# Appendix — Orkin Exterminating Co. v. Federal Trade Commission

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385002_0350%3A2

## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1989
- **Citation:** 488 U.S. 1041

## Text

a OCT 28 1988

N JOSEPH &. SPANTUL, IR,
“i ; CLERK

In the Supreme Court of the United States

OCTOBER TERM, 1988

ORKIN EXTERMINATING COMPANY, INC.,
Petitioner,
vs.
FEDERAL TRADE COMMISSION,
Respondent.

APPENDIX TO
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT

FRANK C. JONES

(Counsel of Record)
MIcHAEL Eric Ross
CHARLES K. McKNIGHT
Kine & SPALDING

2500 Trust Company Tower

Atlanta, Georgia 30303

(404) 572-4600

Counsel for Petitioner
Orkin Exterminating Company, Inc.

E. L. MENDENHALL, INc., 926 Cherry Street, Kansas City, Mo. 64106, (816) 421-3030

_—

ons ** © — ~—— © +e owe ter ee or ee oe eo of 4 ee

TABLE OF CONTENTS
Appendix A—Orkin Exterminating Co., 108 F.T.C.

NE I ocssesinpalcsardvedteebaaciansisiac dentlveiivissscrlasncibdaeneiaieiens Al
Appendix B—Orkin Exterminating Co. v. FTC, 849
a IE I ee ED sisacsinciscencntnicennantvreniasinntanntins A211

Appendix C—Order of the United States Court of
Appeals for the Eleventh Circuit Denying Sugges-
tion for Rehearing In Banc (September 19, 1988) ....A250

Appendix D—Relevant Statute 200020020... A252

Al

APPENDIX A

In the Matter of
ORKIN EXTERMINATING COMPANY, INC.

Final Order, Opinion, Etc., in Regard to Alleged
Violation of Sec. 5 of the Federal Trade
Commission Act

Docket 9176. Complaint, May 8, 1984—Final Order,
Dec. 15, 1986

This Final Order requires an Atlanta, Georgia-based ex-
terminating company to roll back the “lifetime” an-
nual renewal fees on contracts signed prior to 1975
to the fixed fee established prior to a 1980 raise in
price. Respondent is also required to notify each
affected customer.

Appearances

For the Commission: Katharine B. Alphin and Chris
M. Couillou.

For the respondents: John C. Staton, Michael E.
Ross and Sylvia M. King, King & Spaulding, Atlanta, Ga.

COMPLAINT

Pursuant to the provisions of the Federal Trade Com-
mission Act, as amended, and by virtue of the authority
vested in it by said Act, the Federal Trade Commission,
having reason to believe that respondent Orkin Exter-
minating Company, Inc., a corporation, has violated the
provisions of Section 5(a) of the Federal Trade Com-
mission Act, and it appearing to the Commission that a

A2

proceeding by it in respect thereof would be in the pub-
lic interest, hereby issues its complaint, stating its charges
in that respect as follows:

Paragraph 1. Respondent Orkin Exterminating Com-
pany, Inc., is a Delaware corporation with its principal
place of business located at 2170 Piedmont Road, N.E.,
Atlanta, Georgia.

Par. 2. Respondent maintains, and at all times men-
tioned in this complaint has maintained, a substantial
course of business, including the acts and practices as
hereinafter set forth, in or affecting commerce, as “com-
merce” is defined in the Federal Trade Commission Act.

Par. 3. Among other services, respondent provides
to individuals and businesses (“consumers”) services to
treat houses, buildings, and other structures ( “structures” )
in order to destroy and protect against termites and other
wood-infesting organisms (“termite-control services” ).

Par. 4. In numerous instances, in the course of ad-
vertising, promoting, selling, and performing its termite-
control services, respondent agreed for the life of the
structure to reinspect the consumer’s structure annually
and, if necessary, to either retreat or retreat and repair
the structure, provided the consumer paid a specified fixed
annual renewal fee.

Par. 5. In contradiction of the agreements described
in Paragraph Four, in numerous instances beginning in
[2] 1980 and continuing to the present, respondent has
raised, or has attempted to raise, the agreed-upon annual
renewal fee for its termite-control services.

Par. 6. Respondent’s actions described above have
thus caused substantial and ongoing injury to respondent’s

etre ens ial

A3

customers that is not outweighed by countervailing ben-
efits to consumers or competition and is not reasonably
avoidable by consumers.

Par. 7. Respondent’s acts and practices as herein
alleged were and are to the prejudice and injury of the
public and constitute unfair acts or practices in or af-
fecting commerce in violation of Section 5(a) of the
Federal Trade Commission Act. .

INITIAL DECISION BY
ERNEST G. BARNES, ADMINISTRATIVE LAW JUDGE

APRIL 22, 1985
PRELIMINARY STATEMENT

The complaint herein issued on May 8, 1984, charging
Orkin Exterminating Company, Inc., (hereinafter “Orkin” )
with violation of Section 5(a) of the Federal Trade Com-
mission Act. The complaint alleges that respondent Orkin
provides to individuals and “businesses services to treat
houses, buildings, and other structures in order to destroy
and protect against termites and other wood-infesting
organisms. In numerous instances, in the course of ad-
vertising, promoting, selling and performing its termite-
control services, Orkin agreed to reinspect the consumer’s
structure annually for the life of the structure and, if
necessary, to either retreat or retreat and repair the
structure, provided the consumer paid a specified fixed
annual renewal fee.

In contradiction of the agreements described above,
in numerous instances beginning in 1980 and continuing
to the present, Orkin has raised, or has attempted to
raise, the agreed-upon annual renewal fee for its termite-

A4

control services. It is alleged that Orkin’s actions in
raising or attempting to raise [2] the fixed annual re-
newal fee have caused substantial and ongoing injury
to Orkin’s customers that is not outweighed by counter-
vailing benefits to consumers or competition and is not
reasonably avoidable by consumers, and were and are to
the prejudice and injury of the public and constitute
unfair acts or practices in or affecting commerce in vio-
lation of Section 5(a) of the Federal Trade Commission
Act.

Orkin filed an answer on June 18, 1984, generally
denying the charging allegations of the complaint and
asserting eleven defenses, including: a claim that the
complaint fails to state a violation of law; that the Com-
mission issued the complaint without reason to believe
that Orkin had violated the law, that the Commission vio-
lated its own policy set forth in its Operating Manual to
defer to state and local authorities to obtain corrective
action in matters primarily intrastate in nature or effect;
that the Commission lacks subject matter jurisdiction over
the complaint allegations; that the acts and practices of
Orkin as alleged in the complaint were and are not to the
prejudice and injury of the public and do not constitute
unfair acts or practices in or affecting commerce; that the
acts and practices alleged to have been committed by Orkin
have not caused substantial and ongoing injury to Orkin’s
customers; that the complaint is barred by applicable stat-
ute(s) of limitations; that the alleged unlawful acts and
practices have been encouraged, approved, and/or com-
pelled by federal and state regulatory authorities and law
and are therefore exempt from the Federal Trade Com-
mission Act; that the consumers alleged to have been in-
jured by Orkin’s acts and practices have recognized, ac-

A5

cepted, and acquiesced to the alleged misconduct under
doctrines of waiver, estoppel, ratification, accord and sat-
isfaction, limitations, and latches; and that the relief pro-
posed is inappropriate, not in the public interest, and is
not or would not be authorized by law.

In response to a motion by complaint counsel, not
objected to by respondent Orkin, Paragraph 3 of the
complaint was amended to add “and wood decay” as an
additional contract service falling within the category of
services alleged in the complaint as having the fixed an-
nual renewal fee raised in contradiction to agreements
with consumers. (Order Amending Complaint, November
15, 1984) Also, in response to a motion by complaint coun-
sel, respondent Orkin’s Second Defense (challenging the
Commission’s “reason to believe” Orkin had violated Sec-
tion 5(a) of the Federal Trade Commission Act), Third
Defense (stating that the Commission had violated its
policy stated in the Operating Manual to defer to state
and local authorities to obtain ccrrective action in matters
primarily intrastate in nature and effect), and the intro-
ductory paragraph to Orkin’s Twelfth Defense (challeng-
ing the Commission’s “reason to believe’ and “public in-
terest” determinations in issuing the complaint) were
stricken. ‘ Order Ruling On Complaint Counsel’s Motion
To Strike ..., August 7, 1984) [3]

A prehearing conference was held on August 9, 1984.
At the conference Orkin’s counsel was urged to stipulate
to the commerce allegations of the complaint. (Prehearing
Transcript, pp. 11-14, 60) Thereafter, during the course
of pretrial discovery, Orkin stipulated that it maintains,
and at all times mentioned in the complaint has maintained,
a substantial course of business, including the acts and
practices as set forth in the complaint, in or affecting com-

A6

merce, as ‘““commerce” is defined in the Federal Trade Com-
mission Act. (Finding 3, infra)

By motion dated January 30, 1985, complaint counsel
has moved for summary decision as to all issues to be re-
solved in this proceeding. Complaint counsel’s motion is
supported by the pleadings heretofore filed in this pro-
ceeding, depositions of respondent’s officials, documents
created, sent or received by respondent during the course
of its business operations and received by complaint counsel
from respondent during the investigation which preceded
issuance of the complaint herein or during pretrial discov-
ery, and some few third party documents received by com-
plaint counsel from state agencies and consumers which
have been adequately authenticated by complaint counsel
for purposes of ruling on this motion.

Respondent has filed an opposition, dated March 1,
1985, to complaint counsel’s motion. Respondent has also
filed a motion for summary decision in its favor, and has
submitted affidavits and depositions from its officials, com-
petitors, consumers, one economic expert, and certain of
its documents. Respondent also has submitted statements
of material fact which it contends either directly contra-
vene complaint counsel’s findings of fact, or raise genuine
issues of inference and legal significance that foreclose
any entry of summary decision in favor of complaint coun-
sel.

Respondent, additionally, has filed a supplemental
brief, dated March 8, 1985, and a reply and answer brief,
dated March 27, 1985, which additional briefing is or has
been authorized. Complaint counsel filed a reply to re-
spondent’s opposition and motion on March 16, 1985, which
also was authorized.

A7

Respondent’s submissions and arguments contend that:
Orkin’s alleged breach of contract is not actionable under
Section 5 of the Federal Trade Commission Act because
it is at most a non-deceptive alleged breach of a putative
contractual promise as to which the agreements in question
are entirely silent; that Orkin’s contracts in issue do not
provide for fixed annua] renewal premiums but are of an
indefinite duration and hence may be terminated after a
reasonable period of time; and, that the alleged breach of
contracts are not an “unfair act or practice” in violation of
Section 5 because there is no unjustified consumer injury.
Respondent also contends that any consideration of com-
plaint counsel’s requested relief is premature. [4]

Section 3.24 of the Commission’s Rules of Practice
authorizes any party to move with or without supporting
affidavits for a summary decision in his favor upon all
or any part of the issues being adjudicated. The granting
of such a motion is authorized where the affidavits and
other evidence reiied upon “show that there is no genuine
issue as to any material fact and that the moving party
is entitled to such a decision as a matter of law.” (Sec-
tion 3.24(a)(2)) Any such decision shall constitute the
initial decision of the Administrative Law Judge.

Section 3.24 closely parallels Rule 56 of the Federal
Rules of Civil Procedure. The Hearst Corporation, 80
F.T.C. 1011, 1014 (1972) Summary judgment under Rule
56 may be granted only if there is no genuine issue as
to any material fact or the inferences to be drawn from
the undisputed facts. United States v. Diebold, Inc., 369
U.S. 654 (1962): Winters v. Highlands Ins. 569 F.2d 297
(5th Cir. 1978); Handi Inv. Co. v. Mobil Oil Co., 550
F.2d 543 (9th Cir. 1977); Weiss v. Kay Jewelry Stores,
Inc., 470 F.2d 1259, 1261-62 (D.C. Cir. 1972) The moving

+

A&

party has the burden of establishing that no genuine
issue of material fact exists; all doubts and inferences
are resolved against the movant; and summary judgment
is improper if conflicting inferences may be drawn from
the same evidence. Exnicious v. United States, 563 F.2d
418 (10th Cir. 1977) This same standard has been ac-
cepted in Federal Trade Commission proceedings. The
Hearst Corporation, supra; American Medical Association,
Dkt. 9064, slip op. at 5 (Order Denying Motion of Re-
spondent The American Medical Association (“AMA”)
For Summary Decision Dismissing The Complaint For
Lack of Jurisdiction, Apr. 26, 1976) [94 F.T.C. 701 (1979) }.

Full consideration has been given to the findings of
fact and legal arguments presented by the parties. The
Findings of Fact which follow are based on reliable evi-
dence as to which there is no dispute as to its authen-
ticity or genuiness. A careful study of the evidence
relied upon by the parties reveals that there is no gen-
uine issue as to any of the material facts to be concluded
from such evidence, or as to the relevant inferences which
logically can be drawn from such facts. Therefore, sum-
mary decision is appropriate.

All motions not previously ruled upon are denied.
Based on the evidence presented by the parties hereto
in support of and in opposition to motions for summary
decision, the following Findings of Fact are without sub-
stantial dispute.

I. FINDINGS OF FACT

1. Orkin Exterminating Company, Inc., (“Orkin”)
is a Delaware corporation with its principal place of
business located at 2170 Piedmont Road, N-E., Atlanta,

A9

Georgia. (Complaint, {1; Answer, Twelfth Defense, Para-
graph 1) Orkin is a wholly-owned [5] subsidiary of Rol-
lins, Inc. (CX 142C) Rollins acquired Orkin on Sep-
tember 10, 1964, (RIR 30): [6]

1. The following abbreviations are used in citations in this
decision:

CX Complaint counsel’s exhibits as listed
on complaint counsel’s Preliminary
Document List and amendments and
filed in support of complaint counsel’s
Motion For Summary Decision.

RX Respondent’s exhibits as listed on its
Preliminary Document List and
amendments filed in support of re-
spondent’s Motion For Summary De-
cision and in opposition to complaint
counsel’s Motion For Summary De-
cision.

RIR Respondent’s Responses to Complaint
Counsel’s First Set of Interrogatories,
response to interrogatory #.

