Allied-Bruce Terminix Companies, Inc. v. Dobson

• Decision Date: 03 November 1995
• Docket Number: ALLIED-BRUCE
• Citation: 684 So.2d 102
• Parties: TERMINIX COMPANIES, INC., et al. v. G. Michael DOBSON, Wanda C. Dobson, Steven Gwin, and Jan Gwin. 1920473.
• Court: Alabama Supreme Court

Page 102

684 So.2d 102

ALLIED-BRUCE TERMINIX COMPANIES, INC., et al. v. G. Michael DOBSON, Wanda C. Dobson, Steven Gwin, and Jan Gwin.

1920473.

Supreme Court of Alabama.

Nov. 3, 1995.

Rehearing Denied Feb. 16, 1996.

Joseph P. Jones, Jr. and T. Julian Motes of Sirote & Permutt, P.C., Mobile, and Robert A. Wills of Wills and Simon, Bay Minette, for Appellants.

Alan R. Chason of Chason & Chason, P.C., Bay Minette, for Appellees G. Michael Dobson and Wanda C. Dobson.

On Remand from the Supreme Court of the United States

ALMON, Justice.

This cause is on remand from the Supreme Court of the United States. The question is whether the Federal Arbitration Act ("the Act") requires arbitration of the claims at issue.

The original opinion of this Court is published at 628 So.2d 354. The essential facts of the case are set out in that opinion, as follows:

"The defendants, Allied-Bruce Terminix Companies, Inc., ... and Terminix International Company [hereinafter collectively 'Terminix'] ... appeal from an order of the trial court denying their motion to compel arbitration of the tort and breach of contract claims filed against them by Michael Dobson, Wanda Dobson, Steven Gwin, and Jan Gwin. The issue for our review is whether the arbitration clause contained in a termite bond is enforceable under the Federal Arbitration Act, 9 U.S.C. § 1 et seq....

"In August 1987, Steven Gwin allowed the termite bond on his house in Fairhope, Alabama, to expire, and he purchased a replacement bond from Terminix Service. Terminix Service is an Arkansas corporation that does business in several states.... The bond was guaranteed by Terminix International, a limited partnership that has its principal place of business in Memphis, Tennessee.

"In 1991, Steven and Jan Gwin agreed to sell the house to Michael and Wanda Dobson. The sales contract required the Gwins to provide written evidence from a licensed pest control company that the company had performed a visual inspection of the house and had observed no active infestation of termites or damage from active infestation. The contract also required that the termite bond be transferred to the Dobsons at the closing of the sale. Because of the existing bond on the house, Terminix Service agreed to perform the inspection and to issue the required statement [free of charge]. At the closing, the Gwins furnished Dobson with a standard Veterans' Administration ... form; the V.A. form [stated] that Terminix Service had observed no visible evidence of active infestation during the inspection.

"The Dobsons later discovered termite damage to the house, and they brought an action against the Gwins, alleging fraud, and against Terminix Service and Terminix International, alleging fraud in connection with the representations in the V.A. form, and alleging breach of contract. The Gwins cross-claimed against Terminix Service and Terminix International. Terminix Service and Terminix International moved to stay the proceedings and to compel the Dobsons and the Gwins to submit their claims to arbitration pursuant to an arbitration clause in the bond. The trial court denied this motion, and the defendants [appealed]." ¹

628 So.2d at 354-55.

This Court held that the Act was inapplicable because, it held, the connection between the termite protection plan and interstate commerce was too slight, in that the parties did not contemplate substantial interstate activity when they entered into the contract. 628 So.2d at 356. Thus, we upheld the denial of the stay, based upon § 8-1-41(3), Ala.Code 1975, which prohibits specific enforcement of "[a]n agreement to submit a controversy to arbitration." The United States Supreme Court reversed, holding that the Act's language, making enforceable an arbitration provision in "a contract evidencing a transaction involving commerce," is applicable "to the limits of Congress' Commerce Clause power," and that, because the transaction in this case, in fact, involved interstate commerce, the Act was applicable and preempted state law. Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, ----, 115 S.Ct. 834, 837, 130 L.Ed.2d 753 (1995); 9 U.S.C. § 2. The Supreme Court remanded the cause to this Court for further proceedings consistent with its opinion.

