Damon v. StrucSure Home Warranty, LLC ( 2014 )


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  •        IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
    Opinion Number: _______________
    Filing Date: August 19, 2014
    Docket No. 33,126
    JASON B. DAMON and MICHELLE T.
    DAMON,
    Plaintiffs-Appellees,
    v.
    STRUCSURE HOME WARRANTY, LLC,
    Defendant-Appellant,
    and
    BRIAN MCGILL, an individual; JANELLE
    MCGILL, an individual; CARRIE TRAUB,
    individually and as a licensed associate real
    estate broker; JUMP, INC. d/b/a COLDWELL
    BANKER LEGACY, a New Mexico corporation;
    VISTA DEL NORTE DEVELOPMENT, LLC,
    a New Mexico Limited Liability Company; and
    STILLBROOKE HOMES, INC., a New Mexico
    corporation,
    Defendants.
    APPEAL FROM THE DISTRICT COURT OF BERNALILLO COUNTY
    Nan G. Nash, District Judge
    Tal Young, P.C.
    Steven Tal Young
    Albuquerque, NM
    for Appellees
    Brownstein Hyatt Farber Schreck, LLP
    Eric R. Burris
    1
    Adam E. Lyons
    Albuquerque, NM
    for Appellant
    OPINION
    VANZI, Judge.
    {1}     In this case, we address whether a party to a home warranty contract can enforce an
    arbitration provision contained in that warranty against a nonparty who nevertheless seeks
    to invoke its benefits. Plaintiffs Michelle and Jason Damon sued Defendant StrucSure Home
    Warranty, LLC, (StrucSure) and others for structural defects in their home. StrucSure filed
    a motion to compel arbitration pursuant to a provision in the home warranty it issued to the
    builder and original purchasers of the property. The district court denied the motion on the
    basis that Plaintiffs were not parties to the StrucSure warranty and, because they did not
    bargain for or acknowledge the arbitration provision, they could not be bound by it. We
    reverse. We hold that a nonparty who directly seeks the benefits of a warranty agreement is
    equitably estopped from refusing to comply with a reasonable arbitration provision contained
    in the same agreement.
    BACKGROUND
    {2}     StrucSure is a warranty administrator providing express limited warranty protection
    for homeowners. The warranty at issue in this case was part of a contract between the builder
    (Stillbrooke Homes) and the original purchasers of Plaintiffs’ home. It includes an
    enrollment application form signed by a representative of StrucSure, the builder, and the
    original owners, as well as a warranty coverage booklet, which describes the terms of the
    warranty. The enrollment application form states that, by signing, the parties specifically
    acknowledge that they agree with all of the requirements in the warranty coverage booklet.
    The warranty coverage booklet provides that:
    [w]ithin the limitations described within these two documents, your Builder
    warrants that your home will be free from qualifying structural defects, and,
    if provided, will be free from defects in workmanship/ materials and the
    delivery portion of systems (piping, wiring, ductwork).
    It also contains a binding arbitration agreement, which states, in relevant part:
    Any claims, disagreements, disputes or controversies involving You, Your
    Builder, the Administrator, or the Insurer, or in any combination thereof,
    which involves this Warranty, the Builder, the Home, the construction or sale
    of the Home by the Builder, or the real property upon which the Home is
    constructed, shall be submitted to arbitration. . . . The decisions of the
    2
    arbitrator will be final and binding, and may be entered as such in any legal
    proceeding before any court having competent jurisdiction thereof.
    A “claim, disagreement, dispute or controversy” is defined as:
    an unresolved complaint or claim made under this Warranty; tort allegations,
    involving misrepresentation, nondisclosure, execution or performance of any
    contract (including this Warranty or this arbitration agreement); negligence,
    allegations regarding the breach of the duty of good faith or fair dealing,
    construction defects or deceptive trade practices.
    The stated purpose of the arbitration agreement is to allow any party to the contract “to
    achieve a legally binding resolution (through an independent third-party arbitration service)
    of any dispute without resorting to costly and time-consuming litigation.” Finally, the
    agreement, which states that it is self-activating, provides that issues regarding arbitrability
    are governed by the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-6 (2012).