RA Respondent’s Answers and Objections
To Counsel’s First Request For Ad-
missions, response to request for ad-

mission #.

CRA Complaint counsel’s First Request for
Admissions, request #.

F Findings of Fact in this initial deci-

sion, finding #.
Respondent’s Motion Respondents motion for Issuance uf

for Access an Order Requiring Access to Docu-
ments, dated June 28, 1984.
(Name) Dep. Deposition of person identified.
(Name) Dep. Ex. Exhibit to deposition of person identi-
fied.
(Name) Aff. Affidavit of person identified.

The persons who depositions and affidavits are cited in this
decision are identified as follows:

Geiger Earl Geiger, Vice Chairman of Rollins, Inc.
(F 11).

(Continued on following page)

A10

2. Orkin provides pest-control and exterminating
_-services throughout the United States, but mostly in the

Kimbell

Raymond
Rollins
Russell
Schneider

Boudreaux

Bourgeois
Childs
Edwards

Goodman
Hoffman
Hromada

Jones
Landry

Nolen

Terrebonne
Thompson

Southeast. (Respondent’s Motion for Access, p. 2) In
1980, Orkin served customers located in 47 states and

Footnote continued—

Ron Kimbell, Orkin Commercial Branch Man-
ager (Kimbell Dep. p. 4), formerly Director
of Customer Services of Rollins, Inc. (F 47).

John Raymond, Director of Administrative
Operations of Orkin (F 54, 57).

Gary W. Rollins, President of Rollins, Inc. (F
38).

Robert M. Russell, Vice-President of Govern-
ment Relations of Orkin (F 61).

James M. Schneider, General Counsel of Rol-
lins, Inc. (F 55).

Dr. Kenneth J. Boudreaux, Professor of Eco-
nomics and Finance, Graduate School of Busi-
ness, Tulane University.

Ernest R. Bourgeois, owner and President, Mr.
B’s Services, Inc.

Janet Childs, Receivables Audit Supervisor,
Orkin.

Jack L. Edwards, retired, formerly President,
Ja-Roy Exterminating Co., Inc.

Bryant G. Goodman, Branch Manager, Orkin.
William S. Hoffman, an Orkin customer.

Charles Hromada, Senior Vice President of
Technical Services, Terminix International, Inc.

Joe Jones, Branch Manager, Orkin.

Ulysse G. Landry, Jr., owner and operator of
Houma Pest Control Company, Inc.

Truly D. Nolen, founder and President of Truly
Noien of America, Inc.

Ellis A. Terrebonne, an Orkin customer.
Helen R. Thompson, an Orkin customer.

Portions of depositions of some deponents appear in com-

plaint counsel’s motion, in Orkin’s motion and opposition, and
in complaint counsel’s answer submissions. [7]

All

the District of Columbia. (CX 142C) As of September 1,
1980, Orkin operated approximately 294 branch offices
and 44 district offices. (RIR 32) Branch offices are
supervised by the district offices. (CX 142Z9; Russell
Dep. p. 9; Raymond Dep. p. 32)

3. Orkin has stipulated that it maintains, and at
all times mentioned in the complaint has maintained, a
substantial course of business, including the acts and
practices as set forth in the complaint, in or affecting
commerce, as “commerce” is defined in the Federal Trade
Commission Act. (Letter to Katharine B. Alphin from
Michael Eric Ross dated August 17, 1984, at paragraph
10; one page letter to Katharine B. Alphin from Michael
Eric Ross dated August 24, 1984; RIR 66; compare letter
to John C. Staton, Jr. from Katharine B. Alphin dated
August 21, 1984, at paragraph 9, with two page letter
to Katharine B. Alphin from Michael Eric Ross dated
August 24, 1984)

4. Orkin is stated to be the world’s largest termite
and pest control company. (CX 142C; Rollins Dep. p. 202)
Even though Orkin is the largest termite and pest con-
trol company, it apparently has a small market share.
(Rollins Dep. p. 203; Geiger Dep. p. 16)

5. To be a provider of termite control services on
a small scale requires little capital. (Rollins Dep. pp. 204-
205) Chemicals used in termite control are commonly
available. (Rollins Dep. p. 205) The techniques used
in termite control services are widely known within the
industry and can be learned without difficulty. (Rollins
Dep. pp. 206-207)

6. Orkin has used a July 1 - June 30 fiscal year
for each of the years 1978 through 1984. (RIR 57) Orkin

Al2

had total net revenues in the amounts indicated in the
following fiscal years:

Fiscal Year Ending Total Net Revenue
June, 1977 $138,613,108
June, 1978 148,362,959
June, 1979 164,826,769
June, 1980 181,582,829
June, 1981 193,568,292
June, 1983 212,333,107
June, 1984 228,898,037
(RA 4-10)

Orkin had the net profits indicated in the following
fiscal years: [8]

Fiscal Year Ending Net Profit
June, 1977 $22,428,534
June, 1978 19,258,821
June, 1979 17,140,842
June, 1980 23,744,000*
June, 1981 27,142,000*
June, 1983 30,127,691
June, 1984 31,548,071

(RA 11-17 [*Rounded to the nearest thousand] )

Orkin had a net worth of $65,949,714.89 on June 30,
1980 and a net worth of $68,659,753 on June 30, 1984.
(RA 18, 19; Respondent’s Corrected Answer To Request
No. 18 Of First Request For Admissions)

7. Among other services, Orkin provides to individ-
uals and businesses services to treat houses, buildings, and
other structures in order to destroy or protect against

Al3

termites, other wood-infesting organisms, moisture and
wood decay. (Complaint, { 3; Answer, Twelfth Defense,
Paragraph 3; RA 1; Raymond Dep. pp. 22-23; Rollins Dep.
pp. 15-16; Kimbell Dep. pp. 4, 6-7; Russell Dep. p. 13)

8. Orkin has entered into written agreements with
its customers concerning the rendering of services to de-
stroy or protect against termites, other wood-infesting
organisms, moisture and wood decay. These agreements
are hereinafter referred to as “termite contracts.” (Geiger
Dep. p. 11; CX 1-7, 9-14, 16, 27, 400, 414, 449, 473, 485; RA
2; RIR 59-60) The termite contracts charged a specified
sum for the initial treatment provided by Orkin. (CX
1-7, 9-14, 16, 27, 400, 414, 449, 473, 485)

9. Under certain conditions Orkin issued guarantees
of its services to destroy or protect against termites, other
wood-infesting organisms, moisture and wood decay. These
guarantees are hereinafter referred to as “termite guaran-
tees.” (Ray 10nd Dep. pp. 18-23; Rollins Dep. pp. 18-19;
Russell Dep. p. 13; CX 17-26; RA 3; RIR 61-62)

10. Since prior to 1956, Orkin has used preprinted
form contracts and guarantees prepared by Orkin. (Geiger
Dep. pp. 11, 21-22, 24-25; CX 1-14, 16, 27, 400, 414, 449, 473,
485: RX 129A-Z46, 685A-B) Orkin salesmen did not have
the authority to vary the terms of the preprinted form
contracts and guarantees. (Geiger Dep. p 11)

11. In general, prior to 1966, Orkin offered termite
guarantees for continued protection to the treated property
for a specified price which lasted for a term of from five
to fifteen years. (RIR 4; RX 129A-Z46; Geiger Aff. § 4)
On or about January 1, 1966, Orkin began using the term
“lifetime” in its [9] termite contracts and/or termite guar-
antees. (RIR 1) Earl F. Geiger, Vice Chairman of the

Al4

Board of Rollins, Inc., who was Executive Vice-President
of Orkin from 1964 to 1976, originated the “lifetime” guar-
antee concept for Orkin and proposed its adoption by Orkin.
(RIR 2; Geiger Dep. pp. 4-5, 15) Mr. Truly D. Nolen,
founder, owner, and President of Truly Nolen of America,
Inc., claims to have originated the idea of the lifetime
guarantee on termite control services contracts in 1955.
(Nolen Aff. | 6) Other Orkin competitors use the lifetime
concept. (Hromada Aff. {| 5)

12. Concerning the purpose of the lifetime guaran-
tees, Mr. Geiger has given the following testimony:

Q. What was the purpose of these new lifetime
guarantees?

A. Well, Orkin at that time was the largest pest
control company in the country. We did 80% of the
advertising for the pest control industry, or roughly
that. We claimed just about 13% of the business.
The obvious strategy was to try to offer a distinctly
better service to the public than our smaller competi-
tors could offer. So any time you could enhance your
package, your marketing package, you did so.

Q. And that was the reason for the lifetime?

A. Yes. We were able to do it because the
primary termiticide at that time was proving to be
more successful and more effective than we ever
thought it would be.

(Geiger Dep. pp. 16-17)

13. Termite guarantees issued by Orkin include a
lifetime retreatment guarantee, a lifetime retreatment and
repair guarantee, and a lifetime guarantee on pretreatment
work on new construction. (Raymond Dep. p. 19-20)

Ald

14. The lifetime retreatment guarantee provides in
part that at no extra cost to the customer Orkin will apply
any necessary treatment to the premises if infestation
occurs during the duration of the guarantee. (Rollins Dep.
p. 18; CX 17-22; RIR 61) This type of guarantee is some-
times referred to as a “LC guarantee.” (Rollins Dep. p. 18;
Raymond Dep. p. 20)

15. The lifetime retreatment and repair guarantee
provides in part that at no extra cost to the customer, Orkin
will make repairs (up to a stated dollar maximum) to the
structure and its contents in order to remedy any new
damage caused by subterranean termites, provided that it
is established that the new damage occurred after the initial
treatment, and that at the time of [10] discovery of the
new damage, the damaged areas are infested with live sub-
terranean termites. (Rollins Dep. p. 18; CX 23-26; RIR
61) This type of guarantee is sometimes referred to as a
“LR guarantee.” (Rollins Dep. p. 19; Raymond Dep. p. 19)

16. Prior to 1969, Orkin’s LR guarantees had a lia-
bility limitation of $25,000. In 1969, Orkin adopted a policy
of issuing LR guarantees with a liability limitation of
$100,000. (RIR 63)

17. The lifetime guarantee on pretreatment work is
the same guarantee as the LR guarantee, except that
Orkin’s pretreatment guarantee is for new construction
and its LR guarantee covers existing structures. (RA 21;
CX 150A-B) The lifetime pretreatment guarantee is
sometimes referred to as a “PR guarantee.” (Raymond
Dep. pp. 19-20)

18. Orkin’s termite contracts and termite guarantees
provide for annual fees to be paid in order to continue the
protection that is guaranteed. If the customer abides by

Al6

the contract, and pays Orkin the specified annual renewal
fee, the guarantee is to remain in effect. (CX 1A, 2A, 3,
4A, 5A, 6A, 7A, 9A, 10A, 11A, 12A, 13A, 14A, 16A, 27A,
400A, 414A, 449A, 473A, 485A; Respondent’s Motion for
Access, pp. 2-3)

19. Orkin’s termite contracts and termite guaran-
tees, including those entered into prior to February 1,
1975, that used the term “lifetime,” had a “structural
modification” clause providing that in the event the
premises were structurally modified, altered or otherwise
changed after the date of initial treatment, the agreement
would terminate, unless a prior written agreement was
entered into by the purchaser for Orkin to reinspect the
premises, provide additional treatment, and/or adjust the
annual renewal fee. (CX 1B, 2B, 4B, 5B, 6B, 7C, 9B,
10B, 11B, 12B, 13B, 14B, 16B, 17A, 18A, 19A-B, 20A-B,
21A-B, 22, 24A-B, 25A-B, 26A-B, 27B, 400B, 414B, 449B,
473B, 485B; RIR 20, 59-62)

20. Before February 1, 1975, Orkin’s termite con-
tracts and termite guarantees that included the term “life-
time” did not mention adjustments or increases of the
specified annual renewal fee necessary to continue the
lifetime guarantees issued with respect to those contracts,
absent the treated premises being structurally modified,
altered, or otherwise changed after the date of initial
treatment. (CX 1A-B, 2A-B, 3, 4A-B, 5A-B, 6A-B, 7A-C,
9A-B, 10A-B, 11A-B, 12A-B, 13A-B, 14A-B, 16A-B, 17A-B,
18A-B, 19A-B, 20A-B, 21A-B, 22, 24A-B, 25A-B, 26A-B,
27A-B, 400A-B, 414A-B, 449A-B, 473A-B, 485A-B; RIR 20,
59-62; Respondent’s Motion for Access, p. 3) These ter-
mite contracts are hereinafter referred to as “pre-1975
contracts.” Likewise, guarantees extended by Orkin to

lee

Al7

a customer in connection with the execution of a pre-
1975 contract are referred to as “pre-1975 guarantees,”
and customers holding these contracts or guarantees are
often referred to as “pre-1975 customers.” [11]

21. Numerous pre-1975 contract forms contained a
clause stating that the contract, graph and specification
sheets, and upon issuance, the guarantee, constituted the
complete agreement between the parties, and that the
agreement could not be changed or altered in any man-
ner, oral or otherwise, by any representatives of Orkin,
unless alterations or changes were in writing and ex-
ecuted by a corporate officer of Orkin under the cor-
porate seal. (CX 400A-B [Form 225 Rev. 1-69]; CX 9A-B:
CX 473A-B; CX 10A-B [Form F-19-135 Rev. 11/70]; CX
414A-B; CX 485A-B [Form 225 Rev. 11/70]; CX 11A-B
[Form F-19-135 Rev. 9/72]; compare CX 449A-B [Form
F-19-135 Rev. 2/73], with CX 13A-B [Form F-19-135
Rev. 11/73]; CX 12A-B [Form F-21-316]; CX 14A-B
[Form F-21-316]; CX 16A-B [Form F-21-317]; RIR 59-60)

22. CX 1A is a contract (termed Service Order)
dated November 20, 1965, with a customer located in
Louisville, Kentucky. The contract provides for a Con-
trol and Repair guarantee to be issued. The Annual
Renewal Premium is specified as $17.00. This contract
has the following provision:

In addition to the initial term specified in Paragraph
1 above, the Guaranty may, at the sole option of
the undersigned, be renewed annually for Lifetime
additional years by making payment of the Annual
Renewal Premium on or before the renewal date of
each subsequent year and Orkin agrees to reinspect
the premises upon receipt of each Annual Renewal
Premium Payment.

eaten

Al8

(The word Lifetime, above, was handwritten in a
blank space provided in the contract.)

