Real Estate Law [size=6] [FONT=Times New Roman]Pennsylvania[/FONT][/size]
[FONT=Times New Roman]Court: Arbitration Clause in Home Inspection Is Enforceable [/FONT]
Alan Nochumson, The Legal Intelligencer April 10, 2017 | 0 Comments
Most, if not almost all, writtenagreements of sale to purchase residential real estate in Pennsylvania areconditioned upon a satisfactory property inspection. If the written agreementof sale, indeed, contains a property inspection contingency, the prospectivepurchasers will undoubtedly retain the services of a home inspector.
From my experience, prior toreceiving the written home inspection report from the home inspector, mostprospective purchasers are unwittingly asked to sign a home inspectionagreement which, among other things, requires them to address any disputes theymay have with the home inspector in connection with the home inspection throughalternative dispute proceedings and, in most cases, the home inspectionagreement also contains a clause limiting the liability of the home inspectorto the fee paid for the home inspection.
In Fellerman v. PECO Energy,2017 Pa. Super. LEXIS 209 (March 30, 2017), the Superior Court of Pennsylvaniaexplained why an arbitration clause contained in such a home inspectionagreement was enforceable as a matter of law.
In Fellerman, Stanleyand Carol Fellerman retained the services of Historic Home Inspection, d/b/aWIN Home Inspection to perform a home inspection in connection with theirpurchase 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 theinspection, exclusions and limitations of liability,” the opinion said.
The inspection agreement alsocontained a clause titled, “Dispute Resolution,” which provided inpertinent part that the "parties … agree that any dispute between theparties, except those for nonpayment of fees, that in any way, directly orindirectly, arising out of, connected with, or relating to the interpretationof this agreement, the inspection service provided, the report or any othermatter involving our service, shall be submitted to binding arbitrationconducted by and according to the accelerated arbitration rules and proceduresof constructive dispute resolution services."
The property purchased by theFellermans contained four utility poles that supported PECO power lines,Comcast cable lines and a PECO transformer.
After their purchase, theFellermans “discovered that the pole closest to their residence, supportingthe PECO transformer, had fallen to the ground in their ‘heavily wooded andleaf-covered front yard’ near their
home.”
According to the Fellermans,“the pole fell due to ‘severe rot, decay and deterioration.’”
Even worse, according to theFellermans, they notified PECO of the incident, but, prior to PECO’s arrival,Stanley Fellerman noticed that the fallen transformer as well as the power andcable 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 fileda lawsuit in the Philadelphia County Court of Common Pleas against Historic andothers due to the property and personal injury damage sustained by them.
In the lawsuit, the Fellermansasserted a breach of contract claim against Historic due to its alleged failureto discover or disclose the deteriorated condition of the utility pole inbreach of the inspection agreement as well as causes of action for negligentmisrepresentation, fraud and violations of Pennsylvania’s Uniform TradePractices and Consumer Protection Law.
Historic then filed preliminaryobjections claiming that the trial court lacked jurisdiction to adjudicate thelawsuit between the parties based upon the terms and conditions of thearbitration clause contained in the inspection agreement.
The trial court overruled thepreliminary objections.
Historic then appealed the trialcourt’s ruling to the Superior Court.
In an opinion written by JudgeAnne E. Lazarus, the Superior Court order reversed the trial court’s ruling andremanded the case back to the Philadelphia County Court of Common Pleas forproceedings 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 trialcourt 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 avalid agreement to arbitrate any disputes between them, other than a disputeabout payment for services so rendered by Historic.
In challenging whether a validagreement to arbitrate existed between Historic and them, the Fellermans arguedthat the arbitration clause was invalid because it was unconscionable.Specifically, the Fellermans claimed that the arbitration clause was illegibleand not conspicuous and, as a result, they were not put on adequate notice ofthe rights they were waiving.
Conceding that the arbitrationclause was “not easy to ready,” Historic emphasized that theFellermans signed it without asserting that it was illegible at the time ofsigning.
