James G. Clayton v. Davidson Contractors, LLC ( 2015 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
July 9, 2014 Session
JAMES G. CLAYTON, ET AL. v. DAVIDSON CONTRACTORS, LLC, ET AL.
Appeal from the Chancery Court for Hamilton County
No. 071016 Jeffrey M. Atherton, Chancellor
No. E2013-02296-COA-R3-CV-FILED-APRIL 24, 2015
In connection with the purchase of a newly constructed home, buyers signed an
application for a home warranty, providing for arbitration of warranty disputes. After the
buyers experienced several problems with their home, they sued the builders for breach
of the implied warranty of habitability and negligent construction, among other things.
Over five years after answering the buyers‟ complaint, the builders moved to stay the
litigation and compel arbitration based on the home warranty‟s arbitration provision. The
trial court denied the motion because the arbitration provision did not comply with the
Tennessee Uniform Arbitration Act. The trial court also found that the builders‟ delay in
seeking to compel arbitration constituted a waiver of their right to arbitrate. The builders
appeal. Because we conclude that the Federal Arbitration Act governs the arbitration
provision and consideration of the waiver defense was premature, we vacate and remand.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Vacated and Remanded
W. NEAL MCBRAYER, J., delivered the opinion of the Court, in which CHARLES D.
SUSANO, JR., C.J., and THOMAS R. FRIERSON, J., joined.
Tom D. Weldon, Ringgold, Georgia, for the appellants, Davidson Contractors, LLC,
Phillip Lance Davidson and John Mason.
John R. Anderson and Katherine H. Lentz, Chattanooga, Tennessee, for the appellees,
John G. Clayton and Kaci W. Clayton.
OPINION
I. FACTUAL BACKGROUND
In the fall of 2006, James and Kaci Clayton purchased a home on Belleau Ridge
Drive in Ooltewah, Tennessee from Davidson Contractors, LLC. According to
Ms. Clayton, the owners of Davidson Contractors, Lance Davidson and John Mason,
assured the Claytons that they would correct any problems with the construction of the
home. Mr. Davidson and Mr. Mason also told the Claytons that they would receive a “2-
10 Warranty” that would cover both craftsmanship and construction for a period of ten
years.
At the closing, on November 28, 2006, the Claytons signed a document titled
“Builder Application for Home Enrollment.” In pertinent part, the document provided as
follows:
Your Builder is applying to enroll your home in the 2-10 HBW® New
Home Warranty program. By signing below, you acknowledge that you
have read a sample copy of the Warranty Booklet, and CONSENT TO THE
TERMS OF THESE DOCUMENTS INCLUDING THE BINDING
ARBITRATION PROVISION contained therein. You further understand
that when the warranty is issued on your new home, it is an Express
Limited Warranty and that all claims and liabilities are limited to and by the
terms and conditions of the Express Limited Warranty as stated in the 2-10
HBW® Booklet. IF YOU, THE BUYER(S), HAVE NOT RECEIVED A
CERTIFICATE OF WARRANTY COVERAGE AND A WARRANTY
BOOKLET FROM 2-10 HBW® WITHIN THIRTY (30) DAYS AFTER
CLOSING THEN THERE IS NO COVERAGE BY THE BUILDER‟S
WARRANTY INSURER, YOU SHOULD CONTACT YOUR BUILDER.
HBW is a service mark for Home Buyers Warranty Corporation, the warranty
administrator. Home Buyers Warranty Corporation maintains offices in Aurora,
Colorado; Tucker, Georgia; and Arlington, Texas.
According to deposition testimony, within a year after moving into their new
home, the Claytons began experiencing problems with both the structure and the
property. The Claytons‟ complaints ranged from the minor, cracked tiles and a leaking
shower, to the major, cracks in the foundation and mold growth. In addition to incurring
costs to repair various items, the Claytons allege that their youngest daughter began
suffering health issues from mold. Ultimately, the Claytons vacated the home.
