Ala.1991), we summarized the law relevant to this issue as follows:

“The well-settled law in Alabama is that contracts of insane persons are wholly and completely void. See, Williamson v. Matthews, 379 So.2d 1245 (Ala.1980); Ala.Code 1975, § 8-1-170. In McAlister v. Deatherage, 523 So.2d 387, 388 (Ala.1988), quoting from Weaver v. Carothers, 228 Ala. 157, 160, 153 So. 201, 202 (1934), this Court explained the cognitive (understanding) test that Alabama adopted in order to determine whether a contract can be avoided because of insanity:
“ ‘ “[To] avoid a contract on the ground of insanity, it must be satisfactorily shown that the party was incapable of transacting the particular business in question. It is not enough that he was the subject of delusions not affecting the subject-matter of the transaction, nor that he was, in other respects, mentally weak. A party cannot avoid a contract, free from fraud or undue influence, on the ground of mental incapacity, unless it can be shown that his insanity ... was of such character that he had no reasonable perception or understanding of the nature and terms of the contract.” ’ ”

(Emphasis added.) The plaintiffs’ affidavits indicate that they knew, after having been told, that they were signing “loan papers and insurance papers.” The plaintiffs’ evidence of “insanity” includes evidence indicating (1) that the plaintiffs’ IQ’s were low enough that many of them could be classified as “mildly retarded”; (2) that many of the plaintiffs were illiterate; (3) that the plaintiffs had very limited education, which for some of them included special education classes; and (4) that many of the plaintiffs could not understand legal or business terminology. However, as the trial court correctly held, this evidence is not evidence of “insanity” for purposes § 8-1-170, but is rather, as stated above, evidence of “mental weakness.”

Conditions such as illiteracy and a lack of education do not make one “insane” or otherwise deprive one of the ability to contract. See Johnnie’s Homes, Inc. v. Holt, 790 So.2d 956, 963-64 (Ala.2001) (holding that evidence indicating that the plaintiff had little education, that he was illiterate, and that he was unaware of the existence of an arbitration provision in a contract did not prove that the provision was unconscionable); Mitchell Nissan, Inc. v. Foster, 775 So.2d 138, 140 (Ala.2000) (stating that an illiterate person, “if he neglects to have [a document he signs] read, or to enquire as to its contents,” cannot, “in the absence of fraud, deceit or misrepresentation, avoid the effect of his signature, because [he is] not informed of its contents .... ” (emphasis omitted) (quoting Beck & Pauli Lithographing Co. v. Houppert, 104 Ala. 503, 506, 16 So. 522, 522 (1894))). Instead, our decisions make clear that one claiming to be “insane” and thereby seeking to void a contract under § 8-1-170 must present evidence of some condition substantially different in nature and degree than mere “mental weakness.” For example, in Shoals Ford we affirmed a finding of insanity with regard to an individual, Bobby Joe Clardy, and held that his contract to purchase a truck was void based upon the following facts:

“According to Ms. Clardy, Bobby Joe had suffered from a manic-depressive disorder for 15 years and was taking lithium to control his condition. She said that she observed in mid-March 1989 that Bobby Joe was becoming manic, but she said that because he was not violent and had not endangered himself or anyone else at that time, she could not involuntarily commit him for treatment. On April 5, 1989, Ms. Clardy received a telephone call from Leslie Clardy Daniel, Ms. Clardy and Bobby Joe’s daughter (‘the daughter’), concerning Bobby Joe’s condition. The daughter told Ms. Clardy that Bobby Joe had threatened her and had obtained $500 from' her to make the down payment on a truck he was going to buy from Shoals Ford. Subsequently, Ms. Clardy drove to Shoals Ford and noticed that the truck Bobby Joe had previously looked at, in her presence, was still on the lot. At that time she spoke with a salesperson, and she later telephoned a sales representative with Shoals Ford, concerning Bobby Joe’s incompetency and asked that they not allow Bobby Joe to take the truck — that is, she told them that Bobby Joe was not working, that he was ill and would be committed, and that the truck could not be insured. Thereafter, on April 5, 1989, Shoals Ford gave Bobby Joe possession of the truck after he gave it $10,000 as the down payment. Ford Motor Credit Company eventually repossessed and sold the truck and mailed Ms. Clardy a check for $3,284.98, which left a balance of $6,715.02 of the $10,000 down payment unrecovered by Ms. Clardy.
“According to the daughter, when Bobby Joe visited her around April 1, 1989, she tried to get him to resume taking his medicine. He became agitated and went out of control, threw his medicine into a burning pile of leaves, and then left. Around 5 A.M. on April 5, 1989, Bobby Joe returned to the daughter’s house, banged on the doors and windows until he awakened the household, threatened their lives, and forced the daughter to write him a check for $500. When he left, the daughter telephoned 911 to report the incident and, as soon as the probate office opened, she telephoned the probate judge to inform him of the situation. She then went to her attorney’s office, explained the situation to him, and asked that he prepare a petition to have Bobby Joe involuntarily committed for treatment. While in her attorney’s office, she notified the bank to stop payment on the $500 check she had written to Bobby Joe and then called to notify Shoals Ford of Bobby Joe’s mental condition, telling a representative that Bobby Joe would be coming in to purchase a truck, specifically describing the particular truck; telling the representative that Bobby Joe was not healthy; and telling the representative that she had filed a petition to have Bobby Joe involuntarily committed. She also asked Shoals Ford to call the Lauderdale County sheriff, a family member, her attorney, Riverbend Center for Mental Health, or the probate office for verification in the event Bobby Joe did appear at the dealership. She further explained to the representative that ‘buying sprees’ was a symptom of Bobby Joe’s illness, that he would not be able to make the payments, and that he was not insurable. When she notified Shoals Ford of the situation, it merely stated that if Bobby Joe had the money to purchase the truck, it was ‘none of her concern.’ Around 10 A.M. on April 5, 1989, she drove by Shoals Ford and, noticing that the truck was still there, she once again telephoned ‘to plead’ with Shoals Ford to notify her when Bobby Joe arrived. At this time, the representative told her that ‘it was really not of concern to Shoals Ford.’
“According to Dr. Joseph W. Glaister, a local psychiatrist who had treated Bobby Joe since 1984, Bobby Joe suffered from a manic depressive illness, manic type, recurrent. Dr. Glaister testified that Bobby Joe’s illness was episodic, that his competency could come and go, and that there were stages of the illness when, on mere observation, one might think that Bobby Joe was a slightly excessive, overly friendly individual. He further testified that Bobby Joe had been admitted to the hospital after regular working hours on April 5, 1989, and that when he saw Bobby Joe on April 6, 1989, Bobby Joe was incompetent. Furthermore, according to the testimony of Dr. Glaister, he could not visualize Bobby Joe being otherwise on April 5,1989.
“The daughter’s attorney testified that he remembered the events of April 5, 1989, when the daughter contacted him, when he obtained a history of the events of the day, and when he prepared the commitment petition and other documents that were filed with the probate court on that morning. He stated that he did not prepare and file the petition to appoint Ms. Clardy as conservator and limited guardian for Bobby Joe until a month after the petition to commit, because Bobby Joe was hospitalized during that period of time and, in the attorney’s opinion, had no opportunity to dissipate his estate.
“Based on the foregoing, we hold that there was sufficient evidence to support the jury’s verdict that during the period in question — -from April 1, 1989 (when Bobby Joe began negotiations to purchase the truck), to April 3, 1989 (when Shoals Ford alleges the transaction was completed), to April 5, 1989 (when Ms. Clardy alleges the transaction was completed) — Bobby Joe was incompetent; that during that period of time, he was incapable of understanding and appreciating the nature, terms, and effect of the contract.”

Shoals Ford, 588 So.2d at 881-83 (footnote omitted).

Further, in McAlister v. Deatherage, 523 So.2d 387 (Ala.1988), we found the following evidence of the insanity of the plaintiff, McAlister, sufficient to preclude a summary judgment for the defendants:

“McAlister was diagnosed as having bipolar disorder (manic-depression) at least as far back as 1967, when the military service declared him to be 100 percent disabled. Since that time he has not worked, living entirely off Veterans Administration benefits and social security benefits. McAlister began seeing Dr. Lopez in 1975 and was treated by Dr. Lopez until McAlister moved to North Alabama and began treatment with Dr. Phillips in November 1985. During McAlister’s treatment under Dr. Lopez, he was committed at least once through the probate court to a mental hospital and was, for the vast majority of that time, on various medications, including Lithium, to help control his illness. Three days before the contract to buy the house was signed, Dr. Lopez had a meeting with McAlister. Dr. Lopez was of the opinion that at that time McAlister was off his medication and ‘was psychotic. And, when he is psychotic, ... it is a major psychiatric disorder of psychotic proportions.’ Lopez also stated that such episodes last weeks at a time and that even with ‘intensive treatment at a psychiatric hospital,’ the manic episode may be shortened only to ‘two or three weeks.’ McAlister testified that during the early part of July 1985 he was hospitalized to undergo a gall bladder operation, during which time none of his medication for his illness was administered to him by the hospital. According to McAlister, he remembers only bits and pieces over the next two months (from mid-July to late-September or early October). McAlis-ter stated in his deposition that he remembered nothing about any financial statements he may have signed and did not know what, if any, other documents he had signed during that time. Most of what McAlister does remember is through what third persons have recently told him.
“The very nature of the manic-depressive, as stated in Dr. Phillips’s deposition, is often characterized by ‘buying sprees, frequently buying things that they don’t need and often charging or writing checks for which they have no funds to finance.’ This is not to say that all manic-depressives may be classified as insane within the cognitive test that Alabama utilizes. However, under this set of facts and in this circumstance, we cannot say that McAlister ‘had sufficient capacity to understand in a reasonable manner the nature and effect of the act which he was doing,’ Hall v. Britton, [216 Ala. 265, 113 So. 238 (1927)], or that he had a ‘reasonable perception or understanding of the nature and terms of the contract.’ Weaver v. Carothers, [228 Ala. 157, 153 So. 201 (1934) ]. Taking the depositions and affidavits submitted on behalf of McAlister as true, we find that, in light of the scintilla rule, summary judgment for the Deatherages was inappropriate. We therefore reverse and remand as to them.”