    {3}     The original owners conveyed the home to Cartus Financial, which sold the home
    to Plaintiffs. The warranty documents were not part of Plaintiffs’ purchase documents with
    Cartus, and Plaintiffs did not sign either document comprising the warranty. Nevertheless,
    they assert that the warranty “induced” them to buy the home. At the same time, they assert
    they did not know about the arbitration agreement in the warranty until after they purchased
    the home.
    {4}     The underlying dispute arose after the home began to exhibit signs of structural
    failure. Plaintiffs initially filed a warranty claim with StrucSure but ultimately filed this
    lawsuit against multiple defendants, including StrucSure. Plaintiffs’ complaint alleges that
    StrucSure “served to insure the structural integrity” of their home by issuing the warranty
    and conducting the investigation after Plaintiffs discovered the structural defects and that the
    warranty made Plaintiffs expect the home and property were “of a certain quality” and that
    the defendants, including StrucSure, would honor the warranty and remedy any structural
    issues that arose. Plaintiffs also allege StrucSure was aware of the structural issues with their
    home and refused to rectify them. The complaint asserts nine claims: breach of contract,
    unjust enrichment, negligent misrepresentation, negligence, professional negligence, breach
    of the New Mexico Unfair Practices Act, rescission, breach of warranty, and a claim for
    punitive damages, although it is unclear which claims are specifically asserted against
    StrucSure.
    {5}    StrucSure moved to compel arbitration of Plaintiffs’ claims against it pursuant to the
    terms of the arbitration agreement. The district court denied the motion, and StrucSure
    timely appealed.
    DISCUSSION
    3
    {6}     This Court reviews de novo both the denial of a motion to compel arbitration and the
    applicability and construction of a contractual provision requiring arbitration. Barron v.
    Evangelical Lutheran Good Samaritan Soc’y, 2011-NMCA-094, ¶ 13, 
    150 N.M. 669
    , 
    265 P.3d 720
    . The parties do not dispute that the arbitration agreement in the warranty provision
    is subject to the FAA. We discuss the district court’s ruling before turning to the
    applicability of equitable estoppel to the facts of this case. We then address Plaintiffs’
    alternative arguments as to why the district court’s decision should be affirmed.
    {7}      The district court in this case relied on two cases in reaching its decision that
    Plaintiffs cannot be bound to arbitrate their claims against StrucSure. Both Clay v. New
    Mexico Title Loans, Inc., 2012-NMCA-102, ¶ 14, 
    288 P.3d 888
    , and AT&T Technologies,
    Inc. v. Communications Workers of America, 
    475 U.S. 643
    , 648 (1986), expressly state that
    “arbitration is a matter of contract and a party cannot be required to submit to arbitration any
    dispute which he has not agreed to submit.” (Internal quotation marks and citation omitted.)
    This language was the linchpin of the district court’s ruling. Notwithstanding the holdings
    of Clay and AT&T, however, we are unpersuaded that these cases are analogous to the issue
    here. We explain.
    {8}      In Clay, the plaintiff failed to repay a loan secured by his vehicle from New Mexico
    Title Loans. Clay, 2012-NMCA-102, ¶ 2. Two employees of the company hired to enforce
    the lender’s security interest tried to repossess the plaintiff’s truck. 
    Id. The plaintiff
    resisted,
    and one of the employees shot him, leaving him unable to walk. 
    Id. After the
    plaintiff sued
    the lender, among others, the lender moved to compel arbitration, invoking a provision in
    the lending agreement that committed to arbitration “any claim, dispute or controversy . . .
    that in any way arises from or relates to this Agreement or the Motor Vehicle securing this
    Agreement.” 
    Id. (alteration and
    internal quotation marks omitted). The arbitration provision,
    however, excluded the lender’s right to enforce its security interest “by using self-help.” 
    Id. ¶ 17
    (internal quotation marks omitted). At issue was whether the plaintiff’s claims fell
    within the scope of the provision. 
    Id. ¶¶ 14-28.
    Although we held that the plaintiff’s contract
    claim fell within its scope, we held that the plaintiff’s tort claims against the lender were not
    subject to the arbitration agreement. We noted that, “[i]n order to fall within the scope of the
    arbitration clause, the claims at issue must bear a ‘reasonable relationship’ to the contract
    in which the arbitration clause is found.” 
