Orkin Exterminating Co., Inc. v. Larkin

• Decision Date: 07 March 2003
• Citation: 857 So.2d 97
• Parties: ORKIN EXTERMINATING CO., INC., and John Mosley v. Willie D. LARKIN and Vivian M. Larkin.
• Court: Alabama Supreme Court

857 So.2d 97

ORKIN EXTERMINATING CO., INC., and John Mosley v. Willie D. LARKIN and Vivian M. Larkin.

1012181.

Supreme Court of Alabama.

March 7, 2003.

D. Taylor Flowers and Daniel F. Johnson of Lewis, Brackin, Flowers & Hall, Dothan, for appellants.

J. Michael Rediker, Jr., and Patricia C. Diak of Haskell, Slaughter, Young & Rediker, L.L.C., Birmingham; and Stephen T. Etheredge and Lexa E. Dowling of Buntin, Etheredge & Dowling, L.L.C., Dothan, for appellees.

LYONS, Justice.

Orkin Exterminating Co., Inc. ("Orkin"), and John Mosley, an Orkin employee (hereinafter referred to collectively as "the Orkin defendants"), appeal from the trial court's order enjoining the arbitration proceeding initiated by the Orkin defendants in a dispute with Willie D. Larkin and Vivian M. Larkin ("the Larkins"). Because we conclude that the Larkins' claims fall outside the scope of the Federal Arbitration Act, we affirm.

I. Factual and Procedural History

On November 15, 1999, the Larkins purchased a residence located at 779 Moores Mill Drive in Auburn from Rodney G. Allison and Leigh Allison ("the Allisons"). The Allisons had a preexisting contract with Orkin, entitled "Lifetime Subterranean Termite Retreatment Agreement" ("the termite agreement"), which provided for the treatment and eradication of subterranean termites for the residence. As part of the residential real estate sales contract entered into between the Allisons and the Larkins, the Larkins received an "Official Alabama Wood Infestation Inspection and Report," commonly referred to as a "termite letter," from Orkin. Mosley conducted the inspection and prepared the termite letter.

According to the Larkins' complaint, the termite letter stated that Orkin had previously treated the residence for subterranean termites on September 29, 1997, May 5, 1998, and November 11, 1999. Because the termite letter does not appear in the record, we cannot state its date with certainty, but it presumably was issued on or after November 11, 1999, the date of the last treatment performed pursuant to the termite agreement between Orkin and the Allisons, and on or before November 15, 1999, the date of the closing. The termite letter stated that the termite agreement between Orkin and the Allisons was transferable to the Larkins and that the residence was free from any evidence of active infestation of the five specified wood-destroying organisms, including subterranean termites. The termite letter also showed the location of previous termite infestation in the residence. The Larkins allege that they purchased the residence in reliance upon the guarantees provided by the Orkin defendants in the termite letter.

On November 23, 1999, September 13, 2000, and on August 15, 2001, Willie Larkin paid the annual fee to renew the termite agreement previously entered into between Orkin and the Allisons. The termite agreement included the following arbitration provision:

"Arbitration: Any dispute arising out of or relating to this agreement or the services performed under this agreement or tort based claims for personal or bodily injury or damage to real or personal property shall be finally resolved by arbitration administered under the commercial arbitration rules of the American Arbitration Association. This agreement involves interstate commerce; furthermore, the parties expressly agree that their mutual rights and obligations and the conduct of any arbitration proceeding shall be controlled by the Federal Arbitration Act. The award of the arbitrator shall be final, binding, nonappealable and may be entered and enforced in any court having jurisdiction in accordance with the Federal Arbitration Act. The arbitrator shall not have the power or authority to award exemplary, treble, liquidated or any type of punitive damages."

At some point after the residence was purchased, the Larkins claimed that the residence was infested with active termites, that the Orkin defendants withheld that fact from them, and that they would not have purchased the residence had the Orkin defendants been truthful in the termite letter about the condition of the residence. On October 25, 2001, the Larkins sued Orkin for its actions related to the termite letter, alleging breach of contract, fraud, fraudulent suppression, negligence, and fraudulent misrepresentation. The Larkins also sued Mosley, alleging fraudulent misrepresentation and fraudulent suppression. The Larkins sought compensatory and punitive damages.¹

The Orkin defendants filed a motion to compel arbitration, claiming that the arbitration clause in the termite agreement that it had originally entered into with the Allisons and that had been renewed by Willie Larkin was sufficiently broad to encompass the Larkins' claims and that the "transaction at issue" involved interstate commerce. The trial court denied the motion to compel arbitration. The defendants filed this appeal.