McAlister, 523 So.2d at 388-89.

Likewise, in Weaver v. Carothers, 228 Ala. 157, 153 So. 201 (1934), we upheld a finding of insanity with regard to a defendant debtor, Carothers, who had acquired certain contractual liabilities:

“[P]hysicians have testified in their opinion that this defendant, William Caroth-ers is insane. There does not appear any good reason for the Court to review the testimony of these witnesses. The Court will mention the testimony of one of these witnesses. This evidence was taken on the 2nd day of May, 1932. It is the testimony of Dr. L. Hays. This physician says he has known the defendant for a long period of time; that he has seen him frequently, and had conversations with him and there is other intimacy with the defendant shown by his testimony. This physician states he was a person in his opinion of unsound mind, and in addition to his opinion he states that the defendant was suffering from a mental affliction; that he has hydrocephalus; that it was a condition that existed from his birth, and that it caused him to be mentally deficient. The term hydrocephalus is a disease recognized by medicine; it causes its victim to be mentally deficient, and often idiotic; it is a lesion of the brain — an affection of the very substance of the brain. This testimony is not disputed by any one. The Court is, therefore, of the opinion that the defendants have shown by the evidence that William Carothers is suffering from mental imbecility to such a degree as to void his contracts, and that he was so suffering at the time the contracts sued on were made.”

228 Ala. at 159,153 So. at 202.

When compared to the evidence involved in those cases, it is clear that the evidence proffered by the plaintiffs in this case does not establish that the plaintiffs were “insane,” so as to void their contracts under § 8-1-170. Not only does the evidence support a finding only of mere “mental weakness” as stated above, but the plaintiffs “insanity” argument is also undermined further by evidence indicating that the plaintiffs had repeated transactions with the defendants before the transactions at issue. In sum, we conclude that the trial court correctly rejected the plaintiffs’ “insanity” argument.

C. Fraudulent Inducement

The plaintiffs also assert that they were fraudulently induced to sign the contracts containing the arbitration agreements because, they say, when the plaintiffs asked the defendants what they were signing, the defendants told them only that the documents were “loan papers and insurance papers”; they also told the plaintiffs what their payment amounts were and the amounts they were borrowing, but did not specifically mention the arbitration agreement. Because there is no dispute that the arbitration provisions were clearly (and repeatedly) indicated in the various documents signed and received by the plaintiffs, the plaintiffs’ claim of fraudulent inducement essentially rests on a combination of this alleged failure to disclose and the plaintiffs’ alleged inability to read and to understand the documents at issue.

However, unlike their insanity claim, the plaintiffs’ fraudulent-inducement claim should be resolved by an arbitrator, not a court. This conclusion is compelled by our decision in Anniston Lincoln Mercury Dodge v. Conner, 720 So.2d 898, 902 (Ala.1998), which concerned a virtually identical argument:

‘We conclude that Conner’s claim goes to the making of the contract in its entirety, rather than just to the arbitration clause itself. The facts of this case are similar to those addressed by the United States Court of Appeals for the Fifth Circuit in Villa Garcia v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 833 F.2d 545 (5th Cir.1987). In Villa Garda, an investor sued a brokerage firm and several employees, alleging violations of the Securities Exchange Act of 1934. The defendants moved to compel arbitration, based on an arbitration agreement contained in the overall contract signed by the investor. The investor argued, in part, that the arbitration provision in the contract was unenforceable because of his inability to read English, which he said prevented his reading and understanding the contract. The court rejected this argument, stating that ‘[tjhese alleged facts and the overreaching claim they assertedly support should “be decided by an arbitrator, not the district court, since they go to the formation of the entire [contract] rather than” to the formation of the arbitration provision.’ Id. at 548 (citations omitted).
“Likewise, in this case, Conner’s allegation addresses the contract as a whole, rather than the arbitration provision itself. Conner has not alleged that ALMD [Anniston Lincoln Mercury Dodge] treated the arbitration clause differently from the way it treated any other provision of the contract; instead, she has merely argued that the arbitration clause was fraudulently induced because ALMD, she says, failed to disclose the existence of that clause. That argument, it seems, is similar to the one advanced in the Villa Garcia case. That argument, in fact, if valid, could apply equally to virtually all of the other provisions of the contract. Cf. Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996) (arbitration agreements must be given treatment equal to that given to other agreements).
“Based on the foregoing, and based on our conclusion that Conner’s allegation that she was unable to understand English bears upon the entire agreement, we hold that the trial court should not have decided whether Conner had agreed to the arbitration agreement; instead, that question, if presented, should have been answered by an arbitrator.”

(Emphasis added.)

The plaintiffs’ argument that their fraudulent-inducement claim relates only to the arbitration clause is unpersuasive. That claim, if valid, could be used to challenge any particular provision in the contracts that was not specifically mentioned or discussed with a plaintiff. See Anniston Lincoln Mercury Dodge, 720 So.2d at 901-02 (“Although Conner alleges that she has challenged the making of the arbitration agreement itself, we must look beyond the ad hoc arguments of counsel in order to determine whether her claim actually bears upon the entire agreement and upon the activities of the parties in general.”). Therefore, the plaintiffs’ fraudulent-inducement claim should be resolved by an arbitrator, not by a court.

D. Unconscionability

The plaintiffs also contend that the arbitration agreements are unconscionable, a contention the plaintiffs have the burden of demonstrating by substantial evidence. Vann v. First Cmty. Credit Corp., 834 So.2d 751, 754 (Ala.2002); Conseco Fin. Corp.—Alabama v. Boone, 838 So.2d 370, 373 (Ala.2002). To accomplish this, the plaintiffs rely primarily on American General Finance, Inc. v. Branch, 793 So.2d 738 (Ala.2000). In that case, we held unconscionable an arbitration agreement that we determined (1) was “unusually broad in scope and application,” 793 So.2d at 748; (2) “invest[ed] the arbitrator with the threshold issues of arbitrability,” id. at 749; (3) exempted the defendant money lenders from any duty to arbitrate and reserved for them “the right to try to a jury their claims against [the plaintiff] up to $10,000,” id. at 749; (4) limited “the right of the arbitrator to award an amount ‘exceed[ing] five times the amount of economic loss,’ ” id. at 749; and (5) was signed by a plaintiff who had “no meaningful choice,” id. at 751, that is, she signed the agreement at a time when “the market was virtually closed to consumers seeking comparable financing without agreeing to arbitration provisions.” Id. at 750. Based upon these facts, we held that the agreement in that case was unconscionable because it had “(1) terms that are grossly favorable to [the defendant, which had] (2) overwhelming bargaining power.” Id. at 748.

The plaintiffs in this case claim that the facts surrounding the arbitration agreements they signed are similar to, and compel the same result as, the facts surrounding the agreement declared unconscionable in Branch. The plaintiffs argue that this conclusion is supported by the presence of (1) a lack of meaningful choice on their part; (2) a lack of mutuality of remedy; and, although not a factor mentioned in Branch, (3) an inherent bias on the part of the American Arbitration Association. However, we find these assertions either unsupported or unpersuasive.

First, the plaintiffs have not produced sufficient evidence indicating that they had “no meaningful choice.” Instead, the plaintiffs merely assert that “[s]imilar [market] circumstances [to those in Branch ] exist in the case at hand,” (Plaintiffs’ brief at 28, without citation to any evidence in the record indicating that the plaintiffs were “unable to acquire [the loans and insurance without signing an arbitration agreement] without considerable expenditure of time and resources.” Branch, 793 So.2d at 751.) In this respect, the plaintiffs have not met their burden of proof. See Boone, 838 So.2d at 373 (stating that “‘[Boone has] made no showing that she lacked a meaningful choice in obtaining financing’” (quoting Green Tree Fin. Corp. v. Lewis, 813 So.2d at 825)); Vann, 834 So.2d at 754 (upholding an arbitration agreement in favor of a defendant lender where, among other things, the plaintiffs failed to present evidence indicating that “they were unable to find an alternate lender or that the [automobile] dealer required them to use [the defendant lender]”).

