Mackey v. Schooler's Constr., L. L.C.
| Decision Date | 15 February 2022 |
| Docket Number | WD 84309 |
| Citation | 640 S.W.3d 792 |
| Parties | Amanda MACKEY and Greg Mackey, Respondents, v. SCHOOLER'S CONSTRUCTION, L.L.C., Appellant. |
| Court | Missouri Court of Appeals |
Rodney J. Stevens, Columbia, for appellant.
Philip J. Christofferson, St. Louis, for respondent.
Before Division Three: Anthony Rex Gabbert, Presiding Judge, Lisa White Hardwick, and Thomas N. Chapman, Judges
Schooler's Construction, LLC ("Schooler's") appeals the circuit court's order denying its motion to compel arbitration of Amanda and Greg Mackey's ("the Mackeys") lawsuit alleging claims of negligence, breach of the implied contractual duty to perform work in a good and workmanlike manner, and breach of the implied warranty of habitability. Schooler's contends the arbitration clause in a limited warranty signed by the Mackeys requires arbitration of their claims. For reasons explained herein, we reverse and remand with instructions to stay the proceedings and compel arbitration.
On June 20, 2019, the Mackeys and Schooler's entered into a residential sale contract ("sale contract") and addendum for new construction. The sale contract required Schooler's to complete the construction of a new single-family residence in Ashland and convey the new house and land upon which it was located to the Mackeys in exchange for $356,000. The sale contract required Schooler's to provide a one-year builder warranty to the Mackeys. The sale contract also provided that the residence would have the same workmanship quality as another house on the same street. The addendum for new construction stated that Schooler's had to provide the signed builder's warranty to the Mackeys for review during the inspection period, and the Mackeys had to acknowledge receipt and acceptance of the builder's warranty by signature at closing. Because the parties signed the sale contract on June 20, 2019, the inspection period, as defined in the sale contract, was June 21 through June 30, 2019. Schooler's did not provide a builder's warranty to the Mackeys for review during the inspection period.
Closing on the Mackeys’ new home occurred on September 27, 2019. At closing, Schooler's conveyed the real estate to the Mackeys, and the Mackeys paid Schooler's the amount owed under the contract. Schooler's and the Mackeys also executed a builder's limited warranty ("limited warranty"). The limited warranty stated that it "sets forth the entire post-closing agreement between the parties."
In the "Warranty Coverages" section of the limited warranty, Schooler's warranted that "the following elements of the Residential Dwelling shall be free from latent defects caused by defective workmanship performed by the BUILDER or BUILDER's subcontractors and/or by defective materials provided by BUILDER or BUILDER's suppliers." One of the elements listed was "Structural Components." In this provision, Schooler's warranted that, for a period of one year after the warranty date, the foundation and/or concrete slab for the house, the floor joists, the load bearing walls, and other internal structural components of the house that were installed by Schooler's and not covered by other parts of the limited warranty would be "free of substantial defects in materials or workmanship." The section defined what did, and did not, constitute a substantial defect:
In the case of the foundation or concrete slab, a substantial defect shall be defined to include a defect which affects the structural soundness of the Residential Dwelling itself and includes cracks which may develop which are greater than one-quarter inch (1/4") in width. This warranty of BUILDER shall not extend to minor "hairline" cracks caused by natural shrinkage and earth movement and which do not affect the structural stability of the Residential Dwelling and/or which are less than one-quarter inch (1/4") in width.
The "Final Inspection" section of the limited warranty provided that, before the Mackeys accepted possession of the house, the Mackeys were to inspect the house and prepare a "punch list" identifying minor items of construction that had not yet been completed. Schooler's agreed that it would complete those items.
The limited warranty contained an arbitration clause that provided, in pertinent part:
9. ARBITRATION: Any controversy or claim arising out of or relating to this Limited Warranty, or the breach thereof, shall be settled by Arbitration in Boone County, Missouri, in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrators may be entered in any Court having jurisdiction thereof.... No actions at law or in equity based upon or arising out of such controversy, claim or breach shall be commenced by any of the Parties, except to enforce arbitration decisions or decrees or to seek judicial review of the arbitration award as set forth herein.
