Terminix Intern. v. Palmer Ranch Ltd. Partnership

• Decision Date: 16 December 2005
• Docket Number: No. 04-14527.,04-14527.
• Citation: Terminix Intern. v. Palmer Ranch Ltd. Partnership, 432 F.3d 1327 (11th Cir. 2005)
• Parties: TERMINIX INTERNATIONAL COMPANY, LP, Plaintiff-Appellant, v. PALMER RANCH LIMITED PARTNERSHIP, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

432 F.3d 1327

TERMINIX INTERNATIONAL COMPANY, LP, Plaintiff-Appellant, v.PALMER RANCH LIMITED PARTNERSHIP, Defendant-Appellee.

No. 04-14527.

United States Court of Appeals, Eleventh Circuit.

December 16, 2005.

William J. Nissen, Sidley, Austin, Brown & Wood, LLP, Chicago, IL, Aaron D. Lyons, McClelland, Jones, Lyons & Lacey, LC, Melbourne, FL, John K. Van De Weert, Jr.,Sidney, Austin, Brown & Wood, LLP, Washington, DC, for Plaintiff-Appellant.

Peter M. Cardillo, Cardillo Law Firm, Tampa, FL, for Defendant-Appellee.

Appeal from the United States District Court for the Middle District of Florida.

Before TJOFLAT and KRAVITCH, Circuit Judges, and MILLS^*, District Judge.

TJOFLAT, Circuit Judge:

This is another arbitration dispute in which the parties are litigating whether or not they should be litigating.The familiar scenario is that the parties agree in writing to arbitrate any disputes between them, but then one party files a lawsuit taking the position that the agreement to arbitrate is inapplicable, invalid, or unenforceable for one reason or another.

Anders v. Hometown Mortgage Servs.,346 F.3d 1024, 1026(11th Cir.2003).

The appellee in this case, Palmer Ranch Limited Partnership(Palmer Ranch), originally filed suit against the appellant, Terminix International Company, L.P.(Terminix), and two of its employees in the Circuit Court for Hillsborough County, Florida.The 131-count, 246-page, 937-paragraph state-court complaint accused Terminix of numerous violations of the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), Fla. Stat. § 501.201 et seq.; criminal racketeering (i.e.,Florida RICO), Fla. Stat. § 772.104; criminal false advertising, Fla. Stat. § 817.41; various forms of fraud and negligence, forty different breaches of the "duty of good faith and fair dealing"(counts 47-86), and forty different breaches of contract (counts 90-129).For the purposes of this appeal, it is enough to say that the dispute generally involves Terminix's provision of termite protection services for Palmer Ranch's 31-building apartment complex from 1997 through at least 2002.

Terminix then filed the present action in the United States District Court for the Middle District of Florida, seeking an order compelling arbitration under § 4 of the Federal Arbitration Act (FAA),9 U.S.C. § 4.Jurisdiction was based on diversity of citizenship.In its answer, Palmer Ranch did not deny that all of its contracts with Terminix included broadly worded arbitration clauses,¹ but it asserted that the federal action should be dismissed or stayed under the Colorado River abstention doctrine.See generallyColo. River Water Conservation Dist. v. United States,424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483(1976).In the alternative, Palmer Ranch contended that the arbitration agreements are unenforceable because they"illegally deprive [Palmer Ranch] of statutory remedies and rights," including punitive damages, treble damages, damages and injunctive and declaratory relief under the FDUTPA, and attorney's fees.²

The district court denied Terminix's motion to compel arbitration.In its order the court reasoned that "[t]he current state of the law in this circuit is that an arbitration agreement that contains remedial restrictions and a severability clause is enforceable, but an arbitration agreement that contains remedial restrictions and no severability clause is unenforceable.SeePaladino v. Avnet Computer Technologies Inc.,134 F.3d 1054(11th Cir.1998)andAnders v. Hometown Mortgage Services, Inc.,346 F.3d 1024(11th Cir.2003)."Terminix Int'l Co. v. Palmer Ranch L.P.,2004 WL 1879965, at *1(M.D.Fla.Aug.4, 2004).Because the arbitration agreements at issue here contain remedial restrictions but not severability clauses, the district court held that they were unenforceable.Id.

The district court misread our decisions in Paladino and Anders.Paladino does not hold that any remedial restriction contained in an arbitration agreement is necessarily unenforceable or necessarily renders the agreement null and void in its entirety.And Anders does not hold that any arbitration agreement that contains an unenforceable remedial restriction is completely null and void unless it also contains a severability clause.Ordinarily, when one party challenges the validity of an arbitration clause on the ground that it contains unenforceable remedial restrictions, the court must first determine whether those remedial restrictions are, in fact, unenforceable—either because they defeat the remedial purpose of another federal statute(as in Paladino) under generally applicable state contract law.³If all the provisions of the arbitration clause are enforceable, then the court must compel arbitration according to the terms of the agreement.If, however, some or all of its provisions are not enforceable, then the court must determine whether the unenforceable provisions are severable.Severability is decided as a matter of state law.Anders,346 F.3d at 1032.If the offensive terms are severable, then the court must compel arbitration according to the remaining, valid terms of the parties' agreement.The court should deny the motion to compel arbitration only where the invalid terms of the arbitration clause render the entire clause void as a matter of state law.