Second, the plaintiffs note that the arbitration agreements do not expressly require the defendants to arbitrate claims they might bring against the plaintiffs, a characteristic similar to the agreement in Branch. 793 So.2d at 749. While relevant to any unconscionability analysis, this characteristic cannot alone be determinative; it is but one factor to be considered. Vann, 834 So.2d at 754 (stating that “the lack of mutuality of remedy, alone, is not sufficient to support a claim of unconscio-nability”); Branch, 793 So.2d at 744 (stating that “ ‘the lack of mutuality of remedy can be one factor, along with others, that a court may consider in determining whether an arbitration clause is unconscionable’ ” (emphasis omitted) (quoting Ex parte Parker, 730 So.2d 168, 171 (Ala.1999))).

And, unlike the factual scenario in Branch, the effect of any lack of mutuality of remedy in this case is tempered by the absence of any limitations on what damages an arbitrator can assess against the defendants. See Branch, 793 So.2d at 749 (stating that the lack of mutuality of remedy was made “particularly significant” in light of the provision limiting damages that can be awarded by an arbitrator).

Third, without citing any evidence in the record, the plaintiffs assert that the American Arbitration Association — the entity whose rules would govern any arbitration between the parties — would be inherently biased in favor of the defendants. This totally unsupported assertion is purely speculative in nature, and we need not consider it further.

In sum, the plaintiffs have failed to produce sufficient evidence of unconscionability with regard to the arbitration agreements.

III. Conclusion

Based on the above, we affirm the trial court’s order granting the defendants’ motions to compel arbitration.

1010563 — AFFIRMED.

1010564 — AFFIRMED.

SEE, LYONS, BROWN, HARWOOD, WOODALL, and STUART, JJ., concur.

MOORE, C.J., dissents.

      . This case was originally assigned to another Justice. It was reassigned to Justice Houston on July 24, 2002.

      . The plaintiffs asserted claims of fraudulent misrepresentation; innocent, reckless, negligent, or wanton misrepresentation; concealment; suppression; and negligence and wantonness. Additionally, the plaintiffs alleged that Protective Life and CNL had colluded and conspired with Acceptance to commit fraud in soliciting and selling credit-life and disability insurance.

      . The defendants challenge the requirement as enunciated in Sisters of the Visitation v. Cochran Plastering Co., 775 So.2d 759 (Ala.2000), that an individual contract or transaction must itself “substantially effect’’ interstate commerce, arguing that, to the extent that the “substantial-effect” standard relies upon United States v. Lopez, 514 U.S. 549, 115 S.Ct. 1624, 131 L.Ed.2d 626 (1995) — a case involving, as the defendants posit, a challenge to the constitutionality of a federal statute rather than the issue whether a federal statute reaches an individual transaction — such reliance is misplaced. However, given our holding in this case, we do not accept the defendants' invitation to reexamine the Sisters of the Visitation rationale.

      . The exhibits attached to Kelly’s affidavit specifically indicate that CNL's home office is in Macon, Georgia; those exhibits are not attached to this opinion.

      . Accordingly, Acceptance is listed on the Protective Life policies as the "Creditor/First Beneficiary" and is the "Lender (Named Insured)” on the CNL policies.

      “2 Our holdings in these cases derive from a decision by the United States Supreme Court. In Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), the United States Supreme Court held that a fraud-in-the-inducement challenge to a contract that contained an arbitration clause should be decided by an arbitrator, and not by a court. However, we follow the reasoning of other courts that limit the holding in Prima Paint Corp. to Voidable’ contracts (e.g., a contract where a party is induced through fraud or a contract where a party is an infant). However, where a party challenges the very existence of a contract, that dispute must be decided by a court. See Shearson Lehman Bros. v. Crisp, 646 So.2d 613 (Ala.1994).”

      . McAlister was decided under the “scintilla rule,” which was statutorily abrogated in 1987 and replaced by the substantial-evidence rule. See Ala.Code 1975, § 12-21-12. However, it is the substance of the evidence that is important in the present analysis.

      . This two-part test was the Branch Court’s summarization of our established — and still applicable — four-part test of unconscionability expressed in Layne v. Garner, 612 So.2d 404, 408 (Ala.1992):
      "(1) whether there was an absence of meaningful choice on one party’s part, (2) whether the contractual terms are unreasonably favorable to one party, (3) whether there was unequal bargaining power among the parties, and (4) whether there were oppressive, one-sided or patently unfair terms in the contract.”

      . A lack of this type of evidence was precisely the reason we reversed the trial court's judgment based on its finding of unconscionability with respect to a second plaintiff in Branch. See Branch, 793 So.2d at 751-52. We reached this result even though the second plaintiff’s arbitration agreement was identical to the one held unconscionable with respect to the first plaintiff, who did produce substantial evidence of a lack of a true meaningful choice. Id.

      . The plaintiffs also argue that their poor reading skills and lack of education, and the defendants' alleged knowledge of those limitations, render the arbitration agreement unconscionable. However, as discussed above, we have repeatedly held to the contrary. See Johnnie’s Homes, Inc., supra, 790 So.2d at 963-64; Mitchell Nissan, Inc., supra, 775 So.2d at 140.

      . The plaintiffs do not address the fact that one of the arbitration agreements provides that “[t]he arbitration panel shall consist of three (3) arbitrators, one (1) selected by the company, one (1) selected by the claimant, and one (1) selected by the arbitrators previously selected.” Furthermore, they ignore the fact that under the FAA, the actions of a biased, partial arbitrator can be reviewed by a court:
      "(a) In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration—
      "(1) where the award was procured by corruption, fraud, or undue means;
      "(2) where there was evident partiality or corruption in the arbitrators, or either of them;

      "(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
      "(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.”
      9 U.S.C. § 10(a) (emphasis added).


source: Caselaw Access Project

author: HARWOOD, Justice.

license: Public Domain

text:
    SUMLIN CONSTRUCTION CO., L.L.C., et al. v. William Buck TAYLOR III et al.
    1010943.
    Supreme Court of Alabama.
    Oct. 11, 2002.
    Rehearing Denied Dec. 20, 2002.

      L. Daniel Mims, Mobile, for appellants.
    Mylan R. Engel and Edgar P. Walsh of Engel, Walsh & Associates, Mobile, for appellees.
   HARWOOD, Justice.

On November 10, 1999, Sumlin Construction Co., L.L.C. (hereinafter “the LLC”), and Ray J. Sumlin (hereinafter “Sumlin”) sued William Buck Taylor III and American Construction Corporation in the Mobile Circuit Court. Sumlin brought his action derivatively on behalf of the LLC and also asserted individual claims. On February 23, 2001, the defendants filed an answer and counterclaim. In their counterclaim, the defendants alleged that Sumlin had violated the operating agreement of the LLC and had breached his fiduciary duty.

The parties filed a succession of pleadings and motions, resulting ultimately in the following dispositions pertinent to this appeal: a summary judgment was entered for the defendants as to all claims of both plaintiffs against both defendants and the counterclaim was dismissed. Later, however, the trial court reinstated the LLC’s claims, only to again enter a summary judgment for the defendants as to them. While the LLC’s claims were pending, the summary judgment against Sumlin was certified as final and appealable pursuant to Rule 54(b), Ala. R. Civ. P. After the summary judgment was entered on the LLC’s claims, Sumlin and the LLC filed a notice of appeal. The appeal as to Sumlin was dismissed by this Court as untimely on April 12, 2002, because the time for taking his individual appeal, as triggered by the Rule 54(b) certification, had expired, and Sumlin’s request to this Court for leave to file a Rule 60(b), Ala. R. Civ. P., motion with the trial court relative to his individual claims was denied. Accordingly, in the final analysis, the only claims eligible for consideration on this appeal are Sumlin’s derivative claims on behalf of the LLC. We shall, nonetheless, continue to refer to Sumlin where appropriate.

Sumlin and the LLC argued on appeal that the summary judgment for the defendants on Sumlin’s derivative claims was erroneous because, they say, the trial judge could not properly have held contrary to any of these propositions: 1) judicial estoppel would not apply against Sum-lin; 2) the LLC and Sumlin are the real parties in interest for a derivative claim, or opposed to the trustee in Sumlin’s bankruptcy proceeding; and 3) Sumlin possessed standing to bring the derivative action on behalf of the LLC. Because we consider the standing issue to be disposi-tive of the appeal, we do not fully address the other two arguments.

Our review of a summary judgment is de novo.

“In reviewing the disposition of a motion for summary judgment, Ve utilize the same standard as the trial court in determining whether the evidence before [it] made out a, genuine issue of material fact,’ Bussey v. John Deere Co., 531 So.2d 860, 862 (Ala.1988), and whether the movant was ‘entitled to a judgment as a matter of law.’ Wright v. Wright, 654 So.2d 542 (Ala.1995); Rule 56(c), Ala. R. Civ. P. When the movant makes a prima facie showing that there is no genuine issue of material fact, the burden shifts to the nonmovant to present substantial evidence creating such an issue. Bass v. SouthTrust Bank of Baldwin County, 538 So.2d 794, 797-98 (Ala.1989). Evidence is ‘substantial’ if it is of ‘such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved.’ Wright, 654 So.2d at 543 (quoting West v. Founders Life Assurance Co. of Florida, 547 So.2d 870, 871 (Ala.1989)). Our review is further subject to the caveat that this Court must review the record in a light most favorable to the nonmovant and must resolve all reasonable doubts against the movant. Wilma Corp. v. Fleming Foods of Alabama, Inc., 613 So.2d 359 (Ala.1993); Hanners v. Balfour Guthrie, Inc., 564 So.2d 412, 413 (Ala.1990).”

