Tuesday, 18 February 2014 11:25
By Doug Hanson
Department store favored litigation
A department store hired a contractor to perform roof repairs. The contract between the parties specified that any bid qualifications or conditions in any document not expressly listed or incorporated by reference was rejected and not part of the agreement between the parties. As part of the contract, the contractor agreed to issue a ten-year warranty for labor and material at the end of the installation of the roof, which would not be limited by any dollar amount.
The contractor installed the single-ply membrane roof, but the roof began leaking prior to the expiration of the ten-year warranty. The department store notified the contractor of the leak, and subsequently filed a lawsuit in the United States District Court of Puerto Rico alleging that the leaks were “caused by Defendants’ use of defective materials and/or the Defendants’ improper installation and repair of the single-ply membrane roof.” In response, the contractor filed a motion to compel arbitration, citing the terms of the warranty which called for arbitration.
Strong federal policy favoring arbitration
The court noted that Congress enacted the Federal Arbitration Act (“FAA”) to promote a liberal federal policy favoring arbitration and to guarantee that a written provision in a contract calling for arbitration of a particular dispute is followed, unless it would otherwise be contrary to the applicable governing law. The court noted the FAA is applicable in a diversity action where there is a written agreement to arbitrate a dispute and the dispute arises out of a transaction involving commerce.
The court found that the department store entered into the warranty with the contractor. The warranty contained an arbitration provision stating that any controversy or claim arising out of or relating to the warranty, or breach thereof, shall be settled by arbitration. The department store argued that the warranty’s arbitration clause constituted an additional term that was not negotiated by the parties, was not expressly listed or incorporated by reference in the roofing contract and was, therefore, rejected by the roofing contract.
The court disagreed with this interpretation of the construction contract and warranty. The court examined the intention between the parties and considered the strong federal policy favoring arbitration. The construction contract provided that the contractor would issue the ten-year warranty to “cover all work items installed by the roofing contractor, whether or not those items are covered by the manufacturer’s warranty.” The court noted that implicitly the parties acknowledged that the terms of the warranty would not be part of the construction contract itself, but would be in effect after the work was completed and accepted.
The court stated “the terms of the arbitration clause are clear, specific, and leave no room for reasonable diverse interpretations.” The court found the warranty language was very broad and the dispute between the department store and the contractor fell “squarely within the scope of the arbitration clause.” Therefore, the court concluded the arbitration clause was valid and enforceable.