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On November 27, 2007, the Claytons filed suit against Davidson Contractors, as
well as Mr. Davidson and Mr. Mason individually. The Claytons alleged fraudulent
and/or reckless inducement to contract, violations of the Tennessee Consumer Protection
Act, breach of implied warranty of habitability, and negligent construction. The
defendants each filed answers in January 2008. In their answers, Davidson Contractors,
Mr. Davidson, and Mr. Mason included a statement that the Claytons‟ complaint could
not be heard by the trial court due to an arbitration clause included in the home warranty.
After a long period of inactivity, on June 21, 2010, the trial court entered an initial
scheduling order. The order set the case for trial on November 2, 2010. Between 2010
and 2013, the court rescheduled the trial six different times. Davidson Contractors,
Mr. Davidson, and Mr. Mason requested at least four of those continuances. During that
same time period, the defendants participated in two mediation sessions and several
depositions and propounded and answered written discovery. On September 6, 2013,
Davidson Contractors, Mr. Davidson, and Mr. Mason filed a “Motion for Stay and
Referral of this Matter to Arbitration Pursuant to Arbitration Agreement.” In the motion,
the defendants requested that the trial court stay the litigation and compel arbitration in
accordance with the 2-10 Home Buyers Warranty contract.
On October 7, 2013, the trial court held an evidentiary hearing on the motion.
Despite the acknowledgement contained in the “Builder Application for Home
Enrollment,” Ms. Clayton testified that she and her husband did not receive a sample
warranty booklet at the closing. She also maintained that they did not receive a warranty
certificate or a warranty booklet within thirty days of the closing, or ever, from Davidson
Contractors or HBW. She stated that they only obtained a sample warranty booklet from
a neighbor after their lawsuit had been filed.
Both Mr. Davidson and Mr. Mason maintained that Mr. Mason had given a sample
warranty booklet to the Claytons at the closing. Davidson Contractors did not keep a
copy of the document that they claim was presented to the Claytons. Through
Mr. Mason, the defendants introduced a sample warranty booklet obtained from HBW in
September 2013. Mr. Mason testified that the sample warranty booklet was the same as
that given to the Claytons in 2006. The sample warranty booklet contained an arbitration
clause, providing in part as follows:
ARBITRATION. Any and all claims, disputes and controversies by or
between the homeowner, the Builder, the Warranty Insurer and/or
HBW, or any combination of the foregoing, arising from or related to
this Warranty, to the subject Home, to any defect in or to the subject
Home or the real property on which the subject Home is situated, or
the sale of the subject Home by the Builder, including without
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limitation, any claim of breach of contract, negligent or intentional
misrepresentation or nondisclosure in the inducement, execution or
performance of any contract, including this arbitration agreement, and
breach of any alleged duty of good faith and fair dealing, shall be
settled by binding arbitration. Agreeing to arbitration means you are
waiving your right to a jury trial.
....
This arbitration agreement shall be deemed to be a self-executing
arbitration agreement. Any disputes concerning the interpretation or
the enforceability of this arbitration agreement, including without
limitation, its revocability or voidability for any cause, the scope of
arbitrable issues, and any defense based upon waiver, estoppel or
laches, shall be decided by the arbitrator.
The initiation of or participation by any party in any judicial
proceeding concerning this arbitration agreement or any matter
arbitrable hereunder shall not be deemed a waiver of the right to
enforce this arbitration agreement, and notwithstanding any provision
of law to the contrary, shall not be asserted or accepted as a reason to
delay, to refuse to participate in, or to refuse to enforce this arbitration
agreement.
(emphasis in original).
On an offer by the Claytons, the trial court also accepted into evidence HBW‟s
response to deposition upon written questions. HBW indicated that it mailed a certificate
of warranty and a “2-10 Home Buyers Warranty Booklet” to the Claytons. However,
HBW did not indicate when the documents were mailed. HBW acknowledged that no
transmittal letters accompanied the certificate of warranty or warranty booklet. HBW did
respond that, as a regular business practice, a record was made when mailed items were
returned and that there was no such record relative to the Claytons. HBW also responded
that the “homeowner” contacted HBW about a warranty claim on November 27, 2007.