Hobson v. American Cast Iron Pipe Co., 690 So.2d 341, 344 (Ala.1997).

The record reveals that on April 23, 1998, Ray J. Sumlin entered into an operating agreement with William Buck Taylor III and American Construction Corporation (of which Taylor was the sole shareholder) to form Sumlin Construction Co., L.L.C. The operating agreement provided, in pertinent part:

“The parties to this Agreement, desiring to form a limited liability company pursuant to the provisions of the Alabama Limited Liability Company Act (the ‘Act’) hereby constitute themselves a limited liability company for the purposes and on the terms and conditions set forth in this Agreement.
“NQW, THEREFORE, in consideration of the mutual promises of the parties, and of good and valuable consideration, the receipt and sufficiency of which hereby is acknowledged, it is mutually agreed by the parties as follows:
“1. Formation and Name. The parties to this Agreement have formed a limited liability company under the name ‘SUMLIN CONSTRUCTION CO., L.L.C.’ (the ‘Company’), pursuant to the provisions of the Act and this Agreement.
“5. Members and Percentage Interest. The names . .>. of the Members of the Company are Ray J. Sumlin ... and American Construction Corporation.... Member American Construction Corporation shall have a financial interest in the company of five-sixths (5/6ths) until such time as it shall have received $150,000 plus an additional amount equal to a factor of 9% per annum bn the outstanding balance, from time to time. At such time, its financial interest shall be reduced to 50%. Member Sumlin shall have a financial interest [in] the company of l/6th, until such time as he shall have received $30,000, plus an additional amount equal to a factor of 9% per annum on the outstanding balance, from time to time. At such time, his financial interest shall be increased to 50 percent interest.
“6.1 Contributions: Member American Construction Corporation shall contribute $150,000 in cash or acceptable securities to the company, and Member Sumlin shall contribute certain items of equipment to be agreed upon by the Managers having a value of $80,000.
“7.1 The management of the Company shall be vested in two Managers who shall be Ray J. Sumlin and William Buck Taylor, III. Either Manager shall have the right to name a substitute for himself. Manager Taylor may not be replaced without the permission of American Construction Corporation, and then it shall have the right to name his successor. Manager Sumlin shall not be replaced without his permission, and he shall have the right to name his successor.
“7.2 The Managers may, from time to time, designate a person or entity to act as Administrative Manager of the Company who may be known as President. Ray J. Sumlin shall serve as the initial Administrative Manager. The Administrative Manager shall be the principal executive officer of the Company, and subject to the control of the'Managers, shall in general supervise and control all of the business and affairs of the Company. He shall, when present, preside at all meetings of the Members and Managers. He, or other Managers designated by a majority of the Managers, may sign deeds, mortgages, bonds, contracts, or other instruments which the Managers have authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Members or shall be required by law to be otherwise signed or executed....
“1-1. Restrictions on Members. No member without the prior written consent of all the Managers, shall:
“(a) Mortgage or pledge the Member’s Interest in the Company;
“(b) Assign, transfer, pledge, compromise, or release any claim of the Company, or arbitrate or consent to the arbitration of any disputes or controversies involving the Company;
“(c) Use the name, credit or property of the Company for any purpose other than a proper Company purpose;
“(f) Do any act in conflict with the Company business or which would make it impossible to carry on its business.
“12. Substitute Members. No Member shall have the right to grant the right to become a substitute member to an assignee of any part of his interest, except with the prior written consent of all of the Managers or as otherwise provided herein or as provided in the Articles of Organization. “13. Withdrawal. Prior to the dissolution and winding up of the business of the Company, no Member may voluntarily withdraw from the Company except with the prior written consent of all of the Managers.
“16. Waiver or Partition. The Members hereby waive any right to take any other action that otherwise might be available to them for the purpose of severing their relationship with the Company or their interest in the assets held by the Company from the interest of the other Members. “16.11 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Alabama.”

The articles of organization of the LLC provide, in pertinent part:

“ARTICLE II
“The LLC shall have perpetual duration.
“ARTICLE VI
“The transfer of membership interest and the admission of additional members shall be governed by Sections 31, 32, 33, 34, and 35 of the Aabama Limited Liability [Company] Act, as amended from time to time, to the extent the same is not contrary to the Operating Agreement, as amended from time to time, except that the consent required in each instance of admission, transfer or assignment shall be that of 100% of the Managers. The Members shall not have the right to vote or consent to the admission of Members or the transfer or assignment of interests in the LLC.
“The above notwithstanding, any Member shall have the right to transfer to any other Member their interests, (or any part thereof) including all rights incident thereto, without the consent of any other Member or any Managers.”

Subsequently, Taylor contributed the $150,000 start-up funds in the form of certificates of deposit issued by First Community Bank (“CDs”).

On October 15, 1998, Taylor requested from Sumlin copies of all of the “bonding applications” and also the CDs. Athough Sumlin questioned in a letter to Taylor the motives behind Taylor’s requests, Sumlin released the CDs to Taylor. In late November 1998, Taylor cashed the CDs, without notifying Sumlin, and placed the money in his personal account; he used the money to pay off some promissory notes evidencing loans American Construction Corporation owed him. Sumlin and the LLC alleged in their complaint that “[t]he cashing and conversion of the Certificates of Deposit constituted a breach of the operating agreement,” and “as a consequence of the agreement, the [LLC] remained under-funded and was unable to engage in business as had been agreed to in the operating agreement.” Ultimately, the LLC was unable to obtain financing and halted all business activities.

Ater discovering that the CDs had been cashed, Sumlin consulted with an attorney, who sent a letter to Taylor and American Construction Company on March 22, 1999. The letter states, in pertinent part,

“Dear Dr. Taylor,
“Tim Renkle called me in response to my letter of March 4, 1999. Basically, he suggested that you would prefer to withdraw from Sumlin Construction Co., LLC, that you had received the return of all of your funds except $25,000, and that you would want Ray to sign a note to you, with a reasonable amortization, for the $25,000.
“I met with Ray on Friday, and we discussed at length your proposal. Ray has an entirely different outlook on the situation.
“Ray says that in approximately December of 1997, you approached him stating a desire to help him, by investing money in his company. We are all aware that in May of 1998, Sumlin Construction Co., LLC was formed. A-though the Operating Agreement was not what Ray had originally anticipated, it is ultimately what he agreed to. The agreement provided that American Construction Corporation would contribute $150,000 in cash or acceptable securities to the company. Ray has indicated that this did not occur until approximately August of 1998. From August of 1998 through December of 1998, Ray operated the company, proceeded to obtain bonding, did obtain some bonding, and proceeded then to bid on various work.
“He was successful bidder recently, but then discovered that you had cashed the Certificates of Deposit, and he no longer would have bonding capacity. It is now apparent that you did not intend to honor the original agreement as put in writing.
“Ray feels that he has lost more than one year of his life trying to get reestablished. The $25,000 which was left in the LLC has been spent. He spent in excess of $11,000 obtaining insurance, which was really wasted because when he got a bid approved, and would need the insurance, he could not perform because of lack of financial capacity. He has drawn less than $5,000 from the company since its inception. The various expenses of the company have eaten away at the remaining money, so that there are virtually no funds in the company. Ray does not feel that the company owes you the return of the $25,000, but rather that you and American Construction Corporation owe him for breach of contract and what he has earned, and what he would earn in the foreseeable future. As an example, he anticipated $25,000 in profit with reference to the bid on which he was recently successful.
“Needless to say, Ray is very frustrated, and very disappointed. He now realizes that you do not intend to fund the company in accordance with the original agreement. The fact that the Certificates of Deposit were cashed without notice to him is very disappointing. Had he been advised that the Certificates were cashed, he would have gotten a 90-day start on his position, and would have saved a lot of effort.
“Unless you advise us immediately to the contrary, we are going to have to assume that Sumlin Construction Co., LLC is no longer in business, and Ray will have to look at another way to earn a living. He will have to do so by either going into the construction business himself, or going to work for another company. In the meantime, Ray feels that he is owed by you and your corporation a substantial sum of money for having wasted in excess of one year of his life, and for breach of contract. We will advise that by way of compromise, and not being admission of a limitation on the amount of damages that he has suffered, that if you would pay Ray $25,000, and either join in a dissolution of the LLC or convey to him your interest in the LLC, and each of you thereafter will sign a complete release to the other, Ray would settle on that basis. When I speak of you, I mean you and your corporation. If that is not satisfactory, and you cannot come to an accommodation, Ray has indicated that he would desire to file legal action against your company, and perhaps you as well, because he does not feel that he can simply sit and have advantaged [sic] taken of him.
“My practice has evolved to the extent that I am no longer handling litigation matters. However, we have been in contact with another attorney who has indicated a willingness to pursue this matter on behalf of Ray, but before we engage him, we wanted to offer you the opportunity to settle the matter on the basis that I have set forth.”