CX 2A is a contract (Service Order) dated Novem-
ber 30, 1966, with a customer located in Louisville, Ken-
tucky. The contract provides for a Lifetime Control and
Repair guarantee. The Annual Renewal Fee is specified
as $18.00. The contract has the following provision:

The Guaranty checked above will be issued and de-
livered to the Purchaser upon completion of initial
treatment. Guaranty will be effective as long as
payment is made in accordance with the Terms and
Conditions of this Service Order.

It is further agreed that Guaranty will provide for
an initial term of:

12 months. ORKIN wil] reinspect the premises upon
expiration of the initial term and upon receipt of the
Annual Renewal Fee.

Guaranty at the sole option of the Purchaser may
be renewed annually by making payment of the An-
nual [12] Renewal Fee on or before the renewal
date of each subsequent year.

CX 3 is a contract (Service Order) dated March 23,
1968 with a customer located in Norfolk, Virginia. This
contract provides for a Lifetime Control and Repair guar-
antee to be issued. The contract provides as follows:

ORKIN CONTINUOUS PROTECTION GUARANTY
Under Orkin’s Continuous Protection Plan, the above
named property will be reinspected in November
1968 upon prompt payment of $18.00 (plus tax where
applicable), and annually thereafter in November

Alg

upon payment of $18.00 (plus tax where applicable
sabia ), beginning in 1969.

(The italicized portions above were handwritten.)

The contract also provided:

Guaranty will be effective so long as payment is
made in accordance with the Terms and Conditions
of this Service Order.

CX 400A is a contract with a Bethesda, Maryland,
customer dated April, 1969, having basic terms identical
to CX 3, above.

CX 414A is a contract dated February 5, 1972, with
a customer located in Chesterfield, Missouri. This con-
tract provides for a Lifetime Control and Repair guar-
antee and states as follows:

ORKIN CONTINUOUS PROTECTION GUARANTY

Orkin’s Continuous Protection Guaranty will provide
protection for the above named property including
Annual Reinspections upon payment of the initial
charges and an Annual Renewal Payment of $37.00
starting February 1973 and each February thereafter.

See also CX 421A, an October, 1972, contract with provi-
sions similar to CX 414A, as does CX 439A, a May, 1972,
contract with a customer located in Surfside, South Caro-
lina.

CX 4A, a contract (Service Order) dated March 1969,
with a customer located in Petersburg, Virginia, provides
for a Lifetime Control and Repair guarantee. The Annual
Renewal Fee is specified as $18.00 . The contract further
provides that:

—————————

A20

ORKIN will, AT NO EXTRA COST, reinspect the
premises annually during said initial term and upon
receipt of the Renewal Fee thereafter. [13]

CX 6A, a contract (Service Order) dated September
25, 1968, with a Brownsville, Texas customer, provides for
a Lifetime Control guarantee, and for an Orkin Continuous
Protection Guarantee upon the payment of an annual fee
of $20.00.

CX 7A, a contract (Service Order) dated March, 1968,
with a W. Columbia, South Carolina customer, provides
for a Lifetime Control and Repair guarantee upon payment
of an annual renewal fee of $15.00.

CX 9A, a contract dated December 17, 1969, with a
Tulsa, Oklahoma customer, provides for a Lifetime Control
and Repair guarantee and an Orkin Continuous Protection
Guarantee upon payment of an annual renewal fee of
$30.00.

CX 10A, a blank contract bearing form number F-19-
135 REV. 11/70 has provisions for Lifetime Control and
for an ORKIN CONTINUOUS PROTECTION GUARAN-
TEE “so long as payments are made in accordance with
the Terms and Conditions of this Contract.” CX 11, a blank
contract bearing form number F-19-135 REV. 9/72 has pro-
visions similar to the provisions of CX 10A.

CX 13 is a blank contract with a form revision date
of 11/73, which provides for a Lifetime Control guarantee.
The Orkin Continuous Protection Guarantee states that:

Its coverage, including annual reinspection, will be
effective for a period of ........... years upon payment
of the initial charges and thereafter for a period of

slab years, so long as renewal payments of ......._ -
are made annually.

A21

CX 205G is a contract (Service Order) dated March
10, 1969, with a customer located in St. Francisville, Lou-
isiana, which provides for a Lifetime Control guarantee
- and for an Orkin Continuous Protection Guarantee upon
payment of $75.00 annually, to continue ‘“‘so long as pay-
ments are made in accordance with the Terms and Condi-
tions of this Service Order.” CX 205R is a 1969 contract
with a New Orleans, Louisiana, customer which is similar
to CX 205G, with a renewal fee of $30 annually.

CX 205W is a contract dated July 3, 1974 with a cus-
tomer named Percy Bullock located in St. Amant, Lou-
isiana. It has the following provision:

ORKIN CONTINUOUS PROTECTION GUARANTEE

The guarantee checked above will be issued to the
buyer upon competion of initial treatment. The Guar-
antee will cover the above named premises and will
be subject to the General Terms and Conditions on the
reverse side hereof. Its coverage, including annual
reinspection, will be effective for a period of 2 years
upon payment of the initial charges and thereafter for
a period of [14] LIFE years, so long as renewal pay-
ments of $20 are made annually.

(The italicized words were handwritten.)

CX 205Z3 is a contract with the same customer as
above, Percy Bullock, dated February 3, 1975. This con-
tract, entered into after Orkin changed its guarantee
provisions, has the following provision:

ORKIN CONTINUOUS PROTECTION GUARANTEE

The type Guarantee checked above will be issued
to the Buyer upon completion of initial treatment.

A22

The Guarantee will cover the treated premises and
will be subject to the General Terms and Conditions
on the reverse side hereof. The Guarantee will be
effective for a period of 2 years upon payment of
the initial charges and thereafter for a period of * * *
Life years, so long as renewal payments are made
annually. ORKIN guarantees that the first four re-
newal payments wil be $35.00. Thereafter, ORKIN
reserves the right to increase renewal payments by
giving written notice to the Buyer in advance of
the renewal date. During the effective period of
the Guarantee, ORKIN will reinspect the premises
at such time as ORKIN may deem necessary, or
annually upon the Buyer’s request. No failure on
the part of the Buyer to request reinspection shall,
in any way, affect the Buyer’s rights under this
contract. The Buyer agrees to make the premises
available for reinspection.

(The italicized words were handwritten.)

23. CX 205U is a form letter which Orkin issued
to a customer in New Orleans, Louisiana. The complete

~ Jetter reads as follows:

TREATMENT AND CORRECTIVE MEASURES

Date: April 23, 1967. Re: Property Located at:
785 Brehm Pl.
New Orleans, La. 70121

The treatment and corrective measures necessary to
assure you complete protection are described in the
detailed specifications which are keyed to the scale
drawing on the following pages.

A23

Upon completion of the work, and payment for our
services in the amount of $163.00, you will receive
ORKIN’S written $25,000.00 Lifetime Termite [15]
Damage Guarantee. This guarantee is backed by
our corporate assets of more than $50,000,000.00.

This sensational Guarantee provides for an annual
reinspection to assure that termites do not return.
As the owner of an Orkin-treated building, you may
continue protection from year to year thus assuring
virtually lifetime protection against reinfestation. In
addition, your property is protected up to $25,000.00
against repairs required as a result of subsequent
termite infestation in the treated areas.

The cost of Orkin’s Lifetime Guarantee is modest -
a nominal annual inspection renewal fee of only
$22.00 relieves you of all further termite worries.

Similar letters are in the record. RX 31 is a letter dated
September 26, 1968, concerning property located in Cayce,
South Carolina; RX 30 is a letter dated January 3, 1970
concerning property located in Tucson, Arizona; RX 581F
is a letter dated March 1, 1971 concerning property lo-
cated in Bethesda, Maryland; and RX 561F is a letter
dated October 27, 1971 concerning property located in
Summerville, South Carolina.

24. In approximately May of 1974, Orkin began re-
vising its termite contract form(s) by adding a term
or provision that provided for an increase of annual fees
that did not depend on whether the treated premises
were structurally modified, altered or otherwise changed
after the date of the initial treatment. (See CX 205Z3
quoted above.) The revised termite contract forms con-
taining such a provision were first used in each of Orkin’s

A24

sales districts on or about February 1, 1975. (RIR 20;
Raymond Dep. pp. 54-57, 81 and Dep. Ex. 8; Rollins Dep.
p. 51; RX 131A-B)

25. Prior to entering into pre-1975 contracts with
customers, in all states in which Orkin operated its ter-
mite control services business, Orkin had entered into
termite contracts that specifically provided for increases
in annual renewal fees, which increases did not depend
on whether the treated premises were structurally mod-
ified, altered, or otherwise changed after the date of
initial treatment. (RIR 22; Russell Dep. pp. 35-38 and
Dep. Ex. 8; F. 11)

26. The term “lifetime” in Orkin’s pre-1975 contracts
refers to the duration of the guarantee(s) given by Orkin
in the particular contract involved, subject to and as
limited by the terms and conditions thereof, including
without limitation the obligation of the buyer to pay an
annual renewal fee. Within this context, the term “life-
time” in the contracts refers to the lifetime of the prem-
ises initially treated under the contract involved as they
structurally existed on the date of such initial treatment.
(RIR 5; Geiger Dep. pp. 15-17; Kimbell Dep. p. 130; [16]
see also Nolen Aff. § 5; Hromada Aff. { 5) The guar-
antee was transferable to the new owner of the treated
premises in the event the treated premises were sold.
(Raymond Dep. Exs. 5, 6) Contrary to Orkin’s inter-
pretation that the “lifetime” guarantee referred to the
lifetime of the treated premises, some state officials inter-
preted the term “lifetime” to refer to the lifetime of
the homeowner who entered into the contract, or to the
period the original homeowner held title to the original
treated premises. (RX 201A, 208B, 211A)

A25

27. During 1968, Orkin promoted its services for
protection against termites in a promotion called “Orkin
12,” developed by an outside advertising agency, Bearden
& Associates. (Raymond Dep. pp. 44-47 and Dep. Ex. 6;
Geiger Dep. pp. 28-29; RIR 49; RA 22) The Orkin 12
promotion was advertised in a pamphlet, on billboards,
in magazines, and on radio and television. (RIR 51)
Orkin spent approximately $1,157,000 advertising Orkin
12. (RIR 50) ‘The advertising program was discontinued
before its slated expiration date because it failed to pro-
duce the hoped-for results. (Geiger Dep. pp. 29-30, 34-35)

28. The pamphlet concerning Orkin 12 was issued
as point-of-sale material in presenting Orkin’s services
to its customers. (Raymond Dep. p. 46 and Dep. Ex. 6;
Kimbell Dep. pp. 39-41 and Dep. Ex. 9) The pamphlet
contained the following language as point 6 (hereinafter
“point 6”);

LIFETIME GUARANTEE. Orkin’s lifetime termite
protection plan includes annual reinspections and re-
treating when necessary. This protects the property
against termite reinfestation for the life of the struc-

- ture provided the lifetime guarantee is renewed an-
nually. The yearly premium for this lifetime pro-
tection is very modest and never increases. In case
of a sale, the guarantee is transferable.

(Kimbell Dep. Ex. 9; Raymond Dep. Ex. 6) (emphasis
in original)

29. The Orkin 12 promotion was used and adver-
tised in each of the following states plus the District
of Columbia during 1968: Alabama, Arkansas, Arizona.
California, Colorado, Delaware, Florida, Georgia, Illinois,
Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland,

A26

Michigan, Mississippi, Missouri, Nebraska, New Jersey,
New Mexico, North Carolina, Ohio, Oklahoma, Pennsyl-
vania, South Carolina, Tennessee, Texas, Virginia, West
Virginia, and Wisconsin. (RA 23; CX 650K-L) The Orkin
12 program was utilized in varying degrees by Orkin’s
branch offices and sales personnel. (Goodman Aff. {ff 4,
5; Bourgeois Dep. p. 8; Edwards Dep. pp. 12, 13; Jones
Aff. J 4)

30. Orkin promotional literature entitled Facts You
Should Know About Termites, with a revision date of
September, 1970, stated: [17]

Orkin Provides a
$100,000.00 Lifetime
Termite Repair
Guarantee

This guarantee provides for an annual reinspection
to guard against new termite attack. As the owner
of an Orkin-treated home, you may continue pro-
tection from year to year to assure virtual lifetime
protection against reinfestation. Orkin’s guarantee
covers your home for $100,000.00 against repairs as
a result of subsequent termite infestations. The cost
of Orkin’s “Lifetime Guarantee” is modest. Only a
nominal annual fee relieves you of all future termite
worries.

(CX 645A, Rev. 9/70)

31. Orkin’s promotional literature with a revision
date of November, 1970, stated:

Orkin guarantees effective pest control. Termite
control services are backed by a special $100,000
guarantee. *

Se

A27

The phrase noted by the asterisk was:

Remains in effect for the lifetime of the property
by payment of a low annual renewal fee.

(CX 648B, D)

32. In promotional literature with a revision date
of March, 1971, Orkin represented that its $100,000.00
Lifetime Termite Repair Guarantee was “Another Orkin
First.” It stated:

Only Orkin, the world’s largest in termite control,
could make such a sensational termite Guarantee
available to America’s property owners.

This guarantee protects your property up to $100,-
000.00 against repairs which might be required as a
result of subsequent termite infestations in the treated
areas.

(CX 646F, G, Rev. 3/71)

Orkin’s promotional literature with a revision date
of February, 1973, stated:

Orkin offers much more for your investment and
unmatched protection for your home. Our guarantee
plan means yearly checkups by trained re- [18] in-
spectors. For pennies a day, it can be renewed,
at your option, for the lifetime of your home and
retained by the new owners if you move.

(CX 39R, T) (emphasis in original)

34. In a form letter with a revision date of Sep-
tember, 1973, Orkin stated:

A28

We are pleased to render the following quotation to
cover termite control (chemical soil treatment) for
the above noted new construction:

* * *

Upon completion of the work as required Orkin Ex-
terminating Company shall furnish the owners with
a $100,000 termite damage guarantee, renewable an-
nually for the life of the building.

