Opinion
File No. 1:00-CV-920
April 9, 2001
ORDER
In accordance with the opinion entered this date,
IT IS HEREBY ORDERED that Defendant Orkin's motion to compel arbitration and stay proceedings (Docket # 8) is GRANTED.
IT IS FURTHER ORDERED that Plaintiffs' claims shall be SUBMITTED TO ARBITRATION.
IT IS FURTHER ORDERED that in lieu of having this civil action remain on the Court's docket indefinitely, this action will be ADMINISTRATIVELY CLOSED pending the arbitration proceedings. This closing is for administrative purposes only and does not constitute a decision on the merits. Upon completion of the arbitration proceedings, either party may move to reopen this action. Any such motion need only refer to this order and it will be granted.
OPINION
Plaintiffs Timothy and Dora Veal, together with their five children, filed this action against Defendant Orkin Exterminating Company, Inc. ("Orkin"), alleging that Orkin's chemical treatment of their home caused injuries to their personal health and to their property. This matter is before the Court on Orkin's motion to compel arbitration and stay proceedings.
I.
Defendant Orkin's motion to compel arbitration is based on the existence of an arbitration clause in the Subterranean Termite Treatment Agreement ("Agreement") signed by Timothy Veal on November 24, 1997. The Agreement provides:
The same day Mr. Veal also signed a Wood Infesting and Termite Special NonGuarantee Agreement covering the garage. This agreement contains a virtually identical arbitration clause.
ARBITRATION: ANY DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE SERVICES PERFORMED UNDER THIS AGREEMENT OR TORT BASED CLAIMS FOR PERSONAL OR BODILY INJURY OR DAMAGE TO REAL OR PERSONAL PROPERTY SHALL BE FINALLY RESOLVED BY ARBITRATION ADMINISTERED UNDER THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. THIS AGREEMENT INVOLVES INTERSTATE COMMERCE; FURTHERMORE, THE PARTIES EXPRESSLY AGREE THAT THEIR MUTUAL RIGHTS AND OBLIGATIONS AND THE CONDUCT OF ANY ARBITRATION PROCEEDING SHALL BE CONTROLLED BY THE FEDERAL ARBITRATION ACT. THE AWARD OF THE ARBITRATOR SHALL BE FINAL, BINDING, NON-APPEALABLE AND MAY BE ENTERED AND ENFORCED IN ANY COURT HAVING JURISDICTION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT. THE ARBITRATOR SHALL NOT HAVE THE POWER OR AUTHORITY TO AWARD EXEMPLARY, TREBLE, LIQUIDATED OR ANY TYPE OF PUNITIVE DAMAGES.
Plaintiffs contend the arbitration clause should not be enforced because it was contained in a self-serving form contract drafted by Orkin, it was not brought to their attention before they signed the Agreement, it does not include necessary safeguards to insure a knowing and voluntary relinquishment of their right to a jury trial, and it is contrary to public policy.
As a preliminary matter, the Court must emphasize that arbitration provisions are not contrary to public policy. The Federal Arbitration Act ("FAA"), 9 U.S.C. § 2, provides that a written agreement to arbitrate disputes which arise out of a contract involving transactions in interstate commerce "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." The FAA promotes a "strong federal policy in favor of arbitration." Stout v. J.D. Byrider, 228 F.3d 709. 711 (6th Cir. 2000), cert. denied, 121 S.Ct. 1088 (2001). "The FAA was designed to override judicial reluctance to enforce arbitration agreements, to relieve court congestion, and to provide parties with a speedier and less costly alternative to litigation." Id. (citing Allied-Bruce Terminix Companies, Inc. v. Dobson, 513 U.S. 265, 270, 280 (1995); Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 52-54 (1995)).
Arbitration provisions are also supported by the public policy of the State of Michigan. "The Michigan arbitration act (MAA), M.C.L. § 600.5001 et seq.; MSA 27A.5001 et seq., `evidences Michigan's strong public policy favoring arbitration.'" Watts v. Polaczyk, 242 Mich. App. 600, 604, 619 N.W.2d 714 (2000) (quoting Grazia v. Sanchez, 199 Mich. App. 582, 584, 502 N.W.2d 751 (1993)).
When considering a motion to stay proceedings and compel arbitration, a court has four tasks:
first, it must determine whether the parties agreed to arbitrate; second, it must determine the scope of that agreement; third, if federal statutory claims are asserted, it must consider whether Congress intended those claims to be nonarbitrable; and fourth, if the court concludes that some, but not all, of the claims in the action are subject to arbitration, it must determine whether to stay the remainder of the proceedings pending arbitration.Stout, 228 F.3d at 714. In this case Plaintiffs do not deny that all of their claims for personal injuries and property damage arising out of and relating to the pest control services performed by Orkin at Plaintiffs' residence are within the scope of the arbitration agreement. Accordingly, in deciding Defendant's motion to compel arbitration, this Court need only address the first question, i.e., whether the parties agreed to arbitrate.
Plaintiffs contend there was no valid agreement to arbitrate this dispute because the arbitration clause was not brought to their attention before they signed the Agreement.
