Leonard v. Terminix Intern. Co., LP

854 So.2d 529

Walter LEONARD, Jr., and Evalina Leonard v. TERMINIX INTERNATIONAL COMPANY, L.P., et al.

1010555.

Supreme Court of Alabama.

October 18, 2002.

Opinion on Denial of Rehearing February 7, 2003.

J. Michael Rediker, Patricia C. Diak, and Michael C. Skotnicki of Haskell, Slaughter, Young & Rediker, L.L.C., Birmingham, for appellants.

John R. Chiles, Wilson F. Green, and Scott A. Boykin of Burr & Forman, L.L.P., Birmingham, for appellees.

W. Pemble Delashmet and J. Robert Turnipseed of Pierce, Ledyard, Latta, Wasden & Bowron, P.C., Mobile; and Joana S. Ellis of Hill, Hill, Carter, Franco, Cole & Black, P.C., Montgomery, for amicus curiae Alabama Defense Lawyers Association, in support of the application for rehearing.

Robert A. Huffaker of Rushton, Stakely, Johnston & Garrett, P.A., Montgomery, for amicus curiae Automobile Dealers Association of Alabama; Matthew C. McDonald and Kirkland E. Reid of Miller, Hamilton, Snider & Odom, L.L.C., Mobile, for amici curiae Alabama Civil Justice Reform Committee, Alabama Retail Association, and The Business Council of Alabama; and H. Hampton Boles and Michael L. Edwards of Balch & Bingham, L.L.P., Birmingham, for amici curiae Alabama Bankers Association, Alabama Civil Justice Reform Committee, Alabama Retail Association, Automobile Dealers Association of Alabama, and The Business Council of Alabama, in support of the application for rehearing.

J. Mark Englehart of Beasley, Allen, Crow, Methvin, Portis & Miles, P.C., Montgomery, for amici curiae Trial Lawyers for Public Justice, AARP, and the National Association of Consumer Advocates, in opposition to the application for rehearing.

Steven P. Gregory of Dice & Gregory, L.L.C., Tuscaloosa, for amici curiae Alabama Arise and Alabama Watch, in opposition to the application for rehearing.

E.J. "Mac" McArthur, Montgomery, for amicus curiae Alabama State Employees Association, in opposition to the application for rehearing.

David G. Wirtes, Jr., of Cunningham, Bounds, Yance, Crowder & Brown, Mobile; and Barry A. Ragsdale of Ivey & Ragsdale, Birmingham, for amicus curiae Alabama Trial Lawyers Association, in opposition to the application for rehearing.

PER CURIAM.

Walter Leonard, Jr., and Evalina Leonard, representatives in this putative class action against Terminix International Company, L.P.; David L. Myers; Terminix International, Inc.; TSSGP Limited Partnership; Service Master Incorporated of Delaware; Service Master Consumer Services, L.P.; Service Master Company, L.P.; and TSSGP Management Corp. (hereinafter referred to collectively as "Terminix"), appeal from an order compelling arbitration of the dispute. We reverse and remand.

The Leonards became involved with Terminix in 1994, when they purchased a house. With that purchase, they also acquired the termite bond the seller had with Terminix. The real-estate transaction closed on August 19, 1994.

Within two months of the closing, the Leonards received through the mail a "Termite Protection Plan" ("the Plan"). The Plan provided, in pertinent part:

"5. DISCLAIMER.

"....

"D. TERMINIX DISCLAIMS ANY LIABILITY FOR SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES. THE GUARANTEES STATED IN THIS AGREEMENT ARE GIVEN IN LIEU OF ANY OTHER GUARANTEES OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

"....

"9. ARBITRATION. The Purchaser and Terminix agree that any controversy or claim between them arising out of or relating to this agreement shall be settled exclusively by arbitration. Such arbitration shall be conducted in accordance with the Commercial Arbitration rules then in force of the American Arbitration Association. The decision of the arbitrator shall be a final and binding resolution of the disagreement which may be entered as a judgment by any court of competent jurisdiction. Neither party shall sue the other where the basis of the suit is this agreement other than for enforcement of the arbitrator's decision. In no event shall either party be liable to the other for indirect, special or consequential damages or loss of anticipated profits."

(Capitalization in original.)

The Plan provided for an annual renewal at the rate of $62 per year. Although the Plan was not signed by the Leonards, it designated "Walter Leonard" as the purchaser, and, at the top of the first page, stated: "TRANSFER TO NEW OWNER: 8/94." It also provided that "Terminix [would] inspect the identified property at any time the Purchaser request[ed] it or if Terminix believe[d] it necessary." The Leonards paid the renewal fees in 1995, 1996, and 1997.