The reason that a challenge such as the one advanced by Palmer Ranch is ordinarily a matter for the court to decide is that it ultimately goes to the validity of the parties' agreement to arbitrate.That is, Palmer Ranch argues that the whole arbitration clause is unenforceable because it contains unenforceable remedial restrictions that are not severable from the remainder.The Supreme Court has recently reaffirmed that the question "whether the parties have a valid arbitration agreement at all" is for the court, not the arbitrator, to decide.Green Tree Fin. Corp. v. Bazzle,539 U.S. 444, 452, 123 S.Ct. 2402, 2407, 156 L.Ed.2d 414(plurality opinion).This rule makes imminent sense, for in the absence of "clear and unmistakable evidence" that the parties intended the arbitrator to rule on the validity of the arbitration agreement itself, First Options of Chicago, Inc. v. Kaplan,514 U.S. 938, 944, 115 S.Ct. 1920, 1924, 131 L.Ed.2d 985(1995)(quotingAT & T Techs., Inc. v. Communications Workers of Amer.,475 U.S. 643, 649, 106 S.Ct. 1415, 1418-19, 89 L.Ed.2d 648(1986))(alterations and quotation marks omitted), the arbitrator would lack authority to invalidate the very contract from which he derives his authority to begin with.

In Anders,we did not follow this usual procedure because the parties' agreement contained an unambiguous severability clause, and state law favored severability clauses.Anders,346 F.3d at 1031-32.It was thus clear beyond any doubt that the parties' dispute would eventually wind up in arbitration, and the only question was who would decide the validity of the challenged remedial restrictions, the court or the arbitrator.Id. at 1032.In that situation, we did not rule on the validity of the challenged remedial restrictions because there was no longer any question as to "whether the parties[had] a valid arbitration agreement."Bazzle,539 U.S. at 452, 123 S.Ct. at 2407.Stated differently, because we were "satisfied that the making of the agreement for arbitration...[was] not in issue"—i.e., that validity of the arbitration clause was not in question—even if we assumed that the remedial restrictions were invalid, we affirmed the district court's "order directing the parties to proceed to arbitration in accordance with the terms of the agreement."9 U.S.C. § 4.

Here, we are able to avoid the usual process for a different reason: the parties have agreed that the arbitrator will answer this question by providing (in all three of the arbitration clauses at issue) that "arbitration shall be conducted in accordance with the Commercial Arbitration Rules then in force of the American Arbitration Association"(AAA).AAA Rule 8(a), in turn, provides that "[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement."Am. Arbitration Ass'n, Commercial Arbitration Rules, http://www.adr.org/sp. asp?id=22173# Toc13029601.By incorporating the AAA Rules, including Rule 8, into their agreement, the parties clearly and unmistakably agreed that the arbitrator should decide whether the arbitration clause is valid.See, e.g., Contec Corp. v. Remote Solution, Co.,398 F.3d 205, 208(2d Cir.2005)("when ... parties explicitly incorporate rules that empower an arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable evidence of the parties' intent to delegate such issues to an arbitrator");Apollo Computer, Inc. v. Berg,886 F.2d 469, 473(1st Cir.1989)("By contracting to have all disputes resolved according to the Rules of the ICC ..., Apollo agreed to be bound by Articles 8.3 and 8.4.These provisions clearly and unmistakably allow the arbitrator to determine her own jurisdiction when, as here, there exists a prima facie agreement to arbitrate whose continued existence and validity is being questioned.");Citifinancial, Inc. v. Newton,359 F.Supp.2d 545, 549-552(S.D.Miss.2005);Bayer CropScience, Inc. v. Limagrain Genetics Corp. Inc.,2004 WL 2931284, at *4(N.D.Ill.Dec.9, 2004)("The inclusion of the phrase `[t]he arbitration shall be conducted ... in accordance with the prevailing commercial arbitration rules of [AAA]' ... is clear and unmistakable evidence that the issue of arbitrability is to be submitted to the arbitrator.");Brandon, Jones, Sandall, Zeide, Kohn, Chalal & Musso, P.A. v. MedPartners, Inc.,203 F.R.D. 677, 685(S.D.Fla.2001)(holding that an agreement's incorporation by reference of the AAA rules "provide[s] clear and unmistakable evidence that the parties agreed to...