At the conclusion of the proof, the trial court denied the motion to stay and compel
arbitration. After the oral ruling, counsel for Davidson Contractors, Mr. Davidson, and
Mr. Mason asked the trial court if it was finding that “a warranty agreement and [ ] an
arbitration provision” existed. In response, the court clarified that it was only ruling on
compliance with state law and equitable principles. In its October 10, 2013 order
denying the motion, the court cited the Tennessee Uniform Arbitration Act, specifically
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the “failure to comply with Tenn. Code Ann. § 29-5-302(a) as the clause providing for
arbitration was not additionally signed or initialed by the parties.” As an additional or
alternative basis for denying the motion, the trial court found that the “Defendants waived
their right to arbitration and/or to invoke the arbitration provision contained in the 2-10
HBW New Home Warranty Booklet by virtue of their conduct and participation in the
instant litigation.”
II. ANALYSIS
The appellants, Davidson Contractors, Mr. Davidson, and Mr. Mason, challenge
both grounds relied on by the trial court for denying the motion to compel arbitration. On
the first ground, Appellants argue that, although the arbitration clause found in the
sample warranty book was not separately initialed, the proximity of the Claytons‟
signatures to the acknowledgment found in the “Builder Application for Home
Enrollment” was sufficient to satisfy Tennessee Code Annotated § 29-5-302(a).
Alternatively, they claim that the Tennessee Uniform Arbitration Act (“TUAA”) does not
apply at all. On the second ground, Appellants argue that the arbitration clause prohibits
a finding of waiver based upon their participation in a judicial proceeding.
A. APPLICABLE LAW
As an initial matter, we must determine whether the TUAA or the Federal
Arbitration Act (“FAA”) applies to the parties‟ agreement.1 When the FAA applies,
states may not impose requirements on arbitration agreements beyond those found in the
FAA. See Southland Corp. v. Keating, 465 U.S. 1, 15-16 (1984); Wells v. Tenn.
Homesafe Inspections, LLC., No. M2008-00224-COA-R3-CV, 2008 WL 5234724, *3
(Tenn. Ct. App. Dec. 15, 2008); Hubert v. Turnberry Homes, LLC, No. M2005-00955-
COA-R3-CV, 2006 WL 2843449, *6 (Tenn. Ct. App. Oct. 4, 2006). Although the TUAA
requires that agreements to arbitrate regarding residential structures be separately signed
or initialed, the FAA does not. Tenn. Code Ann. § 29-5-302(a) (2012). Therefore, where
the FAA applies, this requirement may not be imposed on the agreement of the parties.
The FAA applies to “[a] written provision in . . . a contract evidencing a
transaction involving commerce to settle by arbitration a controversy thereafter arising
out of such contract or transaction.” 9 U.S.C.A. § 2 (2009) (emphasis added). The term
“commerce” as used in the FAA includes “commerce among the several States.” Id. § 1.
The United States Supreme Court has interpreted the term “involving commerce,” and
therefore the reach of the FAA, as concurrent with that of the Commerce Clause. See,
e.g., Perry v. Thomas, 482 U.S. 483, 490 (1987) (The FAA “embodies Congress‟ intent
1
The FAA and “arbitration law appl[y] in state as well as federal courts.” Buckeye Check
Cashing, Inc. v. Cardegna, 546 U.S. 440, 446 (2006).
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to provide for the enforcement of arbitration agreements within the full reach of the
Commerce Clause.”).
In this case, we conclude that the transaction at issue involves commerce.
Davidson Contractors is a Tennessee limited liability company. The home was also
constructed in Tennessee and purchased by Tennessee residents. However, the Claytons
attribute many of their claims to the alleged actions or inaction of Mr. Davidson and
Mr. Mason, residents of Georgia. Documents produced by HBW and introduced into
evidence also show Davidson Contractors maintained a Ringgold, Georgia address.
Furthermore, HBW, the intended warranty administrator, is headquartered in Colorado.
