Masseau v. Luck

• Court: Vermont Supreme Court
• Writing for the Court: ROBINSON, J.
• Citation: Masseau v. Luck, 2021 VT 9, No. 2020-131 (Vt. Feb 19, 2021)
• Decision Date: 19 February 2021
• Docket Number: No. 2020-131,2020-131
• Parties: Colin Masseau and Emily MacKenzie v. Scott Luck, Sharon Luck, Guy Henning, Brickkicker/GDM Home Services, LLC

2021 VT 9

Colin Masseau and Emily MacKenzie v. Scott Luck, Sharon Luck, Guy Henning, Brickkicker/GDM Home Services, LLC

No. 2020-131

Supreme Court of Vermont

September Term, 2020

February 19, 2021

NOTICE: This opinion is subject to motions for reargument under V.R.A.P. 40 as well as formal revision before publication in the Vermont Reports. Readers are requested to notify the Reporter of Decisions by email at: JUD.Reporter@vermont.gov or by mail at: Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801, of any errors in order that corrections may be made before this opinion goes to press.

On Appeal from Superior Court, Chittenden Unit, Civil Division

Robert A. Mello, J. (motions to dismiss); Helen M. Toor, J. (final judgment)

Thomas C. Nuovo of Bauer Gravel Farnham, LLP, Colchester, for Plaintiffs-Appellants.

Samantha V. Lednicky of Murdoch Hughes Twarog Tarnelli, Attorneys at Law, P.C., Burlington, for Defendants-Appellees Brickkicker/GDM Home Services, LLC, and Guy Henning.

PRESENT: Reiber, C.J., Robinson, Eaton, Carroll and Cohen, JJ.

¶ 1. ROBINSON, J. Homeowners Masseau and MacKenzie appeal the trial court's order confirming an arbitrator's ruling dismissing their claims against defendants Guy Henning and Brickkicker/GDM Home Services, LLC. Specifically, homeowners challenge the trial court's referral of the case to arbitration on the ground that the purported arbitration agreement lacked the notice and acknowledgment provisions required under the Vermont Arbitration Act (VAA), and they urge us to vacate the arbitrator's award because the arbitrator exceeded his authority by manifestly disregarding the law. We conclude that the parties' contract affects interstate commerce, and that the arbitration agreement is therefore governed by the Federal Arbitration Act (FAA) and is not subject to the more exacting notice and acknowledgment requirement of the VAA. We do not decide whether "manifest disregard" of the law is a basis for vacating an arbitrator's award because we conclude that any error in the arbitrator's legal analysis did not rise to the level of "manifest disregard." We thus affirm.

¶ 2. Homeowners allege in their complaint that in 2016, they hired Guy Henning and Brickkicker/GDM Home Services, LLC (collectively "inspectors"), to inspect a house in Essex Junction prior to their closing on the purchase. Henning was aware of homeowners' plans to renovate the home while living there, and thus it was important for him to advise them of the potential hazards associated with stucco ceilings. Inspectors conducted the inspection and did not raise with homeowners the issue of potential asbestos in the house. Homeowners subsequently discovered asbestos and sued inspectors for failing to disclose the possibility that the stucco ceilings contained asbestos.¹

¶ 3. Inspectors filed a motion to dismiss, arguing in relevant part that the parties were required to arbitrate the dispute pursuant to the arbitration agreement in their contract, and that homeowners failed to state a claim on the merits because the inspection agreement excluded assessment of environmental hazards like asbestos. Homeowners opposed the motion, arguing that the arbitration clause in the parties' contract was invalid because it lacked the required notice and acknowledgment under the VAA, and also because it contained an unconscionable arbitration-selection term, designating an industry-created arbitration service as arbitrator. Alternatively, homeowners argued that there is evidence that the designated arbitration service no longer exists, thereby invalidating the arbitration agreement. With respect to the merits, homeowners argued that the allegations in the complaint were sufficient to support homeowners' various claims.

¶ 4. The trial court concluded that the arbitration agreement was valid and enforceable. In particular, the court explained that the arbitration clause was subject to the FAA rather than the VAA and was compliant with the requirements of the FAA. The court did invalidate the arbitration-selection clause, but not the entire arbitration agreement. The court therefore stayed court proceedings between the parties pending a final judgment following arbitration and directed the parties to arbitrate with a mutually-agreed-upon arbitrator.