On May 28, 1999, Sumlin filed in the United States District Court for the Southern District of Alabama a voluntary petition in bankruptcy under Chapter 7. The LLC was not listed as a debtor in the bankruptcy petition or otherwise a direct participant in the bankruptcy proceeding. In the petition, Sumlin disclosed his 1/6 interest in the defunct LLC, valuing it at $1.00, and claimed wages due from the LLC, also valuing them at only $1.00. Sumlin claimed in his petition that both his interest in the LLC and his wages were due to be recognized as exempt from bankruptcy administration pursuant to Ala. Code 1975, § 6-10-6. No party to the bankruptcy proceedings, including the trustee, filed a motion to limit the amount of the claimed exemptions or otherwise challenged the exemptions. Sumlin did not list any potential action against the defendants on the “statement of affairs,” constituting a section of the petition.

On September 1, 1999, Sumlin was granted a full discharge by the bankruptcy court, and on October 18, 1999, the bankruptcy proceeding was closed. On November 10, 1999, Sumlin filed this action in the Circuit Court of Mobile County.

Taylor’s affidavit supporting his motion for a summary judgment stated, in part:

“I received a letter on behalf of the plaintiff in this action, Ray Sumlin, dated March 22, 1999, which was addressed to me and to American Construction Corporation. In that letter, Mr. Sum-lin’s attorney complained about certain matters which formed the basis of this particular lawsuit. It was further suggested that I (or American Construction Corporation) pay the sum of $25,000.00 in order to avoid any legal action. It is my understanding that Mr. Sumlin filed a subsequent individual bankruptcy petition under Chapter 7 of the United States Bankruptcy Code, yet he failed to list any of these potential claims against American Construction Corporation or myself in that proceeding.
“Both American Construction Corporation and I have been significantly harmed by Mr. Sumlin’s failure to list any of these claims which have been raised in the case at bar in the bankruptcy proceeding. Had Mr. Sumlin done so, then it is highly likely that this matter would have either never come to litigation, or would have been resolved during the pendency of the bankruptcy proceeding, instead of lingering on for an additional two year period[,] as I would have made every reasonable effort to resolve it. We would have saved significant sums of money for attorneys fees and other expenses associated with this litigation, along with the resultant anxiety and stress which lengthy litigation brings. If these matters were not resolved, then I understand that I could have also raised the issues which I have set out in my counterclaim in this particular action as a set off in the bankruptcy proceeding. It is my understanding that our counterclaim in this particular lawsuit may be barred by certain provisions of the United States Bankruptcy Code since Mr. Sumlin has received a discharge from the Bankruptcy Court. Finally, I have also spent excessive amounts of time responding to this litigation.”

Sumlin later attempted to amend his original bankruptcy petition to include reference to the action, but was denied leave to do so by the bankruptcy court on September 25, 2001.

Section 10-12-25 of the Alabama Limited Liability Company Act, § 10-12-1 et seq., Code of Alabama 1975, provides for derivative actions on behalf of limited liability companies and specifies who has standing to institute such an action:

“(a) A member may bring an action in the right of a limited liability company to recover a judgment in its favor if the members or managers with authority to do so have refused to bring the action or if an effort to cause those members or managers to bring the action is not likely to succeed.
“(b) In a derivative action, the plaintiff shall be a member at the time of bringing the action or have succeeded to the right of a member.
“(c) If a derivative action is successful, in whole or in part, or if anything is received by the plaintiff as a result of a judgment, compromise, or settlement of an action or claim, the court may award the plaintiff reasonable expenses, including reasonable attorney’s fees, and shall direct the plaintiff to remit to the limited liability company the remainder of those proceeds.”

(Emphasis added.)

The parties’ arguments concerning Sum-lin’s standing to prosecute the derivative action revolve around the application of § 10-12-36, a portion of the Alabama Limited Liability Company Act. In pertinent part, that Code section provides:

“(b) Subject to contrary provisions in the operating agreement,[] or written consent of all members at the time, a person ceases to be a member upon the occurrence of one or more of the following events listed in the following subdivision or paragraphs:
(1) The member:
“b. Files a voluntary petition in bankruptcy.
“c. Is adjudicated bankrupt or insolvent.

(Emphasis added.)

Sumlin argues that the operating agreement qualifies as an executory contract under the terminology of 11 U.S.C. § 365(e)(1), a part of the United States Bankruptcy Code and that § 10-12-36(b)(1) b. and c. each represents an “ipso facto clause” that is rendered unenforceable by § 365(e)(1). Section 365(e)(1) provides as follows:

“(e)(1) Notwithstanding a provision in an executory contract or unexpired lease, or in applicable law, an executory contract or unexpired lease of the debtor may not be terminated or modified, and any right or obligation under such contract or lease may not be terminated or modified, at any time after the commencement of the case solely because of a provision in such contract or lease that is conditioned on—
“(A) the insolvency or financial condition of the debtor at any time before the closing of the case;
“(B) the commencement of a case under this tifié; or
“(C) the appointment of or taking possession by a trustee in a ease under this title or a custodian before such commencement.”

For the reasons hereinafter stated, we disagree with Sumlin’s analysis of the effect of § 365(e)(1) on § 10-12-36(b)(l). We agree, however, with his contention that the operating agreement constitutes an executory contract for purposes of § 365(e)(1). The Bankruptcy Court for the District of Nebraska discussed execu-tory contracts in In re Daugherty Construction, Inc., 188 B.R. 607 (Bankr.D.Neb.1995). The court stated, in pertinent part:

“Each LLC is an ongoing business. The continuation of business contemplates an ongoing relationship and mutual obligations between each LLC’s members. The member relationships are essentially executory in character. The Bankruptcy Code does not define the term ‘executory contract.’ However, this circuit has adopted the ‘Countryman’ definition. See In re Knutson, 563 F.2d 916, 917 (8th Cir.1977) (quoting V. Countryman, Executory Contracts in Bankruptcy: Part I, 57 Minn.L.Rev. 439, 460 (1973)). Under this definition, contracts are executory if they are so far unperformed that the failure of either party to complete performance would constitute a material breach excusing the performance of the other. Id. In this context, a wide range of agreements constitute ‘executory contracts,’ see e.g., Knutson, supra (airline ticket purchase was executory contract), including partnership agreements and joint venture agreements. See In re Petralex Stainless, Ltd., 78 B.R. 738 (Bankr.E.D.Pa.1987) (joint venture); In re Corky Foods Corp., 85 B.R. 903, 904 (Bankr.S.D.Fla.1988) (partnership agreement).

188 B.R. at 612. The federal judicial circuit that includes Alabama has also approved the “Countryman” definition of “executory contract.” See Gibson v. Resolution Trust Corp., 51 F.3d 1016 (11th Cir.l995)(citing Gibson v. RTC, 750 F.Supp. 1565, 1569 (S.D.Fla.1990), citing, in turn, In re Brada Miller Freight Sys., Inc., 702 F.2d 890, 894 n. 10 (11th Cir. 1983)). See also Sumlin Inv. & Dev. Corp. v. LeRoux (In re LeRoux), 167 B.R. 318 (Bankr.E.D.Mass.1994)(limited partnership agreement is an executory contract). Accordingly, we conclude that the operating agreement is an executory contract for the purpose of analysis under 11 U.S.C. § 365(e)(1).

Regarding the interplay between § 365(e)(1) and “ipso facto clauses,” the Connecticut Court of Appeals stated in Days Inn of America, Inc. v. 161 Hotel Group, Inc., 55 Conn.App. 118, 739 A.2d 280 (1999):

“An ipso facto clause is a provision found in an unexpired lease or executory contract that terminates solely due to the financial condition or bankruptcy filing of a party. In re Lee West Enterprises, Inc., 179 B.R. 204, 209 (Bankr.C.D.Cal.1995). Although for many years such- clauses were permitted, in 1978 the Bankruptcy Code rendered .such ipso facto clauses ineffective after the commencement of a bankruptcy proceeding. 11 U.S.C. § 365(e); In re Lafayette Radio Electronics Corp., 7 B.R. 189, 191-92 (Bankr.E.D.N.Y.1980); cf. Bargain Mart, Inc. v. Lipkis, 212 Conn. 120, 130, 561 A.2d 1365 (1989).”

(Footnote omitted.)

It is to be noted that § 365(e)(1) initially refers to “a provision in an executory contract or unexpired lease, or in applicable law,” but then refers only to “a provision in such contract or lease” in specifying the prohibited framework for an ipso facto clause:

“(e)(1) Notwithstanding a provision in an executory contract or unexpired lease, or in applicable law, an executory contract or unexpired lease of the debtor may not be terminated or modified, and any right or obligation under such contract or lease may not be terminated or modified, at any time after the commencement of the case solely because of a provision in such contract or lease that is conditioned on—
“(A) the insolvency or financial condition of the debtor at any time before the closing of the case; [or]
“(B) the commencement of a case under this title.... ”

(Emphasis added.) The United States Court of Appeals for the Fifth Circuit has concluded that the omission of the phrase “or in applicable law” from the triggering portion of § 365(e)(1) is significant. In Phillips v. First City, Texas-Tyler, 966 F.2d 926 (5th Cir.1992), that court noted:

“Moreover, section 365(e)(1) by its terms only supersedes conflicting law if that law supports termination or modification of rights in an executory contract ‘solely because of a provision in such contract.’ Id. No one contends that a contract deprived HSP of authority to act on P & P’s behalf after declaring personal bankruptcy; MJP claims that Texas law has this effect. See 2 Collier on Bankruptcy § 365.06 at 365-48, -49 (reciting legislative history of section 365(e) indicating its function as an ‘express prohibition against the enforcement of bankruptcy termination clauses’). Thus, HSP may not employ section 365 to avoid [the Texas statute].”

