Case Title: The Terminix International Co., L.P., et al. v. Dauphin Surf Club Association, Inc., et al.

Citation: 

Docket Number: 1200846, 1200854

State: alabama

Court: Alabama Supreme Court

Date: 2022-05-13T00:00:00Z

Document:
Rel: May 13, 2022
Notice: This opinion is subject to formal revision before publication in the advance sheets of Southern Reporter.  
Readers are requested to notify the Reporter of Decisions, Alabama Appellate Courts, 300 Dexter Avenue, 
Montgomery, Alabama 36104-3741 ((334) 229-0649), of any typographical or other errors, in order that corrections 
may be made before the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
OCTOBER TERM, 2021-2022
_________________________
1200846
_________________________
The Terminix International Co., L.P., Terminix 
International, Inc., and Ken Stroh
 
v.
Dauphin Surf Club 
Association, Inc., et al.
Appeal from Mobile Circuit Court
(CV-21-900545)
__________________________
1200854
___________________________
1200846 and 1200854
2
The Terminix International Co., L.P., Terminix
International, Inc., and Ken Stroh 
v. 
Stonegate Condominium Owners' Association, Inc., et al.
Appeal from Mobile Circuit Court
(CV-21-900743)
STEWART, Justice.
The Terminix International Co., L.P., and Terminix International, 
Inc. (referred to collectively as "Terminix"), and Ken Stroh, an agent and 
employee of Terminix, appeal from orders appointing arbitrators, which 
were entered in two separate actions in the Mobile Circuit Court ("the 
trial court"). The first action was commenced by Dauphin Surf Club 
Association, Inc. ("DSC"), an incorporated condominium owners' 
association, and multiple members of that association who own 
individual condominium units (DSC and those members are referred to 
collectively as "the DSC plaintiffs"). The second action was commenced 
by Stonegate Condominium Owners' Association, Inc. ("Stonegate"), and 
multiple members of that association who own individual condominium 
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3
units (Stonegate and those members are referred to collectively as "the 
Stonegate plaintiffs"). The appeals have been consolidated.
Background
In 2006 and 2007, respectively, Terminix entered into contracts 
with DSC and Stonegate to provide protection from termites for the 
properties owned by DSC and Stonegate and their members. Both of 
those contracts included, among other things, the following arbitration 
clause ("the arbitration agreement"):
"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 Claims 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. Any arbitration hearing at which the parties appear 
personally will take place at a location within the United 
States federal judicial district in which Purchaser resides. 
Rules and forms of the NAF may be obtained and all claims 
shall be filed at any NAF office, www.arb-fdrum.com or by 
calling 1-800-474-2371. Each party shall be responsible for 
paying its own fees, costs, and expenses and the arbitration 
fees as designated by the Code. However, for a Claim of 
$15,000 or less, if Purchaser so requests in writing, Terminix 
will pay Purchaser's arbitration fees due to the NAF to the 
extent they exceed any filing fees that the Purchaser would 
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4
pay to the court with jurisdiction over the Claim. The 
arbitrator's power to conduct any arbitration proceeding 
under this arbitration agreement shall be limited as follows: 
any arbitration proceeding under this agreement will not be 
consolidated or joined with any arbitration proceeding under 
any other agreement, or involving any other property or 
premises, and will not proceed as a class action. The decision 
of the arbitrator shall be a final and binding resolution of the 
Claim. This arbitration agreement is made pursuant to a 
transaction involving interstate commerce and shall be 
governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-
16. Judgement upon the award may be entered in any court 
having jurisdiction. 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 and bold typeface in original.)
As of 2009, the National Arbitration Forum ("the NAF"), which had 
been designated as the arbitral forum in the arbitration agreement, was 
prohibited from participating in consumer arbitration as part of a consent 
judgment between the NAF and the Minnesota Attorney General. After 
disputes regarding termite damage arose between Terminix and DSC 
and Stonegate, the DSC plaintiffs and the Stonegate plaintiffs each filed 
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a petition in the trial court seeking the appointment of an arbitrator to 
resolve the disputes; those petitions were assigned separate case 
numbers. The defendants filed motions in opposition to the petitions, 
asserting that, because the NAF was no longer administering consumer 
arbitrations, the claims could not be arbitrated by the NAF, as the parties 
had expressly agreed in the arbitration agreement, and that they could 
not be compelled to arbitrate in a manner inconsistent with the terms of 
the arbitration agreement.