II. Standard of Review

An appeal is the proper method by which to challenge a trial court's denial of a motion to compel arbitration. Patrick Home Ctr., Inc. v. Karr, 730 So.2d 1171, 1172 (Ala.1999). "[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); Ex parte Southern United Fire Ins. Co., 843 So.2d 151 (Ala.2002).

III. Analysis

A. Overview of Contentions

The Larkins contend that their claims are not subject to the arbitration provision included in the termite agreement because, they say, they never agreed to arbitrate the claims asserted in their complaint. Alternatively, the Larkins argue that their claims are outside the scope of the arbitration clause and the scope of the Federal Arbitration Act ("the FAA"). Finally, the Larkins argue that the underlying dispute does not affect interstate commerce and that, even if it did, the arbitration clause in the termite agreement is unconscionable.

The Orkin defendants argue that the Larkins' claims are subject to arbitration because, they say, the arbitration clause in the termite agreement is sufficiently broad to apply retroactively to the Larkins' claims made pursuant to the termite letter. The Orkin defendants cite this Court's opinion in Ex parte Morris, 782 So.2d 249 (Ala.2000), for the proposition that broad arbitration provisions can have retroactive application. They contend that the termite agreement substantially affects interstate commerce so as to invoke the FAA.

The Orkin defendants have "the burden of proving the existence of a contract requiring arbitration and proving that that contract involves a transaction that substantially affects interstate commerce." Mostella v. N & N Motors, 840 So.2d 877, 880 (Ala.2002); Liberty Nat'l Life Ins. Co. v. Douglas, 826 So.2d 806 (Ala.2002); Sisters of the Visitation v. Cochran Plastering Co., 775 So.2d 759 (Ala.2000).

B. The Existence of an Agreement to Arbitrate

The Larkins initially contend that no contract to compel them to arbitrate their claims exists because they never signed the termite agreement and because, therefore, the termite agreement lacks mutuality of assent. We disagree.

The mere fact that the Larkins did not sign the termite agreement does not preclude its enforceability. Ex parte Rush, 730 So.2d 1175, 1178 (Ala.1999). Absent a signature, "the existence of a contract may... be inferred from other external and objective manifestations of mutual assent." 730 So.2d at 1178. In Rush, the Rushes sued a termite company based upon the company's performance under a termite agreement similar to the one in this case. 730 So.2d at 1176. Under the agreement, the company agreed to protect the Rushes' residence from subterranean termites, to reinspect the residence periodically, and to repair damage from any new infestation. 730 So.2d at 1176. The Rushes paid the annual renewal fee, made a claim under the agreement, and supervised the company's repairs to their residence. 730 So.2d at 1178. We held that the Rushes' conduct, absent their signature, evidenced an assent to the termite agreement, including its arbitration clause. 730 So.2d at 1178. Moreover, in Morris, supra, we held that the arbitration clause in the termite agreement was not lacking in consideration because the Morrises "benefited from the terms of the [termite] agreement by accepting additional repairs to their home, as well as by being paid for incidental expenses they incurred during the repair period, including cleaning costs and the cost of alternative housing." 782 So.2d at 253.

The Larkins contend that no mutuality of assent existed because, they say, unlike the homeowners in Rush and Morris, they received no benefit in the form of repairs or treatments under their termite agreement with the Orkin defendants. Generally, mutuality does not necessarily mean "equal rights under a contract, or that each party is entitled to the same rights or covenants under the contract. So long as there is a valuable consideration moving from one side to the other, or there are binding promises on the part of each party to the other, there is adequate consideration for a valid contract." Marcrum v. Embry, 291 Ala. 400, 403, 282 So.2d 49, 52 (1973).

It is undisputed that the Larkins, by paying the annual renewal fees, assumed the termite agreement entered into between Orkin and the Allisons. See Morris, 782 So.2d at 253. According to the affidavit of Verne Sanford, the office manager of Orkin's Montgomery office, Willie Larkin paid the annual renewal fee on November 23, 1999, September 13, 2000, and August 15, 2001. As was the case in Morris, the Larkins "ratified" the termite agreement by paying the renewal fees. 782 So.2d at 253. Moreover, the termite agreement provides that "Orkin will retreat the structure for Subterranean Termites at no cost...