Pass Termite and Pest Control, Inc. v. Joe P. Walker, Jr. ( 2001 )

IN THE SUPREME COURT OF MISSISSIPPI
NO. 2002-IA-01081-SCT
PASS TERMITE AND PEST CONTROL, INC.
v.
JOE P. WALKER, JR. AND CAROLYN FAYE
WALKER
DATE OF JUDGMENT: 12/04/2001
TRIAL JUDGE: HON. HENRY L. LACKEY
COURT FROM WHICH APPEALED: LAFAYETTE COUNTY CIRCUIT COURT
ATTORNEY FOR APPELLANT: R. BRADLEY BEST
ATTORNEYS FOR APPELLEES: DAVID D. O'DONNELL
CLAYTON O’DONNELL WALSH
NATURE OF THE CASE: CIVIL - CONTRACT
DISPOSITION: AFFIRMED AND REMANDED - 12/09/2004
MOTION FOR REHEARING FILED:
MANDATE ISSUED:
EN BANC.
CARLSON, JUSTICE, FOR THE COURT:
¶1. We must determine today whether the Lafayette County Circuit Court erred in refusing
to enforce an arbitration clause contained in a Mississippi Official Wood Destroying Insect
Report. The circuit judge denied a motion to compel arbitration. Although we affirm the
circuit judge’s ruling, we do so for reasons different than those stated by the learned circuit
judge.
FACTS AND PROCEEDINGS IN THE CIRCUIT COURT
¶2. In December of 1998, Joe D. Walker and Carolyn Faye Walker purchased a home near
Oxford from Thomas and Evelyn Baggett. The Walkers’ lender required that a termite
inspection be conducted on the home. Pass Termite and Pest Control, Inc. (“Pass”) was hired
by the Walkers, and Pass thereafter performed the inspection and issued a report. In their
complaint, the Walkers asserted claims based on fraud and breach of contract, and they alleged
that they relied to their detriment on erroneous reports produced by Pass.1
¶3. Pass was served with process on February 16, 2001, and on March 27, 2001, Pass filed
its answer to the complaint, but failed to affirmatively plead arbitration as a defense. In addition
to this omission, Pass demanded a jury trial and a judgment in its favor. On May 15, 2001, Pass
propounded its First Set of Interrogatories and Requests for Production of Documents. On or
about September 19, 2001, the Walkers responded to discovery. On October 11, 2001, Pass
filed its Motion to Compel Arbitration. Pass did not request leave to amend its answer in order
to assert this affirmative defense. In their response to the motion to compel, the Walkers
argued that Pass had “waived its right to claim any entitlement to arbitration in this cause”
based on the fact that it failed to affirmatively plead in its answer its right to arbitration.
Moreover, the Walkers argued that Pass could not claim any right to arbitration after it availed
itself of the discovery process afforded to litigants in a judicial forum.
1
Pass issued a termite report prior to the real estate closing, and then issued a second termite report
on February 11, 1999, incident to a refinancing of the original mortgage loan.
2
¶4. The Circuit Court of Lafayette County, Judge Henry L. Lackey presiding, heard
arguments on the motion to compel arbitration. On December 11, 2001, the circuit court
issued an order denying the motion to compel arbitration for three reasons:
That the termite contract produced by [Pass] which contained the arbitration
clause was not explicitly agreed to by the [Walkers].
That the termite contract as presented and the time it was presented, created a
contract of adhesion; therefore, it is in the best interest of public policy that the
[Walkers] not be bound by the term of said contract.
That for the reasons of judicial economy and litigation simplicity that the all
(sic) claims against all parties be adjudicated in the same cause.
¶5. Upon a motion filed by Pass, the circuit court certified this case for an interlocutory
appeal, and we thereafter granted the petition for interlocutory appeal. See M.R.A.P. 5.
