Homes By Pate, Inc. v. DeHaan

• Decision Date: 18 June 1999
• Docket Number: No. 06A04-9804-CV-196.,06A04-9804-CV-196.
• Citation: Homes By Pate, Inc. v. DeHaan, 713 N.E.2d 303 (Ind. App. 1999)
• Parties: HOMES BY PATE, INC., Appellant-Plaintiff, v. Christel DeHAAN, Appellee-Defendant.
• Court: Indiana Appellate Court

713 N.E.2d 303

HOMES BY PATE, INC., Appellant-Plaintiff, v.Christel DeHAAN, Appellee-Defendant.

No. 06A04-9804-CV-196.

Court of Appeals of Indiana.

June 18, 1999.

Thomas B. Blackwell, Eric D. Johnson, Kightlinger & Gray, Indianapolis, Indiana, Attorneys for Appellant.

Julia Blackwell Gelinas, Alan S. Brown, Locke Reynolds Boyd & Weisell, Indianapolis, Indiana, Attorneys for Appellee.

OPINION

BAILEY, Judge

Case Summary

Appellant-Plaintiff Homes by Pate, Inc.("Pate") appeals the trial court's order granting judgment in favor of Appellee-DefendantChristel DeHaan("DeHaan") on Pate's amended complaint for stay of arbitration.We affirm.

Issue

Pate raises two issues on appeal which we consolidate and restate as whether the trial court erred in denying the motion to stay and in ordering the parties to proceed to arbitration.

Facts

On May 23, 1990, Pate and DeHaan entered into a Residential Building Contract by which Pate agreed to construct a residence for DeHaan.¹The contract contained the following provision:

[Pate] warrants to [DeHaan] that the work performed under this Agreement shall be done in a good and workmanlike manner in accordance with the Plans and Specifications and generally accepted building practices....[Pate] DOES HEREBY WARRANT TO [DeHaan] THAT THE HOME AND ALL WORK INCIDENT THERETO SHALL BE FREE FROM ALL DEFECTS AND [Pate] SHALL PROVIDE [DeHaan] WITH A WRITTEN WARRANTY AND SERVICE POLICY ... WHICH IS ATTACHED HERETO ... INCORPORATED HEREIN AND EXPRESSLY MADE A PART HEREOF, THE RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED BY [DeHaan].

(R. 150-51).The Contractor's Warranty and Service Policy ("the warranty") provided in relevant part as follows:

[Pate] will correct improper workmanship and repair or replace defective materials or components which have caused any substantial structural alteration or change in the home, subject to the limitations set forth in Section II.

....

In the event a dispute arises with respect to whether particular repairs or replacements are covered by the WARRANTY, whether covered in Part I, Part II, Part III, Part IV or Part V, and such dispute cannot be amicably resolved, [Pate], the SUBCONTRACTORS, and [DeHaan], agree that the dispute will be settled by arbitration in accordance with standard construction industry practice and the rules of the American Arbitration Association....

(R. 169, 174-75).Finally, the warranty provided as follows:

If a problem is experienced in any of the above identified areas, it is the responsibility of [DeHaan] to promptly notify [Pate].[Pate] will, upon receiving the written notice, take the necessary action to help insure that the subcontractor resolves said problems in strict compliance with his written WARRANTY.

(R. 171).The terms of the warranty were valid for a period of two years from the date of occupancy.

DeHaan assumed possession of the residence on November 10, 1991.Within six months, problems with the home's heating and cooling system developed.Apparently Pate refused to correct the defects, and on November 20, 1997, DeHaan filed a demand for arbitration with the American Arbitration Association.Pate thereafter filed an Amended Complaint for Stay of Arbitration pursuant to IND.CODE § 34-4-2-3(b)² claiming no enforceable agreement to arbitrate existed.³After two hearings on the matter, the trial court entered findings and conclusions denying Pate's motion to stay and ordering the parties to proceed to arbitration.This appeal ensued.

