Leeman v. Cook's Pest Control, Inc.

• Decision Date: 03 December 2004
• Citation: 902 So.2d 641
• Parties: Gary LEEMAN and Kathryn Leeman v. COOK'S PEST CONTROL, INC., et al.
• Court: Alabama Supreme Court

902 So.2d 641

Gary LEEMAN and Kathryn Leeman v. COOK'S PEST CONTROL, INC., et al.

1022063.

Supreme Court of Alabama.

December 3, 2004.

Thomas F. Campbell and Bert J. Miano of Campbell & Baker, LLP, Birmingham; F. Paul Bland, Jr., Trial Lawyers for Public Justice, Washington, D.C.; and Kate Gordon, Trial Lawyers for Public Justice, Oakland, California, for appellants.

Clifton E. Slaten, Mindi C. Robinson, and Jason J. Baird of Slaten & O'Connor, P.C., Montgomery, for appellee Cook's Pest Control, Inc.

BROWN, Justice.

The plaintiffs below, Gary Leeman and Kathryn Leeman, appeal from an order of the Jefferson Circuit Court compelling them to arbitrate their claims against Cook's Pest Control, Inc.; James Aycock, president of Cook's Pest Control; Harold R. Pinckard, a "certified pest operator" for Cook's Pest Control; and Dennis Duggan, a Cook's Pest Control "pest control representative" (hereinafter collectively referred to as "Cook's Pest Control"). We affirm.

Facts and Procedural History

On May 15, 2000, the Leemans closed on a loan to purchase a house for the sum of $220,000. During the closing, the Leemans were presented with numerous documents, including a "Subterranean Termite Control Agreement" with Cook's Pest Control ("the termite agreement"). The termite agreement provided that, for an annual fee of $125, Cook's Pest Control would treat the Leemans' home for termites and would thereafter inspect the house annually for the presence of termites. It also provided that, in the event termites were found in the structure during one of the annual inspections, Cook's Pest Control would retreat the house. In another provision of the termite agreement, entitled "Retreatment Guarantee," Cook's Pest Control stated that it was not responsible for repairing damage to the house caused by wood-destroying organisms.

The termite agreement also contained the following arbitration provision:

"ALTERNATIVE DISPUTE RESOLUTION CLAUSE

"As an inducement to Cook's Pest Control, Inc., [COOK'S] to enter into this Agreement with the Customer, the parties hereto agree as follows:

"(1) ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THE AGREEMENT AND GUARANTEE, OR THE BREACH THEREOF, OR ARISING OUT OF ANY PRIOR OR FUTURE DEALINGS BETWEEN COOK'S AND CUSTOMER SHALL BE SETTLED BY ARBITRATION IN THE STATE OF CUSTOMER'S RESIDENCE IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION (THE `ARBITRATION RULES OF THE AAA'), AND JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR(S) MAY BE ENTERED IN ANY COURT HAVING JURISDICTION THEREOF.

"(2) The parties anticipate that the resources of COOK'S used by COOK'S to perform this Agreement and Guarantee, will come from interstate sources. Therefore, COOK'S and CUSTOMER acknowledge and agree that the Agreement and Guarantee involves `commerce' as defined in the United States Arbitration Act, Title 9, United States Code, `Arbitration,' hereinafter referred to as the `USAA.'

"(3) EXCEPT AS LIMITED HEREINABOVE, COOK'S AND CUSTOMER UNDERSTAND AND AGREE (I) THAT EACH OF THEM IS WAIVING RIGHTS TO SEEK REMEDIES IN COURT, INCLUDING THE RIGHT TO A JURY TRIAL; (II) THAT PRE-ARBITRATION DISCOVERY IN ARBITRATION PROCEEDINGS IS GENERALLY MORE LIMITED THAN AND DIFFERENT FROM COURT PROCEEDINGS; (III) THE ARBITRATORS' AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR LEGAL REASONING; AND (IV) EITHER PARTY'S RIGHT TO APPEAL OR SEEK MODIFICATION OF RULINGS BY THE ARBITRATORS IS STRICTLY LIMITED. THE VENUE FOR ARBITRATION OR MEDIATION SHALL BE IN THE COUNTY OF THE CUSTOMER'S RESIDENCE."

(Capitalization and bracketed material in original.)

Gary was presented with the termite agreement at the closing and he "skimmed through it"; Kathryn actually signed the document and initialed the "Retreatment Guarantee." No representative of Cook's Pest Control was present at the closing. The Leemans, who both have master's degrees, did not contact Cook's Pest Control with any questions regarding the termite agreement, and they did not attempt to negotiate any of its terms, either during or after the closing. The Leemans renewed the termite agreement the following year. In late 2001, the Leemans discovered a termite infestation and termite damage in their home. They contacted Cook's Pest Control, which confirmed the presence of termites. On December 7, 2001, Cook's Pest Control retreated the house.