STANDARD OF REVIEW
¶6. While the circuit court based its decision to deny arbitration on reasons different from
ours, we may on appeal affirm the decision of the trial court where the right result is reached,
even though we may disagree with the trial court’s reasons for reaching that result. Puckett
v. Stuckey, 633 So. 2d 978, 980 (Miss. 1993). The grant or denial of a motion to compel
arbitration is reviewed de novo. East Ford, Inc. v. Taylor, 826 So. 2d 709, 713 (Miss. 2002)
(citing Webb v. Investacorp. Inc., 89 F.3d 252, 256 (5th Cir. 1996)).
ANALYSIS
I. Whether the Trial Court Erred in Denying the Appellant’s Motion
to Compel Arbitration?
3
¶7. Due to the aforementioned reasons submitted by the circuit judge in denying arbitration,
the parties understandably present to us various arguments regarding the validity, scope and
enforceability of the arbitration provision. However, inasmuch as today’s decision to uphold
the trial judge’s denial of arbitration is based on waiver, we need not address the other issues
raised. In so doing, we emphasize here that our decision today should in no way be interpreted
as a retreat from our prior cases upholding arbitration, which we again state is favored and is
firmly embedded in both our federal and state laws. Russell v. Performance Toyota, Inc., 826
So. 2d 719 (Miss. 2002); East Ford, Inc. v. Taylor, 826 So. 2d 709 (Miss. 2002); IP
Timberlands Operating Co. v. Denmiss Corp., 726 So. 2d 96 (Miss. 1998).
¶8. Instead, we today consider Miss. R. Civ. P. 8© and Pass’s failure to assert in its
Answer its right to arbitration .2 Although a strict application of Miss. R. Civ. P. 8© would
conceivably do violence to our recent decisions on arbitration issues, we find that Pass’s
failure to assert its right to arbitration in its answer in contravention of Rule 8's provisions is
at least a factor we may consider along with the other facts existing in this case.3 Here is a
2
Miss. R.. Civ. P. 8 provides in pertinent part:
( c ) Affirmative Defenses. In pleading to a preceding pleading, a party
shall set forth affirmatively accord and satisfaction, arbitration and
award,... and any other matter constituting an avoidance or affirmative
defense.
(emphasis added).
3
Of course, Miss. R. Civ. P. 15 provides that after the service of the answer, a party may amend
such answer in circumstances where justice so requires and only with leave from the trial court. Today’s
4
brief time line: (1) February 14, 2001 – Complaint filed by the Walkers; (2) February 16,
2001 – Pass served with process; (3) March 27, 2001 – Pass filed its Answer and this Answer
contained no affirmative defense of arbitration and in fact Pass, in its Answer, demanded a jury
trial; (4) May 15, 2001 – Pass propounded its First Set of Interrogatories and Requests for
Production of Documents to the Walkers, who later responded to these discovery requests;
(5) October 11, 2001 – Pass, without requesting leave to amend its Answer, filed its motion
to compel arbitration.
¶9. Both termite reports were attached to the Complaint which was filed on February 14,
2001. Contained in both termite reports were identical arbitration clauses which stated:
ARBITRATION. The purchaser and the pest control operator 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 for indirect,
special or consequential damages or loss of anticipated profits.
Thus, once Pass was served with a copy of the complaint and summons on February 16, 2001,
Pass was aware of the availability of the defense of arbitration. Instead of asserting this
defense, Pass answered the complaint, demanded a jury trial, and invoked the available
discovery procedures. In fact, when Pass finally decided to file a motion to compel arbitration,
some 237 days after it was served with a copy of the complaint and summons, it filed such
application of Rule 8 does not limit Rule 15. Parties remain free to seek leave to amend their answer.
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motion to compel arbitration without seeking leave from the trial court to amend its original
answer.
¶10. The general rule is that affirmative defenses must be raised in a party’s answer. Miss.