(CX 35)

35. Orkin attempted to implement uniform sales
techniques for its sales people. (Raymond Dep. pp. 26-41
and Dep. Ex. 1-5) It was Orkin’s company policy that
new salesmen should be given “Termite Sales Training
Lessons 1-6.” (Raymond Dep. p. 38 and Dep. Ex. 4) Com-
plaint counsel contend Lesson #4 was dated 1972. (See
Complaint Counsel’s Answer and Reply Brief, p. 14 n. 8.)
Lesson +5 has a copyright date 1973. (RX 677Z87) Termite
Sales Training Lesson #4 contained the following:

HOW DOES THE CUSTOMER BENEFIT FROM
ORKIN’S SUBTERRANEAN TERMITE
TREATMENT?

A. They receive a lifetime guarantee protection
which is non-cancellable by Orkin and renewable by
customer’s option.

B. Their cost of the renewal remains the same
so long as renewal payments are made annually.

* + *

E. The guarantee is transferable if they sell their
home.

au.

A29

(Raymond Dep. pp. 39-40 and Dep. Ex. 5) Termite Sales
Training Lesson #4 also instructed branch salesmen that
“(y)ou should always figure the price for Orkin Service
by the Termite Pricing Schedule.” (Raymond Dep. Ex. 5)
The Orkin training programs apparently were not uni-
formly utilized throughout the company. (Jones Aff. {|
6, 7; Goodman Aff. { 7, 8; Rollins Dep. pp. 10, 11, 20, 21)
Some sales representatives were instructed to inform [19]
prospective customers that the lifetime guarantee annual
renewal fee was fixed and did so; others never received
such instructions and did not so inform customers. (Good-
man Aff. {| 9; Jones Aff. { 8; Landry Dep. p. 63; Bourgeois
Dep. p. 23; Edwards Dep. p. 30; Hoffman Dep. p. 29; Thomp-
son Dep. pp. 20-21; Terrebonne Dep. pp. 20-21)

36. A pricing schedule with a revision date of Octo-
ber, 1971, for structures of conventional or slab construc-
tion, specified the following annual fees for new con-
tracts depending on the price of the original job and the
type of lifetime guarantee to be issued:

Original Annual Fee For Annual Fee For
Job Price LR Guarantee LC Guarantee

$130 25.00 23.00

140 26.00 24.00

150 27.00 25.00

160 28.00 26.00

170 29.00 27.00

180 30.00 28.00

190 31.00 29.00

200 32.00 30.00

210 32.00 30.00

220 33.00 31.00

230 34.00 32.00

A30

Original Annual Fee For Annual Fee For
Job Price LR Guarantee LC Guarantee

240 34.00 32.00

250 35.00 33.00

260 35.00 33.00

270 35.00 33.00

280 36.00 34.00

290 36.00 34.00

300 37.00 35.00

400 41.00 39.00 [20]

500 44.00 42.00
(CX 385C)

The pricing schedule states: “Important - You are selling
a non-cancelable, lifetime guarantee.” (CX 385C) (em-
phasis in original)

37. A pricing schedule with a revision date of May,
1973, for structures of conventional or slab construction,
specified the following annual fees for new contracts de-
pending on the price of the original job and the type of
lifetime guaramtee to be issued:

Original Annual Fee For Annual Fee For
Job Price LR Guarantee LC Guarantee

$130 25.00 25.00

140 26.00 25.00

150 27.00 25.00

160 28.00 26.00

170 29.00 27.00

180 30.00 28.00

190 31.00 29.00

200 32.00 30.00

210 32.00 30.00

A31

Original Annual Fee For Annual Fee For
Job Price LR Guarantee LC Guarantee

220 33.00 31.00

230 34.00 32.00

240 34.00 32.00

250 35.00 33.00

260 35.00 33.00

270 35.00 33.00

280 36.00 34.00

290 36.00 34.00

300 37.00 35.00

400 41.00 39.00 [21]

500 44.00 42.00

(CX 384A-B)

This pricing schedule also states: “Important - You are
selling a non-cancelable, lifetime guarantee.” (CX 384B)
(emphasis in original)

38. In 1980, Gary W. Rollins, then President of Orkin,
decided to increase the annual renewal fees of customers
holding pre-1975 contracts and pre-1975 guarantees above
the amount stated in the contracts and guarantees of those
customers. (Rollins Dep. pp. 6, 12, 55-56, 73) Gary W.
Rollins is currently President of Rollins, Inc. (Rollins
Dep. p. 5)

39. Prior to increasing the annual renewal fees on
pre-1975 contracts, Orkin requested that Arnall, Golden
& Gregory, an Atlanta law firm, provide Orkin with a
written legal opinion. The law firm prepared a legal
opinion dated December 6, 1978. The opinion concluded
that Orkin’s pre-1975 contracts appear to be of an indef-
inite duration and, as such, are terminable after a rea-

A32

sonable period of time. (Rollins Dep. pp. 60-62; Schneider
Dep. p. 64; RX 44A-F) James M. Schneider, General
Counsel of Rollins, Inc., reviewed the opinion given by
Arnall, Golden & Gregory, and confirmed to management
the conclusion reached in that opinion. (Schneider Dep.
p. 67; RX 170A-B) Mr. Gary Rollins reviewed these
legal opinions prior to making his decision to increase the
annual renewal fees for pre-1975 contracts. (Rollins Dep.
pp. 60-64, 73, 80-81; RX 43A-G; RX 170A-B)

40. The legal opinion rendered by Arnall, Golden &
Gregory assumed as the issue to be considered: “Are
there any grounds for the claim that a contract which
may be renewed or extended from year to year, indefi-
nitely, is unenforceable.” The author of the opinion also
stated: “I assume that the Orkin contract involves a
right to extend the term of the original contract and here
the issue would be two-fold: (1) possible failure as a
perpetual contract and (2) possible failure for indefi-
niteness of terms.” (RX 44A) (emphasis in original.)

41. At the time that James M. Schneider, General
Counsel of Rollins, Inc., confirmed to management the
conclusion reached by the law firm of Arnall, Golden &
Gregory, Mr. Schneider was not aware of Orkin’s sales
literature statements; i.e., the Orkin 12 promotion. Mr.
Schneider was the person at Rollins, Inc., who had con-
tact with the law firm of Arnall, Golden & Gregory and
requested the legal opinion from the firm (Schneider Dep.
pp. 62-63; Schneider Dep. [dated February 8, 1985] pp.
12, 22).

42. Between 1978 and 1980, Orkin undertook an ex-
tensive expense reduction program before deciding, in Feb-
ruary 1980, to increase the annual renewal fees on pre-

y
:
i
t
}

A33

1975 contracts. Also, [22] during February 1980, Orkin
increased by 40% the annual renewal fees on post-1975
customers whose contracts contained an express provision
permitting such increases. (RX 46A-D; RX 42A-E)

43. Prior to making his decision to increase the an-
nual renewal fees of customers holding pre-1975 contracts
and pre-1975 guarantees, Gary Rollins presented a synop-
sis of issues (dated February 7, 1980) on the subject of
the increase to R. Randall Rollins, who was then President
of Rollins. (Rollins Dep. pp. 73-80, 85, 86 and Dep. Ex. 12)
In part, the synopsis contained the following:

Please find below and attached my analysis of the
“pros and cons” regarding raising the renewal amount
of our pre-1975 termite customers.

PROS

1. Potential income increase of $2,286,614 (#232,-
969 accounts valued at $6,017,406 ~ 40% increase less
5% cancellations)

CONS

1. A few customers advised by salesmen and
literature that renewal amount would be fixed.

2. State regulatory agencies (Pest Control, Con-
sumer Protection, etc.) could interpret our contract
in some cases to imply the renewal amount is fixed.
Those who obtain old proposal Information will dis-
cover we put this in writing.

3. Our longer term employees might feel that
we are going back on our word.

4. There could be customer lawsuits and com-
plaints.

A34

OPTIONS
1. Leave as is.
2. Write customers and put on voluntary basis.

3. Meet with individual state regulatory and
consumer groups to obtain understanding and raise.

4. Raise and handle exceptions.

(Rollins Dep. Ex. 12) [23]

44. Gary Rollins’ recommendation to R. Randall
Rollins, with which R. Randall Rollins concurred, was
option 4 above, to raise the annual renewal fees and
handle the exceptions. (Rollins Dep. pp. 73, 78-79)

45. Gary Rollins was aware of the Orkin 12 promo-
tion at the time he wrote his synopsis to R. Randall
Rollins. Literature containing point 6 of the Orkin 12
promotion was an attachment to Gary Rollins’ synopsis
to R. Randall Rollins. (Rollins Dep. pp. 76-80 and Dep.
Ex. 12)

46. In 1980, Orkin sent notices to approximately
207,000 customers holding pre-1975 contracts or pre-1975
guarantees, that Orkin was increasing the annual re-
newal fees over the amount specified in those customers’
contracts or guarantees. (RIR 23; Raymond Dep. pp. 224,
239 and Dep. Ex. 46) All customers were notified of
the increase well prior to their respective renewal dates.
(Raymond Dep. Ex. 16 [Beginning in August - October
renewals]: RIR 25)

A35

47. The notice of the increase of annual fees stated:
Dear Customer:

Thank you for being an Orkin customer and allowing
us to protect your home against wood infesting or-
ganisms. We’re sure you agree this protection is
as important as homeowner and fire insurance, but
it is much less expensive.

Through the past few years we have improved pro-
ductivity to absorb our increased costs of gasoline,
petroleum products, labor and increased government
regulations. However, these increased operating ex-
penses can no longer be totally absorbed while main-
taining the high quality of service you deserve.
Therefore, to maintain this quality protection, we
now find it necessary to increase your annual re-
newal fee to the amount indicated on the enclosed
Termite Renewal Invoice. We hope you understand
we would not increase your renewal fee unless it
was absolutely necessary.

Again, thank you for your patronage and under-
standing. Should you have a question concerning
this matter, please contact your local branch manager
as he can best assist you.

Sincerely,
/s/ Ron Kimbell
Director of Customer Service [24]
(Raymond Dep. pp. 89, 94 and Dep. Ex. 16 [at A00974])
Ron Kimbell was never an officer of Orkin. (Kimbell
Dep. p. 53)

48. Notices reflecting increased annual renewal fees
were sent to customers holding pre-1975 contracts from

A36

Qrkin’s Home Office lerated at 217% Piedmont Road,
N.E., Atlanta, Georgia, and were transmitted by regular
mail, along with first renewal notices two months prior

to the renewal date. (RIR 25)

Orkin began sending

the notices concerning the increase of annual fees in
August, 1980, for customers whose renewal month was
October, 1980. (Raymond Dep. pp. 89, 252-54 and Dep.

Exs. 16, 49)

49. Customers holding pre-1975 contracts or pre-
1975 guarantees to whom notices were sent were located

in the following states:

Alaska
Alabama
Arkansas
Arizona
California
Colorado
Connecticut
District of Columbia
Delaware
Florida
Georgia
Iowa
Illinois
Indiana
Kansas
Kentucky
Louisiana
Maryland
Michigan
Minnesota
Missouri

(RIR 26)

Mississippi
Montana
Nebraska
North Carolina
New Jersey
New Mexico
New York
Nevada

Ohio
Oklahoma
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas

Utah

Virginia
Wisconsin
West Virginia
Wyoming

a

A37

D0. The annual fees for pre-1975 contracts were in-
creased to a minimum of $25.00 or by 40%, whichever
was greater. (Raymond Dep. pp. 89, 252-54 and Dep.
Exs. 16, 49)

51. Orkin received communications from customers
and customers’ attorneys that expressed their belief that
Orkin did not have the right to increase annual renewal
fees for pre-1975 contracts. (Kimbell Dep. pp. 42-45 and
Dep. Ex. 10; Raymond Dep. pp. 108-109; CX 291, 292A-B,
293, 294, 295A-B, 296A-B, 297-300, 302, 303A-C, 304-306,
307A-B, 308A-B, 309A-B) Orkin’s records indicate that
as of May, 1981, its Customer Service department had
received complaints about the increase in the annual re-
newal [25] fees on its pre-1975 contracts from less than
2% of its affected customers. This may not be a com-
plete total of complaints received by Orkin since those
complaints received by the branch offices may not be
included in this total. Additionally the total of 5700 cus-
tomers who had their increased annual renewal fees
rolled back had to complain to receive any action. (F.
67, 58-60; RX 73; Rollins Dep. p. 119) Orkin has taken
the position when customers have complained to it con-
cerning the increase of annual fees for pre-1975 contracts
that Orkin had a right to increase the annual renewal
fee. (Rollins Dep. p. 148 and Dep. Ex. 31; F. 51-53; Ray-
mond Dep. pp. 264-267 and Dep. Ex. 56)

52. Orkin had a policy of returning payments of
customers who paid the amount specified in their contracts
rather than the increased amount. (Kimbell Dep. pp. 68-
69 and Dep. Ex. 14; Raymond Dep. p. 210; EX 288, 289B,
292A, 308A, 309B)

53. Concerning the increase of annual renewal fees
for pre-1975 contracts, Ron Kimbell, Director of Rollins

A38

Customer Service, in a letter dated August 11, 1980, wrote
to Gary Rollins that:

Several of the customers’ phone calls and letters im-
plied some things that caused me to review the con-
tracts used from 1968 to present. Some of the con-
tracts said:

. including Annual Reinspections upon payment of
the initial charges and Annual Renewal payment of
Disveceasiatoans RNIN ces sts wet ceca and each ............... ahanice
thereafter.

form 225 Rev. 11/70
form F-19 135 Rev. 11,

.... Its coverage, including annual reinspections will

be effective for a period of ........ years upon payment
of the initial charges and thereafter so long as re-
newal payments of $................ are made annually. No

form +, approximately 1974.

