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Jones v. Home Buyers Warranty Corp.

United States District Court, D. Delaware

May 10, 2019

JASON JONES and AMANDA JONES Petitioners,
v.
HOME BUYERS WARRANTY CORPORATION, and NATIONAL HOME INSURANCE COMPANY (A RISK RETENTION GROUP) Respondents.

          REPORT AND RECOMMENDATION

          Sherry R. Fallon United Slates District Judge.

         I. INTRODUCTION

         The present action concerns breach of warranty and alleged construction defect claims arising under or related to the warranty. The matter was arbitrated before the American Arbitration Association ("AAA"), which resulted in an Arbitration Order issued on May 10, 2017. Presently before the court are cross-motions by the parties, wherein Petitioners, Jason Jones and Amanda Jones (collectively "the Joneses" or "Petitioners"), have moved to vacate, modify, or correct the arbitration award, [1] and Respondents, Home Buyers Warranty Corporation ("HBW") and National Home Insurance Company (A Risk Retention Group) ("NHIC") (collectively "Respondents"), have moved to confirm the arbitration award.[2] (D.I. 11; D.I. 28) For the following reasons, I recommend denying Petitioners' motion and granting Respondents' motion.

         II. BACKGROUND

         a. Facts

         On March 31, 2004, Petitioners signed a Sales Agreement ("Agreement") with BPG Residential Partners IV, LLC ("Seller" or "BPG Partners")[3] for the purchase of a new townhouse at 156 Christina Landing in Wilmington, Delaware ("the Property"). (D.I. 27 at 2) Paragraph three of the Agreement includes a "Sample Limited Warranty Administered by Homebuyers." (D.I. 29 at 5) Paragraph eight of the Agreement provides as follows:

LIMITED WARRANTY. Seller, a member of HOME BUYERS WARRANTY ("HBW"), has provided to Buyer a sample limited warranty document containing the terms and conditions of a limited warranty to be provided by Seller to Buyer at closing, which Buyer has read and understands (the "Limited Warranty"). The Limited Warranty is intended to be administered by HBW and requires that all disputes which arise under such Limited Warranty be submitted to binding arbitration. Validation of the Limited Warranty by HBW is not guaranteed by HBW, but, rather, is conditioned upon the satisfactory completion of all required inspections, Seller's compliance with all of HBW's enrollment procedures, and Seller remaining a member in good standing of the HBW Limited Warranty Program. Buyer understands and agrees that, if the above Limited Warranty is validated by HBW, it is provided by Seller in lieu of all other warranties, oral agreements, or representations and SELLER MAKES NO WARRANTY, EXPRESS OR IMPLIED AS TO QUALITY. FITNESS FOR A PARTICULAR PURPOSE. MERCHANTABILITY. HABITABILITY OR OTHERWISE, EXCEPT AS IS EXPRESSLY SET FORTH IN THE LIMTIED WARRANTY PROGRAM. IN ANY EVENT. SELLER SHALL NOT BE LIABLE FOR ANY PERSONAL INJURY OR OTHER CONSEQUENTIAL OR SECONDARY DAMAGES AND/OR LOSSES WHICH MAY ARISE FROM OR OUT OF ANY AND ALL DEFECTS.

(D.I. 1-1 A, Ex. 1 at ¶ 8) (emphasis in original) Petitioners initialed each page and signed the Agreement. (D.I. 1-1 A, Ex. 1) On September 21, 2005, Petitioners and Seller signed a "Builder Application for Home Enrollment" ("Enrollment Application") to formally apply for the warranty specified in paragraph eight of the Agreement. (D.I. 29 at 6) See also Home Buyers Warranty Corporation v. Jones, C.A. No. 15-mc-324-RGA-MPT, 2016 WL 2350103, at *2 (D. Del. May 4, 2016). The Enrollment Application states, in relevant part:

BUYER'S ACKNOWLEDGMENT AND CONSENT Your Builder is applying to enroll your home in the 2-10 HBW® - insured 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 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.

Home Buyers, C.A. No. 15-mc-324-RGA-MPT, 2016 WL 2350103, at *2 (emphasis in original). HBW then mailed Petitioners a Certificate of Warranty Coverage and a copy of the HBW Limited Warranty Booklet ("Warranty"). (D.I. 29, Ex. A; D.I. 27-1 A, Ex. 2).

         b. Procedural History

         On October 15, 2015, Petitioners filed a class action in the Delaware Superior Court against BPG Partners, BPGS, HBW, and NHIC.[4] (D.I. 27-1 A) On November 30, 2015, Respondents filed a petition in the District Court of Delaware to enforce the arbitration agreement in the Warranty. (D.I. 29, Ex. B) On May 4, 2016, Chief Magistrate Judge Thynge issued a Report and Recommendation, which recommended granting the Respondents' petition. See Home Buyers, C.A. No. 15-mc-324-RGA-MPT, 2016 WL 2350103. Judge Thynge's Report and Recommendation was adopted by District Judge Andrews on June 21, 2016. See Home Buyers Warranty Corporation v. Jones, C.A. No. 15-mc-324-RGA-MPT, 2016 WL 3457006 (D. Del. June 21, 2016). The court enjoined prosecution of the class action against Respondents pursuant to 28 U.S.C. § 2283, determined that Petitioners were required to arbitrate, and left the question of the arbitration agreement's validity to the arbitrator. Id. at *2-3.

