Court: Arbitration Clause In Home Inspection Is Enforceable
Written by: Alan Nochumson
Most, if not almost all, written agreements of sale to purchase residential real estate in Pennsylvania are conditioned upon a satisfactory property inspection. If the written agreement of sale, indeed, contains a property inspection contingency, the prospective purchasers will undoubtedly retain the services of a home inspector.
From my experience, prior to receiving the written home inspection report from the home inspector, most prospective purchasers are unwittingly asked to sign a home inspection agreement which, among other things, requires them to address any disputes they may have with the home inspector in connection with the home inspection through alternative dispute proceedings and, in most cases, the home inspection agreement also contains a clause limiting the liability of the home inspector to the fee paid for the home inspection.
In Fellerman v. PECO Energy, 2017 Pa. Super. LEXIS 209 (March 30, 2017), the Superior Court of Pennsylvania explained why an arbitration clause contained in such a home inspection agreement was enforceable as a matter of law.
In Fellerman, Stanley and Carol Fellerman retained the services of Historic Home Inspection, d/b/a WIN Home Inspection to perform a home inspection in connection with their purchase of a personal residence in New Hope, Bucks County, the opinion said.
In doing so, they executed an “inspection agreement,” which outlined “the scope of the inspection, exclusions and limitations of liability,” the opinion said.
The inspection agreement also contained a clause titled, “Dispute Resolution,” which provided in pertinent part that the ”parties … agree that any dispute between the parties, except those for nonpayment of fees, that in any way, directly or indirectly, arising out of, connected with, or relating to the interpretation of this agreement, the inspection service provided, the report or any other matter involving our service, shall be submitted to binding arbitration conducted by and according to the accelerated arbitration rules and procedures of constructive dispute resolution services.”
The property purchased by the Fellermans contained four utility poles that supported PECO power lines, Comcast cable lines and a PECO transformer.
After their purchase, the Fellermans “discovered that the pole closest to their residence, supporting the PECO transformer, had fallen to the ground in their ‘heavily wooded and leaf-covered front yard’ near their home.”
According to the Fellermans, “the pole fell due to ‘severe rot, decay and deterioration.'”
Even worse, according to the Fellermans, they notified PECO of the incident, but, prior to PECO’s arrival, Stanley Fellerman noticed that the fallen transformer as well as the power and cable lines had started a fire and, when he attempted to extinguish the fire, he was shocked, burned and severely injured, allegedly by the PECO power line.
The Fellermans subsequently filed a lawsuit in the Philadelphia County Court of Common Pleas against Historic and others due to the property and personal injury damage sustained by them.
In the lawsuit, the Fellermans asserted a breach of contract claim against Historic due to its alleged failure to discover or disclose the deteriorated condition of the utility pole in breach of the inspection agreement as well as causes of action for negligent misrepresentation, fraud and violations of Pennsylvania’s Uniform Trade Practices and Consumer Protection Law.
Historic then filed preliminary objections claiming that the trial court lacked jurisdiction to adjudicate the lawsuit between the parties based upon the terms and conditions of the arbitration clause contained in the inspection agreement.
The trial court overruled the preliminary objections.
Historic then appealed the trial court’s ruling to the Superior Court.
In an opinion written by Judge Anne E. Lazarus, the Superior Court order reversed the trial court’s ruling and remanded the case back to the Philadelphia County Court of Common Pleas for proceedings consistent with the dictates of that opinion.
Quoting Elwyn v. DeLuca, 48 A.3d 457 (Pa. Super. Ct. 2012), Lazarus “employed a two-part test to determine whether the trial court should have compelled arbitration.”
Citing to Pisano v. Extendicare Homes, 77 A.3d 651 (Pa. Super. Ct. 2013), Lazarus indicated that Pennsylvania courts first “examine whether a valid agreement to arbitrate exists” and then “determine whether the dispute is within the scope of the agreement.”
As to the first part of the test, Lazarus ultimately concluded that Historic and the Fellermans entered into a valid agreement to arbitrate any disputes between them, other than a dispute about payment for services so rendered by Historic.
In challenging whether a valid agreement to arbitrate existed between Historic and them, the Fellermans argued that the arbitration clause was invalid because it was unconscionable. Specifically, the Fellermans claimed that the arbitration clause was illegible and not conspicuous and, as a result, they were not put on adequate notice of the rights they were waiving.
