Masteller v. Champion Home Builders, Co.

• Decision Date: 18 October 2006
• Docket Number: No. 23936.,23936.
• Citation: 723 N.W.2d 561,2006 SD 90
• Parties: Timothy MASTELLER and Ronna Masteller, individually and as Guardian Ad Litem for S.R.S. and J.R.E.S., Minor Children, Plaintiffs and Appellees, v. CHAMPION HOME BUILDERS, CO. and Iseman Corp., Defendants and Appellants.
• Court: South Dakota Supreme Court

723 N.W.2d 561

2006 SD 90

Timothy MASTELLER and Ronna Masteller, individually and as Guardian Ad Litem for S.R.S. and J.R.E.S., Minor Children, Plaintiffs and Appellees, v. CHAMPION HOME BUILDERS, CO. and Iseman Corp., Defendants and Appellants.

No. 23936.

Supreme Court of South Dakota.

Considered on Briefs on August 28, 2006.

Decided October 18, 2006.

Christina L. Fischer of May, Adam, Gerdes & Thompson L.L.P. Pierre, South Dakota, Attorneys for plaintiffs and appellees.

Robert C. Riter, Jr. of Riter, Rogers, Wattier & Brown L.L.P., Pierre, South Dakota, Attorneys for defendants and appellants.

KONENKAMP, Justice.

[¶ 1.] In this lawsuit against Champion Home Builders Company and Iseman Corporation, the circuit court ruled that an arbitration clause in Champion's warranty booklet was not enforceable. We affirm.

Background

[¶ 2.] Timothy and Ronna Masteller signed a purchase agreement with Iseman Corporation on June 13, 2004, to buy a home manufactured by Champion Homes Company. With respect to warranties, the purchase agreement provided three relevant clauses. First, at the beginning of the agreement, it stated, "Purchaser acknowledges that there is an expressed warranty provided by the manufacturer and there are no other warranties expressed or implied being given by the dealer nor is the purchase being guaranteed for any particular purpose or use." Second, in a section entitled "Additional Terms and Conditions," the agreement stated, "The structure of a new mobile or manufactured home, or other described unit are warranted assuming reasonable wear and tear for a period of one year from the date of delivery against defects in workmanship and materials by the manufacturer." Third, the agreement closed with, "THIS AGREEMENT CONTAINS THE ENTIRE UNDERSTANDING BETWEEN U.S. AND NO OTHER REPRESENTATION OR INDUCEMENT, VERBAL OR WRITTEN, HAS BEEN MADE WHICH IS NOT SET FORTH HEREIN." Nothing in this document mentioned any existing or future arbitration clause.

[¶ 3.] After installation of the home, on November 30, 2004, a representative of Iseman handed the Mastellers Champion's "Homeowner's Guide, Limited Warranty and Arbitration Agreement." The Mastellers signed a "New Home Delivery and Inspection Walk Through Form." In this form, they were asked whether the "[f]actory & supplier warranties were received and understood." To this, they answered, "Yes." The following December, January, March, and April 2005, the Mastellers requested and received service work on their home. On all but one occasion, after the work was performed, one of the Mastellers signed a "Champion Homes Division, Service Work Order," which contained the following phrase under the signature line: "confirms acceptance and satisfaction of warranty work performed."

[¶ 4.] In May 2005, the Mastellers brought suit against Iseman and Champion Home Builders (defendants), asserting five causes of action related to defects that existed at the time the home was delivered, which had not been remedied by defendants.¹ Defendants moved in circuit court to compel arbitration.

[¶ 5.] At the hearing, defendants maintained that the Mastellers agreed to arbitrate all claims, controversies, and disputes related to both defendants. According to defendants, when the Mastellers signed the June 13, 2004 contract with Iseman, they acknowledged that the manufacturer would provide an express warranty. Then, on November 30, 2004, the Mastellers received this express warranty in a document entitled, "Homeowner's Guide, Limited Warranty and Arbitration Agreement" (Homeowner's Guide). Although the Mastellers did not sign the Homeowner's Guide, defendants claimed that, by later requesting and receiving warranty work, their conduct effected the necessary assent. Further, because the Mastellers' second cause of action was for breach of Champion's express warranty, defendants asserted that the Mastellers were estopped from seeking only the benefits of an agreement, but not the burdens.

[¶ 6.] In response, the Mastellers argued that the only agreement they were aware of was the June 13 contract, which did not include an arbitration clause. The June 13 contract, they claimed, contained an express warranty, which was the only warranty they "agreed to accept." Moreover, according to the Mastellers, at no time did they request warranty work from defendants. Instead, they argued that the work performed by defendants was related to its continued effort to remedy the defects that existed when the home was installed. Therefore, they insisted that defendants should not be able to unilaterally enforce the arbitration clause because they were neither informed of its existence at the time they signed the purchase agreement nor asked to sign the document purporting to bind them.

