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Jones v. Home Buyers Warranty Corp.

United States District Court, D. Delaware

December 2, 2019




         This matter is before the Court on the objections of the petitioners, D.I. 35, to the report and recommendation of the magistrate judge, D.I. 34, denying petitioners' motion, D.I. 11, to vacate, modify or correct the arbitration award and granting respondents' motion to confirm the award, D.I. 28. This case involves an action for breach of contract and alleged residential construction defects. The parties arbitrated before the American Arbitration Association (AAA), and an order was issued by the arbitration judge. D.I. 1-1, 403, at PAGE ID #409. Petitioners moved to vacate or correct the arbitration award, and respondents moved to confirm the arbitration award. The magistrate judge recommends denying petitioner's motion and granting respondents' motion.


         The standard of review is governed by 28 U.S.C. § 636(b)(1)(C) and Federal Rule of Civil Procedure 72(b). The district court “shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made” and “may also receive further evidence or recommit the matter to the magistrate judge with instructions.” 28 U.S.C. § 636(b)(1)(C). Similarly, Rule 72(b)(3) requires de novo review of any recommendation that is dispositive of a claim or defense of a party.

         The Supreme Court has construed the statutory grant of authority conferred on magistrate judges under 28 U.S.C. § 636 to mean that nondispositive pretrial matters are governed by § 636(b)(1)(A) and dispositive matters are covered by § 636(b)(1)(B). Gomez v. United States, 490 U.S. 858, 873-74 (1989); see also Fed. R. Civ. P. 72(a). Under subparagraph (B), a district court may refer a dispositive motion to a magistrate judge “to conduct hearings, including evidentiary hearings, and to submit to a judge of the court proposed findings of fact and recommendations for the disposition.” 28 U.S.C. § 636(b)(1)(B); see EEOC v. City of Long Branch, 866 F.3d 93, 99-100 (3d Cir. 2017). The product of a magistrate judge, following a referral of a dispositive matter, is often called a “report and recommendation.” Id.“Parties ‘may serve and file specific written objections to the proposed findings and recommendations' within 14 days of being served with a copy of the magistrate judge's report and recommendation.” Id. (quoting Fed.R.Civ.P. 72(a) and (b)(2)).


         Petitioners object to the report and recommendation and ask this court to vacate the arbitration award. In particular, petitioners allege that the warranty requires that all disputes under the “limited warranty” shall be submitted to binding arbitration. D.I. 27-1 PageID #1064. Petitioners argue, however, that they received a warranty, unlike the one submitted by the defendants, that states,

“[a]ny and all claims… by or between the homeowner, the Builder, The Warranty Insurer and/or HBW…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 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, an breach of any alleged duty of good faith and fair dealing shall be settled by binding arbitration…”

(D.I. 27-1 Page ID #1079) (emphasis added). Plaintiff contends that the warranty they were shown in the Agreement was different than this one that they received in the mail, and the initial warranty “requires that all disputes which arise under the limited warranty be submitted to binding arbitration.” (D.I. 27-1 PageID #1064).

         BPG Residential Partners IV, LLC, contends petitioners, was a stranger to both the Warranty and the arbitration. The claims against it were in Delaware Superior Court. Yet, contends petitioners, the Arbitrator ordered the petitioners in the case before this Court to assert their separate non-warranty claims in an amended demand for arbitration.[1]This, argues petitioners, was beyond the scope of the authority of the arbitrator.

         The Arbitrator thereafter seemingly agreed that he had overreached and attempted to fix the overreach on July 25, 2017, but the AAA rules apparently stop the changing of an award after the evidentiary hearing closes. The magistrate judge, though, accepted the clarification and the respondents agreed that the award did not require the petitioners to submit their non-party claims to arbitration. Petitioners contend that the magistrate judge's decision that the Arbitrator was just trying to have petitioners amend their complaint so that the “so that the merits of their breach of warranty claims against Respondents could be formally asserted in arbitration” is erroneous and outside the scope of arbitration. Report, D.I. 34 at 8. The magistrate judge, argues petitioners, cannot do so alter the award. Thus, the petitioners argue that the arbitrator created his own standard of law and failed to apply the 10 standards under Fritz for unconscionability. See Fritz v. Nationwide Mut. Ins. Co., 1990 WL 186448 (Del. Ch. Nov. 26. 1990); Jones v. Home Buyers Warranty, 2019 WL 2067650, at *6 (D. Del. May 10, 2019).


         The magistrate judge outlined the facts on pages 2 through 5. D.I. 34. The Court finds the facts are accurate as discussed and adopts them in their entirety.

         The primary question at arbitration was whether the arbitration agreement was valid, that is, whether the arbitration provision was enforceable and not unconscionable. See e.g., Jones v. Home Buyers, 2016 WL 3457006, at *2 (D. Del. June 21, 2016); see also D.I. 27-1, at ¶ 9. The magistrate judge noted that the decision of the arbitrator, per the Agreement, is final and binding. The magistrate judge determined that the decision regarding class certification does not violate 9 U.S.C. § 10(a)(4) as argued by petitioners. D.I. 34 at 9. Respondents argued that since the petitioners submitted only one issue and it regarded the validity and enforceability of the arbitration agreement which the arbitrator determined was valid, the arbitrator correctly ordered petitioners to file an amended demand for arbitration “so that the merits of their breach of warranty claims against Respondents could be formally asserted in arbitration. See D.I. 27- 1 G at, ¶ 12).” D.I. 34 at 8. The magistrate judge stated “[p]etitioners have failed to carry their ‘heavy burden' of showing that the arbitrator ‘act[ed] outside the scope of his contractually delegated authority.'” D.I. 34 at 9. See also,Oxford Health Plans v. Sutter, 569 U.S. 564, 569 (2013) (“A party seeking relief under that provision bears a heavy burden. It is not enough ... to show that the [arbitrator] committed an error-or even a serious error.” Stolt- Nielsen, 559 U.S., at 671, 130 S.Ct. 1758). Therefore, the Court ...

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