R. Civ. P. 8©. See also Canizaro v. Mobile Communications Corp. of Am., 655 So. 2d 25(Miss. 1995) (The defense of statute of frauds is waived if not included in the answer.); Martin
v. Estate of Martin, 599 So.2d 966(Miss. 1992) (Maker of note who claims it is
unenforceable as against public policy must say so affirmatively by way of defense); Hertz
Commercial Leasing Div. v. Morrison, 567 So. 2d 832 (Miss. 1990) (Lessee was required
to affirmatively plead that the acceleration clause was punitive and thus unenforceable);
Wholey v. Cal-Maine Foods, Inc., 530 So. 2d 136, 138 (Miss. 1988) (Res judicata is an
affirmative defense which may not be raised on a motion to dismiss unless allegations in a
prior pleading in the case demonstrates its existence.).
¶11. Notwithstanding our prior cases finding waiver for failure to plead affirmative defenses,
Pass urges us to follow cases from the Fifth Circuit in which similar or longer delays in
asserting the defense of arbitration were found not to constitute a waiver of the right to invoke
arbitration. Pass directs our attention to Tenneco Resins, Inc. v. Davy Int’l, 770 F.2d 416 (5th
Cir.1985). In Tenneco, the Fifth Circuit upheld an arbitration clause even though the defendant
waited eight months after the commencement of the lawsuit to invoke its right to arbitration.
However, in Tenneco, the defendant timely responded to the complaint and in its initial
responsive pleading, the defendant asserted the defense of arbitration based on the contractual
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provisions. In Walker v. J. C. Bradford & Co., 938 F.2d 575 (5th Cir. 1991), the court
likewise upheld an arbitration clause even though the defendant waited thirteen months after
suit was filed to invoke its right to arbitration. In Walker, the plaintiffs commenced their suit
in state court only to have the defendant remove the case to federal court, and once in federal
court, the defendant invoked discovery and more than ten months later, the defendant finally
answered the complaint. The Walker court cited Tenneco for the premise that the question
of whether arbitration has been waived depends on the facts of each case. Id. at 576.
¶12. In Mississippi, a party waives the right to arbitrate when it “actively participates in a
lawsuit or takes other action inconsistent with the right to arbitration.” Cox v. Howard, Weil,
LaBouisse, Frederichs, Inc., 619 So. 2d 908, 913-14 (Miss. 1993). “Taking advantage of pre-
trial litigation such as answers, counterclaims, motions, requests, and discovery obviates the
right to arbitration.” Id. at 914. In United Nursing Associates, PLLC v. Phillips, 842 So. 2d
1270, 1276-77 (Miss. 2003), although we found no waiver of arbitration, we again
acknowledged that a party attempting to invoke arbitration may effectively waive that right if
the party actively engages in litigation (citing Cox, 619 So.2d at 914). In Phillips, the
defendant timely answered the plaintiff’s initial pleading and included in such responsive
pleading the affirmative defense of arbitration. Id. at 1273. Likewise, in Phillips, we
acknowledged that waiver could be found when the party seeking arbitration “substantially
invokes the judicial process to the detriment or prejudice of the other party.” Id. at 1278
(citing Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 326 (5th Cir. 1999), and Miller
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Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 497 (5th Cir. 1986)). Additionally, in
Phillips, this Court noted that one encyclopedia sheds light on the question of what
participatory activities constitute waiver:
Whether participation in an action is a waiver of the right to arbitration depends
on whether the participation bespeaks an intention to abandon the right.... It has
been held that the service of an answer in an action on the contract does not
constitute waiver of the right to arbitration, even though the answer does not set
up the arbitration clauses as a defense.... The mere serving of an answer and the
making of a motion to dismiss a complaint does not constitute a waiver.
842 So.2d at 1276 (citing 6 C.J.S. Arbitration § 37 (1975)).
¶13. Finally, in Phillips, we issued this caveat:
As a practice note, parties desiring to seek arbitration should promptly file and
present to the trial court a motion to stay proceedings and a motion to compel
arbitration.
