Consumer amends binding arbitration provision; court holds change valid.

Robert and Margo Rebar signed a one-year renewable contract that included a binding mandatory arbitration provision when they hired Cook's Pest Control to inspect and treat their home in Vestavia Hills, Alabama, for termites. When they sent their payment to renew the contract, the Rebars included an "addendum to customer agreement" that accorded them the right to take any disputes to court.

When the Rebars later brought a lawsuit for fraud, negligence, breach of contract, and other charges, Cook's tried to compel arbitration. A trial court denied the motion, and the Alabama Supreme Court upheld the decision, finding that both parties had agreed to the amended contract. (Cook's Pest Control, Inc. v. Rebar, No. 1010897, 2002 WL 31780946 (Ala. Dec. 13, 2002).)

"Quite a few consumers and consumer lawyers around the country are stealing a page from corporate America's playbook and rewriting the fine print of their contracts and sending the new deals back to the corporations," said attorney Paul Bland of Washington, D.C., who heads ATLA's Mandatory Arbitration Litigation Group. "I expect that the Cook's Pest Control case is just the first of what may turn out to be a great many decisions enforcing those kinds of amendments."

The original contract with Cook's specified that the agreement would continue as long as the Rebars kept paying the annual renewal fee. The company notified the Rebars when the contract would expire and asked that they renew it for another year by paying the fee. The Rebars sent the company a check along with the addendum, "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." The amendment would become effective "upon negotiation of this payment or the next service provided pursuant to the customer agreement, whichever occurs first."

Cook's deposited the Rebars' check and continued to perform termite inspections at their house. Two months later, the Rebars sued the company for failing to treat a termite infestation and to repair resulting damage to the house.

When Cook's tried to compel arbitration, a trial court sided with the Rebars, finding that when the defendant accepted payment for the next period, it effectively changed the terms of the original contract. Cook's, the court wrote, "became bound by the provisions provided in the addendum."

Cook's appealed. It argued that the addendum should not affect renewal of the agreement because none of the employees in the office that processed the Rebars' payment was authorized to enter into a contract on behalf of the company.

The Alabama Supreme Court noted that nothing in the original agreement limited the authority of Cook's employees to enter into contracts, directed modifications to any particular office, or required them to be signed by a corporate officer or authorized representative.

"In this case, the consumer rewrote the agreement to strip out some of the most unfair provisions that the company had written for itself," said Bland. "Under these circumstances, it is hypocritical at best for the corporate defendant to complain that it shouldn't be bound by the terms because insufficiently high-ranking employees had read the details of the revised agreement."

Cook's also argued that its continued inspection and treatment of the home, required under the original contract, did not amount to acceptance of the Rebars' "attempted unilateral modification" of the contract.

The court said Cook's agreed to renew the contract when it sent the Rebars an expiration notice and asked them to renew by submitting the annual fee.

"The Rebars responded to Cook's Pest Control's offer to renew that contract with an offer of their own to renew the contract but on substantially different terms," wrote Judge Lyn Stuart. "The Rebars did not accept the arbitration provision proposed by Cook's Pest Control; they countered with an arbitration provision of their own."

The court found that the company had accepted the counteroffer by cashing the check and providing services--"the exact method specified by the Rebars for acceptance of the proposed modifications to the agreement," Stuart wrote.

The court ruled that the suit could go forward.