Terminix Intern., Inc. v. Rice

Decision Date09 December 2004
Docket Number No. 2003-CA-02548-SCT., No. 2003-IA-02502-SCT
Citation904 So.2d 1051
PartiesTERMINIX INTERNATIONAL, INC., Limited Partnership, Ray Stites and Anthony C. Fagan v. David RICE and Cynthia O. Rice. Ray Stites, Anthony C. Fagan and Terminix International Company, Limited Partnership v. David Rice and Cynthia O. Rice.
CourtMississippi Supreme Court

Samuel Ernest Linton Anderson, Arthur F. Jernigan, Jr., Jackson, William W. Busching, attorneys for appellants.

Terry L. Caves, Laurel, Jerry Dean Sharp, attorneys for appellees.

Before SMITH, C.J., CARLSON and DICKINSON, JJ.

DICKINSON, Justice, for the Court.

¶ 1. We must decide in this case whether the plaintiffs must pursue their claim in arbitration.

BACKGROUND AND PROCEEDINGS

¶ 2. Dr. David Rice contracted with Terminix International, Inc. to provide protection from termites for the home he and his wife, Cynthia, built in Laurel. The contract, called "Termite Protection Plan," provided that Terminix would protect the Rices' home against infestations of termites for an annual fee. If termite damage occurred during the contract term, Terminix agreed to arrange and pay for necessary repairs, not to exceed $100,000. The contract also contained an arbitration clause.

¶ 3. When the Rices discovered extensive termite damage to their home, they attempted to reach a settlement with Terminix, but were unsuccessful. Rather than filing an arbitration proceeding as provided in the contract, the Rices filed suit in the Circuit Court of the Second Judicial District of Jones County, naming as defendants Terminix International Company, Limited Partnership, Ray Stites, and Anthony C. Fagan. The Complaint alleged gross negligence, intentional misrepresentation, grossly negligent misrepresentation, fraud, tortious breach of contract and fraudulent inducement.1 Terminix included in its Answer a Motion to Compel Arbitration and a request that the trial court stay the proceedings pending arbitration. The Rices responded, contending that the arbitration clause was unconscionable and ambiguous and that Terminix's actions were not subject to the arbitration agreement.

¶ 4. The trial court denied the motion to compel arbitration, holding (1) that the Rices did not know they were submitting to arbitration when Dr. Rice signed the contract with Terminix; (2) the arbitration clause was both procedurally and substantively unconscionable; and (3) the contract was one of adhesion that denied the Rices their constitutional right to a jury trial or judicial remedy.

¶ 5. After unsuccessfully removing the matter to federal court, Terminix filed a motion for reconsideration by the circuit court. When the trial court denied the motion for reconsideration, Terminix filed its request for the trial court to certify the matter for interlocutory appeal. When its request for certification was denied, Terminix filed a Petition for Interlocutory Appeal with this Court, which we granted on the sole issue of the trial court's denial of the motion to compel arbitration.2 We now proceed to review the matter, de novo. East Ford, Inc. v. Taylor, 826 So.2d 709, 713 (Miss.2002).

ANALYSIS
The Federal Arbitration Act

¶ 6. Terminix contends the trial court's refusal to enforce the arbitration agreement violates the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. ("FAA"), which applies to written agreements to arbitrate contained in contracts "evidencing a transaction involving commerce." Id. at § 2. The Rices do not contest the applicability of the FAA to the contract.

¶ 7. This Court has consistently recognized the existence of "a liberal federal policy favoring arbitration agreements," and has stated that "we will respect the right of an individual or an entity to agree in advance of a dispute to arbitration or other alternative dispute resolution." Russell v. Performance Toyota, Inc., 826 So.2d 719, 722 (Miss.2002) (quoting I.P. Timberlands Operating Co. v. Denmiss Corp., 726 So.2d 96, 104, 106, 107, 108 (Miss.1998)). See also McKenzie Check Advance of Miss., LLC v. Hardy, 866 So.2d 446, 450 (Miss.2004)

(quoting Perry v. Thomas, 482 U.S. 483, 489, 107 S.Ct. 2520, 2525, 96 L.Ed.2d 426 (1987)). This Court has further stated:

Articles of agreement to arbitrate, and awards thereon are to be liberally construed so as to encourage the settlement of disputes and the presumption will be indulged in favor of the validity of arbitration proceedings.
* * *
"In enacting § 2 of the Arbitration Act, Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration. Congress has thus mandated the enforcement of arbitration agreements." The Arbitration Act, resting on Congress's authority under the Commerce Clause, creates a body of federal substantive law that is applicable in both state and federal courts. "The sine qua non of the FAA's applicability to a particular dispute is an agreement to arbitrate the dispute in a contract which evidences a transaction in interstate commerce." Doubts as to the availability of arbitration must be resolved in favor of arbitration. "[U]nless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue, then a stay pending arbitration should be granted."
* * *
In addition to establishing a strong presumption in favor of arbitration, the Act also limits the role of the court to determining whether an issue is arbitrable. The court's sole function is to determine whether the claim is referable to arbitration. Once that determination is made, the court may not delve further into the dispute. "The courts ... have no business weighing the merits of a particular claim, or determining whether there is particular language in the written instrument which will support the claim."

Russell, 826 So.2d at 722 (quoting I.P. Timberlands, 726 So.2d at 104-08 (citations omitted)).

¶ 8. In determining motions to compel arbitration under the FAA, we must first determine whether the parties' dispute is within the scope of a valid arbitration agreement. If so, we then consider "whether legal constraints external to the parties' agreement foreclosed arbitration of those claims." Sullivan v. Mounger, 882 So.2d 129, 132 (Miss.2004) (quoting East Ford Inc. v. Taylor, 826 So.2d 709, 713 (Miss.2002)).

¶ 9. To determine whether the parties agreed to arbitration, we simply apply contract law. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 1924, 131 L.Ed.2d 985 (1995)

. The arbitration agreement between Terminix and Rice is valid on its face. There is no evidence suggested to us of procedural or substantive unconscionability or fraudulent inducement. Furthermore, it is without question that the Rices' claims are within the scope of the arbitration provision, as they are claims and controversies that directly challenge Terminix's performance of the contract. We now must examine whether plaintiffs have demonstrated evidence of "legal constraints external to the parties' agreement" that would foreclose arbitration of the claims. Sullivan v. Mounger, 882 So.2d at 132 (quoting East Ford Inc. v. Taylor, 826 So.2d at 713). We find none.

¶ 10. The trial court's denial of the motion to compel arbitration was error under the Federal Arbitration Act. As earlier stated, we are mandated by federal law to enforce arbitration agreements contained in contracts involving commerce. The FAA mandates that 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 (emphasis added). Thus, we can place no more burden or constraint on the enforcement of an arbitration provision than on an agreement to sell a fig or pay a wage.

¶ 11. The FAA further requires that, whenever a valid arbitration agreement exists between parties to an action, a court must "stay trial of the action until arbitration has been had in accordance with the terms of the parties' agreement." 9 U.S.C. § 3.

¶ 12. The arbitration clause before us satisfies the requirements articulated in Sullivan and should have been enforced in light of the strong policy favoring arbitration and the federal statutory requirement that arbitration provisions be enforced, "save upon such grounds as exist at law or in equity for the revocation of any contract". 9 U.S.C. § 2.

Unconscionability

¶ 13. The Rices next ask us to find the arbitration agreement procedurally unconscionable. They claim Dr. Rice did not know of the existence of the arbitration agreement and did not understand its meaning. The Rices point out that the contract was presented to Dr. Rice while he was at home on his lunch break. They claim he did not have time to study it, and he was not told of the arbitration clause before he signed the agreement.

¶ 14. The Rices also point out that Terminix had been treating the Rices' home for a year under a verbal agreement before the written agreement was signed and that Dr. Rice had no reason to know that an arbitration clause was contained in the written agreement. The Rices submit that the language containing the arbitration agreement was inconspicuous and did not stand out from the rest of the contract. Finally, the Rices allege that the disparity of sophistication and bargaining power of the parties, and Terminix's use of complex legalistic language in the arbitration clause, render the arbitration clause unenforceable.

¶ 15. Terminix responds that Dr. Rice's lack of knowledge or understanding of the details of the arbitration process does not render the contract — or the arbitration clause — procedurally unconscionable. "Procedural unconscionability may be proved by showing a lack of knowledge, lack of voluntariness, inconspicuous print, the use of complex legalistic language, disparity in...

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