[¶ 7.] At the conclusion of the hearing, the circuit court denied defendants' motion to compel arbitration. It found that "defendants delivered the [Homeowner's Guide] to the [Mastellers] but that there was no meeting of the minds between [the parties] regarding the said document." Because there was not a meeting of the minds, the court held that the Homeowner's Guide did "not constitute a valid or enforceable contract."

[¶ 8.] Defendants appeal, claiming that the circuit court erred when it did not compel arbitration because (a) a written arbitration agreement does not require a party's signature to be binding, and (b) by requesting and receiving warranty work, the Mastellers are bound by the arbitration clause in Champion's Homeowner's Guide.

Standard of Review

[¶ 9.] The validity of an arbitration agreement is a mixed question of law and fact. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947-48, 115 S.Ct. 1920, 1926, 131 L.Ed.2d 985, 996 (1995). Therefore, we review de novo the circuit court's interpretation of an arbitration agreement. See Flandreau Public School Dist. No. 50-3 v. G.A. Johnson Const., Inc., 2005 SD 87, ¶ 7, 701 N.W.2d 430, 434 (citing First Options, 514 U.S. at 947-48, 115 S.Ct. at 1926, 131 L.Ed.2d at 996). A circuit court's factual findings supporting its decision, however, are reviewed under the clearly erroneous standard of review. Dominium Austin Partners, L.L.C. v. Emerson, 248 F.3d 720, 727 (8th Cir.2001) (citing PCS Nitrogen Fertilizer, L.P. v. The Christy Refractories, L.L.C., 225 F.3d 974, 978 (8th Cir.2000)); see also First Options, 514 U.S. at 947-48, 115 S.Ct. at 1926, 131 L.Ed.2d at 996; Lyster v. Ryan's Family Steak Houses, Inc., 239 F.3d 943, 945 (8th Cir.2001).

Analysis and Decision

[¶ 10.] This case presents the question whether an arbitration agreement neither signed by the parties upon whom it is sought to be enforced, nor accepted through written acknowledgement or oral agreement, may still be enforceable by acceptance through conduct. Defendants argue that the arbitration agreement was accepted when the Mastellers assented to it by requesting and receiving the benefits (warranty work) of the agreement containing the arbitration clause.

[¶ 11.] The Federal Arbitration Act provides that "[a] written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2; see also SDCL 21-25A-1. While arbitration agreements are favored, they are "a matter of consent, not coercion[.]" Volt Info. Sciences, Inc. v. Bd. of Trs. of the Leland Stanford Junior Univ., 489 U.S. 468, 479, 109 S.Ct. 1248, 1256, 103 L.Ed.2d 488 (1989). Therefore, the law requires that there be a valid agreement to arbitrate before parties will be compelled to arbitrate a dispute. Dinsmore v. Piper Jaffray, Inc., 1999 SD 56, ¶ 11, 593 N.W.2d 41,44. When examining whether a party is bound by an arbitration agreement, we apply South Dakota contract law. Id. (citing First Options, 514 U.S. at 943, 115 S.Ct. at 1924, 131 L.Ed.2d at 993; Houlihan v. Offerman & Co., Inc., 31 F.3d 692, 694-95 (8th Cir.1994)).

[¶ 12.] The Mastellers contend that there was no meeting of the minds on the provisions of the Homeowner's Guide. They claim that the only agreement and warranties they accepted were those provided through the June 13, 2004 contract. Therefore, they insist that the arbitration agreement lacks mutual assent and is unenforceable under SDCL 53-3-3. Defendants, on the other hand, contend that the June 13, 2004 contract did not give the Mastellers a warranty, but instead informed them that a "warranty would be provided." Then, defendants argue, because the actual warranty was provided on November 30, 2004, in the Homeowner's Guide, and the Mastellers requested and accepted warranty work, the arbitration agreement should be enforced.

[¶ 13.] It is undisputed that the June 13, 2004 contract did not contain an arbitration agreement or indicate that one was forthcoming. It declares that "Purchaser acknowledges that there is an express warranty provided by manufacturer." (Emphasis added). On the second page of the contract, a warranty statement is expressly included: "[t]he structure of a new mobile or manufactured home, or other described unit are warranted, assuming reasonable wear and tear, for a period of one year from the date of delivery against defects in workmanship and materials by the manufacturer." Therefore, defendants' contention that the Mastellers knew or should have known a manufacturer's warranty would be provided in the future is problematic. Still, even if a later warranty document should have been anticipated, nothing in the contract they signed portended an arbitration clause. Parties cannot be bound to contracts they never agreed...