         On July 22, 2016, Petitioners commenced the arbitration proceeding before the AAA against Respondents. (D.I. 27-1E) The sole question before the arbitrator was whether the arbitration agreement was valid, i.e., whether the arbitration provision was enforceable and not unconscionable. Home Buyers, C.A. No. 15-mc-324-RGA-MPT, 2016 WL 3457006, at *2. (See also D.I. 27-1G at ¶ 9) On August 19, 2016, Respondents asserted a counterclaim for attorney's fees, arbitration costs, and interest. (D.I. 27-1F) On February 14, 2017, the arbitration evidentiary hearing was held, and Howard D. Venzie (the "arbitrator") rendered his decision on May 10, 2017 in his "Ruling and Order on Enforecement [sic] of Arbitration Agreemnt [sic]" (the "Arbitration Order").[5] (D.I. 27 at 7; D.I. 27-1G) The Arbitration Order concluded that the arbitration agreement was valid and enforceable, and directed Petitioners to submit an amended arbitration demand. (D.I. 27-1G at ¶¶ 11-12)

         On May 23, 2017, Petitioners informed the arbitrator that they were appealing the Arbitration Order. (D.I. 29, Ex. D) The arbitrator stayed all proceedings until the appeal was completed. (D.I. 29 at 10) Respondents moved to dismiss the appeal on June 6, 2017. (D.I. 29, Ex. E) On June 8, 2017, the arbitrator lifted his suspension order and directed that the Petitioners respond to the Respondents' motion to dismiss the appeal and provide a copy of their appeal. (D.I. 29, Ex. F)

         On June 13, 2017, the Petitioners filed a petition in the Delaware Chancery Court seeking to vacate the Arbitration Order. (D.I. 29, Ex. C) On June 16, 2017, the Respondents removed the matter to this court. (D.I. 1) On July 12, 2017, the Petitioners moved to remand, which the court denied in a Report and Recommendation on May 29, 2018. (D.I. 6; D.I. 16) The Report and Recommendation denying remand was adopted by Judge Bataillon on August 21, 2018. (D.I. 22)

         The Petitioners submitted a copy of their Delaware Chancery Court petition to the arbitrator as proof of their appeal. (D.I. 29 at 11) On July 25, 2017, the arbitrator denied the Respondents' motion to dismiss the appeal and request for judgment before suspending the proceeding, pending the resolution of the present matter before the District Court. (D.I. 29, Ex. H)

         III. LEGAL STANDARD

         The Federal Arbitration Act ("FAA") gives courts an "extremely limited" role in reviewing arbitration awards. See Sheet Metal Workers v. Ariz. Mech. & Stainless, Inc., 863 F.2d 647, 653 (9th Cir. 1988). "An application to confirm an award must be granted so long as (1) the application is brought in the court specified by the parties, if one is specified; (2) 'at any time within one year after the award is made'; and (3) the award is not 'vacated, modified, or corrected as prescribed in sections 10 and 11' of the FAA." Boston Scientific Corp. v. Acacia Research Group, LLC, C.A. No. 17-1144-RGA, 2018 WL 3117549, at *2 (D. Del. June 25, 2018) (quoting 9 U.S.C. § 9). "It is irrelevant whether the courts agree with the arbitrator's application and interpretation of the agreement." Roberts & Schaefer Co. v. Local 1846, United Mine Workers of America, 812 F.2d 883, 885 (3d Cir. 1987) (quoting Arco-Polymers, Inc. v. Local 8-74, 671 F.2d 752, 755 (3d Cir. 1982)).

         The Supreme Court, in Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (2013), articulated the heavy burden parties challenging the validity of an arbitration award must carry:

A party seeking relief under [Section 10(a)(4) of the FAA] bears a heavy burden. "It is not enough ... to show that the [arbitrator] committed an error - or even a serious error." Because the parties "bargained for the arbitrator's construction of their agreement," an arbitral decision "even arguably construing or applying the contract" must stand, regardless of a court's view of its (de)merits. Only if "the arbitrator act[s] outside the scope of his contractually delegated authority" -issuing an award that "simply reflect[s] [his] own notions of [economic] justice" rather than "draw[ing] its essence from the contract" - may a court overturn his determination. So the sole question for us is whether the arbitrator (even arguably) interpreted the parties' contract, not whether he got its meaning right or wrong.

Oxford, 569 U.S. at 569 (internal citations omitted). An award is presumed "valid unless it is proven otherwise." Wall St. Assocs., L.P. v. Becker Paribas Inc.,27 F.3d 845, 848 (2d Cir. 1994). "Under the FAA, the validity of an award is subject to attack only on the grounds listed in ยง 10, and the policy of the FAA requires that the award be enforced unless ...


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