338 P.3d 123 (N.M.App. 2014), 33,126, Damon v. StrucSure Home Warranty, LLC

• Docket Nº: 33,126
• Citation: 338 P.3d 123, 2014 -NMCA- 116
• Opinion Judge: LINDA M. VANZI, Judge.
• Party Name: JASON B. DAMON and MICHELLE T. DAMON, Plaintiffs-Appellees, v. STRUCSURE HOME WARRANTY, LLC, Defendant-Appellant, and BRIAN MCGILL, an individual; JANELLE MCGILL, an individual; CARRIE TRAUB, individually and as a licensed associate real estate broker; JUMP, INC. d/b/a COLDWELL BANKER LEGACY, a New Mexico corporation; VISTA DEL NORTE DEVELOPMENT, L
• Attorney: Tal Young, P.C., Steven Tal Young, Albuquerque, N.M. for Appellees. Brownstein Hyatt Farber Schreck, LLP, Eric R. Burris, Adam E. Lyons, Albuquerque, N.M. for Appellant.
• Judge Panel: LINDA M. VANZI, Judge. WE CONCUR: MICHAEL D. BUSTAMANTE, Judge. CYNTHIA A. FRY, Judge. MICHAEL D. BUSTAMANTE, Judge, CYNTHIA A. FRY, Judge
• Case Date: August 19, 2014
• Court: Court of Appeals of New Mexico

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338 P.3d 123 (N.M.App. 2014)

2014 -NMCA- 116

JASON B. DAMON and MICHELLE T. DAMON, Plaintiffs-Appellees,

v.

STRUCSURE HOME WARRANTY, LLC, Defendant-Appellant, and BRIAN MCGILL, an individual; JANELLE MCGILL, an individual; CARRIE TRAUB, individually and as a licensed associate real estate broker; JUMP, INC. d/b/a COLDWELL BANKER LEGACY, a New Mexico corporation; VISTA DEL NORTE DEVELOPMENT, LLC, a New Mexico Limited Liability Company; and STILLBROOKE HOMES, INC., a New Mexico corporation, Defendants

No. 33,126

Court of Appeals of New Mexico

August 19, 2014

Released for Publication December 2, 2014.

APPEAL FROM THE DISTRICT COURT OF BERNALILLO COUNTY. Nan G. Nash, District Judge.

Tal Young, P.C., Steven Tal Young, Albuquerque, N.M. for Appellees.

Brownstein Hyatt Farber Schreck, LLP, Eric R. Burris, Adam E. Lyons, Albuquerque, N.M. for Appellant.

LINDA M. VANZI, Judge. WE CONCUR: MICHAEL D. BUSTAMANTE, Judge. CYNTHIA A. FRY, Judge.

OPINION

LINDA M. VANZI, Judge.

[¶1] In this case, we address whether a party to a home warranty contract can enforce an arbitration provision contained in

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that warranty against a nonparty who nevertheless seeks to invoke its benefits. Plaintiffs Michelle and Jason Damon sued Defendant StrucSure Home Warranty, LLC, (StrucSure) and others for structural defects in their home. StrucSure filed a motion to compel arbitration pursuant to a provision in the home warranty it issued to the builder and original purchasers of the property. The district court denied the motion on the basis that Plaintiffs were not parties to the StrucSure warranty and, because they did not bargain for or acknowledge the arbitration provision, they could not be bound by it. We reverse. We hold that a nonparty who directly seeks the benefits of a warranty agreement is equitably estopped from refusing to comply with a reasonable arbitration provision contained in the same agreement.

BACKGROUND

[¶2] StrucSure is a warranty administrator providing express limited warranty protection for homeowners. The warranty at issue in this case was part of a contract between the builder (Stillbrooke Homes) and the original purchasers of Plaintiffs' home. It includes an enrollment application form signed by a representative of StrucSure, the builder, and the original owners, as well as a warranty coverage booklet, which describes the terms of the warranty. The enrollment application form states that, by signing, the parties specifically acknowledge that they agree with all of the requirements in the warranty coverage booklet. The warranty coverage booklet provides that:

[w]ithin the limitations described within these two documents, your Builder warrants that your home will be free from qualifying structural defects, and, if provided, will be free from defects in workmanship/ materials and the delivery portion of systems (piping, wiring, ductwork).