Consequently, the trial court erred in relying on the TUAA and its requirement that
arbitration clauses be additionally signed or initialed.2
B. WAIVER
The arbitration clause at issue here contains a delegation provision, “an agreement
to arbitrate threshold issues concerning the arbitration agreement.” Rent-A-Center, West,
Inc. v. Jackson, 561 U.S. 63, 68 (2010). Threshold issues may include whether the
parties have agreed to arbitrate any dispute at all, whether the agreement covers a
particular controversy, or whether the agreement is enforceable. See id. at 68-69;
1 Thomas H. Oehmke & Joan M. Brovins, Commercial Arbitration § 20:5 (2014). In this
case, the delegation provision defines enforceability issues to include “any defense based
upon waiver” and delegates that issue to the arbitrator.
The FAA requires courts to enforce delegation provisions just as they are required
to enforce arbitration agreements. Id. at 70 (Delegation provisions are “simply an
additional, antecedent agreement the party seeking arbitration asks the . . . court to
enforce, and the FAA operates on this additional arbitration agreement just as it does on
any other.”). However, “the making of the agreement” must not be at issue. 9 U.S.C.A.
§ 4 (2009).
2
Although it is not dispositive of the issue, we also note that the arbitration clause found in the
sample warranty booklet provides as follows:
The parties expressly agree that this Warranty and this arbitration agreement
involve and concern interstate commerce and are governed by the provisions of the
Federal Arbitration Act (9 U.S.C. § 1, et seq.) now in effect and as the same may
from time to time be amended, to the exclusion of any different or inconsistent state
or local law, ordinance or judicial rule . . . .
(emphasis in original).
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The Claytons specifically placed the making of the agreement for arbitration at
issue. Yet, the trial court found that Appellants had waived the right to arbitrate. Finding
waiver, without first addressing whether an agreement to arbitrate existed, is problematic
in this circumstance. If an agreement to arbitrate did exist, the delegation provision
places the issue of waiver with the arbitrator rather than the court.
C. ARBITRABILITY3
The Claytons claim they did not enter into the warranty contract. The FAA
provides that the court must be “satisfied that the making of the agreement for arbitration
or the failure to comply therewith is not in issue.” Id. However, the warranty contract
contains an arbitration agreement and a delegation provision providing that “[a]ny
disputes concerning . . . the enforceability of this arbitration agreement . . . shall be
decided by the arbitrator.” In light of the delegation provision, we must determine
whether the court or the arbitrator decides the Claytons‟ claim that there was no warranty
agreement. To do so, we review United States Supreme Court precedent interpreting the
FAA.
In Prima Paint Corp. v. Flood & Conklin Manufacturing Company, 388 U.S. 395(1967), the Court addressed “whether a claim of fraud in the inducement of the entire
contract is to be resolved by the federal court” or by an arbitrator. 388 U.S. at 402. The
parties had entered into a consulting agreement in connection with the sale of a business.
Id. at 397. The agreement included a broad arbitration clause delegating to an arbitrator
“any controversy or claim arising out of or relating to” the contract. Id. at 398. After a
dispute between the parties arose, the purchaser sought to enjoin the arbitration, claiming
that the consulting agreement was invalid because it was fraudulently induced. Id. The
seller maintained that the purchaser‟s claim was a question for the arbitrator, not the
court. Id. at 399.
The Court first concluded that section two of the FAA requires that arbitration
clauses be severable from the contracts in which they are embedded. Id. at 404. This
principle became known as the severability rule. See, e.g., Buckeye Check Cashing, Inc.
v. Cardegna, 546 U.S. 440, 440 (2006). Because the arbitration clause was severable
from the remainder of the contract and separately enforceable, the court could not
consider the seller‟s claim that the entire contract was invalid because of fraud in the
inducement of the contract generally. Prima Paint, 388 U.S. at 404. Only, “if the claim
[wa]s fraud in the inducement of the arbitration clause itself—an issue which goes to the
„making‟ of the agreement to arbitrate—[could] the federal court [ ] proceed to adjudicate
it.” Id. at 403-04. The Court later acknowledged that the Prima Paint severability rule
3
Arbitrability is defined as “[t]he status, under applicable law, of a dispute‟s being or not being
resolvable by arbitrators because of the subject matter.” Black‟s Law Dictionary (10th ed. 2014).