842 So.2d at 1277.
¶14. In the instant case, Pass not only failed to file a motion to compel arbitration and failed
in its answer to allege the affirmative defense of arbitration, it went so far in its answer as to
request that the dispute be tried before a jury. A jury trial is characteristic of the judicial
process, not arbitration. That request is inconsistent with asserting a right to arbitration. This
coupled with the fact that Pass invoked the discovery process indicates its intent to forgo its
right to arbitration.
¶15. We can comfortably distinguish the above cited Fifth Circuit cases and our cases from
the case sub judice. The 237-day delay before invoking arbitration, coupled with the invocation
of the discovery process after failing to raise the defense of arbitration in its initial pleading
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bring us to our conclusion that Pass has effectively waived its right to invoke arbitration.
Stated differently, when a party, with full knowledge of the existence of an arbitration clause
in the contract which is the subject matter of the litigation, makes a conscious decision to
proceed with responding to the lawsuit, demanding a jury trial, and invoking discovery only to
thereafter invoke the arbitration clause, that party does so at its own peril, and prejudice to the
non-moving party will be presumed for failure to comply with the provisions of Miss. R. Civ.
P. 8(c). In so holding, we are satisfied without doubt that today’s decision in no way does
violence to the federal law and our state law favoring arbitration.
¶16. This Court has acknowledged and adopted the federal policy favoring arbitration. 4 See
generally McKenzie Check Advance of Miss., LLC v. Hardy, 866 So. 2d 446 (Miss. 2004);
Sanderson Farms, Inc. v. Gatlin, 848 So. 2d 828 (Miss. 2003); Wilson v. Greyhound Bus
Lines, Inc., 830 So. 2d 1151 (Miss. 2001). It is well-settled that this Court adheres to federal
policy favoring arbitration.
¶17. However, there are several rationales behind today’s decision. Primarily, by making a
clear statement as to when the right to arbitration ordinarily should be pled, we eliminate any
uncertainty that may plague future litigation. Certainty during litigation favors this Court’s
effort to ensure judicial efficiency and the expeditious resolution of disputes. Further, this
approach creates an incentive for parties to be more diligent in submitting defenses. The result
4
The policy of the Federal Arbitration Act (FAA) to providing favorable treatment to arbitration is
based on, inter alia, the desire to reduce expenses and delays suffered by those involved and to promote the
efficient resolution of disputes. See 9 U.S.C § 2.
9
of such an incentive is that the trend will now be that trial courts will learn early on in the life
of a civil case about the existence of arbitration agreements and be able to more quickly
dismiss disputes which our trial courts find to be controlled by arbitration clauses.5
¶18. Again, we cannot over-emphasize the fact that today’s decision in no way restricts or
limits arbitration agreements or the ability of private parties to enter into such agreements.
This Court has recognized the right of contracting parties to agree in advance to arbitrate a
dispute. Russell v. Performance Toyota, Inc., 826 So. 2d 719, 722 (Miss. 2002). Proponents
of arbitration need not be concerned that today’s decision erodes the policy favoring
arbitration. Indeed, our ruling does not limit the validity, scope or enforceability of arbitration
agreements. It neither marks a shift in the substantive law nor limits existing agreements.
Simply stated, we appreciate the fact that litigants, lawyers and trial judges look to this Court
for guidance on the procedural conditions for asserting this right, and today we hopefully have
provided such guidance.
CONCLUSION
¶19. For the above reasons, we affirm the Lafayette County Circuit Court’s order denying
Pass’s motion to compel arbitration and we remand this case to that court for further
proceedings consistent with this opinion.
¶20. AFFIRMED AND REMANDED.
5
Indeed, notice is the underlying purpose of Rule 8. Miss. R. Civ. P. 8 cmt. (“The purpose of Rule
8 is to give notice[.]”). See also 5 Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure:
Civil 3d § 1270 (2004).
10
SMITH, C.J., WALLER AND COBB, P.JJ., EASLEY AND DICKINSON, JJ.,
CONCUR. GRAVES AND RANDOLPH, JJ., CONCUR IN RESULT ONLY. DIAZ, J.,
NOT PARTICIPATING.
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