EATING AWAY AT ARBITRATION
Alabama Court Allows Homeowners’ Addendum to Termite Contract

BY TERRY CARTER

A recent Alabama Supreme Court decision in a termite case may have opened a new can of worms in the ongoing battle over binding arbitration in consumer agreements.

The court found that homeowners who stuffed an addendum in an envelope along with their renewal check, saying they no longer agreed to arbitration and were changing the agreement’s terms, had indeed bored through the contract’s foundation. They have the right to sue the termite company in court for failure to repair their home.

When the termite company cashed the check and subsequently performed an inspection, they in effect agreed to the new terms. Cook’s Pest Control v. Rebar, No. 1010897 (Dec. 13).

The decision marks a change of direction in what had been a one-way street.

Two years earlier, the court had ruled that a bank could add arbitration to its agreements with checking-account holders by putting a notice in with their monthly statement. By keeping their accounts open, the court said, the plaintiffs agreed to the new terms. SouthTrust Bank v. Williams, 775 So. 2d 184 (Ala. 2000).

The termite case turns SouthTrust around. It is a victory for the little guy, though it was carried out by an accomplished doctor and a knowledgeable lawyer working pretty much as termites do: unseen until it’s too late to stop the damage.

Homeowners Robert and Margo Rebar bought their stately suburban home in 2000, after he accepted a position at the University of Alabama School of Medicine in Birmingham. Dr. Rebar is a world-renowned fertility specialist.

Cook’s Pest Control certified that the house once had a termite infestation, but it was termite-free at sale. The couple soon learned the home they purchased from a lawyer had extensive termite damage. Cook’s, which had been under contract for many years to inspect the home, added a binding arbitration clause to the agreement when it transferred to the Rebars.

The Rebars apparently went to a Birmingham lawyer known for tangling with termite companies before sending in their renewal. It was after that consultation that they put the addendum, chock-full of legalese, into the envelope with their check.

The addendum stated in part: "Notwithstanding prior amendments, nothing herein shall limit Customer’s right to seek court enforcement (including injunctive or class relief in appropriate cases) nor shall anything herein abrogate Customer’s right to trial by jury. Arbitration shall not be required for any prior or future dealings between Cook’s and Customer."

"Dr. Rebar had no problem giving them a dose of their own medicine," says Thomas Campbell, the couple’s lawyer. Asked if he wrote the addendum, Campbell laughs and says: "I’m a lawyer, and my client’s a fertility specialist, so you figure it out. I won’t breach client privilege, but it was pretty smart."

It’s a nifty trick that might be short-lived.

"This is a breath of fresh air, one for the consumers, but I don’t think it will last long," says Gene Marsh, a University of Alabama School of Law professor who teaches contracts and consumer law. "Now, companies are going to have someone at the P.O. box bird-dogging the mail and looking for legal consequences. And they’ll be fixing it at the front end with terms that tell you to find another company if you won’t accept mandatory arbitration from this day forward."

Cook’s Pest Control had argued that the office manager who cashed the check did not have authority to approve a change in the agreement. A dissenting justice agreed. Evidence at trial indicated that a competitor, Orkin, had limited such authority to one person in its agreements.

"If you reviewed all of your agreements with credit card companies and others and saw how many don’t put restrictions on how they can be amended, you’d be shocked," Campbell says. "Now, I’m not saying that I’ve floated a bunch of things like this out there that are ticking time-bombs, but my practice is pretty much based on filing the same case over and over again."