Under Michigan law, parties who sign a contract are presumed to have knowledge of the contents of the contract. "The stability of written instruments demands that a person who executes one shall know its contents or be chargeable with such knowledge." Horn v. Cooke, 118 Mich. App. 740, 747, 325 N.W.2d 558 (1982). Applying this rule, the court in Horn held that the plaintiff could not "avoid the agreement [to arbitrate] because of her own negligence in signing a document without learning of its contents." Id.
Similarly, Plaintiffs in this case cannot deny the existence of an agreement merely because they failed to read it and understand it before signing it. The arbitration clause was in capital letters on the front page of the Agreement. It was not hidden from Plaintiffs, and it was written in plain English.
Plaintiffs suggest in the alternative that the arbitration provision should not be enforced because they are unsophisticated consumers, and the preprinted form contract was an unconscionable contract of adhesion.
Michigan courts apply a two-pronged test in determining whether a contract is unenforceable as unconscionable. The examination involves inquiries for both procedural and substantive unconscionability. Hubscher Son, Inc. v. Storey, 228 Mich. App. 478, 481; 578 N.W.2d 701 (1998). The test has been articulated as follows:
(1) What is the relative bargaining power of the parties, their relative economic strength, the alternative sources of supply, in a word, what are their options'?; (2) Is the challenged term substantively reasonable?Rehmann, Robson Co. v. McMahan, 187 Mich. App. 36, 43, 466 N.W.2d 325 (1991) (quoting Allen v. Michigan Bell Telephone Co., 18 Mich. App. 632, 637, 171 N.W.2d 689 (1969)).
"The mere fact that a contract is standardized and preprinted does not make it unenforceable as a contract of adhesion." St. Paul Fire Marine Ins. Co. v. Guardian Alarm Co., 115 Mich. App. 278, 284 (1982). "The essence of an adhesion contract is that it is offered on a take it or leave it basis to a consumer who has no realistic bargaining strength and who cannot obtain the desired services or goods without consenting to the contract terms." USAA Group v. Universal Alarms, Inc., 158 Mich. App. 633, 636, 405 N.W.2d 146 (1987) (quoting Cushinan v. Frankel, 111 Mich. App. 604, 607, 314 N.W.2d 705 (1981). Where goods and services can only be obtained from one source, a party may not have a realistic alternative other than to enter into the contract. Northwest Acceptance Corp. v. Almont Gravel, Inc., 162 Mich. App. 294, 304; 412 N.W.2d 719 (1987). A contract is an adhesion contract only if the party agrees to the contract because he has no meaningful choice to obtain the desired goods or services elsewhere. Rembert v. Ryan's Family Steak Houses, Inc., 235 Mich. App. 118, 157 n. 28, 596 N.W.2d 208 (1999) (citing Morris v. Metriyakool, 418 Mich. 423, 440, 344 N.W.2d 736 (1984)).
Although there is no real dispute that the parties to this Agreement were of unequal bargaining power, there is no indication in the record that the Plaintiffs were at the mercy of Defendant Orkin in obtaining pest control services. Plaintiffs have presented no evidence that they had no meaningful choice to obtain pest control services elsewhere. Accordingly, it does not appear that this Agreement suffered from procedural unconscionability.
Moreover, even if the Court were to find procedural unconscionability under the first prong of the test, the contract would not thereby be rendered unenforceable. "Even if the contract is adhesive under the first prong, the challenged term is still enforceable if substantively reasonable and not oppressive or unconscionable." Rehmann, 187 Mich. App. at 44. "[M]erely because the parties have different options or bargaining power, unequal or wholly out of proportion to each other, does not mean that the agreement of one of the parties to a term of a contract will not be enforced against him; if the term is substantively reasonable it will be enforced." Northwest Acceptance, 162 Mich. App. at 303.
Substantive unconscionability considers whether the challenged term is substantively reasonable. Hubscher Sort, 228 Mich. App. at 481. "Courts will not invalidate contracts as adhesion contracts where the challenged provision is reasonable."
Rembert v Ryan's Family v Steak Houses, Inc, 235 Mich. App. 118, 157; 596 N.W.2d 208 (1999).
The challenged arbitration clause in this case is neither unreasonable nor unconscionable. As noted above, there is strong public policy in both the federal and state arenas in favor of arbitration. Contrary to Plaintiffs' assertions, the Agreement at issue is not wholly one sided, and the arbitration clause does not insulate Orkin from all liability. The Plaintiffs have an absolute right under the contract to have their claims heard by an impartial arbitrator under the American Arbitration Association's Commercial Arbitration Rules. Plaintiffs do not contend that they will not be heard by an impartial arbitrator or that the applicable arbitration rules are substantively unfair to them.
The fact that the arbitration provision prohibits the recovery of exemplary, treble, liquidated, or punitive damages does not of itself render the contract substantively unreasonable. Liability provisions do not automatically run afoul of the law or public policy. See St. Paul Fire Marine Ins. Co. v. Guardian Alarm Co., 115 Mich. App. 278; 320 N.W.2d 244, 247 (1982). Moreover. Plaintiffs have not identified any item of damages that would otherwise be available to them under the facts of this case absent this provision.
Because Plaintiffs agreed to the arbitration provision, and because the arbitration provision is neither procedurally nor substantively unconscionable, Defendant Orkin's motion to compel arbitration and stay proceedings will be granted.
An order consistent with this opinion will be entered.