It also contains a binding arbitration agreement, which states, in relevant part:

Any claims, disagreements, disputes or controversies involving You, Your Builder, the Administrator, or the Insurer, or in any combination thereof, which involves this Warranty, the Builder, the Home, the construction or sale of the Home by the Builder, or the real property upon which the Home is constructed, shall be submitted to arbitration. . . . The decisions of the arbitrator will be final and binding, and may be entered as such in any legal proceeding before any court having competent jurisdiction thereof.

A " claim, disagreement, dispute or controversy" is defined as:

an unresolved complaint or claim made under this Warranty; tort allegations, involving misrepresentation, nondisclosure, execution or performance of any contract (including this Warranty or this arbitration agreement); negligence, allegations regarding the breach of the duty of good faith or fair dealing, construction defects or deceptive trade practices.

The stated purpose of the arbitration agreement is to allow any party to the contract " to achieve a legally binding resolution (through an independent third-party arbitration service) of any dispute without resorting to costly and time-consuming litigation." Finally, the agreement, which states that it is self-activating, provides that issues regarding arbitrability are governed by the Federal Arbitration Act (FAA), 9 U.S.C. § § 1-6 (2012).

[¶3] The original owners conveyed the home to Cartus Financial, which sold the home to Plaintiffs. The warranty documents were not part of Plaintiffs' purchase documents with Cartus, and Plaintiffs did not sign either document comprising the warranty. Nevertheless, they assert that the warranty " induced" them to buy the home. At the same time, they assert they did not know about the arbitration agreement in the warranty until after they purchased the home.

[¶4] The underlying dispute arose after the home began to exhibit signs of structural failure. Plaintiffs initially filed a warranty claim with StrucSure but ultimately filed this lawsuit against multiple defendants, including StrucSure. Plaintiffs' complaint alleges that StrucSure " served to insure the structural integrity" of their home by issuing the warranty and conducting the investigation after Plaintiffs discovered the structural defects and that the warranty made Plaintiffs expect the home and property were " of a certain quality" and that the defendants, including

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StrucSure, would honor the warranty and remedy any structural issues that arose. Plaintiffs also allege StrucSure was aware of the structural issues with their home and refused to rectify them. The complaint asserts nine claims: breach of contract, unjust enrichment, negligent misrepresentation, negligence, professional negligence, breach of the New Mexico Unfair Practices Act, rescission, breach of warranty, and a claim for punitive damages, although it is unclear which claims are specifically asserted against StrucSure.

[¶5] StrucSure moved to compel arbitration of Plaintiffs' claims against it pursuant to the terms of the arbitration agreement. The district court denied the motion, and StrucSure timely appealed.

DISCUSSION

[¶6] This Court reviews de novo both the denial of a motion to compel arbitration and the applicability and construction of a contractual provision requiring arbitration. Barron v. Evangelical Lutheran Good Samaritan Soc'y, 2011-NMCA-094, ¶ 13, 150 N.M. 669, 265 P.3d 720. The parties do not dispute that the arbitration agreement in the warranty provision is subject to the FAA. We discuss the district court's ruling before turning to the applicability of equitable estoppel to the facts of this case. We then address Plaintiffs' alternative arguments as to why the district court's decision should be affirmed.

[¶7] The district court in this case relied on two cases in reaching its decision that Plaintiffs cannot be bound to arbitrate their claims against StrucSure. Both Clay v. New Mexico Title Loans, Inc., 2012-NMCA-102, ¶ 14, 288 P.3d 888, and AT& T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986), expressly state that " arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed to submit." (Internal quotation marks and citation omitted.) This language was the linchpin of the district court's ruling. Notwithstanding the holdings of Clay and AT& T, however, we are unpersuaded that these cases are analogous to the issue here. We explain.

[¶8] In Clay, the plaintiff failed to repay a loan secured by his vehicle from New Mexico Title Loans. Clay, 2012-NMCA-102, ¶ 2. Two employees of the company hired to enforce the lender's security interest tried to repossess the plaintiff's truck. Id. The plaintiff resisted, and one of the employees shot him, leaving him unable to walk. Id. After the plaintiff sued the lender, among others, the lender moved to compel arbitration, invoking a provision in the lending agreement that committed to arbitration " any claim, dispute or controversy . . . that in any way arises from or relates to this Agreement or the Motor Vehicle securing this Agreement." Id. (alteration and internal quotation marks omitted). The arbitration provision, however, excluded the lender's right to enforce its security interest " by using self-help." Id. ¶ 17 (internal quotation marks omitted). At issue was whether the plaintiff's...