Allstate Ins. Co. v. Toll Bros., Inc.
Decision Date | 21 March 2016 |
Docket Number | No. 5:15-cv-05225,5:15-cv-05225 |
Citation | 171 F.Supp.3d 417 |
Parties | Allstate Insurance Company, Plaintiff, v. Toll Brothers, Inc.; Commonwealth Fire Protection Company, Inc.; United Insulation Services, Inc. ; Toll Bros., Inc.; Toll PA XIII, L.P., Defendants. |
Court | U.S. District Court — Eastern District of Pennsylvania |
Kevin M. McBeth, De Luca Levine, LLC, Blue Bell, PA, for Plaintiff.
J. Mark Pecci, II, Marks O'Neill O'Brien Doherty & Kelly PC, Lauren A. Moser, Marshall Dennehey Warner Coleman & Goggin, Philadelphia, PA, Amy G. Wirth, Lois M. Shenk, Cipriani & Werner, P.C., Blue Bell, PA, Stephen E. Moore, Weinraub & Miller, Norristown, PA, for Defendants.
Motion to Compel Arbitration, ECF No. 27—Granted in Part
Between 2006 and 2007, Defendants Toll Bros., Inc. and Toll PA XIII, L.P. (collectively, “Toll”)1 , a developer and general contractor respectively, constructed a home located in Exton, Pennsylvania. See Compl. ¶¶ 2, 4-5, 13. During the construction, Toll was responsible for overseeing and directing various subcontractors who assisted with the work. Id.¶ 4. Among those subcontractors were Defendant Commonwealth Fire Protection Company, Inc., which specializes in sprinkler systems, and Defendant United Insulation Services, Inc., which specializes in the installation of insulation. Id.¶¶ 6-9.
After construction was completed and the home was sold, Plaintiff Allstate Insurance Company provided the buyers with homeowner's insurance. Id.¶ 2. On January 7, 2014, a frozen sprinkler pipe burst, causing damage in the amount of $160,148.88. Id.¶ 18, 23. According to Allstate, the damage is due to a “wet fire suppression system” installed in an improperly insulated and unheated space. Id.¶ 19. Allstate claims that each Defendant had a hand in this defect: Commonwealth Fire failed to properly install the sprinkler pipes in an area that would be protected from freezing temperatures, United Insulation failed to properly insulate the area near the sprinkler pipes, and Toll failed to properly monitor its subcontractors and inspect their work. Id.¶¶ 15-17. Allstate, as subrogee of the buyers, asserts claims for negligence, breach of contract, and breach of express and implied warranties against each of them.
Pointing to an arbitration clause contained in the Agreement of Sale that the buyers entered into with Toll, Toll moves to compel arbitration and dismiss Allstate's Complaint. The pertinent section of the Agreement of Sale reads as follows:
Allstate opposes Toll's motion to compel arbitration, arguing that the arbitration clause and the Agreement of Sale are unenforceable. Those contentions lack merit, which means that Allstate must arbitrate its claims against Toll. However, since the buyers did not enter into an agreement to arbitrate with Commonwealth Fire or United Insulation, Toll cannot compel Allstate to resolve those claims through arbitration, and those claims will remain in this action.
Initially, it is important to observe the grounds on which Allstate is not attacking the arbitration clause. Allstate does not argue that its claims do not fall within the scope of this clause, or that Toll Bros., Inc. is not a “parent company,” “subsidiary,” or “affiliate” of Toll PA XIII, L.P.—the signatory to the Agreement—or that the buyers were not aware of the existence of the arbitration clause. Instead, Allstate contends that the parties never formed an agreement to arbitrate because the buyers did not receive any consideration for entering into the Agreement of Sale, and that the arbitration clause is unconscionable under Pennsylvania law.3 Neither contention is meritorious.
According to Allstate, “[i]t was only after the [buyers] had paid a deposit and construction had commenced, that Toll Brothers presented the mandatory arbitration provision to the [buyers] within the Sales Agreement,” which means that the buyers did not receive any consideration for entering into the Agreement. See Allstate Mem. Opp'n 7, ECF No. 29.
Before reaching the merits of that contention, the Court must answer a preliminary question: is this a question for the Court to resolve, or an arbitrator? The Supreme Court determined that unless a party resisting arbitration is challenging “the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance.” See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445–46, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006) (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) ). Accordingly, “attacks on the validity of an entire contract, as distinct from attacks aimed at the arbitration clause, are within the arbitrator's ken.” Preston v. Ferrer, 552 U.S. 346, 353, 128 S.Ct. 978, 169 L.Ed.2d 917 (2008) (citing Prima Paint, 388 U.S. at 403–04, 87 S.Ct. 1801 ). This suggests that Allstate's challenge must be arbitrated, because a lack of consideration would call the entire agreement—not just an arbitration clause within—into question. See Antkowiak v. TaxMasters, 455 Fed.Appx. 156, 161 (3d Cir.2011) ().
However, it is also “well settled that where the dispute at issue concerns contract formation, the dispute is generally for the courts to decide.” Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 296, 130 S.Ct. 2847, 177 L.Ed.2d 567 (2010) (citing First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) ). Consideration is “a required element of contract formation” in Pennsylvania. ATACS Corp. v. Trans World Commc'ns, Inc., 155 F.3d 659, 665 (3d Cir.1998) (citing Channel Home Ctrs. v. Grossman, 795 F.2d 291, 299 (3d Cir.1986) ). Consistent with that reasoning, the Third Circuit has entertained a challenge to an arbitration agreement on the ground that the agreement lacked consideration. See Blair v. Scott Specialty Gases, 283 F.3d 595, 603–04 (3d Cir.2002) ( ); see also Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 160–61 (3d Cir.2009) ( ).
By stating that issues of contract formation are “generally” for the courts, Granite Rock leaves open the possibility that those too could be delegated to arbitration. See Janiga v. Questar Capital Corp., 615 F.3d 735, 738 (7th Cir.2010) (citing Rent – A – Cente r , West, Inc. v. Jackson, 561 U.S. 63, 71–76, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010) ) (); see also Granite Rock, 561 U.S. at 296–97, 130 S.Ct. 2847 ( ). The possibility that even disputes over contract formation could be committed to arbitration is consistent with a third principle of the Court's arbitration jurisprudence: “parties can...
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