Likewise, in this case, there is no ipso facto clause in the operating agreement. Rather, the provision for cessation of limited liability company membership is an integral feature of the Alabama Limited Liability Company Act, as codified at § 10-12-36(b). However, because we find that 11 U.S.C. § 365(e)(2), discussed next, serves to render § 365(e)(1) inapplicable to the facts of this case, we need not decide whether an ipso facto provision found in applicable Alabama law, but not appearing in an executory contract, is otherwise beyond the reach of § 365(e)(1).

Section 365(e)(2) provides, in pertinent part:

“(2) Paragraph (1) of this subsection does not apply to an executory contract or unexpired lease of the debtor, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties, if—
“(A)(i) applicable law excuses a party, other than the debtor, to such contract or lease from accepting performance from or rendering performance to the trustee or to an assignee of such contract or lease, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties; and
“(ii) such party does not consent to such assumption or assignment....”

Here, because we conclude that the operating agreement is an executory contract involving in significant part the contribution of personal services by Sumlin, Alabama law would allow the defendants to refuse to accept any proposed performance of those services by the trustee in bankruptcy and would prohibit Sumlin from assigning the contract to the trustee. See Sisco v. Empiregas, Inc., 286 Ala. 72, 76-77, 237 So.2d 463, 466-67 (1970) (“We commence with the general proposition that personal service contracts are not assignable.... Whether a contract is personal is largely a matter of the intention of the parties thereto and the ‘intention of the parties to a written contract is derived from the provisions of the contract.’ ”); Skeen v. Harms (In re Harms), 10 B.R. 817, 821 (Colo.1981)(“A partnership agreement creates a fiduciary relationship among the members of the partnership.It is a contract based upon personal trust and confidence.”). We note that the record shows that the trustee in Sumlin’s Chapter 7 bankruptcy never attempted to perform under the operating agreement and certainly the defendants never consented to any such assumption by the bankruptcy trustee of Sumliri’s contractual rights and duties as either a member, a manager, or an administrative manager of the LLC. In DeVore v. Marshack (In re DeVore), 223 B.R. 193 (9th Cir.BAP1998), the United States Bankruptcy Appellate Panel of the Ninth Circuit discussed the operation of “technical abandonment.” In DeVore, the panel stated:

“Abandonment of estate property is governed by [11 U.S.C.] § 554, which provides:
“ ‘(a) After notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.
“ ‘(b) On request of a party in interest and after notice and a hearing, the court may order the trustee to abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.
“ ‘(c) Unless the court orders otherwise, any property scheduled under section 521(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor and administered for purposes of section 350 of this title.
“ ‘(d) Unless-the court orders otherwise, property of the estate that is not abandoned under this section and that is not administered in • the case remains property of the estate.’
11 U.S.C. § 554 (West 1998).
“In the absence of an order directing abandonment, subsection (c) deems abandoned to the debtor any scheduled property of the estate that is unadminis-tered at the close of the case. 5 Collier on Bankruptcy ¶ 554.02[7] (Lawrence P. King ed., 15th ed.1997). This is generally referred to as a technical abandonment. In re Shelton, 201 B.R. 147, 154 (Bankr.E.D.Va.1996). Unlike abandonment under § 554(a) or (b), an abandonment under § 554(c) occurs automatically upon case closure, without notice or hearing.”

223 B.R. at 197.

Additionally, the bankruptcy appellate panel succinctly stated the law regarding exemptions under the federal bankruptcy code in the case of Chubb & Son, Inc. v. Clark (In re Clark), 262 B.R. 508 (9th Cir.BAP2001). There, the panel stated:

“An individual debtor filing for bankruptcy relief is entitled to claim certain property as exempt. See 11 U.S.C. § 522(b) (West 2000); Fed.R. Bankr.P. 4003(a). Any creditor and the bankruptcy trustee may object to the debtor’s claimed exemptions. See Fed. R.Bankr.P. 4003(b). ‘However, absent special circumstances, these objections must be filed “within 30 days after the conclusion of the meeting of creditors held pursuant to Rule 2003(a).” ’ Smith [v. Kennedy (In re Smith)], 235 F.3d [472] at 475 [ (9th Cir.2000)], quoting Fed.R. Bankr.P. 4003(b). If no objections are timely filed, ‘the property claimed as exempt ... is exempt.’ 11 U.S.C. § 522(1).”

262 B.R. at 514. In the case of Gamble v. Brown (In re Gamble), 168 F.3d 442 (11th Cir.1999), the United States Court- of Appeals for the Eleventh Circuit noted that with regard to property that is claimed as exempt:

“ ‘Unless the case is dismissed, property exempted under this section is not liable during or after the case for any debt of the debtor that arose, or that is determined under section 502 of this title as if such debt had arisen, before the commencement of the case,’ with certain exceptions. See 11 U.S.C. 522(c). ‘Once the property is removed from the estate [through exemption], the debtor may use it as his own.’ Hall v. Finance One of Georgia, Inc. (In re Hall), 752 F.2d 582, 584 (11th Cir.1985), abrogated on other grounds by Finance One v. Bland (In re Bland), 793 F.2d 1172, 1174 (11th Cir.1986)(en banc).”

168 F.3d 444. We need not decide whether Sumlin’s interest in the executory contract was abandoned or whether it was exempted, because, under either process, the trustee would conclusively have forgone any assumption of that interest in the contract by, at the latest, the closing of his bankruptcy case, some two months before the derivative action before us was filed. As a consequence, through the operation of § 365(e)(2), § 365(e)(1) did not apply to preclude effectuation of the ipso facto provision in § 10-12-36(b), .Code of Ala.1975.

Lastly, we conclude that in any event, § 365(e) is intended to apply only during the pendency of a bankruptcy case, and is inapplicable once the “automatic stay” against ipso facto termination has been lifted by the closing of the bankruptcy case. We agree with the reasoning in Thomas American Stone & Building, Inc. v. White, 142 B.R. 449 (D.Utah 1992). In Thomas, the court stated, in pertinent part:

“Relief from the automatic stay also removes this case from the shelter of § 365(e)(1)....
“Once an asset is taken from the bankruptcy estate the prohibition against bankruptcy termination clauses is no longer operative. In re Schweitzer, 19 B.R. 860, 867 (Bankr.E.D.N.Y.1982). Judge Malugen’s order removed this asset from the bankruptcy estate and therefore from the protection of § 365. After relief from the automatic stay provision the parties resumed the positions they occupied prior to the debtor being placed in bankruptcy. In re Drislor Assoc., 110 B.R. 937, 940 (D.Colo.1990).”

142 B.R. at 453. Moreover, in Days Inn of America, Inc. v. 161 Hotel Group, Inc., supra, the court recognized the following in a footnote:

“The legislative history provides in relevant part: ‘Subsection (e) invalidates ipso facto or bankruptcy clauses. These clauses, protected under present law, automatically terminate the contract or lease, or permit the other contracting party to terminate the contract or lease, in the event of bankruptcy. This frequently hampers rehabilitation efforts ....
“ ‘The unenforceability of ipso facto or bankruptcy clauses proposed under this section will require the courts to be sensitive to the rights of the nondebtor party to executory contracts and unexpired leases....
“ ‘This subsection does not limit the application of an ipso facto or bankruptcy clause to a new insolvency or receivership after the bankruptcy case is closed. That is, the clause- is not invali dated in toto, but merely made inapplicable during the case for the purposes of [disposition] of the executory contract or unexpired lease.’ 1978 U.S.C.C.A.N. 6804-6305.”

55 Conn.App. at 126 n. 10, 739 A.2d at 284-85 n. 10 (emphasis added). Thus, because the bankruptcy proceedings had been closed before the action was filed, the automatic stay was no longer in effect. Consequently, for this additional reason, § 10-12-36(b) would not have been subject to preemption by § 365(e)(1) at the time the action was filed. Therefore, Sumlin would have been divested of his member status by that time by the operation of § 10-12-36(b) and thus was without statutory standing to bring a derivative suit on behalf of the LLC.

That being so, the trial court never acquired subject-matter jurisdiction over the action, and this appeal is due to be dismissed as one taken from a void judgment.

“When a party without standing purports to commence an action, the trial court acquires no subject-matter jurisdiction. Barshop v. Medina County Underground Water Conservation District, 925 S.W.2d 618, 626 (Tex.1996) (‘Standing is a necessary component of subject matter jurisdiction’). See also Raines v. Byrd, 521 U.S. 811, 117 S.Ct. 2312, 138 L.Ed.2d 849 (1997); Lewis v. Casey, 518 U.S. 343, 116 S.Ct. 2174, 135 L.Ed.2d 606 (1996); United States v. Hays, 515 U.S. 737, 742, 115 S.Ct. 2431, 132 L.Ed.2d 635 (1995) (‘ “standing ‘is perhaps the most important of [the. jurisdictional] doctrines’ ” ’); National Organization for Women, Inc. v. Scheidler, 510 U.S. 249, 255, 114 S.Ct. 798, 127 L.Ed.2d 99 (1994) (‘Standing represents a jurisdictional requirement ■ which remains open to review at all stages of the litigation.’); Romer v. Board of County Comm’rs of the County of Pueblo, supra, 956 P.2d [566] at 585 [(Colo.1998)] (‘standing is a jurisdictional prerequisite to every case, and may be raised at any stage of the proceedings’) (Martinez, J., dissenting); Cotton v. Steele, 255 Neb. 892, 587 N.W.2d 693 (1999). But see Hertzberg v. Zoning Bd. of Adjustment of the City of Pittsburgh, 554 Pa. 249, 721 A.2d 43 (1998) (standing is not jurisdictional).”

