Terminix Int'l Co. v. Walter F. Scott III & Paige M. Scott. Terminix Int'l Co.

• Decision Date: 27 September 2013
• Docket Number: 1111232 and 1111360.
• Citation: 142 So.3d 512
• Parties: TERMINIX INTERNATIONAL COMPANY, L.P., and Terminix International, Inc. v. Walter F. SCOTT III and Paige M. Scott. Terminix International Company, L.P., and Terminix International, Inc. v. Walter F. Scott III and Paige M. Scott.
• Court: Alabama Supreme Court

142 So.3d 512

TERMINIX INTERNATIONAL COMPANY, L.P., and Terminix International, Inc.

v.Walter F. SCOTT III and Paige M. Scott.

Terminix International Company, L.P., and Terminix International, Inc.

v.Walter F. Scott III and Paige M. Scott.

1111232 and 1111360.

Supreme Court of Alabama.

Sept. 27, 2013.

Scott Burnett Smith of Bradley Arant Boult Cummings LLP, Huntsville; and John E. Goodman and Ann E. Phelps of Bradley Arant Boult Cummings LLP, Birmingham, for appellants.

Thomas F. Campbell and D. Keiron McGowin of Campbell Law PC, Birmingham, for appellees.

BOLIN, Justice.

Terminix International Company, L.P., and Terminix International, Inc. (collectively “Terminix”), appeal from the trial court's order denying Terminix's motion to vacate or modify an arbitration award entered in favor of Walter F. Scott III and his wife, Paige M. Scott. Terminix also appeals from the trial court's order referring to arbitration the Scotts' motion for sanctions brought pursuant to the Alabama Litigation Accountability Act, § 12–19–270 et seq., Ala.Code 1975 (“ALAA”).

Facts and Procedural History

The Scotts' house was inspected for termites by Cook's Pest Control in June 1995. The inspection revealed no active termite infestation at that time. However, the termite inspection indicated that there had been a previous infestation which was treated in 1986.

In 2001, the Scotts discovered suspected termite damage in the downstairs portion of their house. The Scotts contacted Cook's, which determined that an active termite infestation was present in the Scotts' house. However, the Scotts themselves paid for the damage to be repaired because their contract with Cook's required Cook's only to re-treat the damaged area and not to repair it. The Scotts subsequently canceled their termite-service contract with Cook's.

In April 2001, the Scotts entered into a termite-control-services contract with Terminix for a service known as the Termite Baiting System Protection Plan. The sales literature described the baiting plan as “the most effective subterranean termite elimination or control method available” and stated that the baiting plan constituted an early warning device that “constantly helps to monitor your property for new subterranean termite colonies.” Pursuant to the baiting plan, Terminix agreed, among other things, to install the baiting system, to monitor the system, and to add or remove termite bait from the system as needed.

In 2004 or 2005, Terminix lost the licensing rights to service or sell the termite-baiting-system plan. As a result, Terminix was no longer allowed to monitor or service the baiting system it had installed at the Scotts' house. The Scotts were not informed of this development until 2007, when they received a letter from Terminix entitled “Important Information About Your Terminix Protection,” which encouraged the Scotts to “update” their baiting system with another Terminix service or to convert their baiting system to the Terminix Liquid Defend System. On April 18, 2007, the Scotts entered into a new termite-service contract with Terminix for the liquid-defend system. This contract contains a box located at the top of the contract in which the following appears in boldface type: “THIS CONTRACT PROVIDES FOR RETREATMENT OF A STRUCTURE AND THE REPAIR OF DAMAGES CAUSED BY SUBTERRANEAN TERMITES WITHIN THE LIMITS STATED IN THIS CONTRACT.” (Capitalization in original.) The contract also contained the following relevant provisions:

“2. Future Damage. Limitation of Liability. In consideration of the sums charged by Terminix hereunder and as a liquidated damage and not as a penalty, and notwithstanding any contract, tort or other claim that Terminix shall not have properly performed its duties to purchaser, the sole responsibility of Terminix in the event of a claim shall be to provide retreatment found necessary by Terminix free of charge and to arrange and pay for the necessary repairs or replacement by a contractor chosen by Terminix of the cost of labor and materials to repair new subterranean termite damage occurring after the effective date of this agreement to the extent provided herein. Purchaser expressly releases Terminix from, and agrees to indemnify Terminix with respect to any other obligations to purchaser whatsoever....

“....

“6. Disclaimer.... Except as otherwise prohibited by law, Terminix disclaims and shall not be responsible for any liability for direct, indirect, special, incidental, consequential, exemplary, punitive, and/or loss of enjoyment damages. The obligations of Terminix specifically stated in this agreement are given in lieu of any other obligation or responsibility, express or implied, including any representation of merchantabilityor fitness for a particular purpose.