¶ 5. The parties chose and met with the arbitrator and agreed that the first issue was to address the merits of inspectors' motion to dismiss homeowners' claims under Vermont Rule of Civil Procedure 12(b)(6). After considering the parties' submissions, the arbitrator determined that the contract was limited in scope and "clearly excluded—by its express terms—any obligation to examine for asbestos." Thus, the arbitrator concluded that there was no factual basis to support homeowners' claims against inspectors. The trial court confirmed the arbitrator's decision and dismissed homeowners' claims.

¶ 6. On appeal, homeowners renew their arguments that the arbitration provision is unenforceable and contend that even if the arbitration agreement is enforceable, this Court should reverse the trial court's confirmation, and vacate the underlying arbitration decision, because the arbitrator exceeded his authority by manifestly disregarding the law. We address these arguments in turn.

I. Validity of Arbitration Agreement

¶ 7. The two-page (front and back) contract between homeowners and Brickkicker, signed by Henning as agent, stated both below the parties' signatures on the front and at the bottom of the back, "CONTRACT IS SUBJECT TO BINDING ARBITRATION." In addition, paragraph six of ten on the back of the contract stated, "Any dispute . . . shall be submitted to final and binding arbitration under Rules and Procedures of the Expedited Arbitration of Home Inspection Disputes of Construction Arbitration Services, Inc. . . . ." ¶ 8. Under the FAA, written provisions for arbitration are "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. The VAA contains similar language, see 12 V.S.A. § 5652(a), but also requires that an enforceable arbitration agreement contain a written acknowledgement that provides "substantially" as follows:

ACKNOWLEDGMENT OF ARBITRATION.

I understand that (this agreement/my agreement with __________ of __________) contains an agreement to arbitrate. After signing (this/that) document, I understand that I will not be able to bring a lawsuit concerning any dispute that may arise which is covered by the arbitration agreement, unless it involves a question of constitutional or civil rights. Instead, I agree to submit any such dispute to an impartial arbitrator.

Id. § 5652(b).

¶ 9. Homeowners argue that the VAA applies to the parties' contract and that because the contract here did not contain the required "acknowledgment of arbitration" provision, the arbitration agreement is unenforceable. Alternatively, they argue that the arbitration agreement is void because it includes an unfair arbitration-selection term. Inspectors argue that the FAA applies and preempts the VAA, and that the arbitration agreement is therefore enforceable. They contend that the arbitration-selection term is severable from the rest of the arbitration provision.

¶ 10. The applicability and effect of the VAA as compared with the FAA are questions of law that we review without deference to the trial court's ruling. Lofts Essex, LLC v. Strategis Floor & Décor Inc., 2019 VT 82, ¶ 33, ___ Vt. ___, 224 A.3d 116. We review the trial court's decision to sever the challenged arbitration-selection term for abuse of discretion. See Armendariz v. Found. Health Psychcare Servs., Inc., 6 P.3d 669, 695 (Cal. 2000) (decision whether to refuse to enforce contract as a whole, to enforce remainder of contract without unconscionable clause, or to limit application of any unconscionable clause as to avoid any unconscionable result is reviewed for abuse of discretion).

A. Applicability of the Notice Requirement in the VAA

¶ 11. We conclude that the notice and acknowledgment requirement of the VAA does not apply to the parties' arbitration agreement in this case. Our analysis, set forth more fully below, proceeds in several steps. First, the reach of the FAA extends to the full extent of Congress's authority under the Commerce Clause. Second, the transaction between the parties in this case falls within the broad scope of Congress's authority under the Commerce Clause. We draw support for this latter conclusion not only from general Supreme Court case law involving the reach of the Commerce Clause, but also from specific cases applying the FAA to intrastate transactions. The authority relied upon by homeowners does not persuade us otherwise. Third, because the FAA preempts contrary state laws, the notice and acknowledgment requirement of the VAA does not apply here, and the arbitration agreement is not invalid or unenforceable on account of any failure to include the notice and acknowledgment language.

¶ 12. If the transaction between the parties falls within Congress's regulatory authority under the Commerce Clause, their arbitration agreement is subject to the FAA. By its plain terms, the FAA applies to "contract[s] evidencing a transaction involving commerce." 9 U.S.C. § 2. The U.S. Supreme Court has said that "involving commerce" is the functional equivalent of "affecting commerce." Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 273-74 (1995). The breadth of this statutory language reflects an intent to apply the law expansively, exercising Congress's "commerce power to the full." Id. at 277; see also Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003) (noting that the term "involving commerce" signals "the broadest permissible exercise of Congress' Commerce Clause power" and "encompasses a wider range of transactions than those actually 'in commerce'—that is, 'within the flow of interstate commerce' " (quoting Allied-Bruce...