State v. Property at 2018 Rainbow Drive, 740 So.2d 1025, 1028 (Ala.1999).

Accordingly, this appeal is dismissed.

APPEAL DISMISSED.

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

      . Sumlin’s individual claims are not relevant to this appeal.

      . Sumlin presents no argument concerning the possible application of this limiting phrase to any provision of the operating agreement. The defendants assert in their brief to this Court that "[t]he only way around these provisions of [§ 10 — 12—36(b)(1) ] would be if an exception is set out in the company’s operating agreement or if the written consent of all of the members is given. A review of the operating agreement which is enclosed in the record herein reveals no such exception.” Sumlin did not respond to this declaration by the defendants in his reply brief, and he did not allude to the issue in any way in his initial brief. Consequently, this issue is not before us.

      "1 The legislative history of section 365 states that the term executory contract ‘generally includes contracts on which performance remains due to some extent on both sides.' See Cameron v. Pfaff Plumbing and Heating, Inc., 966 F.2d 414, 416 (8th Cir. 1992). This statement was quoted approvingly by the Supreme Court in NLRB v. Bildisco & Bildisco, 465 U.S. 513, 522 n. 6, 104 S.Ct. 1188, 1194 n. 6, 79 L.Ed.2d 482 (1984)....”


author: LYONS, Justice. JOHNSTONE, Justice

text:
    Ex parte Oscar PORTER, Jr. (In re Oscar Porter, Jr. v. State of Alabama).
    1011147.
    Supreme Court of Alabama.
    Nov. 1, 2002.
    Oscar Porter, Jr., pro se.
    William H. Pryor, Jr., atty. gen., and Cedric B. Colvin, asst. atty. gen., for respondent.
   LYONS, Justice.

The writ of certiorari is quashed. See Hale v. State, 848 So.2d 224, 238 (Ala.2002) (holding that “the absence of sentence enhancement allegations from the indictment does not deprive the trial court of jurisdiction to impose the enhancements” and that because the defendant “did not argue before the trial court at any timé that the application of the sentence enhancements violated his rights to due process and to a trial by jury, he ... waived appellate review of [thosé] arguments”).

WRIT QUASHED.

MOORE, C.J., and HOUSTON, SEE, BROWN, HARWOOD, WOODALL, and STUART, JJ., concur.

JOHNSTONE, J., dissents.

JOHNSTONE, Justice

(dissenting).

I respectfully dissent -for the reasons expressed in the dissenting portion of my special writing in Hale v. State, 848 So.2d 224 (Ala.2002).


text:
    SOUTHERN FOODSERVICE MANAGEMENT, INC. v. AMERICAN FIDELITY ASSURANCE COMPANY and Insurance Mass Marketing Systems, Inc.
    1011570.
    Supreme Court of Alabama.
    Nov. 1, 2002.
    Rehearing Denied Dec. 20, 2002.

      Clarence L. McDorman, Birmingham, for appellant.
    John M. Bolton III of Sasser, Littleton & Stidham, P.C., Montgomery, for appel-lee American Fidelity Assurance Company.
    . Jeffrey M. Anderson and Scott Burnett Smith of Bradley Arant Rose & White, LLP, Birmingham; and Philip H. Butler of Bradley Arant Rose & White, LLP, Montgomery, for appellee Insurance Mass Marketing Systems, Inc.
   HOUSTON, Justice.

This is an appeal from an order of the Jefferson Circuit Court granting the defendants’ motion to compel arbitration. Southern Foodservice Management, Inc. (“Foodservice”), filed an action against Insurance Mass Marketing Systems, Inc. (“IMMS”), and American Fidelity Assurance Company (“American Fidelity”), alleging fraud, suppression, bad-faith failure to pay a claim, and breach of contract. IMMS and American Fidelity filed a motion to compel arbitration based on an arbitration clause contained in a contract for reinsurance. Foodservice opposed the motion; however, the trial court granted the motion and denied Foodservice’s subsequent motion to alter, amend, or vacate. We affirm.

I. Facts

For more than 15 years, Foodservice, a dining management service, has provided a self-funded medical insurance plan for its employees. Foodservice, through its agent, Group Resources, Inc. (“GRI”), or its predecessor, purchased excess or stop-loss insurance to protect against catastrophic losses. Routinely, GRI solicited proposals from various insurance companies for that coverage and presented the proposals, along with GRI’s recommendation, to Foodservice.

On April 26, 1999, GRI solicited a proposal from IMMS for stop-loss insurance coverage for Foodservice. On April 27, 1999, IMMS submitted a coverage proposal to GRI; American Fidelity was the insurer. On June 1, 1999, IMMS submitted a second proposal for stop-loss insurance; that proposal contained two additional options requested by GRI after IMMS had submitted its first proposal. On June 9, 1999, GRI instructed IMMS to bind stop-loss coverage with American Fidelity as the insurer.

Foodservice executed an application for coverage and paid an advance premium of $11,384.95. The application and premium were sent to GRI. According to the application, Foodservice appointed GRI “as its' agent for purposes of the REINSURANCE AGREEMENT and the applied for reinsurance coverage.” (Capitalization in original.)

IMMS advised GRI at that time that American Fidelity could not issue the reinsurance policy until it received several items, including the signed application, an updated list of previously paid claims, and a disclosure form. GRI failed to provide this information, and IMMS repeated its request five more times over the next three months. On October 4, 1999, GRI produced the signed application, the disclosure form, and a year-end claims report.

Upon review of the year-end claims report, IMMS reported to GRI that the aggregate factor would be increased because the average claim for Foodservice was 28 percent higher than the figure used in the initial proposal, thus increasing the premium. After subsequent negotiations between GRI and IMMS, the agreement was confirmed in writing on November 29, 1999.

The stop-loss policy, issued by American Fidelity, was mailed to GRI, as agent for Foodservice, on December 6, 1999. GRI forwarded the policy, which had an effective date of July 1, 1999, to Foodservice on January 25, 2000. The policy contained the following arbitration provision:

“ARBITRATION: Any controversy or dispute arising out of or relating to this REINSURANCE AGREEMENT shall be settled by arbitration in accordance with the rules of the American Arbitration Association. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction. This provision shall survive the termination of this REINSURANCE AGREEMENT.”

(Capitalization in original.)

On November 17, 2000, Foodservice, through GRI, made a claim against the policy for $336,443.43. American Fidelity tendered $120,378.57 as total payment for the claim. The balance of that claim is the subject of this action.

Foodservice filed this action, asserting claims against GRI and several other insurance companies relating to the payment of proceeds under insurance policies covering Foodservice’s employee-benefit plan., Foodservice later amended its complaint to add American Fidelity and IMMS as defendants and to assert claims alleging breach of contract, fraud, suppression, and bad-faith refusal to pay an insurance claim.

American Fidelity and IMMS moved to compel arbitration under the arbitration agreement of the claims against them. In response to the motion to compel arbitration, Foodservice admitted that the reinsurance agreement was a transaction that involved interstate commerce; Foodser-vice argued, however, that it had never agreed to the arbitration clause in the policy. Following oral argument, the trial court granted the motion to compel arbitration. Foodservice filed a motion to alter, amend, or vacate the court’s order; the trial court subsequently denied that motion. Foodservice appealed.

II. Issues on Appeal

Foodservice presents two issues on appeal: (1) whether American Fidelity, IMMS, and Foodservice had entered into a valid contract that included a valid arbitration agreement, and (2) whether American Fidelity and IMMS failed to deliver the insurance policy within a reasonable period as required by Ala.Code 1975, § 27-14-19, and, if so, whether, because of the delay, they are estopped from asserting the arbitration clause.

A. Was the contract between American Fidelity, IMMS, and Foodservice a valid contract that included a valid arbitration provision?

This Court reviews de novo a trial court’s ruling on a motion to compel arbitration. Allied-Bruce Terminix Co. v. Butler, 816 So.2d 9, 11-12 (Ala.2001). A party moving to compel arbitration must establish (1) the existence of a contract calling for arbitration and (2) that the contract substantially affects interstate commerce. Celtic Life Ins. Co. v. McLendon, 814 So.2d 222, 224 (Ala.2001). Foodser-vice admits that the insurance policy at issue is a transaction in interstate commerce. Foodservice argues, however, that it never agreed to an arbitration provision. Foodservice contends that it is not obligated to arbitrate because it never signed any document containing an arbitration provision; the document it did sign — the application — did not contain an arbitration provision. Foodservice contends that the absence of its signature on the policy demonstrates a lack of mutual assent to the arbitration provision contained in the policy. Therefore, the dispositive issue is whether Foodservice, IMMS, and American Fidelity contracted to arbitrate their claims.