On August 19, 2002, the Leemans sued Cook's Pest Control, Aycock, Pinckard, and Duggan, alleging fraud, breach of warranty, negligence, breach of contract, and unjust enrichment. The Leemans also sought unspecified compensatory damages, including damages for mental anguish, as well as punitive damages.

On September 23, 2002, Cook's Pest Control filed a motion to compel arbitration pursuant to the arbitration provision found in the termite agreement. The Leemans moved the trial court to permit discovery on issues pertaining to arbitration, which the trial court granted. On June 6, 2003, the Leemans filed an opposition to Cook's Pest Control's motion to compel arbitration. In an order entered on July 23, 2003, the trial court granted Cook's Pest Control's motion to compel arbitration. The Leemans appeal.

Standard of Review

"`[T]he standard of review of a trial court's ruling on a motion to compel arbitration at the instance of either party is a de novo determination of whether the trial judge erred on a factual or legal issue to the substantial prejudice of the party seeking review.' Ex parte Roberson, 749 So.2d 441, 446 (Ala.1999). Furthermore:

"`A motion to compel arbitration is analogous to a motion for summary judgment. TranSouth Fin. Corp. v. Bell, 739 So.2d 1110, 1114 (Ala.1999). The party seeking to compel arbitration has the burden of proving the existence of a contract calling for arbitration and proving that that contract evidences a transaction affecting interstate commerce. Id. "After a motion to compel arbitration has been made and supported, the burden is on the non-movant to present evidence that the supposed arbitration agreement is not valid or does not apply to the dispute in question."'

"Fleetwood Enters., Inc. v. Bruno, 784 So.2d 277, 280 (Ala.2000) (quoting Jim Burke Auto., Inc. v. Beavers, 674 So.2d 1260, 1265 n. 1 (Ala.1995) (emphasis omitted))."

Vann v. First Cmty. Credit Corp., 834 So.2d 751, 752-53 (Ala.2002).

Discussion

On appeal, the Leemans argue that the arbitration provision found in the termite agreement is unconscionable. Therefore, they argue, the trial court erred in granting Cook's Pest Control's motion to compel arbitration.

Section 2 of the Federal Arbitration Act ("the FAA") provides that written arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. General contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate an arbitration agreement without contravening the FAA. Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 281, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995) ("States may regulate contracts, including arbitration clauses, under general contract law principles and they may invalidate an arbitration clause `upon such grounds as exist at law or in equity for the revocation of any contract.'" (quoting 9 U.S.C. § 2)). However, this Court is precluded "from singling out arbitration provisions for suspect status," and it must instead place such provisions "`upon the same footing as other contracts.'" Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996) (quoting Scherk v. Alberto-Culver Co., 417 U.S. 506, 511, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974) (internal quotation marks omitted in Casarotto)).

"[T]here is nothing inherently unfair or oppressive about arbitration clauses," Coleman v. Prudential Bache Sec., Inc., 802 F.2d 1350, 1352 (11th Cir.1986), and arbitration agreements are not in themselves unconscionable, Ex parte McNaughton, 728 So.2d 592, 597-98 (Ala.1998). Instead, unconscionability is an affirmative defense, and the party asserting the defense bears the burden of proof. Conseco Fin. v. Murphy, 841 So.2d 1241, 1245 (Ala.2002).

This Court has stated that "`[a]n unconscionable ... contractual provision is defined as a ... provision "such as no man in his sense and not under delusion would make on the one hand, and as no honest and fair man would accept on the other."'" Southern United Fire Ins. Co. v. Howard, 775 So.2d 156, 163 (Ala.2000) (quoting Layne v. Garner, 612 So.2d 404, 408 (Ala.1992), quoting in turn Lloyd v. Service Corp. of Alabama, 453 So.2d 735, 739 (Ala.1984), and Hume v. United States, 132 U.S. 406, 410, 10 S.Ct. 134, 33 L.Ed. 393 (1889)). In Layne v. Garner, this Court first undertook to announce an explicit standard for determining whether a contract or contractual provision is unconscionable:

"In addition to finding that one party was unsophisticated and/or uneducated, a court should ask (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."

612 So.2d at 408. "For ease of discussion," this Court has at times reduced the Layne v. Garner test to two essential elements:

"(1) terms that are grossly favorable to a party that has (2) overwhelming bargaining power." American Gen. Fin., Inc. v. Branch, 793 So.2d 738, 748 (Ala.2000). In addition, this Court recognizes a distinction between "substantive unconscionability" and "procedural unconscionability." Substantive unconscionability

"`relates to the substantive contract terms themselves and whether those terms are unreasonably favorable to the more powerful party, such as terms that impair the integrity of the

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