In June 1996, the Leonards received through the mail a "Terminix Termite Guarantee" ("the Guarantee"), which purported to summarize the terms of the Plan. Specifically, it stated that Terminix would "[r]einspect the identified property at any time the purchaser request[ed] it or if Terminix believe[d] it [was] necessary." It also stated: "The Plan provides for arbitration of any controversy or claim arising out of or re[lat]ing to the Plan."

Also in 1996, Evalina Leonard telephoned Terminix to request a reinspection. At another time, when Terminix sales representatives were in the Leonards' neighborhood soliciting business, they asked Evalina if she would do business with Terminix. She told the representatives that she already had a contract with Terminix. However, between 1994 and 1997, Terminix had no occasion to repair or re-treat the Leonards' house. Thus, at all relevant times, Terminix applied no termiticide or chemicals to the premises.

Meanwhile, Terminix was engaged in a dispute with the Alabama Department of Agriculture and Industries ("the Department"). In that connection, the Department charged Terminix with violating Ala. Code 1975, § 2-28-9, which provides, in pertinent part:

"Every person engaged in subterranean termite eradication and control work shall make an annual inspection of each job done during the term of the contract and shall report to the building owner in each instance as to whether or not there has been a reinfestation of subterranean termites. If a contract for termite eradication work provides for inspections of such work at intervals of less than one year, such inspections shall be made as required by the terms of the contract, and failure or refusal to make such required inspections or any retreatment or other related work as required by a contract shall constitute a valid and sufficient reason for revocation of the permit."

(Emphasis added.) More specifically, Terminix was charged with "[f]ailure to perform annual inspections on properties under subterranean termite contract for the year of 1995 and January, February and March of 1996." Ultimately, Terminix agreed to pay $1,200 to settle the dispute with the Department. As part of the settlement, Terminix was required to conduct "annual inspections of all properties under [its] subterranean termite contract[s]."

On May 6, 1997, the Leonards, "on behalf of themselves and all others similarly situated," filed a six-count complaint against Terminix. Count one was styled "Civil Tort for Criminal Conduct and Action for Statutory Penalties, Qui Tam." The essence of the complaint, as contained in count one, is that Terminix owed a statutory duty to all its customers to conduct annual inspections, see § 2-28-9, and that Terminix had systematically failed to do so. The plaintiffs further alleged that the violation of § 2-28-9 is a crime, as defined in Ala.Code 1975, § 2-28-11(a):

"(a) Penalties. Any person who engages in professional work or services as defined in this chapter or any person who solicits such work through advertising or in any other manner without having a permit as required by said chapter or any person who violates any of the provisions or requirements of this chapter or any rules and regulations adopted and promulgated as authorized under said chapter by failure to comply with any of the requirements or rules and regulations of said chapter shall be guilty of a misdemeanor and, upon conviction, shall be fined not less than $25.00 nor more than $500.00 and, within the discretion of the court, may also be imprisoned for a period not to exceed six months."

Specifically, count one alleged:

"44. Ala.Code § 2-28-9 requires that every person engaged in subterranean termite eradication and control work shall make an annual inspection of each job done during the term of guarantee or contract and shall report to the building owner in each instance as to whether or not there has been a reinfestation of subterranean termites, and this statute was enacted for the protection of the welfare of the consumers and public of the State of Alabama. Plaintiffs are within the class of persons that Ala.Code § 2-28-9 was enacted to protect. Pursuant to Ala.Code § 2-28-9, defendants owed a duty to the plaintiffs to make adequate annual inspections and reports to the plaintiffs.

"45. Ala.Code § 2-28-11 makes it a criminal offense to fail to make annual inspections and to fail to report to the building owner in each instance as to whether or not there has been a reinfestation of subterranean termites.

"46. Defendants intentionally, wantonly or recklessly, or negligently failed to make adequate annual inspections and reports as required by law, and this failure constitutes a criminal act.

"47. Defendants' intentional, wanton or reckless, or negligent failure to make adequate annual inspections and reports and their violation of Ala.Code § 2-28-9 has proximately caused injury to the plaintiffs.

"48. Plaintiffs have the right to bring this claim pursuant to Hardie-Tynes Manufacturing Co. v. Cruse, 189 Ala. 66, 66 So. 657 (1914) (holding that every criminal act which injures the person or property of another is also a civil tort, redressable by the courts), and its progeny.

"49. Plaintiffs further have the right to bring this claim pursuant to Ala.Code § 6-5-50 (Alabama's qui tam statute) on behalf

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