    Id. ¶ 14
    (citation omitted). And nothing in the
    provision demonstrated that the plaintiff agreed to arbitrate claims such as those arising from
    the shooting during the repossession of his truck. 
    Id. ¶ 24.
    At most, Clay deals with the
    subject matter of the claims subject to arbitration, not who is bound to arbitrate.1
    1
    On appeal, Plaintiffs also cite Aiken v. World Fin. Corp. of S.C., 
    644 S.E.2d 705
    (S.C. 2007); Campos v. Homes by Joe Boyden, L.L.C., 2006-NMCA-086, 
    140 N.M. 122
    , 
    140 P.3d 543
    ; and Santa Fe Techs., Inc. v. Argus Networks, Inc., 2002-NMCA-030, 
    131 N.M. 772
    , 
    42 P.3d 122
    . These cases are discussed in Clay and, like Clay, address the kinds of
    claims that are subject to the arbitration clause at issue. See Clay, 2012-NMCA-102, ¶¶ 21-
    25. Plaintiffs do not dispute that the claims they asserted against StrucSure fall under the
    4
    {9}     AT&T Technologies addresses an even more remote issue: whether a court or an
    arbitrator must decide in the first instance whether parties to a collective bargaining
    agreement intended to arbitrate their grievances concerning 
    layoffs. 475 U.S. at 644
    . The
    answer to that question has no bearing on the issue in this case. In the course of deciding that
    issue, the AT&T Technologies Court noted the general rule that “a party cannot be required
    to submit to arbitration any dispute which he has not agreed so to submit.” United
    Steelworkers of Am. v. Warrior & Gulf Navigation Co., 
    363 U.S. 574
    , 582 (1960). There are
    well recognized exceptions to the general rule, however, and we turn to them now.
    {10} The single issue in this case is whether Plaintiffs, as subsequent purchasers of the
    home, are bound by the arbitration provision contained in the warranty coverage booklet
    originally given to the initial buyers. StrucSure contends that Plaintiffs cannot voluntarily
    seek the benefits of the warranty without bearing the burdens of the arbitration agreement
    contained in it. StrucSure also asserts that Plaintiffs are bound by all of the warranty’s
    provisions, including the arbitration agreement, because they voluntarily enforced their
    rights as assignees under the warranty after taking title to the home. Because we hold that
    Plaintiffs are equitably estopped from avoiding arbitration in this case, we need not decide
    whether they are also assignees under the warranty.
    {11} The question of who may be bound by an arbitration provision subject to the FAA
    is governed by federal law. Arthur Andersen 
    LLP, 556 U.S. at 630
    . At least two federal
    appellate courts “have recognized five theories for binding nonsignatories to arbitration
    agreements: 1) incorporation by reference; 2) assumption; 3) agency; 4) veil-piercing/alter
    ego; and 5) estoppel.” Thompson-CSF, S.A. v. Am. Arbitration Ass’n, 
    64 F.3d 773
    , 776 (2d
    Cir. 1995); see Int’l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 
    206 F.3d 411
    , 417 (4th Cir. 2000). We believe the appropriate principle for evaluating whether
    Plaintiffs here are bound by the arbitration provision in the warranty is estoppel, commonly
    referred to as “equitable estoppel.” In the arbitration context, equitable estoppel “recognizes
    that a party may be estopped from asserting that the lack of his signature on a written
    contract precludes enforcement of the contract’s arbitration clause when he has consistently
    maintained that other provisions of the same contract should be enforced to benefit him.”
    Int’l Paper 
    Co., 206 F.3d at 418
    ; see Trinity Health Sys. v. MDX Corp., 
    180 Ohio App. 3d 815
    , 
    2009 Ohio 417
    , 
    907 N.E.2d 746
    , at ¶ 25 (observing that a party to a contract may raise
    equitable estoppel where the nonparty attempts “to enforce some aspect of the contract” and
    noting that relying on one part of the contract may estop the nonparty from avoiding an
    arbitration clause in the contract). Consequently, a nonparty “is estopped from refusing to
    comply with an arbitration clause when it receives a direct benefit from a contract containing
    an arbitration clause.” Int’l Paper 
    Co., 206 F.3d at 418
    (internal quotation marks and citation
    omitted).