. . will be reinspected in ........................ upon pay-
ment of $................ and annually thereafter in ........
upon payment of $................ weenie Wb
Rev 3/68

After reviewing these contracts (not the guarantees)
I have concluded that the pre-1975 increase is more
questionable than ever. Several of the statements
are leaning more towards the implication of no in-
crease ever, than a possible increase at a later date.
Based upon my experience I would say the decision
to increase these accounts (even though we [26] need
the revenue) will lead us down a path quite unpop-
ular with our customers, the media. and the consumer
groups. Angry comments from several customers,

LE

©
5)

A39

one of which was an attorney leads me to conclude
we could end up in court on this. One possibility
this could lead to would be one “pioneer” taking us
to court for all consumers that have been “damaged”
by this action. I fully understand the reason and
need for this increase, yet I request that this program
be suspended immediately until such time as all par-
ties involved (Legal, Public Relations, Customer
Service, Orkin, Finance, etc.) can meet and discuss
the repercussions of this program. I can support any
program Orkin decides on, yet I feel we should all
have a unified approach and understanding of this
most delicate matter. May I hear from you?

(Kimbell, Dep. pp. 17, 42-46 and Dep. Ex. 10; Raymond
Dep. p. 103 and Dep. Ex. 18) This letter was written at
the time the increase in annual renewal fees on pre-1975
contracts was being implemented. (F. 46, 47, supra.)

54. John Raymond, Orkin’s Director of Administra-
tive Operations, has testified that “Ron Kimbell’s job was
to be like an ombudsman for the customer. His job was
to make us aware of what the customers were saying, how
they felt about things. He did his job very well.” (Ray-
mond Dep. p. 103) Mr. Kimbell’s request for a suspension
of the increase of annual renewal fees for pre-1975 cus-
tomers was not granted. (Raymond Dep. pp. 103-104)

55. James M. Schneider, Rollins General Counsel,
testified on February 8, 1985, that during the fall of 1978
he was shown an Orkin contract and asked whether there
was a basis for increasing the renewal price. His reaction
was stated as follows:

Well, I looked at the contract, and I recall that my
reaction was the reaction that—or my initial reaction

A40

was that of most people that reviewed the contract,
I didn’t see offhand a basis for increasing the prices.
The provision concerning the renewal prices appeared
to be of indefinite duration using words like “here-
after” or “thereafter,” and my instant or immediate
reaction was there — was not a basis for increas-
ing the prices.

(James M. Schneider Dep. p. 19)

56. Orkin used a form letter in responding to nu=-
merous customers who inquired about the increase of the
annual renewal fee. The letter explained the rationale
behind the increase. (Kimbell Dep. pp. 27-29, 65-72 and
Dep. Exs. 6, 13-16; Rollins Dep. pp. 179-181 and Dep. Exs.
42-43; CX 264A-B, 266A-B, 267A-B, [27] 268A-B, 269A-B,
270A-B, 271A-B, 273A-B, 274A-B, 275A-B, 276A-B, 277A-B,
278A-B, 279A-B, 280A-B, 281A-B, 282A-B, 283A-B, 284A-B,
285A-B, 286A-B) In part, the form letter stated:

While our contracts prior to 1975 did not specifically
mention increases, we believe that following a rea-
sonable term of absorbing losses due to the impact
of inflation, this increase is both consistent with law
and reasonable business standards.

* * *

we appreciate your concern and hope that you
now understand our position and will submit your
renewal payment to keep your coverage in force.

(Kimbell Dep. Ex. 6)

This form letter made no mention of exceptions being
made to the increase of the annual renewal fees. (Ibid.)

57. John Raymond has been Orkin’s Director of Ad-
ministrative Operations since 1976. In that position he

A4l

has been responsible for the administrative procedures
used by Orkin, and for supervision of several depart-
ments, including Orkin’s Policy and Procedures Depart-
ment. (Raymond Dep. pp. 4-6) In a memorandum dated
August 13, 1980, John Raymond wrote to Orkin’s branch
managers concerning the increase of annual renewal fees
for pre-1975 contracts and the one exception to the in-
crease which customers could invoke. In part, he wrote:

If a customer tells you that our pre-1975 contract does
not allow for an increase, you should explain that
prior to the inflation spiral, practically no one had
this provision in the contracts. Recent legal rulings
interpret this as meaning that the renewal fee shall
remain unchanged for a reasonable period which we
interpret to be no more than five years.

+ n x

If the customer states they have sales literature that
‘specifically states there will not be an increase in
the renewal fee, you should ask them to read the
statement to you Some customers sold between 1967
and 1968 were given a pamphlet that stated the re-
newal fee would never increase. This statement was
in the “Orkin 12 Point Plan.” The statement, point
number 6 says:

6. Lifetime Guarantee. Orkin’s lifetime termite
protection plan includes annual [28] reinspections
and retreating when necessary. This protects the
property against termite reinfestation for the life
of the structure provided the lifetime guarantee is
renewed annually. The yearly premium for this life-
time protection is very modest and never increases.
In case of a sale, the guarantee is transferable.

A42

If any of your customers tell you they have a pam-
phlet in their possession that prohibits an increase
you should ask them to read to you the exact wording.
If the wording is not verbatum [sic] as stated in
“point 6” above they are, in fact, eligible for an in-
crease. If their material does have this statement,
and you confirm it, then tell the customer a computer
mistake was made and a corrected bill will be sent.
Ask them not to pay until a correct bill is received.

(Raymond Dep. pp. 4-5, 105-107 and Dep. Ex. 19) (em-
phasis in original)

58. In a memorandum dated December 11, 1980,
John Raymond wrote to branch managers that Orkin was
willing to make further exceptions to the increase of an-
nual renewal fees for pre-1975 contracts. In part, he
wrote:

It is not our desire to stand in judgment of the mo-
tives and memories of our customers. While we
believe most of our customers were little concerned
with the modest price of the renewal at this earlier
time, we are willing to maintain the old renewal price
for customers who state that at the time of pur-
chase they relied on either a sales presentation or
they construed the specific wording of the contract
to provide that the renewal price would not be in-
creased. We believe we are going beyond the letter
as well as the spirit of the law in this matter and are
willing to make this commitment provided that this
exception to the general price increase is not
abused... .

A43

We are willing to make exceptions to give certain
customers the benefit of the doubt. While we intend
to be flexible in our evaluations, you should be alert
to any abuses, particularly where complaints from
customers exceed 1% of the affected customer base.
You should be sensitive to potential abuses and discuss
the matter with your District Manager. This ex-
ception program should be [29] administered fairly
and consistently in the interest of all our customers
as well as the company.

(Rollins Dep. pp. 125-28 and Dep. Ex. 23)

59. Attached to Mr. Raymond’s memorandum of De-
cember 11, 1980, were procedures for granting this excep-
tion to the increase of annual renewal fees. These pro-
cedures contained the following:

PROCEDURES FOR HANDLING - RENEWAL
PRICE INCREASE EXCEPTIONS

1. The company will continue to bill for the
renewal increase.

2. In the event of any complaints, the Branch
will attempt to explain and justify this increase to
our customers.

3. However, if a customer will not accept the
rationale for the increase, we will honor their position
and hold the renewal at the original rate, provided
the customer will represent in writing his understand-
ing at the time his or her contract was made. This
is an exception and should be granted to those cus-
tomers who bought our termite contract with the
understanding that the renewal fee was set and not
subject to change.

:
:

A44

4. In such cases, the Branch Manager will advise
the customer that their case will be reviewed as an
exception, and will be submitted to the District Man-
ager for consideration. Whether the inquiry is by
phone or b: letter, the attached Letter +1 should be
prepared b» the Branch (each letter to be neatly
typed on your Branch Letterhead and signed by the
Branch Manager) and sent to the customer. Please
note that this letter requires a response from the cus-
tomer stating that as a condition of sale, he or she
believed that the renewal fee was not subject to change.
Include a return envelope with your letter for the cus-
tomer’s convenience.

5. The Branch should forward all written cus-
tomer responses to the District Manager. The District
Manager should evaluate the reasonableness of the
customer’s position. Assuming the District Manager
determines that the customer’s position is correct, he
will notify the Branch that the renewal price will be
returned to the old amount. The Branch [30] will so
advise the customer of the decision to maintain the
old renewal price with attached Letter #2....

(Rollins Dep. Ex. 23 [at A00075, A00077]) (emphasis in
original)

The letters +1 and +2 referred to in the foregoing
were as follows:

Letter #1

Dear Customer:

Thank you for your recent inquiry regarding our
termite renewal price increase. We understand your
feelings in this matter and as indicated below, we are

A45

willing to make exceptions for the benefit of our cus-
tomers from the general price increase previously
announced. Before we discuss such exceptions, please
allow us the opportunity to further explain our position.

At Orkin, as everywhere else, inflation meets us at
each turn. Over the years we have increased employee
productivity and reduced expenses, yet the inflation
rate has far overshadowed our own internal efforts
in fighting inflation. In 1975, we clearly recognized
the total effects inflation brings. Beginning in 1975
our service contracts clearly explained that the re-
newal fee could increase at some time in the future.
Of course, this is directly related to the inflation spiral
and no one knows when it will stop.

Prior to 1975, and even as early as the late 1960’s, few
people had any concern for inflation as we do now.
In those times no one had automatic rate increase fac-
tored in their contracts. While our service contracts
prior to 1975 did not specifically mention price in-
creases, we believe that, following a reasonable term,
this increase is a fair and reasonable business practice.
We further had our legal staff review this point and
they believe we are on sound legal ground in requesting
a price increase.

Since the late 1960’s we have maintained the price
line. Now, and only as a last resort, we decided to
increase these accounts. However, the increased re-
newal will still not bring us even with inflation and
is well below our current renewal charge. We cer-
tainly want to keep your business, and believe this
increase is reasonable in the light of today’s economic
condition. [31]

A46

As indicated above, we are willing to make certain
exceptions. If (1) at the time you entered into your
contract with Orkin you were advised by our sales
representative that your renewal price could not be
increased at any time in the future or (2) at the time
of purchase you reached the same conclusion based
on your reading of the materials supplied to you,
Orkin will maintain for you the fixed renewal price.
We are willing to take our customers at their word
and are relying on their honesty. Kindly write and
advise us as to whether you relied on either a state-
ment by our sales representative or the contractual
materials supplied to the affect [sic] that your renewal
price would not be increased as a condition of entering
into the contract with Orkin. Please address your let-
ter to me. Your letters will receive prompt review
and decision. It is important that you notify us in
writing so that a request for exception can be evalu-
ated and processed.

As our customer, we want to keep you satisfied.
Please let us hear from you in this matter.

Sincerely,
Branch Manager
- (Rollins Dep. Ex. 23 [at A00079])
Letter #2
Dear Customer:

Your letter regarding your renewal price increase has
been carefully considered.

As we mentioned earlier, we fee] that our contract
gives Orkin the right to increase your renewal amount;

A47

however, we want to be fair. Because of the condi-
tions in your case, we are willing to make an excep-
tion.

Your satisfaction as a customer is our most important
concern, so we will maintain your renewal fee at the
original rate. Enclosed is a corrected renewal state-
ment for your payment. As soon as we receive your
payment we will submit a change request to reduce
your renewal fee to the original amount. in the
meantime, if you receive a renewal statement at the
higher amount, please disregard. [32]

We appreciate your business and we look forward to
continuing to serve you.

Sincerely,
Branch Manager
(Rollins Dep. Ex. 23 [at A00080]) (emphasis in original)

60. In a memorandum dated April 28, 1981, Linda
Morton, Orkin’s Manager of Policy and Procedure, wrote
Orkin’s branch, district and regional offices and stated,
in part:

The increase of termite renewals for our older cus-

tomers sold from January 1940 through December

1974 will end with the billing of our September
renewal customers in July 1981.

Until then we will still need to address the problem
of decreasing those customers who have a legitimate
argument for not wanting to accept a price increase
The procedure for decreasing termite renewals was
sent out by John Raymond - Orkin Operations -
December 11, 1980.

A48

The following procedure is a revision of that memo
so please read it carefully. It is intended to simplify
the process.

A. Please be sure to follow the procedure care-
fully in order to be sure that the customer’s account
is handled properly.

NOTE: This does not apply to contracts sold in
1975 or later. Beginning in 1975 our contract gave
us the right to increase after five years. Those
renewals are not to be decreased.

1. When the customer calls, determine the year
of completion. If it is before 1975, attempt to explain
and justify the increase to the customer.

2. If the customer strongly objects to the in-
crease on the grounds that they were told at the
time of sale that the renewal fee would never in-
crease, explain that you will need to send them a
letter from your Branch Manager and that you can
decrease the renewal fee upon receipt of a written
request from them.

(Raymond Dep. pp. 170-172 and Dep. Ex. 27: RIR 54,
pp. 32-33) [33]

The letter from the branch manager referred to in

~ point 2 above was identical to letter +1 (Rollins Dep.
Ex. 23 at A00079) set forth in F. 59, supra. (Compare
Raymond Dep. Ex. 27, letter +1 [at A05280], with letter
#1, Rollins Dep. Ex. 23 [at A00079], as set forth in F. 59)

61. In a memorandum dated March 2, 1981, R. M.
Russell, Vice-President of Government Relations for Orkin.
suggested to Gary Rollins that customers whose contracts

hieeneeeeeeenemneineeemenaatill

A49

were entered into in 1968 should no longer be sent no-
tices for increased annual renewal fees. In part, he
wrote:

As we are now primarily through our renewal in-
crease program, I think it might be to our advan-
tage to consider dropping 1968 contracts towards re-
newal increase for the remainder of the program.
This would give us some base to show our good
intent in any future litigation regarding this program.
Even if we do stop now, all months will have re-
ceived two or more notices. In my opinion, the
possible reduction in renewal collections would be
worthwhile towards our future negotiations and pos-
sible litigation.

(Russell Dep. pp. 3-4, 75-78 and Dep. Ex. 17; see also
Russell Dep. pp. 71-75 and Dep. Ex. 16)

62. From August 1981 through July 1982, Orkin
rolled back the increase of annual renewal fees of cus-
tomers who had entered into their pre-1975 contracts
in 1968. (Raymond Dep. pp. 180-184 and Dep. Ex. 32)
Customers were notified of the rollback by an insert
included in the renewal notice that was sent two months
prior to the anniversary month of their contracts. Cus-
tomers who had previously paid an increased rate were
given credit for the amount of the increase. (Raymond
Dep. Ex. 32) In part, the insert stated:

Your annual renewal fee was increased last year
for the first time since you contracted for Orkin’s
services in 1968. The justification for the increase
was provided at that time.

