Opinion ID: 1931196
Heading Depth: 2
Heading Rank: 4

Heading: The Scope of the FAA

Text: The Larkins also contend that, regardless of the scope of the arbitration provision, their claims fall outside the scope of the FAA because, they contend, the FAA only addresses the validity of arbitration provisions that relate to controversies that arise subsequent to the contract containing the arbitration agreement. Larkins' brief at p. 20. Section 2 of the FAA provides: A written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, 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). Our prior decisions have not addressed either the thereafter arising or the existing controversy language of § 2 of the FAA. Therefore, our prior decisions deal with principles of contract interpretation, focusing on the scope of the arbitration agreement. The Larkins insist that we must also deal with the scope of the FAA because, if the FAA is not applicable, the enforcement of the arbitration provision is governed by State law. Under the express language of the FAA, parties can agree to arbitrate future controversies or existing controversies that arise out of the contract or transaction at issue. 9 U.S.C. § 2. The gravamen of the Larkins' complaint involves the Orkin defendants' actions in issuing the termite letter, a document that did not contain an arbitration provision. The Larkins' theories of breach of contract, fraud, fraudulent suppression, negligence, and fraudulent misrepresentation relate exclusively to the termite letter. The termite letter was issued before the Larkins assumed the termite agreement, and the termite agreement is the only document containing a provision calling for the arbitration of disputes. Consequently, the Orkin defendants' conduct with reference to the termite letter upon which the complaint is entirely based cannot be subject to arbitration under the first part of 9 U.S.C. § 2, which enforces a written provision in any ... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of [the contract containing the provision for arbitration].  9 U.S.C. § 2 (emphasis added). The complaint describes a controversy that did not arise out of the termite agreement. In their brief to this Court, the Orkin defendants argue that the fact that the termite [agreement] [was] entered into after the `termite letter' [was] prepared is of no legal significance. We disagree. The Orkin defendants cite no authority for such a broad interpretation of the thereafter arising language of § 2 of the FAA, and we know of no authority that could provide such a broad interpretation. [3] It would be a strained reading of the FAA as well as circuitous logic to make a dispute over arbitrability a dispute thereafter arising out of a contract containing the arbitration provision. The second portion of 9 U.S.C. § 2 provides for enforcement of an agreement in writing to submit to arbitration an existing controversy arising out of [a contract involving interstate commerce]. Although this Court has not defined existing controversy arising out of such a contract, cases from other jurisdictions upholding agreements to arbitrate under the FAA and the Federal Securities Act because of an existing controversy have involved facts that indicate that at the time the arbitration agreement was entered into, the parties had knowledge or an understanding of the existing controversy. [4] Compare Coenen v. R.W. Pressprich & Co., 453 F.2d 1209 (2d Cir.1972) (holding that the plaintiff was required to arbitrate his claim, which accrued before he became bound by the arbitration rules of the New York Stock Exchange, because he was fully aware of the existing claim at the time he became a member of the Exchange and became bound by its arbitration rules), with De Lancie v. Birr, Wilson & Co., 648 F.2d 1255, 1258 (9th Cir.1981) (holding that that plaintiff's claims, which accrued before he became bound by the arbitration rules of the Pacific Stock Exchange, were not arbitrable because the record contained  little, if any  evidence to show that the plaintiff knew of the existing controversy when he became bound by the arbitration rules). In the present action, the Larkins claim that the Orkin defendants improperly and inadequately treated the residence within four days before the issuance of the termite letter. However, they claim that they did not learn that the Orkin defendants were grossly deficient in their termite treatments until some time after they purchased their residence. Although the Larkins contend that the Orkin defendants knowingly concealed termite damage, nothing in the record indicates that the Orkin defendants or the Larkins were aware of the allegedly inadequate termite treatment before the Larkins assumed the termite agreement and at the time the Larkins renewed the termite agreement in 2000 and 2001. In fact, we cannot determine whether either party had actual knowledge of the alleged improper termite treatment until the complaint was filed in the present action on October 25, 2001, over two months after the termite agreement was renewed for the last time. The Orkin defendants, as the parties compelling arbitration, have the burden of proving the existence of a contract calling for arbitration of the claims presented. Brookfield Constr. Co. v. Van Wezel, 841 So.2d 220 (Ala.2002). Incumbent upon the Orkin defendants was the obligation to offer evidence that would trigger the applicability of the FAA to the contract. Based upon the silent record, we cannot conclude that a controversy existed when the termite agreement was first assumed and was then subsequently renewed; therefore, we cannot assume coverage under the FAA. [5] We emphasize that our holding should not be interpreted as overruling our prior decisions dealing with the scope of an arbitration agreement in a setting where coverage under the FAA was not addressed. While the scope of the FAA was not addressed in Morris, supra, several factors indicate that a controversy existed at the time the Morrises signed the termite agreement that would bring the Morrises' claims within the scope of the FAA. After the termite letter was issued, yet before they entered into the termite agreement with Terminix, the Morrises discovered substantial termite infestation. Morris, 782 So.2d at 250. Furthermore, before the termite agreement was signed by the Morrises, Terminix paid for the damage to the residence. 782 So.2d at 250. Unlike the substantial contacts between the Morrises and Terminix in Morris, the record in the present action does not indicate that the Orkin defendants made any repairs to or treated the Larkins' residence pursuant to the termite agreement before the termite agreement was assumed by the Larkins, or at any time thereafter. Therefore, even though coverage under the FAA was not addressed in Morris, it appears that a controversy existed at the time the termite agreement was signed by the Morrises because both parties had knowledge of the termite infestation and the damage from the infestation at the time the agreement was signed. We recognize that `any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration....' SouthTrust Sec., Inc. v. McClellan, 730 So.2d 620, 622 (Ala.1999) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. at 24-25, 103 S.Ct. 927). However, the rule of construction in favor of arbitration does not give us authority to rewrite the scope of the FAA. We are bound by the express language of § 2 because where the language of a statute is unambiguous, the clearly expressed intent must be given effect, and there is no room for construction. James v. Todd, 267 Ala. 495, 504, 103 So.2d 19, 27 (1957); State v. Bay Towing & Dredging Co., 264 Ala. 187, 189, 85 So.2d 890, 892 (1955). Justice See's special concurrence is premised on the theory of the exclusivity of a remedy in contract and thus the unavailability of a remedy in tort. The special concurrence asserts that the Larkins have failed to plead any claims that indicate that the Orkin defendants owed them a duty. However, this Court has recognized liability of a person in tort for furnishing information for the guidance of others in their business transactions when that person can reasonably anticipate that a third party would rely on that information. See Fisher v. Comer Plantation, Inc., 772 So.2d 455 (Ala.2000) (recognizing the adoption of the Restatement (Second) of Torts § 552 (1977) in Boykin v. Arthur Andersen & Co., 639 So.2d 504 (Ala.1994), and holding that a real estate appraiser had a duty to third parties that the appraiser intended to influence and to third parties that the appraiser knew his client intended to influence by means of the appraisal). Moreover, the analysis of the Larkins' contract claim in the special concurrence asserts that a contract claim, if properly pleaded, would be arbitrable because the termite letter was provided according to the terms of [Orkin's] agreement [containing an arbitration clause] with [the Allisons]. 857 So.2d at 109. However, nothing in the termite agreement between the Allisons and Orkin calls for the issuance of an Official Alabama Wood Infestation Inspection and Report, also known as a termite letter, to assist the Allisons in the sale of their home.