“....

“12. Mandatory Arbitration. Purchaser and Terminix agree that any claim, dispute, or controversy (‘Claim’) between them or against the other or the employees, agents or assigns of the other, and any Claim arising from or relating to this agreement or the relationships which result from this agreement, including but not limited to any tort or statutory Claim, shall be resolved by neutral binding arbitration by the National Arbitration Forum (‘NAF’) under the Code of Procedure (‘Code’) of the NAF in effect at the time the Claim is filed.... Each party shall be responsible for paying its own fees, costs, and expenses and the arbitration fees as designated by the Code.... The decision of the arbitrator shall be a final and binding resolution of the Claim.... Neither party shall sue the other party with respect to any matter in dispute between the parties other than for enforcement of this arbitration agreement or of the arbitrator's award. THE PARTIES UNDERSTAND THAT THEY WOULD HAVE HAD A RIGHT OR OPPORTUNITY TO LITIGATE DISPUTES THROUGH A COURT AND TO HAVE A JUDGE OR JURY DECIDE THEIR CASE BUT THEY CHOOSE TO HAVE ANY DISPUTES DECIDED THROUGH ARBITRATION.”

(Capitalization in original.)

No live termite infestation has been found in the Scotts' house since Terminix began servicing the house in 2001. However, in February 2010, a Terminix employee discovered extensive termite damage throughout the Scotts' house. Terminix agreed to repair the damage. Terminix states that it had expended approximately $52,645 in repairs when a dispute arose with the Scotts over the scope of repairs to be made in a bathroom.

On October 18, 2010, the Scotts petitioned the trial court, pursuant to the Federal Arbitration Act (“the FAA”), to arbitrate certain fraud claims arising from their dispute with Terminix. The Scotts stated that the dispute with Terminix was governed by a mandatory arbitration provision contained in the parties' April 2007 service contract, which identified the National Arbitration Forum (“NAF”) as the proper body to arbitrate any disputes arising between the parties under the April 2007 service contract. However, the Scotts noted that NAF had recently entered into a consent decree with the State of Minnesota, whereby NAF had agreed to divest itself completely “of any business related to the arbitration of consumer disputes.” ¹ Pursuant to the consent decree, NAF was prohibited from administering or participating in any consumer arbitration proceedings after July 24, 2009. The Scotts contended that, it being impossible for NAF to administer the arbitration in this dispute, the trial court was empowered under the FAA and Alabama law to appoint an arbitrator in this cause, to refer this cause to arbitration, and to retain jurisdiction to confirm any award made by the arbitrator. The Scotts provided the trial court with the names and contact information of six local attorneys who had previously agreed to serve as arbitrators in the matter if appointed by the trial court.

On October 22, 2010, the trial court entered an order appointing Kenneth O. Simon as arbitrator in the dispute between the Scotts and Terminix. Simon was not one of the six attorneys whose names were provided to the trial court by the Scotts. The trial court also ordered that the rules of the FAA would apply to and govern the arbitration between the Scotts and Terminix.

The arbitration proceeding was conducted on June 1–3, 2011, at which time the Scotts' fraud claims were tried before the arbitrator. The arbitration hearing was not transcribed by a court reporter or otherwise recorded. While the arbitration matter was under submission, the trial court set a status conference on October 6, 2011, for a progress report of the arbitration. On September 16, 2011, the Scotts informed Simon of this development, and he responded that the arbitration decision would be released before the status conference. The arbitration decision was not released before the October 2011 status conference.

On January 9, 2012, the Scotts notified Simon by electronic mail (“e-mail”) that the arbitration matter had been under submission for eight months and urged him to issue a decision that would be “life altering for [the Scotts] regardless of its terms.” On January 12, 2012, Simon notified counsel for the Scotts by e-mail that the final arbitration decision was “ready” and that the arbitration fee of $20,000—each party being responsible for $10,000—would need to be paid before he would release the decision to the parties. On January 19, 2012, the Scotts advanced to Simon a check for $15,000, which represented the balance owed on the arbitration fee.² The $15,000 paid to Simon by the Scotts represented the $5,000 balance of their share of the arbitration fee in addition to Terminix's $10,000 share of the arbitration fee it was obligated to pay. The Scotts paid Terminix's portion of the arbitration fee in order to avoid any potential further delay in the release of the arbitration decision.³ The Scotts requested of Simon that the payment of Terminix's share of the arbitration fee by them be “dealt with in an explicit and equitable manner” in the final arbitration...