We have subsequently learned that a marketing
progratn may have been used in your locality in

A50

1968 which could have led you to believe that the
amount of your termite renewal premium would
never increase. We do not know whether you were
aware of this program at the time you contracted
for Orkin’s services. However, we at Orkin believe
that the simplest and fairest course is to maintain
your renewal premium at the amount initially de-
scribed in your contract. You are receiving with
the current invoice, a credit equal to the increase
[34] that was posted last year. Your next year’s
renewal will be at the original rate.

(Ibid.) The “marketing program” referred to in the
insert discussed above was the “Orkin 12” promotion
(Raymond Dep. p. 181), which was known to Orkin
management at the time the decision to increase the
annual renewal fees was made. (F. 45)

63. Approximately 15,832 customers had their an-
nual renewal fees returned to the level specified in their
contracts because of the Orkin 12 promotion. (RIR 29b)

64. By May 25, 1981, Orkin had received payments
of annual renewal fees of $1,257,629 in excess of the
sum of the amounts specified in pre-1975 contracts of
customers who paid their increased annual renewal fees.
(Raymond Dep. pp. 216-224, 232-236 and Dep. Exs. 43,
44, 41 [at A00889] [“3. $ INCREASE PAID THROUGH
5/25/81 UPDATE $1,257,629] )

65. By May 25, 1981, Orkin had received payments
of annual renewal fees of $113,615 in excess of the sum
of the amounts specified in pre-1975 contracts of cus-
tomers who entered into their contracts in 1968 and
who paid their annual renewal fee. (Raymond Dep. Ex.

A51

44 [at A00175}) As of November, 1981, approximately
170,000 customers, or 82.1%, of pre-1975 customers had
paid the increased price or the frozen price. Other sta-
tistics indicate that as high as 87% of such customers
had paid. (Rollins Dep. Ex. 46) During its fiscal year
ending on June 30, 1983, by June 20, 1983, Orkin had
received payments of annual renewal fees of $959,158
in excess of the sum of the amounts specified in pre-
1975 contracts of customers who paid their annual re-
newal fees. (CX 138P) Orkin has estimated its increased
renewal revenue through 1984 from its pre-1975 customers
to be $7,515,764. (CX 195B)

66. By August 1, 1984, Orkin had approximately
164,402 customers with pre-1975 contracts or pre-1975
guarantees. (RA 20) Approximately 142,902 customers
were paying increased fees as of this date (164,402 less
21,500). Orkin’s cancellation rate on its termite contracts
is normally 5.8% overall and 5.2% on contracts that have
been in force over five years. (RX 40A) Orkin contends
that its cancellation rate on its pre-1975 contracts following
its 1980 increase in their annual renewal fees was approx-
imately 5.0%. (RX 135S) However, this percentage is
calculated by using only a five month period of cancella-
tions whereas the denominator was the total of all renew-
als. The exhibit relied upon by Orkin shows that there
were 10,739 cancellations during a five-month period,
October, 1980 through February 1981. (RX 135S). This
would be equivalent to a cancellation rate in excess of 12%.
As of August 1, 1984, the actual cancellation rate of pre-
1975 customers was approximately 5% per year (207,000
customers as of August 1980 less 164,402 customers as of
August 1, 1984 equals 42,600 cancellations—42,600 divided
by 207,000 equals 205%). [35]

A52

67. By June of 1984, respondent had approximately
9700 customers with pre-1975 contracts or pre-1975 guar-
antees whose annual renewal fees had been rolled back
to the amount indicated in their contract or guarantee, not
including those customers who had entered into their pre-
1975 contracts in 1968. (See F. 58-60; Respondent’s Motion
for Access, pp. 1-5 [filed June 28, 1984]; Raymond Dep.
pp. 210-211, 105-108 and Dep. Exs. 19, 22) As of August
1984, a total of approximately 21,500 pre-1975 customers
had their annual renewal fees returned to the amount
specified in their contracts under Orkin’s “accommodation”’
programs. (Childs’ Aff. { 8)

68. After Orkin had raised the annual renewal fees
for pre-1975 contracts, Orkin considered making additional
increases in the annual renewal fees of pre-1975 contracts.
These latter increases did not occur. (Raymond Dep. pp.
187-192, 262-264 and Dep. Exs. 33, 34, 55; Rollins Dep. pp.
171-76 and Dep. Exs. 38, 39)

69. After Orkin had raised the annual renewal fees
for pre-1975 contracts, Gary Rollins asked John Raymond
to consider ways to convert pre-1975 customers to a new
contract that would permit Orkin to raise the renewal fees
again in the future. (Raymond Dep. pp. 239-240 and Dep.
Ex. 46; Rollins Dep. pp. 197-201 and Dep. Ex. 46)

70. Orkin has comprehensive guidelines and proce-
dures covering virtually every aspect and phase of its
termite control services business. (RIR 46) (Orkin’s guide-
lines and standards for the quality of services rendered
under its termite guarantees have not differed depending
on whether or not the consumer’s termite contract was a
pre-1975 contract. (RIR 46) Orkin has never considered
a plan or proposal to reduce the quality of services ren-

Sella ee mga

PB Ate Ltr S2We

ee ee ee ee eS ee er ae

A53

dered under its pre-1975-guarantees. (RIR 47; Rollins
Dep. pp. 72-73; Raymond Dep. p. 121)

71. Concerning the feasibility of a pre-1975 customer
switching to another termite control company for the same
guarantee as Orkin provided, Gary Rollins testified as
follows:

Do you have an opinion as to the feasibility of a pre-
1975 customer switching to another termite control
company and that company providing the same guar-
antee as Orkin for the annual fee stated in the cus-
tomer’s Orkin guarantee?

MR. STATON: The original annual fee?

MS. ALPHIN: The original annual fee stated in
the Orkin guarantee.

THE WITNESS: I would doubt that. [36]
BY MS. ALPHIN:

Q. You would doubt that a company would do
that for a customer; is that correct?

A. That’s right.
(Rollins Dep. p. 210)

72. According to the Consumer Price Index, between
1966 and 1980, the cumulative inflation rate was over
170%. (RX 686) Costs of providing termite protection
services rose constantly between 1966 and 1980. (Hrormada
Aff. { 6; Nolen Aff. [ 9) During the period June 30, 1975
to June 30, 1979, Orkin’s termite related costs increased
48.4%. (RX 45A, 46A, 48B, 650C; Rollins Dep. p. 51)
However, Orkin has continued to realize a profit on its
renewal business. (RX 650C) Based on the costs of pro-

A54

viding termité renewal service in 1984, if Orkin were re-
quired to roll back all its pre-1975 customers to their
initial annual renewal price, Orkin would experience an
average loss per pre-1975 account per year of $10.93. (RX
649) Based on the costs of providing termite renewal
service in 1984, even with the increased annual renewal
price, Orkin lost an average of $2.91 per pre-1975 contract.
(RX 649) If inflation continues and Orkin is prohibited
from increasing its annual renewal fees on pre-1975 con-
tracts, its losses on these accounts will continue to increase.
(Boudreaux Aff. {| 4) Orkin’s pre-1975 customers repre-
sent approximately one-third of its termite control services
customers, but account for only one-fourth of its termite
renewal revenues. These proportions will drop naturally
over the years through attrition. (RX 94C)

73. Officials of at least seventeen states have ques-
tioned the legality of Orkin’s increase of the annual
renewal fees for pre-1975 contracts and pre-1975 guaran-
tees. These states are Arkansas, Arizona, California,
Florida, Georgia, Illinois, Kansas, Kentucky, Louisiana,
Maryland, Minnesota, Missouri, North Carolina, South Car-
olina, Texas, Virginia, and West Virginia. (RX 201A, 208B,
211A, 560, 579, 657A, 658, 659, 660A, 661A-E, 662A-C,
663A-C, 664, 665A-D, 666A-E, 667A-B, 668A-C, 669A-B,
670A-F; CX 200A, 203A-B, 228A-B, 248A-E, 388)

74. In a letter dated January 15, 1981, Roger W.
Giles, Assistant Attorney General of Arkansas (CX 200
A-B), wrote to Orkin:

The Arkansas State Plant Board has forwarded to
this office information relating to several complaints
against Orkin Exterminating Company as a result of
the company’s failure to comply with the terms of

A55

NE hn ae

Orkin’s Lifetime Guarantee. Several individuals have
complained to the State Plant Board that Orkin has
refused to accept the annual renewal fee stated in
the Lifetime Guarantee [37] Contract and that the
company has increased the annual fee, thereby
breaching the original agreement.

Se aa A ea i ad ial ap PC

In addition to these complaints, this office has also
received information concerning your attempt to in-
crease annual fees on Lifetime Guarantee Contracts
in North Carolina and the correspondence with the
North Carolina Attorney General’s Office. This office
is in agreement with their opinion that the Lifetime
Guarantee Contracts are valid, and that any contract
modification can only be accomplished with the con-
sent of both parties.

Therefore, this office must insist that the contracts
2 entered into with the residents of the State of Ar-
kansas be performed in accordance with their original

of this date in which Rollins Inc. and the Arkansas
State Plant Board agreed as follows:

| terms.

) (CX 200A)

In a letter dated March 9, 1981, Mr. Giles wrote
; to Orkin:

) This letter will confirm our phone conversation

1. Orkin Lifetime Guarantee contracts entered
into prior to 1975 which did not specifically state
that the annual renewal would increase will continue

to be serviced at the rate stated on the contract if
a representation was made to the purchaser at the

06 Egy

ee ee ee eens Jae J

i we

A56

time of sale that the annual renewal fee would not
be increased.

2. Any individual who did receive the repre-
sentation can continue to receive service from Orkin
at the same rate by furnishing Orkin with a signed
statement so stating.

The Arkansas State Plant Board and this office
will be advising everyone who has made an inquiry
or who makes an inquiry in the future of this under-
standing with your Company.

(RX 658)

75. Ina letter dated April 13, 1981, to Orkin, Annette
M. Lassalle, Staff Attorney, Louisiana Department of
Justice, stated, in part:

It is the opinion of this office that Orkin is bound
by the renewal fees as stipulated in each client’s
contract. Hence, if any client has paid [38] a fee
over that stipulated in his contract, he has overpaid
and is due a refund by Orkin.

At this time we ask that you review your rec-
ords and make the necessary adjustments or refunds
to Louisiana clients.

(CX 203A)

76. Enclosed with Ms. Lassalle’s letter of April 13,
1981, was a copy of Louisiana Attorney General’s Opin-
ion Number 81-03, which stated, in part:

The facts are as follows: Orkin has entered into a
number of individual contracts with customers pro-
viding pest control service on an annual basis. These

A57

contracts stipulate that they may be renewed yearly
for a renewal fee specified in each contract. Orkin
now seeks to increase the stated renewal fee on the
basis that their operating costs have increased. The
contracts in question have absolutely no provisions
for escalation of renewal fees.

Considering Louisiana Civil Code articles and case
law, it is the opinion of this office that Orkin is
bound by their stipulated contract renewal fee and
may not escalate that rate in contracts which do
not have a rate escalation clause.

(CX 203B)

77. The State of Louisiana has brought suit against
Orkin as a result of Orkin’s increasing the annual re-
newal fees of pre-1975 contracts. In part, the suit seeks
reinstatement of the annual renewal fees stated in the
contracts and refunds of annual renewal fees collected
by Orkin from customers whose fees were in excess of
those stated in their contracts. (CX 205A-Z16)

78. In a letter dated April 10, 1981, Jay Laurence
Lenrow, Assistant Attorney General of the State of Mary-
land, wrote to James M. Schneider, General Counsel of
Rollins (Schneider Dep. p. 4), about Orkin’s obligations
under its pre-1975 contracts. Mr. Lenrow wrote:

It is the opinion of this office that the contracts
used by Orkin create a duty on the part of Orkin
to renew its guaranty and inspect the home of any
person tendering the pre-established Annual Renewal
Fee.

A58

[39]

This letter shall serve as notice pursuant to Md.
Com. Law Code Ann. § 13-402 (1975) that the State
of Maryland is offering your client the opportunity
to conciliate this matter. Your failure to conciliate
will force this office to seek injunctive and other
relief pursuant to Md. Com. Law Code Ann. § 13-406
(1975).

(CX 211A-C)

In a letter dated May 18, 1981, John Henry Lewin,
Jr., of Venable, Baetjer and Howard in Baltimore, wrote
to Mr. Lenrow the following:

This will respond to your request for a statement
of position by our client, Rollins Exterminating Co.,
known here as Orkin. .

The jurisdiction of the Attorney General is limited
to those practices covered by the Consumer Protec-
tion Act, Md. Ann. Code, Com’l Law Art. § 13-101
et seq. This legislation was enacted in response to
the “mounting concern over the increase of deceptive
practices in connection with sales of merchandise
and services and the extension of credit.” Section
13-102(a). Further, the prohibited practices are de-

fined as the “sale . . . of any consumer goods or
consumer services:” and the “extension of consumer
.. eredit ... or the collection of consumer debts.”

Section 13-303. The unfair or deceptive trade prac-
tices, listed in some detail in § 13-301, enumerate
those practices which would wrongfully induce a
person to enter a contract—situations where, had the
consumer known what the seller meant or intended.
he would have had a different view of the deal.

Pe es OT

Et Rat tited si er

3
:
¢
'
:
,

A59

In the Orkin situation, however, there has been no
violation of the Act. There have been no unfair or
deceptive trade practices. Orkin fully intended to
provide exactly the services sold at the price stated
at the time of entering the contract. Orkin in no way
misled or deceived any customer. Both parties to each
contract had exactly the same view of the agreement—
annual service at a fixed price.

(CX 212A-C)

In a letter dated October 3, 1984, Roger C. Wolf, Spe-
cial Assistant Attorney General of the State of Maryland,
wrote to Mr. Christian Achstetter [apparently an Orkin
customer]: [40]

The Federal Trade Commission has brought an action
against Orkin and rather than duplicate efforts we
are waiting the results of their action.

