Allied Williams Companies, Inc. v. Davis

• Decision Date: 12 November 2004
• Citation: 901 So.2d 696
• Parties: ALLIED WILLIAMS COMPANIES, INC., f/k/a Allied-Bruce Terminix Companies, Inc., d/b/a Terminix Service, and Gary Welch v. Thomas D. DAVIS and Grace Davis.
• Court: Alabama Supreme Court

901 So.2d 696

ALLIED WILLIAMS COMPANIES, INC., f/k/a Allied-Bruce Terminix Companies, Inc., d/b/a Terminix Service, and Gary Welch v. Thomas D. DAVIS and Grace Davis.

1030207.

Supreme Court of Alabama.

November 12, 2004.

T. Julian Motes and Jeffrey G. Miller of Sirote & Permutt, P.C., Mobile; and Joel W. Weatherford and Edward M. Price, Jr., of Farmer, Price, Hornsby & Weatherford, L.L.P., Dothan, for appellants.

Stephen T. Etheredge of Buntin, Etheredge & Dowling, LLC, Dothan, for appellees. BROWN, Justice.

Allied Williams Companies, Inc., f/k/a Allied-Bruce Terminix Companies, Inc., d/b/a Terminix Service ("Terminix"), and Gary Welch, defendants in a proceeding in the Houston Circuit Court, appeal from the trial court's order denying their motion to compel arbitration of the claims of the plaintiffs below, Thomas D. Davis and Grace Davis. We reverse and remand.

Facts

On October 7, 2000, the Davises executed a real-estate purchase agreement ("the purchase agreement"), pursuant to which they purchased from Diane Stevenson a house located in Midland City. The purchase agreement contained, among other things, an arbitration provision.

The purchase agreement required Stevenson, as the seller, to pay for a "termite certification" from a licensed pest-control provider to verify that the house was free from any active infestation by wood-destroying insects or fungus.¹ Stevenson hired Terminix to perform the inspection and to prepare the appropriate certification. Welch, an employee of Terminix, inspected the house and prepared an "Official Alabama Wood Infestation Inspection Report." The report stated that there was no active infestation in the house, but that there was visible evidence of a previous termite infestation.

The Davises claim that they relied on Terminix's report in purchasing the house. However, following the closing of the purchase of the house, the Davises allegedly discovered that the house had been damaged by a previous powder post beetle infestation. On February 10, 2003, the Davises sued Terminix and Welch, alleging fraud, negligence, wantonness, and suppression.² On July 21, 2003, Terminix and Welch filed a motion to compel arbitration of the Davises' claims. After a hearing, the trial court denied the motion to compel arbitration. Terminix and Welch appeal.

Standard of Review

"Review of a trial court's denial of a motion to compel arbitration is properly sought through a direct appeal. Rule 4(d), Ala. R.App. P.; A.G. Edwards & Sons, Inc. v. Clark, 558 So.2d 358, 360 (Ala.1990). We apply the de novo standard of review to such appeals. Green Tree Fin. Corp. of Alabama v. Vintson, 753 So.2d 497, 502 (Ala.1999).

"II.

"A party seeking to compel arbitration has the burden of proving: (1) the existence of a contract containing an arbitration agreement and (2) that the underlying contract evidences a transaction affecting interstate commerce. Kenworth of Birmingham, Inc. v. Langley, 828 So.2d 288, 290 (Ala.2002). Once those two items have been shown, the burden shifts to the opposing party to present evidence either that the arbitration agreement is not valid or that it does not apply to the dispute in question. Id."

Jim Walter Homes, Inc. v. Saxton, 880 So.2d 428, 430 (Ala.2003)

.

Discussion

I.

Section 2 of the Federal Arbitration Act, 9 U.S.C. § 1 et seq. ("the FAA"), provides: "A written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable...." 9 U.S.C. § 2. The FAA "mandates the arbitration of claims encompassed by an arbitration clause that is contained in a binding contract that involves interstate commerce." Ex parte Conference America, Inc., 713 So.2d 953, 955 (Ala.1998).

In determining whether a transaction "involves" interstate commerce, this Court looks to whether Congress's Commerce Clause³ power can reach the activity that is the basis of the transaction:

"The Supreme Court has acknowledged that the FAA is a constitutional exercise of Congress's Commerce Clause power.... [E]conomic or commercial transactions (such as, for example, the buying and selling of goods or services, contracting for employment, etc.), even one that is purely intrastate, are within the reach of the FAA if the `"general practice" those transactions represent' has, in the aggregate, a substantial effect on interstate commerce. Citizens Bank [v. Alafabco, Inc., 539 U.S. 52, 58 (2003)].