The DSC plaintiffs and the Stonegate plaintiffs each replied to the 
defendants' motions. They argued: (1) that the contracts containing the 
arbitration agreement also contained a severability clause that should be 
applied to sever the portion of the arbitration agreement appointing the 
NAF as the arbitral forum; (2) that the Federal Arbitration Act ("the 
FAA"), 9 U.S.C. § 1 et seq., governed the arbitration agreement and that 
§ 5 of the FAA authorized the trial court to appoint an arbitrator due to 
the NAF's unavailability; (3) that the language of the arbitration 
agreement and the surrounding circumstances, including Terminix's 
behavior, demonstrated that Terminix's primary intent in entering into 
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the arbitration agreement was to arbitrate disputes and that the choice 
of the NAF as the arbitral forum was an ancillary matter; and (4) that 
the defendants should be judicially estopped from arguing that the 
selection of the NAF as the arbitral forum was integral to the arbitration 
agreement because they had taken the position in prior judicial 
proceedings that the courts presiding over those proceedings were 
authorized to appoint substitute arbitrators under § 5 of the FAA. In 
support of their arguments, the DSC plaintiffs and the Stonegate 
plaintiffs attached as exhibits to their replies to the defendants' motions 
numerous filings from other Alabama circuit-court cases (and filings from 
cases in Arkansas, Georgia, and Oklahoma) in which Terminix had 
explicitly agreed that, because the NAF was no longer accepting filings 
to administer consumer arbitrations, § 5 of the FAA authorized those 
courts to appoint substitute arbitrators. The DSC plaintiffs and the 
Stonegate plaintiffs also submitted numerous copies of contracts 
Terminix had entered into with various customers between 1985 to 2020. 
The contracts from 2002 to 2007 contained arbitration clauses 
designating the NAF as the arbitral forum. The contracts from 1985 to 
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7
2001 and from 2008 to 2020 contained arbitration clauses designating 
the American Arbitration Association ("AAA") as the arbitral forum. The 
DSC plaintiffs and the Stonegate plaintiffs each also submitted an 
affidavit summarizing the contents of those contracts.
The defendants filed responses to the DSC plaintiffs' and the 
Stonegate plaintiffs' replies, arguing that the parties' designation of the 
NAF as the arbitral forum was an integral part of the arbitration 
agreement and could not be severed from the agreement and that judicial 
estoppel was inapplicable. 
 On August 3, 2021, the trial court entered an order granting the 
DSC plaintiffs' petition to appoint an arbitrator. On August 16, 2021, the 
trial court likewise entered an order granting the Stonegate plaintiffs' 
petition to appoint an arbitrator. The defendants timely appealed from 
those orders. The trial court entered orders staying arbitration 
proceedings at the defendants' request. 
Standard of Review
The defendants appeal from the trial court's orders appointing an 
arbitrator. In essence, the trial court's orders are orders compelling 
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8
arbitration, which we review de novo to "'determine "whether the trial 
judge erred on a factual or legal issue to the substantial prejudice of the 
party seeking review."'" Okay v. Murray, 51 So. 3d 285, 288 (Ala. 2010) 
(quoting BankAmerica Hous. Servs. v. Lee, 833 So. 2d 609, 617 (Ala. 
2002), quoting in turn Ex parte Roberson, 749 So. 2d 441, 446 (Ala. 
1999)). In addition, this Court has explained that, similar to the burden-
shifting requirements attendant to summary-judgment motions, after a 
party seeking to compel arbitration demonstrates the existence of a 
contract calling for arbitration that affects interstate commerce, the 
party opposing arbitration must present evidence demonstrating the 
invalidity of the arbitration agreement or its inapplicability to the 
dispute. Oaks v. Parkerson Constr., LLC, 303 So. 3d 1141, 1144 (Ala. 