    {12}   This Court has twice touched upon the doctrine of equitable estoppel in the
    scope of the arbitration agreement and, therefore, these cases are inapposite.
    5
    arbitration context, but we have never ultimately decided whether New Mexico would apply
    the doctrine against a nonparty claimant under facts similar to this case. See Murken v.
    Suncor Energy, Inc., 2005-NMCA-102, ¶¶ 6-13, 
    138 N.M. 179
    , 
    117 P.3d 985
    ; Horanburg
    v. Felter, 2004-NMCA-121, ¶¶ 17, 18, 
    136 N.M. 435
    , 
    99 P.3d 685
    . In Horanburg, we
    considered whether a nonparty to an arbitration agreement could bind a party to the
    agreement to arbitrate—the reverse of the situation in this case. 2004-NMCA-121, ¶ 18.
    Although we observed that nonparties to an arbitration agreement generally “are not bound
    by the agreement and are not subject to, and cannot compel, arbitration[,]” we recognized
    that there are exceptions to this general rule, including an exception for equitable estoppel.
    
    Id. ¶¶ 16-17.
    However, we concluded that, even assuming New Mexico recognizes equitable
    estoppel in the arbitration context, applying it was inappropriate under the facts of the case.
    
    Id. ¶ 18.
    In Murken, we considered whether a party to an arbitration agreement could bind
    a nonparty to arbitrate. Murken, 2005-NMCA-102, ¶¶ 6-13. There, as here, the defendant
    was a party to the agreement and sought to enforce the agreement against the plaintiff, who
    was not. 
    Id. ¶ 13.
    This Court noted that “even if New Mexico recognized the doctrine of
    equitable estoppel in the arbitration context, its application would not be appropriate in [the]
    case” because the nonparty plaintiff was not “alleged to have embraced and directly
    benefitted from the agreement[.]” 
    Id. ¶¶ 12,
    13.
    {13} The facts of this case are markedly different from Murken. Here, Plaintiffs filed a
    warranty claim with StrucSure and then later sued StrucSure, claiming the warranty issued
    to the builder and original owners induced them to buy their home and that StrucSure failed
    to fulfill the duties it owed Plaintiffs under the warranty. Clearly, Plaintiffs’ case against
    StrucSure hinges on its asserted rights under the warranty agreement from which they seek
    to directly benefit. We recognize that Plaintiffs contend they never signed the arbitration
    agreement and that, even though they were aware of the warranty before they purchased the
    home, they did not know it included the arbitration agreement until after they purchased the
    home. However, unlike the Murken plaintiff, Plaintiffs here voluntarily seek to directly
    benefit from the warranty by enforcing some of its terms while simultaneously attempting
    to avoid one of its perceived burdens.
    {14} Although we have no case on point, we find persuasive decisions from other
    jurisdictions that have applied equitable estoppel under a similar set of facts. For example,
    in International Paper Co., a buyer who was dissatisfied with an industrial saw sued the
    manufacturer based on a contract between the manufacturer and 
    distributor. 206 F.3d at 413
    .
    The manufacturer sought to compel arbitration based on a provision in the manufacturer-
    distributor contract to which the buyer was not a party. 
    Id. at 414-15.
    As in this case, the
    buyer argued that it had no knowledge of and could not be bound by the contract containing
    the arbitration provision. 
    Id. at 415.
    The federal district court rejected the buyer’s argument
    and reasoned that, because the buyer sought to take advantage of certain commitments made
    by the manufacturer to the distributor in the manufacturer-distributor contract, “it was bound
    by all commitments in that contract, including the arbitration provision.” 
    Id. The Fourth
    Circuit Court of Appeals agreed and, applying principles of equitable estoppel, upheld the
    district court’s decision. 
    Id. at 416.
    The appeals court observed that the manufacturer-
    6
    distributor contract provided part of the factual foundation for every claim asserted by the
    buyer; the complaint alleged that the manufacturer failed to honor the warranties in the
    contract, and the buyer sought damages in accordance with that contract. 