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allows a “court to enforce an arbitration agreement in a contract that the arbitrator later
finds to be void.” Buckeye, 561 U.S. at 448. However, the opposite approach would
permit a “court to deny effect to an arbitration provision in a contract that the court later
finds to be perfectly enforceable.” Id. at 448-49. “Prima Paint resolved this conundrum
. . . in favor of the separate enforceability of arbitration provisions.” Id. at 449.
Almost forty years later, in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S.
440 (2006), the Court applied the severability rule to contracts that may be void as well
as voidable. 546 U.S. at 447-78. In that case, borrowers claimed that a lending
agreement they signed with Buckeye Check Cashing was rendered invalid because the
agreement‟s usurious finance charge was illegal. Id. at 443. The Court reiterated that,
unless a party specifically challenges the arbitration clause itself, rather than the validity
of the contract as a whole, an arbitrator decides whether the contract is valid. Id. at 445-
46. Therefore, because the borrowers argued that “the contract as a whole (including its
arbitration provision) [wa]s rendered invalid,” the arbitration provision remained
separately enforceable. Id. at 444, 445-46. However, the Court distinguished situations
where the issue was “the contract‟s validity,” as in the case before it, from situations
where the issue was “whether any agreement between the alleged obligor and obligee
was ever concluded.” Id. at 444, n.1.
In Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010), the Court applied the
severability rule to arbitration agreements with delegation provisions. 561 U.S. at 72. In
that case, an employee signed an arbitration agreement with Rent-A-Center as a condition
of his employment. Id. at 68. The delegation provision of the agreement stated, “the
Arbitrator, and not any federal, state, or local court or agency, shall have exclusive
authority to resolve any dispute relating to the interpretation, applicability, enforceability,
or formation of this Agreement including, but not limited to any claim that all or any part
of this Agreement is void or voidable.” Id. at 66. The employee claimed that the
arbitration agreement, including the delegation clause, was invalid because the entire
agreement was unconscionable. Id. Relying on the delegation provision, Rent-A-Center
sought to compel arbitration of the employee‟s unconscionability claim. Id. at 68.
Although the whole agreement in Rent-A-Center was a stand-alone arbitration
agreement, the Court still held the severability rule applicable. Id. at 72. The Court held
that, where a party seeking to compel arbitration relies on a delegation provision, only if
a party specifically challenges the enforceability of the delegation provision will the court
consider the challenge. Id. “[B]ut if a party challenges the enforceability of the
agreement as a whole, the challenge is for the arbitrator.” Id. at 63. However, the Court
again cautioned that “[t]he issue of the agreement‟s „validity‟ is different from the issue
whether any agreement between the parties „was ever concluded,‟ and, as in Buckeye . . .,
we address only the former.” Id. at 70, n.2 (quoting Buckeye, 561 U.S. at 444, n.1).
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Three days after the Rent-A-Center decision, the Court decided Granite Rock Co.
v. International Brotherhood of Teamsters, 561 U.S. 287 (2010), finally addressing the
arbitrability issue in light of a party‟s claim that an agreement between the parties “was
[n]ever concluded.” See Rent-A-Center, 561 U.S. 70, n.2. In Granite Rock, an employer
sued an international and local union, alleging that a labor strike breached a no-strike
clause in the parties‟ collective bargaining agreement (“CBA”).4 Granite Rock, 561 U.S.
at 287. The parties disputed when the CBA was ratified by the union and, thus, disagreed
over when the CBA was formed. Id. at 297, 297, n.4. The local union sought to have the
dispute decided by an arbitrator. Id. at 287.