2020); Alabama Title Loans, Inc. v. White, 80 So. 3d 887, 891 (Ala. 2011); 
Vann v. First Cmty. Credit Corp., 834 So. 2d 751, 752-53 (Ala. 2002); and 
Fleetwood Enters., Inc. v. Bruno, 784 So. 2d 277, 280 (Ala. 2000).
Discussion
The defendants argue that the trial court's orders compelling them 
to arbitrate the DSC plaintiffs' and the Stonegate plaintiffs' claims in an 
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9
arbitral forum other than the NAF is inconsistent with the terms of the 
arbitration agreement. Specifically, the defendants contend that the 
designation of the NAF as the arbitrator was an "essential and integral" 
part of its agreement to arbitrate and that, therefore, the trial court erred 
in appointing substitute arbitrators.
We begin our analysis by noting that "arbitration agreements are 
to be treated like any other contracts." Robertson v. Mount Royal Towers, 
134 So. 3d 862, 868 (Ala. 2013). "When interpreting a contract, a 'court 
has a duty to accept the construction that will uphold, rather than 
destroy, the contract and that will give effect and meaning to all of its 
terms.'" 134 So. 3d at 867 (quoting Homes of Legend, Inc. v. McCollough, 
776 So. 2d 741, 746 (Ala. 2000)). Moreover, "'any doubts concerning the 
scope of arbitrable issues should be resolved in favor of arbitration, 
whether the problem at hand is the construction of the contract language 
itself or an allegation of waiver, delay, or a like defense to arbitrability.'" 
Blue Cross Blue Shield of Alabama v. Rigas, 923 So. 2d 1077, 1083 (Ala. 
2005) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 
U.S. 1, 24-25 (1983)). 
1200846 and 1200854
10
This Court has stated that, "[w]hen a trial court compels 
arbitration, it must do so in a manner consistent with the terms of the 
arbitration provision." BankAmerica Housing Servs., a Div. of Bank of 
America, FSB v. Lee, 833 So. 2d 609, 618 (Ala. 2002).  Nevertheless, "the 
fact that an arbitrator named in the arbitration agreement is unable to 
act as an arbitrator over the parties' controversy does not necessarily void 
the arbitration agreement." Ex parte Warren, 718 So. 2d 45, 48 (Ala. 
1998). Section 5 of the FAA provides: 
"If in the agreement provision be made for a method of 
naming or appointing an arbitrator or arbitrators or an 
umpire, such method shall be followed; but if no method be 
provided therein, or if a method be provided and any party 
thereto shall fail to avail himself of such method, or if for any 
other reason there shall be a lapse in the naming of an 
arbitrator or arbitrators or umpire, or in filling a vacancy, 
then upon the application of either party to the controversy 
the court shall designate and appoint an arbitrator or 
arbitrators or umpire, as the case may require, who shall act 
under the said agreement with the same force and effect as if 
he or they had been specifically named therein; and unless 
otherwise provided in the agreement the arbitration shall be 
by a single arbitrator."
9 U.S.C. § 5.  This Court has recognized that, based on § 5 of the FAA, 
"where the arbitrator named in the arbitration agreement cannot or will 
not arbitrate the dispute, a court does not void the agreement but instead 
1200846 and 1200854
11
appoints a different arbitrator," unless it is clear that the naming of a 
specific arbitrator was an "essential term" of the parties' agreement to 
arbitrate.  Warren, 718 So. 2d at 48-49; see also Robertson, 134 So. 3d at 
869.
In Warren, John and Debra Warren sued the contractor who had 
constructed their new home.  The construction contract between the 
parties contained an arbitration agreement that stated, in part, that any 
disagreement between the parties "'must be submitted … to National 
Academy of Conciliators for a binding arbitration.'" 718 So. 2d at 46.  
Based on that provision, the contractor moved to compel arbitration, and, 
in response, the Warrens argued that the arbitration agreement could 
not be enforced because the arbitrator designated in the agreement, the 
National Academy of Conciliators, was no longer in existence.  The trial 
court in Warren determined that, notwithstanding the dissolution of the 
National Academy of Conciliators, the arbitration agreement was valid 
and enforceable, and, therefore, it compelled arbitration. The Warrens 
petitioned this Court for a writ of mandamus.
