Rollins, Inc. v. Foster

• Decision Date: 20 January 1998
• Docket Number: Civil Action No. 97-T-945-N.
• Citation: 991 F.Supp. 1426
• Parties: ROLLINS, INC. and Orkin Exterminating Co., Inc. Petitioners, v. Judy FOSTER, Respondent.
• Court: U.S. District Court — Middle District of Alabama

991 F.Supp. 1426

ROLLINS, INC. and Orkin Exterminating Co., Inc. Petitioners, v. Judy FOSTER, Respondent.

Civil Action No. 97-T-945-N.

United States District Court, M.D. Alabama, Northern Division.

January 20, 1998.

COPYRIGHT MATERIAL OMITTED

William S. Cox, III, John M. Johnson, Julia S. McIntyre, Lightfoot, Franklin & White, L.L.C., Birmingham, AL, for Petitioners.

L. Cooper Rutland, Jr., Rutland & Braswell, Union Springs, AL, for Respondent.

MEMORANDUM OPINION

MYRON H. THOMPSON, Chief Judge.

Relying on the Federal Arbitration Act (FAA), 9 U.S.C.A. §§ 1-16, petitioners Rollins, Inc. and Orkin Exterminating Co., Inc. brought this petition in federal court on April 11, 1997, seeking to compel respondent Judy Foster to arbitrate the claims she has brought against them in state court, and seeking to have this federal court stay the state-court proceedings filed against them. Foster's state-court complaint, filed on February 25, 1997, arose out of the procurement of extermination services, and included counts for misrepresentation, breach of contract, conspiracy, negligent and wanton supervision, and declaratory relief regarding the validity of the arbitration clause.

In considering Rollins and Orkin's petition to compel arbitration, the court is presented with two issues. The first is whether the arbitration clause in the extermination contract was fraudulently induced, thereby invalidating the mandatory arbitration provision. The second issue presents the novel question of whether an arbitration clause is unconscionable, and therefore unenforceable, because of a party's inability to pay for the costs of the arbitration proceeding. This court has jurisdiction under 28 U.S.C.A. § 1332. For the reasons set forth below, the court finds, based on the evidence presented by the parties, that the arbitration petition should be granted.

I. FACTUAL BACKGROUND

On November 20, 1995, Foster contacted Orkin about spraying her trailer home for roaches. Orkin responded by sending an inspector to Foster's home to determine what type of treatment she needed. The inspector informed Foster that she needed termite treatments, which would cost about $37 or $38 per month.¹ Foster told the inspector that she wanted only three months of coverage.² The inspector then gave Foster a clipboard upon which he placed a series of forms for her to sign. Some of the forms had writing on both sides, but the inspector did not show these sides to Foster.³ Because Foster had completed only the ninth grade of high school and had limited reading ability, she was unable to understand the words of the contract she signed.⁴ Foster also alleges that some of the papers she signed contained blank spaces, which were later filled in by Orkin employees.⁵

Foster contends that the inspector did not leave a copy of the forms she had signed.⁶ The inspector does not remember specifically whether he left a copy of the contract with Foster, but usually leaves a copy with the customer.⁷ The actual contract differed dramatically from what Foster had requested: rather than being for three months, the contract established a two-year service relationship for a total cost of $2,200. Further, the contract included a credit agreement, whereby Foster would pay interest on the cost of the services before even receiving such services.⁸

The arbitration clause at issue in this case is found in the "General Terms and Conditions" section on the other side of the contract, under the heading "9. Mediation/Arbitration." The clause states that disputes arising out of or related to the contract must first be submitted to four hours of mediation, and if that process should fail to resolve the dispute, arbitration must be pursued.⁹ The clause also states that the award of the arbitration "shall be final, binding and non-appealable." The contract also provides that it may be assigned to Rollins Acceptance Company, an unincorporated division of Rollins, Inc.¹⁰

Two weeks after her home was inspected, Foster received a payment book from Orkin.¹¹ Foster contacted Orkin after she received the payment book to question the charges.¹² According to Foster's state-court complaint, she attempted to make the monthly payments to Rollins after receiving threats of "garnishments, lawsuits and/or other adverse credit reports."¹³ Foster then filed suit against Orkin, Rollins, and different fictitious defendants in state court for damages suffered as a result of the contract. Foster's demand for punitive and compensatory damages, as well as the fact that she has not controverted Rollins and Orkin's assertion that the amount of damages she seeks exceeds $75,000,¹⁴ clearly indicates that the amount in controversy exceeds $75,000. Among the counts of Foster's complaint, Foster alleges that the arbitration clause was "procured by Defendants through fraud, suppression and/or deceit."¹⁵ Rollins and Orkin filed their petition to compel arbitration and stay the state court proceedings in the Northern District Court of Alabama on April 11, 1997. On April 22, 1997, Foster made a motion to dismiss the motion, as well as to transfer the proceedings to the Middle District of Alabama.