Discussion and Decision

Standard of Review

It is well settled that Indiana recognizes a strong policy favoring enforcement of arbitration agreements.Northwestern Mut. Life Ins. Co. v. Stinnett,698 N.E.2d 339, 343(Ind.Ct.App.1998).Nevertheless, arbitration is a matter of contract, and a party cannot be required to submit to arbitration unless the party has agreed to do so.Id. at 341(quotingInternational Creative Management, Inc. v. D & R Entertainment Co., Inc.,670 N.E.2d 1305, 1311(Ind.Ct.App. 1996, trans. denied)).Where a court is asked to compel or stay arbitration, it faces the threshold question of whether the parties have agreed to arbitrate the particular dispute.International Creative Management,670 N.E.2d at 1311;seeAT & T Techs., Inc. v. Communications Workers of Am.,475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648(1986)("the question of arbitrability—whether [an agreement] creates a duty for the parties to arbitrate the particular grievance—is undeniably an issue for judicial determination").In answering this question, the court decides whether the dispute, on its face, is covered by the language of the arbitration provision.Chesterfield Management, Inc. v. Cook,655 N.E.2d 98, 101(Ind.Ct.App.1995), trans. denied.Additionally, before a court compels arbitration, it must first resolve any claims concerning the validity of the contract containing the arbitration clause.PSI Energy, Inc. v. AMAX, Inc.,644 N.E.2d 96, 99(Ind.1994).Once satisfied that the parties contracted to submit their disputes to arbitration, the court is required by statute to compel arbitration.Id.;seeIND.CODE § 34-57-2-3(a)("[o]n application of a party showing an agreement [to arbitrate], and the opposing party's refusal to arbitrate, the court shall order the parties to proceed with arbitration.").Judicial inquiry is thus limited to the validity of the contract containing the arbitration clause, not the construction of that clause.PSI Energy,644 N.E.2d at 99.

Agreement to Arbitrate

Pate contends the trial court erred in denying Pate's motion to stay and in ordering the parties to proceed to arbitration.Among other things, Pate claims the trial court's conclusion that a valid and enforceable arbitration agreement exists is unsupported by the evidence.In support of this contention, Pate argues that the unambiguous terms of the contract extended warranty protection only through November 10, 1993, two years from the date of residential occupancy.Because the agreement to arbitrate was part of the warranty, the argument continues, the parties likewise intended that the same two-year time limit apply to the arbitration agreement.Consequently, Pate claims, because the provision obligating the parties to arbitrate disputes regarding the warranty terminated before DeHaan gave written notice of her claim, the warranty provisions are neither valid nor enforceable.

DeHaan counters that Pate's contentions amount to an impermissible attempt to litigate the merits of DeHaan's claim, and that such a dispute must be resolved in arbitration, not before the trial court.In support of this argument, DeHaan claims that the contract between the parties expressly reserved for arbitration any questions regarding whether certain repairs are covered under the warranty.According to DeHaan, logic dictates that determinations such as the duration of the warranty and agreement to arbitrate likewise be reserved for arbitration.

Citing the language of the warranty, the trial court found that the parties' dispute was essentially "with respect to whether particular repairs or replacements are covered by the warranty."(R. 208).The court further characterized Pate's argument that both the warranty and the duty to arbitrate disputes thereunder had expired as a defense "relat[ing] to the merits of [DeHaan's] underlying claims against [Pate]."(R. 208).The trial court thus ordered that all aspects of the parties' dispute be submitted to arbitration.However, at the outset, we must address the threshold issue of whether the parties' dispute over the termination of the warranty is arbitrable.That is, we must determine whether the parties intended for disputes over the duration of the warranty and its accompanying arbitration clause to be resolved through arbitration, or whether the issue is one reserved for the court.

As previously noted, Pate contends our inquiry should focus simply upon whether the terms of the warranty have expired.If the warranty has expired, Pate claims, the obligation to arbitrate any disputes arising thereunder has likewise terminated.However, "to take this approach obviously requires deciding, or coming close to deciding, the very issue of the agreement's duration whose arbitrability is in issue.For good reason, this circular approach has been rejected as one that necessarily compromises decision on the very matter in dispute in the course of deciding who shall decide it."Virginia Carolina Tools, Inc. v. International Tool Supply, Inc.,984 F.2d 113, 118(4th Cir.1993), cert. denied,508 U.S. 960, 113 S.Ct. 2930, 124 L.Ed.2d 681.The proper approach is rather to treat the question as one of contract interpretation, asking whether the parties, at the time they entered into the contract, intended that disputes over contract expiration would be decided by a court or by an arbitrator.Id.(quotingNational R.R. Passenger Corp. v. Boston & Maine Corp.,850 F.2d 756, 760(D.C.Cir.1988)).

Both parties discuss National R.R., citing its factual similarity to the instant case, as well as its useful framework for resolving disputes over the arbitrability of contract duration issues.In National R.R., Amtrak executed an agreement with the Boston & Maine Corporation("B & M") to operate train service over a portion of track owned by B & M.The contract contained a clause obligating the parties to arbitrate "[a]ny claim or controversy ... concerning the interpretation, application or implementation of this Agreement...."Id. at 758.After a protracted dispute over the condition of the track, Amtrak initiated an arbitration proceeding under the contract.B & M refused to submit to arbitration, arguing the contract had expired; Amtrak maintained the agreement remained in effect, having been extended by agreements signed by both parties.The trial court refused to determine the vitality of the arbitration clause, reasoning that the parties' contract obligated them to...