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This Court denied the writ, with a plurality of the Court concluding 
that § 5 of the FAA permitted the trial court to name a replacement 
arbitrator.  The main opinion in Warren explained:
"Based upon § 5, federal courts have established the 
general rule that, where the arbitrator named in the 
arbitration agreement cannot or will not arbitrate the 
dispute, a court does not void the agreement but instead 
appoints a different arbitrator.  Astra Footwear Industry v. 
Harwyn Int'l Inc., 442 F. Supp. 907 (S.D.N.Y. 1978) ....  In 
Astra, a Yugoslavian footwear manufacturer brought an 
action against a New York footwear distributor to compel 
arbitration of a contract dispute; the arbitration agreement 
specified that the arbitrator of the claims would be the 
Chamber of Commerce in New York.  However, when the 
claims were brought, the Chamber of Commerce of New York 
had ceased to arbitrate disputes.  The federal district court 
determined that where the arbitrator selected by the parties 
cannot or will not perform, a 'lapse in the naming' of the 
arbitrator occurs and § 5 of the FAA is to [be] applied, thus 
allowing the trial court to appoint a replacement arbitrator.  
Astra, 442 F. Supp. at 910.
"However, the federal courts have also recognized an 
exception to the general rule: where it is clear that a specific 
failed term of an arbitration agreement is not an ancillary 
logistical concern but, rather, is as important a consideration 
as the arbitration agreement itself, a court will not sever the 
failed term from the rest of the agreement and the entire 
arbitration provision will fail. ...  To determine this intent, 
courts look to the 'essence' of the arbitration agreement; to the 
extent the court can infer that the essential term of the 
provision is the agreement to arbitrate, that agreement will 
1200846 and 1200854
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be enforced despite the failure of one of the terms of the 
bargain."
Warren, 718 So. 2d at 48-49.  The Court in Warren ultimately concluded 
that there was no evidence indicating that the parties had intended the 
choice of arbitrator to be an essential term of the arbitration agreement 
and that § 5 of the FAA, therefore, permitted the trial court to appoint a 
substitute arbitrator.  Id.
In Robertson v. Mount Royal Towers, supra, the arbitration 
agreement at issue did not contain a provision for selecting an arbitrator.  
The party opposing arbitration argued that the appointment of an 
arbitrator pursuant to § 5 of the FAA was an impermissible expansion of 
the parties' arbitration agreement.  This Court, citing Warren, disagreed, 
concluding that the failure to provide a provision for selecting an 
arbitrator indicated that the matter was not an essential part of the 
agreement. 134 So. 3d 862 at 869.
In University Toyota v. Hardeman, 228 So. 3d 394 (Ala. 2017), two 
plaintiffs attempted to initiate class-action arbitration proceedings 
against an automobile dealership with the Better Business Bureau of 
North Alabama ("the BBB"), the arbitral forum designated by the parties' 
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arbitration agreement.  The BBB, however, informed the plaintiffs that 
it 
did 
not 
conduct 
class-action 
arbitration 
proceedings, 
and, 
consequently, the plaintiffs withdrew their arbitration demand and 
commenced a judicial proceeding against the dealership, which they 
sought to have certified as a class action.  The dealership moved to compel 
arbitration in accordance with the parties' arbitration agreement, and 
the trial court in Hardeman compelled arbitration.  However, because the 
BBB had indicated that it did not conduct class-action arbitration, the 
trial court appointed the AAA as arbitrator.  The dealership appealed, 
arguing that the order compelling arbitration with the AAA was 
inconsistent with the terms of the arbitration agreement designating the 
BBB as the arbitrator.  On appeal, the plaintiffs argued that, because the 
BBB had indicated that it would not conduct class-action arbitration 
proceedings, there was, as in Robertson, a "gap" in the arbitration 
agreement, which, the plaintiffs asserted, permitted appointment of the 
AAA as the arbitrator pursuant to § 5 of the FAA.  This Court disagreed, 
noting that the BBB remained a viable forum in which the plaintiffs could 
arbitrate their claims, even if the arbitration agreement effectively 
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limited the plaintiffs' ability to engage in class-action arbitration.  
Accordingly, this Court reversed the trial court's order compelling 
arbitration proceedings to be conducted by the AAA.