The key operative provisions of the Federal Arbitration Act are §§ 3 and 4. Section 3 provides:

"If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration."

(Emphasis added.) Section 4 provides:

"A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement. Five days' notice in writing of such application shall be served upon the party in default. Service thereof shall be made in the manner provided by the Federal Rules of Civil Procedure. The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed. If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof. If no jury trial be demanded by the party alleged to be in default, or if the matter in dispute is within admiralty jurisdiction, the court shall hear and determine such issue. Where such an issue is raised, the party alleged to be in default may, except in cases of admiralty, on or before the return day of the notice of application, demand a jury trial of such issue, and upon such demand the court shall make an order referring the issue or issues to a jury in the manner provided by the Federal Rules of Civil Procedure, or may specially call a jury for that purpose. If the jury find that no agreement in writing for arbitration was made or that there is no default in proceeding thereunder, the proceeding shall be dismissed. If the jury find that an agreement for arbitration was made in writing and that there is a default in proceeding thereunder, the court shall make an order summarily directing the parties to proceed with the arbitration in accordance with the terms thereof."

(Emphasis added.)

Although the United States Supreme Court has held that the substantive provisions of the Act, §§ 1 and 2, are applicable in state courts as well as federal courts, see Southland Corp. v. Keating, 465 U.S. 1, 12, 104 S.Ct. 852, 859, 79 L.Ed.2d 1 (1984), the Court has stated that it has not held that §§ 3 and 4 are applicable in state courts. See Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 476-77 and n. 6, 109 S.Ct. 1248, 1254-55 and n. 6, 103 L.Ed.2d 488 (1989); Southland Corp. v. Keating, 465 U.S. at 16 n. 10, 104 S.Ct. at 861 n. 10. While the Act preempts state law that actually conflicts with the federal policy favoring arbitration, it does not prevent enforcement of agreements to arbitrate under state rules of arbitration. Volt Info. Sciences, 489 U.S. at 477-79, 109 S.Ct. at 1254-56 (stating that "[the Act] contains no express pre-emptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration"); cf. Southland Corp., 465 U.S. at 24, 104 S.Ct. at 865 (O'Connor, J., dissenting) (stating that "the Court reads § 2 to require state courts to enforce § 2 rights using procedures that mimic those specified for federal courts by FAA §§ 3 and 4"). However, § 8-1-41(3), Ala.Code 1975, provides that "[a]n agreement to submit a controversy to arbitration" cannot be specifically enforced; thus, Alabama has not developed rules of arbitration for dealing with pre-dispute agreements independent from the law that has developed in cases in which the Federal Arbitration Act applied. Because the United States Supreme Court has expanded the applicability of the Act to state courts and because our circuit courts will now face more issues concerning arbitration, we look to 9 U.S.C. §§ 3 and 4, as interpreted herein and to the extent they are applicable and consistent with otherwise-provided procedures applicable in this state, as providing information on how the federal courts would apply the Act. ²

On their face, §§ 3 and 4 appear to provide separate procedures for distinct situations, one where an action has been brought in a court upon an issue arguably referable to arbitration and the other where a party seeking arbitration petitions a court for an order requiring the other party to submit to arbitration. In practice, however, it is common for parties to seek relief under both provisions: a party involved in litigation, ordinarily brought by a party with whom the moving party has an arbitration agreement, may move the court for an order compelling arbitration under § 4 and for a stay of proceedings pending arbitration under § 3. See, e.g., Volt Info. Sciences, 489 U.S. at 471 n. 2, 109 S.Ct. at 1251 n. 2; Perry...