Relying upon a previously rulingby the Superior Court in Hinkal v. Pardoe , 133 A.3d 738 (PaSuper. Ct. 2016) (en banc), Historic asserted that “parties to a contracthave a duty to read the document before signing it, and the failure to do so isnot an excuse or defense.”
In reviewing a copy of theinspection agreement included in the reproduced record, Lazarus concluded"that, while it is not the clearest document, it is legible and capable ofbeing understood."
Lazarus also emphasized that theinspection agreement “contained a conspicuous statement at the very top,written in bold, capital letters and surrounded by a text box, which reads asfollows: 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 requestedthat he be provided with a legible copy prior to signing”, which they didnot.
Lazarus then addressed whetherthe dispute between Historic and the Fellermans fell within the scope of thearbitration clause.
Citing to Callan v. Oxford Land Development , 858 A.2d 1229(Pa. Super. Ct. 2004), Lazarus emphasized that Pennsylvania courts providethat: “Arbitration agreements are to be strictly construed and notextended by implication; and when parties have agreed to arbitrate in a clearand unmistakable manner, every reasonable effort should be made to favor theagreement unless it may be said with positive assurance that the arbitrationclause involved is not susceptible to an interpretation that covers theasserted dispute.”
Lazarus stated that thearbitration clause contained in the inspection agreement “provided thatthe parties agree that any dispute between them, except those for nonpayment offees, that in any way, directly or indirectly, arising out of, connected with,or relating to the interpretation of the inspection agreement, the inspectionservice provided, the report or any other matter involving our service, shallbe submitted to binding arbitration.”
Lazarus pointed out that"the Fellermans’ claims against Historic are all grounded in Historic’salleged failure to properly provide services, in breach of its contract withthe Fellermans," in that they sustained injuries as a result of Historic’salleged failure to disclose certain information regarding the power pole, inbreach of its obligation under the contract.
Since the Fellermans’ tort claimsall arise from duties they claim were owed them by Historic pursuant to theinspection agreement, Lazarus reasoned that “the facts which support atort action also support a breach of contract action and the tort claims aretherefore subject to the arbitration clause contained within theagreement.”
As an aside, in the opinion,Lazarus also referenced the argument made by the Fellermans that thearbitration clause should be void because the inspection agreement unreasonablyfavors Historic by seeking to limit damages to $780, the amount paid by theFellermans to Historic for the inspection fee.
In doing so, the Fellermansrelied 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 thatan arbitration clause was unconscionable and, therefore, unenforceable whereit contains a limitation of damages.
Unlike the arbitration clause in Carllwhich was "inextricably intertwined with the agreement to arbitration, thearbitrator’s authority in Fellerman in awarding damages against Historic wasnot limited in any way.
Since the same contractualprovision that directs arbitration did not limit the authority of thearbitrator in Fellerman, Lazarus refused to void the arbitration clause onthose grounds as a matter of law.
With that being said, Lazarusleft the door open for the arbitrator to ultimately strike the damagelimitation portion of the agreement upon public policy grounds, as the SuperiorCourt did in Carll, during the alternative dispute proceedings.
In a footnote, Lazarus alsorejected the Fellermans’ argument that arbitration was now not an appropriatevenue, as there are other defendants which are not a part of the agreement toarbitrate.
In making their argument, theFellermans indicated that, if the agreement to arbitrate was enforced, theywould be obligated to fight their dispute with the defendants separately inarbitration and judicial proceedings which would require “separatediscovery” and “enormous expense for all involved, and delay theultimate resolution of the matter.”
Lazarus nonetheless stated thatthe mandates of the Federal Arbitration Act, 9 U.S.C. Section 1 et seq.“favoring arbitration trumps notions of judicial economy and efficiencyand requires that otherwise valid arbitration agreements be enforced, evenwhere enforcement results in related disputes with multiple defendants beingadjudicated in separate forums.”