Lastly, the limited warranty contained a severability clause stating that, if any of its provisions were held invalid, the remaining provisions of the limited warranty "shall remain in full force and effect."
Over a year after closing, the Mackeys filed a petition against Schooler's in the Circuit Court of Boone County. The Mackeys alleged they had entered into a contract with Schooler's to construct their residence. They alleged Schooler's failed to construct the residence in a good and workmanlike manner and with ordinary care and was otherwise negligent in that Schooler's failed to properly prepare the subgrade for the foundation and retaining walls and failed to pier the foundation or take other steps as necessary to ensure that the residence would not settle. The Mackeys further alleged that, as a direct and proximate result of these failures, the subgrade of the property had settled, causing significant interior damage to the residence, including that the basement walls, exterior retaining walls, and interior drywall walls had cracked; the cabinets had cracked and pulled away from the walls; the floors had shifted out of level and were uneven; the countertops had shifted and were no longer level; and the master bathroom shower door had shifted and bowed away from the wall. The Mackeys claimed these defects were latent and unknown to them at the time of purchase. Additionally, the Mackeys alleged Schooler's failed to complete the punch list work, despite representing that it would. Based upon these allegations, the Mackeys asserted claims of negligence, breach of the implied contractual duty to perform work in a good and workmanlike manner, and breach of the implied warranty of habitability. They requested damages in excess of $25,000, plus prejudgment interest and attorney's fees and costs.
In response to the Mackeys’ petition, Schooler's sent a demand for arbitration. The Mackeys declined to arbitrate. Schooler's subsequently filed a motion to compel arbitration and to stay the lawsuit pending arbitration. In its motion, Schooler's argued the Mackeys’ claims fall within the scope of the limited warranty's arbitration agreement. Specifically, Schooler's alleged the primary complaint in the petition is that the foundation of the house is defective, and the limited warranty contains the standard for determining what is and is not a substantial foundation defect. Schooler's also alleged the secondary complaint in the petition is that Schooler's failed to perform the punch list work, and the limited warranty specifically addresses its responsibility for punch list work. The Mackeys filed a response asserting their claims do not arise out of the limited warranty; the existence of the limited warranty does not mandate arbitration of their claims; and the limited warranty is unenforceable because it is a contract of adhesion and unconscionable. After hearing arguments, the court entered its order denying the motion to compel arbitration and stay the lawsuit pending arbitration. Schooler's appeals.
The circuit court's ruling on a motion to compel arbitration is an issue of law, which we review de novo. Holm v. Menard, Inc., 618 S.W.3d 669, 673 (Mo. App. 2021). "Our review of the trial court's interpretation of an arbitration provision is also de novo , as arbitration is contractual, and contract interpretation is a question of law." Id. (citation omitted).
Because the circuit court did not state its reason for denying Schooler's motion to compel arbitration, Schooler's points on appeal challenge the three grounds that the Mackeys raised in their response to the motion to compel. Schooler's asserts arbitration is required because the Mackeys’ claims relate to or require reference to or construction of some portion of the limited warranty. Schooler's further argues that the limited warranty is not a contract of adhesion and that any portion of the limited warranty that may be deemed unconscionable does not affect the arbitration agreement and can be severed from the remainder of the limited warranty.1
When ruling on a motion to compel arbitration, courts must consider: (1) "whether a valid arbitration agreement exists"; (2) "whether the specific dispute falls within the scope of the arbitration agreement"; and (3) "whether the arbitration agreement is subject to revocation under applicable contract principles." Patrick v. Altria Grp. Distribution Co. , 570 S.W.3d 138, 142-43 (Mo. App. 2019) (citation omitted). To determine the existence of a valid arbitration agreement, we consider whether the essential elements of a contract – offer, acceptance, and bargained for consideration – are present. Id. at 143. In looking for these essential elements, we review the parties’ contract as a whole and not simply the arbitration agreement. Holm , 618 S.W.3d at 674.
In the parties’ sale contract and addendum, Schooler's offered to sell real estate to the Mackeys, to complete the construction of a new house on the real estate, and to...
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