(CX 410)

79. In a letter dated October 23, 1980, Rebecca R.
Bevacqua, Assistant Attorney General of the State of North
Carolina, wrote to Mr. Schneider of Orkin that:

The contract between Orkin and Mr. Schrimper is one
for a Lifetime Control and Repair Guaranty which
calls for annual reinspections upon payment of a set
fee. The contract is neither perpetual nor indefinite
in duration, being clearly limited by the term “Life-
time.” Thus, the general rules you cited regarding
contracts of indefinite duration are inapplicable.

With regard to the fundamental equities involved, you
have failed to take note of one very important con-
sideration; Orkin used the set annual inspection fee as
a key selling point for these pre-1974 contracts. The

A60

fact that they could continue to pay only $20 a year
was a material consideration justifiably relied on by
Mr. Schrimper and other pre-1974 customers when
they chose to contract with Orkin. We think a court
would find it highly inequitable for Orkin to now
claim that the contract does not mean what it led
customers to believe it meant at the time it was
signed.

We are not unsympathetic with the problems your
company faces as a result of inflation. However, the
fact that a party to a contract later discovers he made
a bad bargain has never been grounds for rescission
of the contract or unilateral changing of its terms.

Therefore, our position in this matter is that Orkin
cannot increase its renewal prices on pre-1974 con-
tracts unless the increase is agreed to by the customer.

(CX 218A-B)

In a letter dated December 9, 1980, the Office of the
North Carolina Attorney General wrote:

We agree that all pre-1974 [sic] customers who
(whether because of the wording of their contracts,
statements in other documents furnished to them by
Orkin, or statements made by Orkin personnel) relied
on the fact that their annual renewal fees [41] would
remain set and who objected to the increase would
be allowed to continue paying the renewal fee stipu-
lated in their contract.

(RX 667A-B)

In a letter dated April 13, 1981, Alan S. Hirsch, Assis-
tant Attorney General of the State of North Carolina.

—————————

A61

wrote to Jay Laurence Lenrow, Assistant Attorney Gen-
eral of the State of Maryland, which was carbon copied
to James Schneider, Rollins’ Genera] Counsel:

This is in response to your letter of April 8, concerning
Orkin Exterminating Company. Enclosed you will
find two letters, one dated October 23 and the other
December 9, 1980, concerning this matter. The first
letter indicates our position in regard to the legal justi-
fication of increasing Orkin contract rates. The sec-
ond letter indicates an enforcement decision on our
part not to pursue the matter in regard to those in-
dividuals that do not affirmatively object to the in-
crease in rates. That we have made this enforcement
decision in no way changes our view that Orkin is
probably required to live by the letter of those con-
tracts.

I spoke to Jim Schneider of Orkin today and reaf-
firmed this position. I also informed Mr. Schneider
that we in North Carolina reserved the right to re-
evaluate our enforcement decision should litigation
in other states indicate our legal opinion is correct

(CX 222, 351A-F)

In a letter dated April 14, 1981, James Schneider
wrote to Alan Hirsch:

Thank you very much for giving me the courtesy of
a telephone call yesterday concerning your communi-
cations with Mr. Lenrow of the Maryland Attorney
General's Office. Frankly. I was extremely upset
concerning Mr. Lenrow’s comments that I had advised
him that North Carolina had approved my legal inter-
pretation concerning Orkin’s pre-1975 contracts. As

A62

we discussed yesterday, this statement simply is not
the least bit accurate, and I would not be so foolish
as to misrepresent the same.

I am enclosing a copy of my letter to Mr. Lenrow
dated April 3, 1981 which sets forth our accommoda-
tion program which was decided upon in concept prior
to the written settlement with North [42] Carolina.
As you will observe from the next to last paragraph,
I am indicating that the modification has been accepted
as a basis for resolving the issue with North Carolina
as well as other jurisdictions. I am including a copy
of a typical letter utilized with various jurisdictions
to describe our modification program. I certainly hope
that you will believe me when I say that at no time
in the course of any communications, written or oral,
with the State of Maryland or any other jurisdiction
did I state that North Carolina or any other state had
accepted our opinion as to the duration or meaning of
Orkin’s contracts.

(CX 220A-B)

80. In a letter dated January 27, 1981, the Office
of Pima County (Arizona) Attorney, Consumer Protection-
Economic Crime Division, wrote.

As your letter indicates that Orkin will treat its
pre-1974 Arizona customers on the same basis as its
North Carolina customers pursuant to an agreement
with the Attorney General of the State of North
Carolina, the above-referenced matter is deemed to
have been settled in the public interest, and we will,
therefore, close our file.

(RX 659)

ee

A63

81. In a letter dated December 11, 1980, Phillip L.
Fairbanks, Assistant Attorney General of the State of
South Carolina, wrote Mr. Schneider that:

Simplv stated, I believe the contracts we are concerned
with are not perpetual. While the durational ele-
ment is not fixed in terms of a particular number of
years, it is clear that what the parties intended was a
| “lifetime guarantee,” the lifetime being that of the
home. This interpretation is borne out by explicit
language contained in various of the documents in-
volved. Given this conclusion, the case law relating
to the enforceability of perpetual contracts is inap-
posite.

eee eo ee 4.

On the basis of the foregoing considerations, the
position of this office is that Orkin’s unilateral altera-
tion of the price term in its Lifetime [43] Guarantee
Contracts violates the South Carolina Unfair Prac-
tices Act.

| (CX 228A-B)

| 82. In a letter dated Febrvary 24, 1981, George W.
Stokes, Assistant Attorney General of the State of West
Virginia, wrote Orkin that:

The Consumer Protection Division of the Attorney
General’s Office has under investigation your increase
in annual inspection renewal fees under your termite
agreements.

a eres AS

We have received complaints from different geo-
graphical areas of our State concerning your increase
in such fees. The following allegations have been
made against Orkin:

A64

On or about May 6, 1968, you executed a “Termite
Agreement” with one Mildred White, 1533 Smith
Street, Milton, West Virginia 25541. The property
was later acquired by Ernest R. Wheeler. The con- }
tract provided for “a nominal annual inspection fee
of only $17.00.” This fee was paid annually until the
year 1981, at which time you increased the fee to

$25.75.

On or about October 21, 1974, you executed a
termite agreement with Mr. Frank Ruble, 816 Mul-
berry, Elizabeth, West Virginia 26143, which pro-
vided for an annual renewal fee of $30.00. This fee
was paid each year. In the year 1981, you increased
this annual fee to $43.26.

On or about October 10, 1974, you executed a
termite agreement with Barry Wood, Post Office Box
53, Paw Paw, West Virginia 25434, which provided
for an annual renewal fee of $41.00. This fee was
paid until the year 1981. In the year 1981, you in-
creased the annual fee to $57.68.

ee ee ry

The above increases in annual renewal fees were
made unilaterally by you and contrary to the express
written contract you had with the consumers. The
law is well settled in the State of West Virginia that
a written contract is not subject to unilateral modifica-
tion.

The above allegations, if found to be credible, con-
stitute an unfair method of competition and a decep-
tive act and practice which is unlawful under [44] the
West Virginia Consumer Credit and Protection Act.

(CX 238A-B)

A65

On October 20, 1981, Orkin entered into an “Assurance
of Discontinuance” with the State of West Virginia which
provided, inter alia, that Orkin will not increase the annual
renewal fees of customers in West Virginia who (1) have
objected to the increase on the basis that salesmen repre-
sented to the customers at the time the contract was
executed that the annual renewal fee would not be in-
creased during the life of the premises covered by the con-
tract, and (2) all [objecting] customers who believed by
reason of the contract and supporting documents that the
annual renewal fee would not be increased for the life-
time of the premises covered by the contract. (RX 670
A-F)

83. In a letter dated December 30, 1980, the Depart-
ment of Health & Rehabilitative Services of the State of
Florida wrote the following to Dudley J. Lamy (carbon
copied to Orkin) concerning Mr. Lamy’s complaint against
Orkin:

This department takes the position that since your
subterranean termite treatment contract makes no
reference to any change in renewal fee, and contains
no contract termination date, the ORKIN company
cannot increase the fee. Chapter 10D-55.105(2) “...
the contract shall clearly set forth the following in-
formation:

. (i) The total maximum price to be charged for
treatment service, the exact annual renewal fees to be
charged under the contract, if any... .”

Chapter 10D-55.142(1)(b): “Each licensee shall com-
ply with the terms of each pest control contract it
ussues [sic].”

A66

Therefore, your renewal fee, for the life of the con- 2
tract, is $30.00, and cannot be raised as long as you
keep the contract is force.

By copy of this letter we are advising the ORKIN Ex-
terminating Company, Inc., that to raise renewal fees,
full disclosure of this intention must be included in
the contract at the time of its issuance.

(CX 388)

84. In a letter dated January 28, 1981, the Office of
the Attorney General of the State of Minnesota wrote to
Mrs. C. W. Tousley, the holder of an Orkin pre-1975 con-
tract: [45]

Fetch wy tn sce te ie

Orkin has offered to honor its fixed ‘life control’
price, if a customer sends Orkin a letter indicating |
that at the time their services were sold, the sales {
people represented the renewal price would not be j
increased. The contact person at Orkin is James
Schneider, General Counsel, P. O. Box 647, Atlanta,
Georgia 30301, telephone (404) 873-2355.

(RX 665D) (emphasis in original)

85. In a letter dated July 9, 1981, the Office of the
Attorney General of the State of Missouri wrote:

According to prior correspondence that our office
had with you, concerning a complaint registered by
Mr. and Mrs. Johnny E. Russell, it was our under-
standing that you would maintain the constant renewal
rate for those customers who indicated that they con-
tracted for Orkin’s services on the basis of a fixed
renewal price.

(RX 666B)

A67

86. Six states, Arkansas, Arizona, Minnesota, Mis-
souri, North Carolina, and West Virginia, have indicated
an acceptance of some form of accommodation for those
Orkin customers who have complained about the increase
in annual renewal fees on pre-1975 contracts to either
Orkin or to state officials. (RX 658, 659, 665D, 666A-E,
667A-B, 670A-F) The North Carolina settlement with
Orkin also was accepted by Arizona and Missouri. The
North Carolina settlement provided as follows:

(1) “Customers who objected to the increase’”’
includes those who registered a complaint with our
office, those who contacted the Rollins or Orkin offices
in Atlanta by phone or mail to object, those who
wrote or called one of the Orkin branch offices in
North Carolina, and those who refused to send the
amount listed on the renewal notice but mailed in a
check for the amount they had paid in the past and
which was set forth in their pre-1974 contract.

(2) Our office will furnish you with a current
list of all individuals who have complained to us, and
either you or the Customer Service Department in
Atlanta will contact them and resolve their complaints
forthwith.

(3) The Customer Service Department in At-
lanta has records showing what individuals registered
a complaint directly with the home office in Atlanta
{46] and will contact these persons regarding their
objections.

(4) The branch office managers in North Caro-
lina will be advised as to the agreed-upon resolution
and will contact those customers who registered their
objections at the local level.

A68

(5) Orkin will furnish some written assurance
to those customers whose renewal fees are to be held
at the price stated in their pre-1974 contracts that no
additional increase will be attempted.

(RX 667A-B)

II. CONCLUSIONS
A. Summary Of The Facts

(1) Description of Orkin and its Customer Contracts
and Guarantees

The complaint in this matter was issued on May 8,
1984. It charged that Orkin Exterminating Company,
Inc. (“Orkin”), in advertising, promoting, selling, and
performing its termite-control services to consumers,
agreed for the life of the consumer’s structure, to rein-
spect the structure annually and, if necessary, to either
retreat, or retreat and repair the structure, provided the
consumer paid a specified annual renewal fee. In con-
tradiction of these agreements, beginning in 1980 and
continuing to the present, Orkin has raised, or attempted
to raise, the agreed-upon annual renewal fees for its
termite-control services. (Complaint "{ 4, 5) These ac-
tions by Orkin are alleged to have caused substantial
and ongoing injury to Orkin’s customers that is not out-
weighed by countervailing benefits to consumers or com-
petition and is not reasonably avoidable by consumers.
As such, Orkin’s acts and practices are alleged to con-
stitute unfair acts or practices in or affecting commerce
in violation of Section 5 of the Federal Trade Commission
Act. (Complaint {{ 6, 7)

Orkin has denied these allegations in its answer to
the complaint filed June 18, 1984, and has asserted nu-

A69

merous defenses, including that the Commission lacks
subject matter jurisdiction over the complaint allegations,
that the acts and practices complained of have not caused
substantial and ongoing injury to Orkin’s customers, that
the alleged unlawful acts and practices have been en-
couraged, approved, and/or compelled by state and fed-
eral regulatory authorities and are therefore exempt from
the Federal Trade Commission Act, and that the con-
sumers [47] alleged to have been injured have recog-
nized, accepted, and acquiesced to the alleged unlawful
conduct under doctrines of waiver, estoppel, ratification.
accord and satisfaction, limitations and latches. Orkin
further contends that the relief proposed in the complaint
is inappropriate, not in the public interest, and is not
or would not be authorized by law.

Complaint counsel has now filed a motion for sum-
mary decision. Orkin has responded to complaint coun-
sel’s motion and has filed a motion for summary deci-
sion in its favor. Orkin also has submitted statements
of material fact which Orkin contends either directly
contravene complaint counsel’s findings of fact or raise
genuine issues of inference arid legal significance that
foreclose any entry of summary decision in favor of com-
plaint counsel.

To the extent that there are factual disputes in this
record, they relate to peripheral matters not necessary
to a determination of the material issues to be decided
in this matter. It is concluded, therefore, that there
is no genuine dispute as to any material fact in issue
and that it is appropriate to issue an initial decision
based on the record as it has been submitted by the
parties in their motions seeking summary decision.

