Jason S. Lambert | Dinsmore
Arbitration provisions are becoming more common in construction contracts, but a recent court decision reveals that enforcing these provisions requires more than just placing them in a contract. Contractors, especially those seeking to arbitrate claims involving multiple property owners or an entire homeowner or condominium association, must sufficiently establish that enough of the property owners agreed to arbitrate their claims.
Mattamy Florida LLC .v. Reserve at Loch Lack Homeowners Association, Inc. arose out of the construction of a subdivision by a developer. After completion of the development, the homeowners association sued the developer for failure to adequately develop, design, or construct the community. In response, the developer moved to compel arbitration, and attached a single purchase agreement and a single copy of a warranty. The developer claimed in the motion that all of the townhomes in the community were sold subject to those two documents. Notably though, the developer did not attach any affidavits in support of its motion, nor did it specify which homeowners had purchased units subject to the agreements, which homeowners were original purchasers, or how non-signatories to the agreements would be bound by them.
The association latched on to these shortcomings in its response to the motion, and further provided an affidavit from the association president indicating that the association did not know how many of the members of the association had executed the purchase agreements or agreed to the warranties. The trial court entered an order denying the contractor’s motion to compel arbitration without a hearing. Following the denial, the contractor filed a motion for rehearing and 98 home purchase agreements. This did not change the trial court’s ruling, so the contractor appealed.
On appeal, the contractor argued that the association was required to arbitrate its claim against the association due the underlying purchase agreements and limited warranties being binding on the homeowners that were members of the association. The Fifth District Court of Appeal declined to address this specific issue, and instead agreed with the trial court that the contractor failed to carry its burden of establishing the existence of an enforceable agreement to arbitrate. Specifically, the court said:
“Here, [the contractor] submitted its motion, unsupported by affidavits and with only a single purchase agreement and accompanying warranties attached. This left several factual questions unaddressed and [the contractor’s] position supported only by argument of counsel as presented in its initial motion to dismiss. And while it appears [the contractor] attempted to supply evidentiary support after its motion was denied, the trial court was not required to consider the filing.”
Accordingly, the matter stayed in litigation.
The importance of this case rests on the assumption that arbitration is generally faster and marginally cheaper than litigation. Further, arbitration can also make it more difficult for a class of individuals to stay together. Put another way, the individuals can be forced to arbitrate claims separately, increasing their individual costs. By losing the ability to compel arbitration, the contractor in this case lost a significant advantage.
Contractors who have arbitration provisions in their contracts should take care to preserve those rights and to use them to their advantage in litigation. Further, contractors who want to enforce arbitration provisions against potential class representatives, like a homeowners association or condo association, should take care to ensure that specific language regarding that is included in the arbitration provision. Language like this could have possible helped the contractor in this case.
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