On June 17, 1997, the court granted Foster's motion for transfer. On July 18, 1997, pursuant to Foster's statement that she would no longer pursue her motion to dismiss, this court denied Foster's motion.

II. DISCUSSION

Foster raises two arguments as to why this court should refuse to issue an order compelling her to arbitrate her claims against Rollins and Orkin. The first is that the contract, including the arbitration clause, was fraudulently induced. The second is that the contract, including the arbitration clause, is unconscionable. Both arguments reach the same conclusion: the contract, and therefore the arbitration clause, is invalid and Foster should be permitted to pursue her claims in state court. However, as explained in greater detail below, neither argument is persuasive and Foster, pursuant to the contract she signed with Rollins and Orkin, will have to pursue her claims in arbitration.

A.

The FAA makes enforceable a written arbitration provision in "a contract evidencing a transaction involving commerce." 9 U.S.C.A. § 2. Commerce is defined in the FAA as "commerce among the several states." 9 U.S.C.A. § 1. The requirement of interstate commerce is met here as Foster is a resident of Alabama and Rollins and Orkin were incorporated in Delaware and have their principal places of business in Georgia.¹⁶

Section 3 of the FAA requires a federal court to stay state court proceedings pending the outcome of arbitration for "any issue referable to arbitration under an agreement in writing for such arbitration." 9 U.S.C.A. § 3.¹⁷ Section 4 further provides that, "upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue," a federal court should grant the petition. 9 U.S.C.A. § 4.

However, § 2 of the FAA prohibits the enforcement of an arbitration clause that is invalid "upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C.A. § 2. In construing this section, the Supreme Court has stated that it "gives States [ ] method[s] for protecting consumers against unfair pressure to agree to a contract with an unwarranted arbitration provision." Allied-Bruce Terminix v. Dobson, 513 U.S. 265, 280-82, 115 S.Ct. 834, 843, 130 L.Ed.2d 753 (1995). It is a cardinal principle of federal arbitration law that "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 648, 106 S.Ct. 1415, 1418, 89 L.Ed.2d 648 (1986) (quoting United Steelworkers v. Warrior & Gulf Navig. Co., 363 U.S. 574, 583-84, 80 S.Ct. 1347, 1353, 4 L.Ed.2d 1409 (1960)).

However, the Supreme Court held in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04, 87 S.Ct. 1801, 1806, 18 L.Ed.2d 1270 (1967), that, while a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit, § 4 permits a federal court to hear only claims involving fraud in the inducement of the arbitration clause itself and not claims of fraud in the inducement of the contract as a whole or generally; Prima Paint's mandate is that challenges to the validity of the contract as whole must be presented to the arbitrator. "Courts consistently have ... held that issues relating to the making and performance of a contract as a whole, not specific to the arbitration clause or agreement, should be heard by the arbitrator." Rainbow Investments, Inc. v. Super 8 Motels, Inc., 973 F.Supp. 1387, 1389 (M.D.Ala. 1997) (Thompson, J.)

While Prima Paint dealt only with the validity of a contract in light of fraudulent inducement claims, the same principal applies to other challenges to an arbitration clause, such as those based on allegations of forgery, mutual mistake, unconscionability, and impossibility. See, e.g., Coleman v. Prudential Bache Sec., Inc., 802 F.2d 1350, 1352 (11th Cir.1986) ("Claims alleging unconscionability, coercion, or confusion in signing the agreement generally should be determined by an arbitrator because those issues go to the formation of the entire contract rather than to the issue of misrepresentation in the signing of the arbitration agreement.") (citations omitted); see also Benoay v. Prudential-Bache Sec., Inc., 805 F.2d 1437, 1441 (11th Cir.1986); Miller v. Drexel Burnham Lambert. Inc., 791 F.2d 850, 854 (11th Cir. 1986). Thus, § 4 permits a federal court to hear only claims involving forgery, mutual mistake, unconscionability, and impossibility as to the arbitration clause itself and not claims of forgery, mutual mistake, unconscionability, and impossibility as to the contract as a whole or generally.

The court will therefore examine Foster's allegations regarding...