"... In a very real sense, an argument that a transaction does not `involve' commerce under the FAA is actually an argument that Congress does not have the constitutional power under the Commerce Clause to reach and regulate that type of transaction. As the decisions of the United States Supreme Court have made clear, there are few, if any, economic or commercial transactions that are beyond the reach of Congress's commerce power. Furthermore, virtually every kind of industry, small or large, is currently regulated by some sort of federal statute enacted pursuant to Congress's commerce power....

"....

"... While there can be no per se rule that would preclude a trial court's role in evaluating whether a contract `evidenc[es] a transaction involving commerce,' see [United States v.] Morrison [, 529 U.S. 598, 614 (2000)], given the above, a trial court evaluating a contract connected to some economic or commercial activity would rarely, if ever, refuse to compel arbitration on the ground that the transactions lacked `involvement' in interstate commerce."

Service Corp. Int'l v. Fulmer, 883 So.2d 621, 627-29 (Ala.2003)(footnotes omitted).

In deciding whether a contract calling for arbitration triggers the application of the FAA, this Court must determine whether the transaction "affected interstate commerce or if the economic activity in question represents a general practice subject to federal control. If either of these questions can be answered affirmatively, the FAA is triggered." Huntsville Utils. v. Consolidated Constr. Co., 876 So.2d 450, 454-55 (Ala.2003).

On appeal, Terminix and Welch contend that the transaction in this case affected interstate commerce because several parties involved in the sale of the house to the Davises were multistate corporations and to accomplish the sale funds were transferred across state lines. We agree. Several factors in this case establish the requisite impact on interstate commerce. First, two of the parties involved in the transaction were multistate corporations that engaged in business outside Alabama. According to the affidavit of Joseph P. Jones, vice president and general counsel of Terminix, Terminix is an Arkansas corporation that does business in eight states, including Alabama. Furthermore, the Davises' realtor, Wright Real Estate Company, Inc., d/b/a RE/MAX Real Estate Professionals ("RE/MAX"), which represented the Davises at the closing on the purchase of the house and which was paid $1,600 for its services, is a licensed franchise of RE/MAX International, Inc., a business that operates in all 50 states. See Bowen v. Security Pest Control, Inc., 879 So.2d 1139, 1142 (Ala.2003) (holding that a transaction involved interstate commerce, in part, because one of the parties to the transaction engaged in commerce in both Alabama and Georgia); Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 57, 123 S.Ct. 2037, 156 L.Ed.2d 46 (2003)(holding that Congress's Commerce Clause power extended to the transaction in that case because, among other things, one of the parties to the transaction "engaged in business throughout the southeastern United States"). According to the affidavit of Ralph J. Wright, the president of RE/MAX, RE/MAX transferred $160 to RE/MAX's regional office located in Kansas City, Missouri, as a commission for the sale of the house.⁴

The impact of these factors, standing alone, on interstate commerce is arguably de minimis. However,

"[t]he application of the FAA is not defeated if the individual transaction at issue, taken alone, does not have a substantial effect on interstate commerce. Citizens Bank [v. Alafabco, Inc.], 539 U.S. [52] at 56, 123 S.Ct. [2037] at 2040, 156 L.Ed.2d 46 [(2003)]. Instead, `Congress' Commerce Clause power "may be exercised in individual cases without showing any specific effect upon interstate commerce" if in the aggregate the economic activity in question would represent "a general practice ... subject to federal control."' Id. (quoting Mandeville Island Farms, Inc. v. American Crystal Sugar Co., 334 U.S. 219, 236, 68 S.Ct. 996, 92 L.Ed. 1328 (1948))."

Bowen, 879 So.2d at 1141. See also Fulmer, 883 So.2d at 627 ("[P]urely intrastate economic or commercial transactions can be within the reach of Congress if the `"general practice" those transactions represent' has, in the aggregate, a substantial effect on interstate commerce." (quoting Citizens Bank, 539 U.S. at 58, 123 S.Ct. 2037)). We cannot hold that the "aggregate effect" of the economic activity at issue in this case—viewed on a nationwide scale—would not have a substantial effect on interstate commerce. Therefore, we hold that Terminix and Welch have demonstrated that Stevenson's sale of the house to the Davises "involves interstate commerce."⁵ Conference America, 713 So.2d at 955.

II.

The Davises argue that, even if the transaction affects interstate commerce, Terminix and Welch cannot compel arbitration pursuant to the arbitration provision in the purchase agreement because they were nonsignatories to the purchase agreement. Terminix and Welch, however, argue that the Davises are estopped from arguing that Terminix and Welch cannot enforce the arbitration provision in the purchase agreement.

Normally, a party cannot be forced to submit a dispute to arbitration if the party has not first assented to do so. Ex parte Stamey, 776 So.2d 85, 88 (Ala. 2000).

"Assent to arbitrate is usually to be manifested

...