Conceding that the arbitration clause was “not easy to ready,” Historic emphasized that the Fellermans signed it without asserting that it was illegible at the time of signing.
Relying upon a previously ruling by the Superior Court in Hinkal v. Pardoe, 133 A.3d 738 (Pa Super. Ct. 2016) (en banc), Historic asserted that “parties to a contract have a duty to read the document before signing it, and the failure to do so is not an excuse or defense.”
In reviewing a copy of the inspection agreement included in the reproduced record, Lazarus concluded “that, while it is not the clearest document, it is legible and capable of being understood.”
Lazarus also emphasized that the inspection agreement “contained a conspicuous statement at the very top, written in bold, capital letters and surrounded by a text box, which reads as follows: Prior to the inspection, please read carefully before signing.”
In reaching her conclusion, Lazarus noted that “if, as the Fellermans argue, the agreement was ‘smudged, blurry, in small print and incomplete,’ they could have requested that he be provided with a legible copy prior to signing”, which they did not.
Lazarus then addressed whether the dispute between Historic and the Fellermans fell within the scope of the arbitration clause.
Citing to Callan v. Oxford Land Development, 858 A.2d 1229 (Pa. Super. Ct. 2004), Lazarus emphasized that Pennsylvania courts provide that: “Arbitration agreements are to be strictly construed and not extended by implication; and when parties have agreed to arbitrate in a clear and unmistakable manner, every reasonable effort should be made to favor the agreement unless it may be said with positive assurance that the arbitration clause involved is not susceptible to an interpretation that covers the asserted dispute.”
Lazarus stated that the arbitration clause contained in the inspection agreement “provided that the parties agree that any dispute between them, except those for nonpayment of fees, that in any way, directly or indirectly, arising out of, connected with, or relating to the interpretation of the inspection agreement, the inspection service provided, the report or any other matter involving our service, shall be submitted to binding arbitration.”
Lazarus pointed out that “the Fellermans’ claims against Historic are all grounded in Historic’s alleged failure to properly provide services, in breach of its contract with the Fellermans,” in that they sustained injuries as a result of Historic’s alleged failure to disclose certain information regarding the power pole, in breach of its obligation under the contract.
Since the Fellermans’ tort claims all arise from duties they claim were owed them by Historic pursuant to the inspection agreement, Lazarus reasoned that “the facts which support a tort action also support a breach of contract action and the tort claims are therefore subject to the arbitration clause contained within the agreement.”
As an aside, in the opinion, Lazarus also referenced the argument made by the Fellermans that the arbitration clause should be void because the inspection agreement unreasonably favors Historic by seeking to limit damages to $780, the amount paid by the Fellermans to Historic for the inspection fee.
In doing so, the Fellermans relied upon the Superior Court’s decision in Carll v. Terminix International, 793 A.2d 921 (Pa. Super. Ct. 2002), in which the Superior Court held that an arbitration clause was unconscionable and, therefore, unenforceable where it contains a limitation of damages.
Unlike the arbitration clause in Carll which was “inextricably intertwined with the agreement to arbitration, the arbitrator’s authority in Fellerman in awarding damages against Historic was not limited in any way.
Since the same contractual provision that directs arbitration did not limit the authority of the arbitrator in Fellerman, Lazarus refused to void the arbitration clause on those grounds as a matter of law.
With that being said, Lazarus left the door open for the arbitrator to ultimately strike the damage limitation portion of the agreement upon public policy grounds, as the Superior Court did in Carll, during the alternative dispute proceedings.
In a footnote, Lazarus also rejected the Fellermans’ argument that arbitration was now not an appropriate venue, as there are other defendants which are not a part of the agreement to arbitrate.
In making their argument, the Fellermans indicated that, if the agreement to arbitrate was enforced, they would be obligated to fight their dispute with the defendants separately in arbitration and judicial proceedings which would require “separate discovery” and “enormous expense for all involved, and delay the ultimate resolution of the matter.”
Lazarus nonetheless stated that the mandates of the Federal Arbitration Act, 9 U.S.C. Section 1 et seq., “favoring arbitration trumps notions of judicial economy and efficiency and requires that otherwise valid arbitration agreements be enforced, even where enforcement results in related disputes with multiple defendants being adjudicated in separate forums.”
Reprinted with permission from the April 11, 2017 edition of The Legal Intelligencer © 2017 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, firstname.lastname@example.org or visit www.almreprints.com.