The Court began its analysis by noting that “a court may order arbitration of a
particular dispute only where the court is satisfied that the parties agreed to arbitrate that
dispute.” Id. at 297; see also 9 U.S.C.A. § 4. To satisfy itself that such an agreement
exists, the court must resolve: (1) any issue questioning the formation of the parties‟
arbitration agreement; and (2) absent a valid delegation provision, any issue regarding the
enforceability or applicability of the arbitration agreement to the dispute. Granite Rock,
561 U.S. at 299.
In Prima Paint, Buckeye, and Rent-A-Center, the Court only compelled arbitration
“after . . . [being] persuaded that the parties‟ arbitration agreement was validly formed
and that it covered the dispute in question and was legally enforceable.” Granite Rock,
561 U.S. at 300. In Prima Paint, the parties did not dispute that they entered into a
consulting agreement—the seller alleged only that the contract as a whole should be
declared invalid because it was fraudulently induced. Prima Paint, 388 U.S. at 402. In
Buckeye, the formation of the parties‟ agreement was not at issue because the parties
agreed they had concluded an agreement to arbitrate in their loan contract. Buckeye, 546
U.S. at 444. Instead, the borrower claimed that the contract should be declared invalid
because it was illegal. Id. Similarly, the parties in Rent-A-Center did not dispute that
they agreed to an arbitration agreement—the employee claimed that the entire contract
should be declared invalid for unconscionability. Rent-A-Center, 561 U.S. at 68.
Because the parties in those cases did not challenge their consent to the agreement to
arbitrate within the broader contract, the severability rule applied, and the arbitration
provision was enforced. See, e.g., Buckeye, 561 U.S. at 448.
However, as the Court noted in Granite Rock, the severability rule does not apply
when a “party resisting arbitration specifically challenges the enforceability of the
4
The same rules of arbitrability govern cases applying the FAA and the Labor Management
Relations Act (“LMRA”). See Granite Rock, 561 U.S. at 298, n.6. For example, Granite Rock involved
an arbitrability dispute under the LMRA, but the Court discussed and relied upon precedents applying the
FAA.
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arbitration clause itself,” Granite Rock, 561 U.S. at 301 (citing Buckeye, 546 U.S. at 443-
45), or a party “claims the agreement to arbitrate was „[n]ever concluded.‟” Granite Rock,
561 U.S. at 299, 301 (quoting Buckeye 546 U.S. at 444, n. 1 and Rent-A-Center 561 U.S.
at 70, n. 2). In Granite Rock, the union claimed a contract had not been formed as of the
date of the strike. Id. at 287. Therefore, the Court concluded that a court, rather than an
arbitrator, must resolve the parties‟ formation dispute. Id. at 303.
When read together, Prima Paint, Buckeye, Rent-A-Center, and Granite Rock
stand for the proposition that the court resolves two types of issues relating to an
agreement to arbitrate: (1) a challenge to the validity of the specific arbitration clause
sought to be enforced; and (2) a challenge to the formation of a contract, which may
include an agreement to arbitrate. See In re Morgan Stanley & Co., 293 S.W.3d 182, 187
(Tex. 2009). Where there is a delegation provision, an arbitrator decides a party‟s
challenge to the validity of the contract as a whole. Id. Therefore, when a party claims it
never concluded an agreement at all, it is for the court, not the arbitrator, to determine
whether the parties agreed to the arbitration provision upon which the party seeking
arbitration relies. Granite Rock, 561 U.S. at 299-300. Although there is a federal policy
favoring arbitration, that policy does not override the principle of consent. Id. at 302.
The line between contract formation issues and contract validity issues is a fine
one. See In re Morgan Stanley, 293 S.W.3d at 192 (Willett, J., concurring) (describing
the line between contract formation and contract validity issues as “murky”).5
Fortunately, the Court provided some guidance in Buckeye as to which contractual
defenses are formation issues to be considered by the courts. See Buckeye, 546 U.S. 444,
n.1 (suggesting that the following defenses were formation issues: lack of signature on a
contract; signor‟s lack of authority to bind principal; and mental capacity to assent). We
can also conclude from Prima Paint, Buckeye, and Rent-A-Center that fraudulent
inducement, illegality, and unconscionability are contract validity issues.