Flagg v. First Premier Bank, 644 F. App'x 893 (11th Cir. 2016), a 
federal decision that was not designated for publication in the Federal 
Reporter, is heavily relied upon by the defendants because of its 
purported similarity to this case.  In Flagg, a borrower commenced a 
class-action lawsuit in federal district court against a payday lender.  The 
lender moved to compel arbitration based on an arbitration agreement 
contained in the parties' 2012 payday-loan agreement.  Like in the 
present cases, however, that agreement designated the NAF, which had 
stopped conducting consumer arbitrations in 2009, as the arbitrator.  
Accordingly, the lender moved to have the district court appoint a 
substitute arbitrator.  The district court denied the motion to compel 
arbitration, and the lender appealed.
On appeal, the Flagg court reviewed the language of the arbitration 
agreement and the surrounding circumstances to determine whether the 
designated arbitral forum was an "integral part of the agreement to 
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arbitrate."  644 F. App'x at 897.  The Flagg court noted the arbitration 
agreement had specified that disputes "shall" be resolved by the NAF and 
that references to the NAF "pervaded" the arbitration agreement. 644 F. 
App'x at 896. The Flagg court placed particular emphasis on the fact that 
the lender had continued to designate the NAF as the arbitrator in its 
payday-loan agreements despite the fact that the NAF had stopped 
conducting consumer arbitrations.  The court reasoned:
"[D]espite the fact that the NAF had stopped accepting 
consumer arbitration cases more than three years before [the 
borrower] applied for her payday loan, [the lender] continued 
to use arbitration agreements designating the NAF and made 
no provision for the appointment of an alternate arbitrator.  
This chronology suggests that the designation of the NAF was 
integral to [the lender] and counsels against a court stepping 
in to appoint a different arbitral forum."
644 F. App'x at 896.
The agreement in these cases provides that claims "shall be 
resolved by neutral binding arbitration by the [NAF], under the Code of 
Procedure ... of the NAF in effect at the time the claim is filed."  Although 
the arbitration agreement identifies the NAF as the arbitrator, we cannot 
say that references to the NAF "pervade" the agreement, which includes 
numerous generic references to arbitration.  Indeed, although the 
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arbitration agreement lacks a provision expressing a specific course of 
conduct in the event the NAF was unavailable, it emphasizes the parties' 
waiver of the right to seek any judicial resolution of any dispute in favor 
of a general agreement to arbitrate, stating in conspicuous capitalized 
wording: "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."  Furthermore, the arbitration 
agreement expressly states that it is to be governed by §§ 1-16 of the FAA, 
which, of course, includes § 5, a provision authorizing a court to appoint 
a substitute arbitrator.  These provisions, taken together, tend to indicate 
that the primary and essential purpose of the arbitration agreement was 
to ensure that the parties' disputes be resolved solely by binding 
arbitration and that the designation of NAF as the arbitrator was 
secondary to that purpose and not an integral part of the agreement.
Our conclusion is bolstered by evidence regarding the surrounding 
circumstances related to the arbitration agreement.  Unlike in Flagg, by 
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the time the NAF had stopped conducting consumer arbitrations, 
Terminix had already changed the arbitration clause used in its standard 
consumer contracts to designate the AAA as the arbitral forum for the 
resolution of disputes between it and its customers. Furthermore, 
evidence indicated that, even after the NAF had stopped conducting 
consumer arbitrations, Terminix, citing § 5 of the FAA, had routinely 
sought enforcement of arbitration agreements with other customers that 
had also designated the NAF as the arbitral forum.
 Conclusion
Because the designation of the NAF as the arbitral forum in the 
arbitration agreements between Terminix and DSC and Terminix and 
Stonegate is ancillary to the agreements to arbitrate, rather than an 
integral and essential part of the agreements, the trial court correctly 
granted the DSC plaintiffs' and the Stonegate plaintiffs' petitions to 
compel arbitration under the authority of § 5 of the FAA. 
1200846 -- AFFIRMED.
1200854 -- AFFIRMED.
Parker, C.J., and Bolin and Wise, JJ., concur.
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Sellers, J., concurs in the result.