    Id. at 418.
    Thus,
    it reasoned, the buyer could not “seek to enforce those contractual rights and avoid the
    contract’s requirement that any dispute arising out of the contract be arbitrated.” 
    Id. (internal quotation
    marks omitted).
    {15} In Ex parte Dyess, 
    709 So. 2d 447
    , 448 (Ala. 1997), a customer who was injured
    while test driving a car brought suit against the car dealership’s insurer under the uninsured
    motorist provision of a policy issued to the dealership. There, as here, the plaintiff sought
    a benefit under the policy while attempting to avoid the arbitration clause in the policy. 
    Id. at 449-50.
    The Alabama Supreme Court determined that under those circumstances, the
    plaintiff could not “pick and choose the portions of the contract that he wants to apply.” 
    Id. at 451.
    It concluded that to enforce the uninsured motorist provision and not to enforce the
    arbitration clause would be inconsistent with the FAA and with decisions of the United
    States Supreme Court. Id.; see also Avila Group, Inc. v. Norma J. of Cal., 
    426 F. Supp. 537
    ,
    542 (S.D.N.Y. 1977) (“To allow [the nonparty] to claim the benefit of the contract and
    simultaneously avoid its burdens would both disregard equity and contravene the purposes
    underlying enactment of the [FAA].”).
    {16} Based on the reasoning of the above cases, we hold that Plaintiffs, having voluntarily
    chosen to seek a direct benefit from the warranty by attempting to enforce its terms against
    StrucSure, may not now seek to repudiate one of the warranty’s provisions. If Plaintiffs
    wished to exempt themselves from the arbitration clause, they could have chosen not to
    claim and enforce any of the rights under the warranty. However, once Plaintiffs voluntarily
    sought to embrace and invoke the benefits created by the warranty, they could not avoid the
    arbitration provision in the warranty.
    {17} On appeal, Plaintiffs make several alternative arguments as to why the arbitration
    provision should not be imposed upon them. First, Plaintiffs contend that StrucSure did not
    prove in the district court that it had a valid arbitration agreement with the original owners
    and, therefore, Plaintiffs cannot be bound by a contract to arbitrate. Plaintiffs’ argument is
    without merit. StrucSure attached the signed home enrollment application and the arbitration
    provision to its motion to compel arbitration, and Plaintiffs never contested their validity.
    Moreover, if there was no valid warranty between StrucSure and the original owners,
    Plaintiffs, as subsequent owners, would have no basis upon which to state any warranty
    claims against StrucSure. See Camino Real Mobile Home Park P’ship v. Wolfe, 1995-
    NMSC-013, ¶ 18, 
    119 N.M. 436
    , 
    891 P.2d 1190
    (“The party relying on the breach of
    warranty must prove the existence of a warranty, the breach thereof, causation, and
    damages.”), overruled on other grounds by Sunnyland Farms, Inc. v. Cent. N.M. Elec.
    Co-op, Inc., 2013-NMSC-017, 
    301 P.3d 387
    .
    {18} Plaintiffs also contend that enforcing the arbitration agreement against them would
    be unfair and unconscionable and that the agreement is a procedurally unconscionable
    7
    contract of adhesion. The district court did not rule on either of these arguments, and
    Plaintiffs provide no support for their generalized assertions on appeal. We therefore do not
    address them here. See Muse v. Muse, 2009-NMCA-003, ¶ 72, 
    145 N.M. 451
    , 
    200 P.3d 104
    .
    {19} We conclude that the doctrine of equitable estoppel is appropriate in this case.
    Plaintiffs seek to receive a direct benefit from the agreement, and their claims against
    StrucSure are therefore also subject to the arbitration provision contained in the warranty
    coverage booklet. The district court’s ruling is reversed.
    CONCLUSION
    {20}   For the reasons set forth above, we reverse.
    {21}   IT IS SO ORDERED.
    ____________________________________
    LINDA M. VANZI, Judge
    WE CONCUR:
    ____________________________________
    MICHAEL D. BUSTAMANTE, Judge
    ____________________________________
    CYNTHIA A. FRY, Judge
    8