In the case before us, the Claytons present a classic formation issue—they argue a
contract was never formed. Specifically, they claim they never received the certificate of
warranty coverage or warranty booklet within thirty days of closing. Under the “Builder
Application for Home Enrollment,” receipt of the certificate and booklet is a prerequisite
to “coverage by the builder‟s warranty insurer.” Their contract formation issue precludes
application of the severability rule, so they were not required to specifically challenge the
arbitration agreement or delegation provision in order to avoid arbitration. Granite Rock,
561 U.S. at 299-301. They raise an issue that the court must resolve before compelling
5
Adding to the confusion, the plain language of the FAA suggests courts have the authority to
consider both formation and validity issues before compelling arbitration. See Rent-A-Center, 561 U.S. at
78 (Stevens J., dissenting) (citing Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)); see also
9 U.S.C.A. § 4 (allowing courts to consider the “making” of the agreement for arbitration).
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arbitration. Buckeye, 546 U.S. at 444, n.1; Rent-A-Center, 561 U.S. at 70, n.2; Granite
Rock, 561 U.S. at 299.
Requiring the court to resolve the Claytons‟ claim that a contract was never
formed is sound policy. Compelling a party to arbitrate whether he actually agreed to
arbitrate a dispute is “hopelessly circular.” Bruni v. Didion, 73 Cal. Rptr. 3d 395, 408
(Cal. Ct. App. 2008). Judicial determination of the Claytons‟ formation issue also avoids
a serious “bootstrapping” problem regarding the arbitrator‟s authority. Id. at 406; see
also Matterhorn, Inc. v. NCR Corp., 763 F.2d 866, 869 (7th Cir. 1985). If the Claytons
were compelled to arbitrate whether they agreed to the warranty contract, including the
delegation provision, the arbitrator would determine his own authority to decide the
parties‟ dispute. If the arbitrator concluded the parties did not have a contract, the
arbitrator had no authority to decide the dispute. If the arbitrator concluded the parties
did have a contract, the arbitrator effectively granted himself jurisdiction. See In re
Morgan Stanley, 293 S.W.3d at 193 (Hecht, J., dissenting). Finally, this outcome is
consistent with arbitration law‟s focus on the parties‟ consent to arbitrate a particular
dispute. Granite Rock, 561 U.S. at 302 (citing First Options of Chicago, Inc. v. Kaplan,
514 U.S. 938, 943 (1995)).
Requiring the court to resolve the Claytons‟ claim that a contract was never
formed is also consistent with the decisions of other courts. See, e.g., Bruni, 73 Cal. Rptr.
3d at 406 (concluding that a court must consider a contract formation challenge before
compelling arbitration in a dispute involving home buyers, builders, and an HBW
warranty); Thompson v. Lithia Chrysler Jeep Dodge of Great Falls, Inc., 185 P.3d 332(Mont. 2008); Spahr v. Secco, 330 F.3d 1266 (10th Cir. 2003); Sphere Drake Ins. Ltd. v.
All Am. Ins. Co., 256 F.3d 587 (7th Cir. 2001); Sandvik AB v. Advent Int’l Corp., 220
F.3d 99 (3d Cir. 2000); Chastain v. Robinson-Humphrey Co., 957 F.2d 851 (11th Cir.
1992). Although these cases were decided before Rent-A-Center, that decision did not
address a scenario where a party argued that no agreement “was ever concluded.” Rent-
A-Center, 561 U.S. at 70, n.2. Moreover, Granite Rock confirms that courts must satisfy
themselves that the parties agreed to arbitrate a particular dispute before compelling
arbitration. 561 U.S. at 297; see also Kum Tat Ltd. v. Linden Ox Pasture, LLC, No. 14-
CV-02857-WHO, 2014 WL 6882421, at *5 (N.D. Cal. Dec. 5, 2014) (appeal pending); In
re Morgan Stanley, 293 S.W.3d at 188.
Because the trial court must consider the Claytons‟ claim that no contract was
formed, we remand this case to the trial court. On remand, the trial court must determine
whether the Claytons entered into the HBW warranty contract, including its agreement to
arbitrate disputes and delegation provision. If the trial court concludes that a contract
was formed among HBW, Davidson Contractors, and the Claytons, an arbitrator must
decide the parties‟ dispute, including the issue of waiver. If the trial court concludes that
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a contract was not formed, the court may decide the parties‟ dispute.
III. CONCLUSION
For the foregoing reasons, we vacate the trial court‟s judgment and remand for
further proceedings consistent with this opinion.
______________________________
W. NEAL McBRAYER, JUDGE
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