“Whether a contract exists must be determined under general state-law contract principles.” Ex parte Rush, 730 So.2d 1175, 1177 (Ala.1999). “It is not a requirement of Alabama contract law that for a contract provision to be enforceable it must have appeared also on the application to enter into the contract.” Southern United Fire Ins. Co. v. Howard, 775 So.2d 156, 162 (Ala.2000). Further, the Federal Arbitration Act “requires only that there be a “written provision’ in a ‘contract’; it does not specify that a party’s assent to the terms of a contract containing an arbitration provision can be evidenced only by that party’s signature.” Ex parte Rush, 730 So.2d at 1177; see 9 U.S.C. § 2.

Foodserviee’s argument that to be effective the arbitration provision should have been referenced in the application Foodservice signed is without merit. In Ex parte Roger, 712 So.2d 333, 335 (Ala. 1998), this Court stated:

“Many parts of ah insurance policy are not mentioned in the application. If we accepted this argument, then any part of an insurance policy that was not specifically mentioned in the application would be automatically invalid, even if the insured did not object within the time permitted. Such a result would be inequitable to the insurance company.”

Even if the addition of an arbitration provision in a policy amounted to a material alteration (and we have said that it does not), Foodservice accepted the alteration by not returning the policy and by paying premiums on it. Ex parte Roger, 712 So.2d at 335. “ ‘An application for insurance is an offer to enter into an insurance contract, and if the insurer issues a policy materially different from that applied for, the policy is a counter-offer which becomes binding only when accepted by the applicant.’ ” 712 So.2d at 335 (quoting Connell v. State Farm Mut. Auto. Ins. Co., 482 So.2d 1165, 1167 (Ala.1985)). Therefore, it does not matter that the application did not include an arbitration provision or mention arbitration.

Additionally, under Alabama law, Food-service manifested its assent to the arbitration provision in several ways. ■ First, Foodservice failed to exercise its right to cancel the policy. See Ex parte Roger, 712 So.2d at 335. Second, Foodservice paid its premiums, indicating its acceptance of the entire policy. See Howard, 775 So.2d at 162; see also Ex parte Roger, 712 So.2d at 335-36. Third, Foodservice submitted a claim under the policy. See Howard, 775 So.2d at 162-63.

B. Did American Fidelity and IMMS deliver the insurance policy to Food-service within a reasonable time?

An insurer must deliver a copy of the insurance policy to the insured within a reasonable time after the policy has been issued. Ala.Code 1975, § 27-14-19(a). Section 27-14-19 states, in pertinent part:

“(a) Subject to the insurer’s requirements as to payment of premium, every policy shall be mailed or delivered to the insured or to the person entitled thereto within a reasonable period of time after its issuance, except where a condition required by the insurer has not been met by the insured.”

In Brown Machine Works & Supply v. Insurance Company of North America, 659 So.2d 51, 58 (Ala.1995), this Court held that when an insurance company fails to comply with Section 27-14-19, and that failure to comply has prejudiced the insured, the insurance company is estopped from enforcing an exclusion in the policy. Foodservice argues that American Fidelity and IMMS did not deliver the policy to it in a reasonable time and, thus, that they should be estopped from enforcing the arbitration provision. However, Foodser-vice’s argument is misplaced; American Fidelity and IMMS complied with all statutory requirements.

American Fidelity and IMMS were required to deliver the policy to Foodservice within a reasonable time after it was issued. See Ala.Code 1975, § 27-14-19. Even though the reinsurance policy became effective on July 1, 1999, it was not issued until December 6, 1999, at which time it was delivered to GRI. The reason for the delay between the effective date and the issuance date was that all “condition[s] required by the insurer [had] not been met by the insured.” Ala.Code 1975, § '27-14-19. At the time Foodservice applied for the reinsurance policy, IMMS advised GRI that American Fidelity could not issue the policy until it received the signed application, an updated list of paid claims, and a disclosure form. This request was repeated five more times between mid-June and October 1999, at which time GRI and Foodservice finally complied. On October 4, 1999, after it had received all of the required information, IMMS renegotiated certain provisions of the policy with GRI. The agreement was confirmed in writing on November 29, 1999. The reinsurance policy was sent to GRI seven days later. Therefore, the policy was delivered to GRI in a reasonable time.

Additionally, Foodservice argues that there was a 50-day delay from the time the policy was delivered to GRI until Foodservice received it. However, GRI was Foodservice’s agent. In the application for reinsurance, Foodservice identified GRI as “its agent for purposes of the REINSURANCE AGREEMENT and the applied for insurance coverage.” (Capitalization in original.) Foodservice agreed not to hold American Fidelity or IMMS liable for any “negligence, error, omission or defalcation” committed by GRI. Moreover, the policy states that notice to GRI is notice to Foodservice. Therefore, IMMS and American Fidelity are not responsible for any “unreasonable” delay between the time they delivered the policy to GRI and the time Foodservice finally received it.

American Fidelity and IMMS fully complied with Ala.Code 1975, § 27-14-19.

The trial court did not err in granting IMMS and American Fidelity’s motion to compel arbitration, and its order compelling arbitration as to those parties is affirmed.

AFFIRMED.

SEE, LYONS, BROWN, JOHNSTONE, HARWOOD, WOODALL, and STUART, JJ., concur.

MOORE, C.J., dissents.

      . These requests were made on June 22, July 27, August 19, September 10, and September 30, 1999.

      . As of January 2000, Foodservice had paid approximately $80,000 in premiums on the policy, which had been in effect since July 1, 1999.

      . See SouthTrust Bank v. Williams, 775 So.2d 184, 189 (Ala.2000); Ex parte Shelton, 738 So.2d 864, 871 (Ala.1999); American Bankers Ins. Co. of Florida v. Crawford, 757 So.2d 1125, 1130 (Ala.1999).

      . A plaintiff cannot pursue breach-of-contract and bad-faith-refusal-to-pay claims under the contract and at the same time "repudiate its burdens and conditions." Ballard Servs., Inc. v. Conner, 807 So.2d 519, 523 (Ala.2001). Under Alabama law, "a person cannot merely pick and choose the provisions in a contract that he wants to apply.” Delta Constr. Corp. v. Gooden, 714 So.2d 975, 981 (Ala.1998).

      . Foodservice alleges that there was at most a 7-month delay (from the policy’s effective date of July 1, 1999, to its delivery to Foodser-vice on January 25, 2000), and at least a 50-day delay (from the policy’s delivery to GRI on December 6, 1999, to the date Foodservice actually received the policy, January 25, 2000).


author:
LYONS, Justice.
      JOHNSTONE, Justice

text:
    Ex parte Jeffery HORNE. (In re Jeffrey Horne v. State of Alabama).
    1010796.
    Supreme Court of Alabama.
    Nov. 1, 2002.
    Jeffery Horne, pro se.
    William H. Pryor, Jr., atty. gen., and G. Ward Beeson III, asst. atty. gen., for respondent.

       The defendant filed his petition under the name "Jeffery Horne." The Court of Criminal Appeals spelled the defendant's name “Jeffrey Horne.”

   LYONS, Justice.

The writ of certiorari is quashed. See Hale v. State, 848 So.2d 224, 233 (Ala.2002) (holding that “the absence of sentence enhancement allegations from the indictment does not deprive the trial court of jurisdiction to impose the enhancements” and that because the defendant “did not argue before the trial court at any time that the application of the sentence enhancements violated his rights to due process and to a trial by jury, he ... waived appellate review of [those] arguments”).

WRIT QUASHED.

MOORE, C.J., and HOUSTON, SEE, BROWN, HARWOOD, WOODALL, and STUART, JJ., concur.

JOHNSTONE, J., dissents.

JOHNSTONE, Justice

(dissenting).

I respectfully dissent. See the dissenting part of my special writing in Hale v. State, 848 So.2d 224 (Ala.2002).


text:
    CELTIC LIFE INSURANCE COMPANY v. Barry R. BROWN and Kimberly Brown. E. Graham Stokes v. Barry R. Brown and Kimberly Brown.
    1011007 and 1011237.
    Supreme Court of Alabama.
    Nov. 1, 2002.
    Rehearing Applications Denied Dec. 20, 2002.
    Robert S.W. Given, F.A. Flowers III, and Harlan F. Winn III of Burr & For-man, L.L.P., Birmingham, for appellant Celtic Life Insurance Company.
    Barry A. Brock and J. David Moore of Walston, Wells, Anderson & Bains, L.L.P., Birmingham, for appellant E. Graham Stokes.
    Ted L. Mann and Robert Potter of Mann, Cowan & Potter, P.C., Birmingham, for appellees.
   HOUSTON, Justice.

The sole issue in these consolidated appeals is whether the Barbour Circuit Court erred when it denied the appellants’ motions to compel arbitration on the basis that the relevant arbitration agreement bars the arbitrator from awarding punitive damages (although the right to enforce this provision was waived) and contains no severability clause. The initial briefs in this case were filed before the release of our decision in Ex parte Celtic Life Insurance Co., 834 So.2d 766 (Ala.2002), which involved the same arbitration agreement and the same issue, and which is therefore dispositive of these appeals. In accordance with Ex parte Celtic Life Insurance Co., we reverse the trial court’s order denying the appellants’ motions to compel arbitration and remand the cases for further proceedings.

REVERSED AND REMANDED.

LYONS, BROWN, JOHNSTONE, HARWOOD, WOODALL, and STUART, JJ., concur.

MOORE, C.J., dissents.