A70

Orkin provides pest-control and exterminating ser-
vices throughout the United States, but mostly in the
Southeast. In 1980, Orkin served customers located in
47 states and the District of Columbia. (CX 142C) As
of September 1, 1980, Orkin operated approximately 294
branch offices and 44 district offices. (F. 2) Orkin is
stated to be the world’s largest termite and pest-control
company, and has admitted that the acts and practices
alleged in the complaint are in or affecting commerce
(F. 3, 4)

Orkin has entered into written agreements with its
customers concerning the rendering of services to destroy
or protect against termites, other wood-infesting orga-
nisms, moisture and wood decay. Under certain condi-
tions Orkin has issued guarantees of its services. Only
an officer of Orkin is authorized to change or vary the
written terms of the pre-printed contracts and guaran-
tees. (F. 8, 9, 10, 21) In general, prior to 1966, Orkin
used pre-printed form contracts, and offered termite guar-
antees at a fixed price for continued protection to the
treated property for a specified period which lasted from
five to fifteen years. On or about January 1, 1966, Orkin
began using the term “lifetime” in its termite contracts
and/or termite guarantees. Earl F. Geiger, Vice Chair-
man of the Board of Rollins, Inc.. who was Executive
Vice-President of Orkin from 1964 to January 1976, intro-
duced the “lifetime” guarantee concept to Orkin and
proposed its adoption. (F. 11) [48]

Termite guarantees issued by Orkin include (1) a
lifetime retreatment guarantee (LC Guarantee), (2) a
lifetime retreatment and repair guarantee (LR Guaran-
tee), (3) and a lifetime guarantee on pretreatment work
on new construction (PR Guarantee). (F. 13)

2 ee ee oe ee Cah:

A7l

The lifetime retreatment guarantee provides in part
that at no extra cost to the customer Orkin will apply
any necessary treatment to the premises if infestation
occurs during the duration of the guarantee. The life-
time retreatment and repair guarantee provides in part
that at no extra cost to the customer, Orkin will make
repairs (up to a stated dollar maximum) to the struc-
ture and its contents in order to remedy any new dam-
age caused by subterranean termites, provided that it
is established that the new damage occurred after the
initial treatment, and that at the time of discovery of
the new damage, the damaged areas are infested with
live subterranean termites. (F. 14, 15)

The lifetime guarantee on pretreatment work is the
same as the LR Guarantee, except that Orkin’s pretreat-
ment guarantee is for new construction and its LR Guar-
antee covers existing structures. (F.17) Generally, prior
to 1969, Orkin’s LR guarantees had a liability limitation
of $25,000. In 1969, Orkin adopted a policy of issuing LR
guarantees with a liability limitation of $100,000. (F. 16)

Orkin’s termite contracts and termite guarantees pro-
vide for annual fees to be paid in order to continue the
protection that is guaranteed. If the customer abides by
the contract, and pays Orkin the specified annual renewal
fee, the guarantee is to remain in effect. (F. 18) Orkin’s
termite contracts and termite guarantees, including those
entered into prior to February 1, 1975, that used the term
“lifetime”, had a “structural modification” clause providing
that in the event the premises were structurally modified,
altered or otherwise changed after the date of initia] treat-
ment, the agreement would terminate unless a prior writ-
ten agreement was entered into by the purchaser for Orkin

A72

to reinspect the premises, provide additional treatment,
and/or adjust the annual renewal fee. (F. 19) Before
February 1, 1975, Orkin’s termite contracts and termite
guarantees that included the term “lifetime” did not men-
tion adjustments or increases of the specified annual re-
newal fee necessary to continue the lifetime guarantees
issued with respect to those contracts, absent the treated
premises being structurally modified, altered, or otherwise
changed after the date fe initial treatment. (F. 20)

In approximately May of 1974, Orkin began revising
its termite contract form(s) by adding a term or provision
that provided for an increase of annual renewal fees that
did not depend on whether the treated premises were
structurally modified, altered or otherwise changed after
the date of the initial treatment. The revised termite con-
tract forms containing such a provision were first used
in each of Orkin’s sales districts on or about February 1,
1975. (F.24) [49]

Thus, Orkin’s contracts can be divided into three
general categories which are relevant to this proceeding.
Prior to 1966, Orkin utilized contracts and guarantees that
provided for a guarantee for a fixed term of years, five
to fifteen years, provided the customer paid the annual
renewal fee specified in the contract. From 1966 to Feb-
ruary 1, 1975, Orkin utilized the lifetime protection
guarantee which provided for lifetime protection for
the designated premises upon the payment by the customer
of a specified annual renewal fee. These contracts did not
provide for an increase in the annual renewal fee absent
modification or structural change in the designated prem-
ises. Subsequent to February 1975, Orkin utilized con-
tracts which provided that the specified annual renewal

tate ety

Sais De Sohne erage

A73

fee could be increased after a five-year period. (RX 40A)
This proceeding is concerned with those customer contracts
and guarantees entered into during the period 1966-Feb-
ruary 1, 1975 (“pre-1975 contracts” and “pre-1975 guaran-
tees”), and Orkin’s increase in the specified annual renewal
fees in those contracts commencing August, 1980. (See
discussion infra.)

(2) The Increase in Pre-1975 Annual
Renewal Fees

In 1980, Gary W. Rollins, then President of Orkin,
decided to increase the annual renewal fees of customers
holding pre-1975 contracts and pre-1975 guarantees above
the amount stated in the contracts and guarantees of those
customers. (F. 38) Prior to increasing the annual re-
newal fees on pre-1975 contracts, Orkin requested that
Arnall, Golden & Gregory, an Atlanta law firm, provide a
legal opinion as to whether such an increase was permitted
under the terms of the contracts. On or about December
13, 1978, Arnall, Golden & Gregory provided Orkin with
a written legal opinion that its pre-1975 contracts appear
to be of an indefinite duration and, as such, are terminable
after a reasonable period of time. (F. 39) James M.
Schneider, General Counsel of Rollins, Inc., reviewed the
opinion given by Arnall, Golden & Gregory, and confirmed
to management the conclusion reached therein. (F. 41)
Mr. Gary Rollins reviewed the legal opinions prior to mak-
ing his decision to increase the annual renewal fees for
pre-1975 contracts. (F. 39)

Between 1978 and 1980, Orkin undertook an extensive
expense reduction program before deciding, in February
1980, to increase the annual renewal fees on pre-1975 con-
tracts. Also, during February 1980, Orkin increased by

A774

40% the annual renewal fees for post-1975 customers whose
contracts contained an express provision permitting such
increases. (F. 42)

Prior to making his decision to increase the annual
renewal fees of customers holding pre-1975 contracts and
pre-1975 guarantees, Gary Rollins presented a synopsis of
issues (dated February 7, 1980) on the subject of the in-
crease to R. Randall [50] Rollins, who was then President
of Rollins, Inc. In part, the synopsis states:

Please find below and attached my analysis of the “pros
and cons” regarding raising the renewal amount of
our pre-1975 termite customers.

PROS

1. Potential income increase of $2,286,614 (#232,-
969 accounts valued at $6,017,406 x 40% increase less
5% cancellations)

CONS

1. A few customers advised by salesmen and
literature that renewal amount would be fixed.

2. State regulatory agencies (Pest Control, Con-
sumer Protection, etc.) could interpret our contract
in some cases to imply the renewal amount is fixed.
Those who obtain old proposal information will dis-
cover we put this in writing.

3. Our longer term employees might feel that
we are going back on our word.

4. There could be customer lawsuits and com-
plaints.

A75

OPTIONS
1. Leave as is.
2. Write customers and put on voluntary basis.

3. Meet with individual state regulatory and
consumer groups to obtain understanding and raise.

4. Raise and handle exceptions.

(F. 43) Gary Rollins’ recommendation to R. Randall
Rollins, with which R. Randall Rollins concurred, was
option 4 above, to raise the annual fees and handle the
exceptions. (F. 44)

Beginning in August, 1980, Orkin began sending no-
tices to approximately 207,000 customers holding pre-
1975 contracts or pre-1975 guarantees, that Orkin was
increasing the annual renewal fees over the amount spec-
ified in those customers’ contracts or guarantees. All
customers were notified of the increase well prior to
their respective renewal dates. The notice of the in-
crease of annual fees stated, in part: [51]

Dear Customer:

Through the past few years we have improved pro-
ductivity to absorb our increased costs of gasoline.
petroleum products, labor and increased government
regulations. However, these increased operating ex-
penses can no longer be totally absorbed while main-
taining the high quality of service you deserve.
Therefore, to maintain this quality protection, we
now find it necessary to increase your annual re-
newal fee to the amount indicated on the enclosed
Termite Renewal Invoice. We hope you understand

A76

we would not increase your renewal fee unless it
was absolutely necessary.

. o >
Sincerely,
/s/

Ron Kimbell
Director of Customer Service

(F. 46, 47) The annual renewal fees for pre-1975 con-
tracts were increased to a minimum of $25.00 or by 40%,
whichever was greater. (F. 50)

Orkin received communications from customers and
customers’ attorneys expressing their belief that Orkin
did not have the right to increase annual renewal fees
for pre-1975 contracts. Orkin has taken the position
when customers have complained to it concerning the
increase that Orkin had a right to increase the annual
renewal fee, and Orkin had a policy of returning pay-
ments of customers who paid the amount specified in
their contracts rather than the increased amount. (F.
51, 52)

Orkin used a form letter in responding to numerous
customers who inquired about the increase of the annual
renewal fees. The letter explained the rationale behind
the increase. In part, the form letter stated:

While our contracts prior to 1975 did not specifically
mention increases, we believe that following a rea-
sonable term of absorbing losses due to the impact
of inflation, this increase is both consistent with law
and reasonable business standards.

* * *

AT77

[52]

We appreciate your concern and hope that you now
understand our position and will submit your re-
newal payment to keep your coverage in force.

(F. 56) This form letter made no mention of exceptions
being made to the increase of the annual renewal fees.
(See F. 56)

(3) Exceptions to the Pre-1975 Annual Renewal
Fee Increase

During 1968, Orkin promoted its services for pro-
tection against termites in a promotion called “Orkin 12.”
The Orkin 12 promotion was advertised in a pamphlet,
on billboards, in magazines, and on radio and television.
Orkin spent approximately $1,157,000 advertising Orkin
12. (F. 27)

The pamphlet concerning the Orkin 12 promotion was
issued as point-of-sale material in presenting Orkin’s
services to its customers. The pamphlet contained the
following language as point 6 (hereinafter “point 6”):

LIFETIME GUARANTEE Orkin’s lifetime termite
protection plan includes annual reinspections and
retreating when necessary. This protects the prop-
erty against termite reinfestation for the life of the
structure provided the lifetime guarantee is renewed
annually. The yearly premium for this lifetime pro-
tection is very modest and never increases. In case
of a sale, the guarantee is transferable.

(emphasis in original) (F. 28)

The Orkin 12 promotion was used and advertised in
each of the following states plus the District of Columbia

A78

during 1968: Alabama, Arkansas, Arizona, California,
Colorado, Delaware, Florida, Georgia, Iowa, Illinois, Indi-
ana, Kansas, Kentucky, Louisiana, Maryland, Michigan,
Missouri, Mississippi, Nebraska, North Carolina, New Jer-
sey, New Mexico, Ohio, Oklahoma, Pennsylvania, South
Carolina, Tennessee, Texas, Virginia, Wisconsin, and West
Virginia. The Orkin 12 program was utilized in varying
degrees by Orkin’s branch offices and sales personnel.
(F. 29) Literature containing point 6 of the Orkin 12
promotion was an attachment to Gary Rollins’ synopsis to
R. Randall Rollins, discussed above. Thus, Gary Rollins
was aware of the Orkin 12 promotion at the time he
wrote his synopsis to R. Randall Rollins. (F. 45)

On August 13, 1980, John Raymond, Orkin’s Director
of Administrative Operations, wrote to Orkin’s branch
managers concerning the increase of annual renewal fees
for pre-1975 [53] contracts and the one exception to the
increase which customers could invoke. In part, he
wrote:

If a customer tells you that our pre-1975 contract
does not allow for an increase, you should explain
that prior to the inflation spiral, practically no one
had this provision in the contracts. Recent legal
rulings interpret this as meaning that the renewal
fee shall remain unchanged for a reasonable period
which we interpret to be no more than five years.

* * *

If the customer states they have sales literature that
specifically states there will not be an increase in
the renewal fee, you should ask them to read the
statement to you. Some customers sold between 1967
and 1968 were given a pamphlet that stated the

ee er ere er ee Te a

ee ee

EP ee ee ae

an oe

Oe ee ee eee Te ye ee ee ee

ee sianitntias

A79

renewal fee would never increase. This statement
was in the “Orkin 12 Point Plan.” The statement,
point number 6 says:

6. Lifetime Guarantee. Orkin’s lifetime termite
protection plan includes annual reinspections and re-
treating when necessary. This protects the property
against termite reinfestation for the life of the struc-
ture provided the lifetime guarantee is renewed an-
nually. The yearly premium for this lifetime pro-
tection is very modest and never increases. In case
of a sale, the guarantee is transferable.

If any of your customers tell you they have a pam-
phlet in their possession that prohibits an increase
you should ask them to read to you the exact wording.
If the wording is not verbatum [sic] as stated in
“point 6” above they are, in fact, eligible for an
increase. If their material does have this statement,
and you confirm it, then tell the customer a com-
puter mistake was made and a corrected bill will
be sent. Ask them not to pay until a correct bill
is received.

(emphasis in original) (F. 57)

In a memorandum dated December 11, 1980, John
Raymond wrote to branch managers that Orkin was
willing to make a further exception to the increase of
annual renewal fees for pre-1975 contracts. In part, he
wrote: [54]

It is not our desire to stand in judgment of the mo-
tives and memories of our customers. While we
believe most of our customers were little concerned
with the modest price of the renewal at this earlier

A80

time, we are willing to maintain the old renewal
price for customers who state that at the time of :
purchase they relied on either a sales presentation
or they construed the specific wording of the con-
tract to provide that the renewal price would not
be increased. We believe we are going beyond the
letter as well as the spirit of the law in this matter
and are willing to make this commitment provided
that this exception to the general price increase is

not abused... .
* * *

We are willing to make exceptions to give certain
customers the benefit of the doubt. While we in-
tend to be flexible in our evaluations, you should
be alert to any abuses, particularly where complaints
from custo

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385002_0350%3A2. Public record. Not legal advice.