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To Arbitrate Or Not To Arbitrate – Or Do We Even Get To That Question?
November 04, 2016
Chances are that if you work in the construction industry, you have had at least one construction dispute. The longer you work in the construction industry, the greater chance you have of encountering a dispute that does not go away with phone calls, meetings or a handshake deal.  Some disputes lead to legal action. The kind of legal action that follows depends on the contracts—including warranties—created for or during the construction process itself. 
 
Warranties, you ask? What do warranties have to do with arbitration? A lot, it turns out, if the warranties contain clauses that require parties to arbitrate instead of litigate in court to resolve the dispute. Well, what if you did not contract with the party that furnished the warranty? What if the warranty language is terrible and one-sided, and should not be enforced? And, what if the warranty lists certain claims that it covers, but the type of claim among the parties in your case is not listed? It may not matter in South Carolina. Both the South Carolina Court of Appeals and the South Carolina Supreme Court recently weighed in on the enforceability of arbitration agreements. What did the courts rule? 
 
First, the South Carolina Court of Appeals made it clear that if a construction product warranty includes an arbitration provision, then that provision is enforceable even if the warranty itself contains provisions that are unconscionable and/or unenforceable.  One Belle Hall v. Trammell Crow, Op. No. 5407 (S.C. Ct. App. heard May 4, 2016; filed June 1, 2016; withdrawn, substituted and refiled September 28, 2016).  
 
Second, the South Carolina Supreme Court made it clear that if a home warranty includes an arbitration provision, then all claims may be subject to arbitration, not just the claims listed in and covered by the warranty itself.  Parsons v. John Wieland Homes, Op. No. 27655 (S.C. Sup. Ct. filed Aug. 17, 2016).
 
What do these cases mean to you? If you are involved in a construction dispute in South Carolina, and one or more warranties may be involved in the construction project, then utilize this checklist:
 
  • Review all construction contracts, stand-alone warranties and product warranties for arbitration provisions that may apply to the dispute resolution.
 
  • If you find an arbitration provision in the warranty, read the arbitration clause (and warranty it is contained in), and, if possible, ask the party that issued the warranty (and arbitration clause) to explain what claims are subject to arbitration and answer any questions about the process (and get them to tell you in writing).
 
  • See if there are any prerequisites before arbitration can be conducted, such as providing information or samples to the manufacturer, and be sure the steps are taken within any deadlines.
 
  • For construction products, check to see if the packaging or labeling for the product has a warranty that contains an arbitration provision. If so, save the packaging or labeling in the event a dispute arises over that product. The way the product is labeled, and whether it makes it clear to the person who placed the order that they can return the product if they don’t like the warranty, may be important to the dispute.
 
  • Consider where the parties to the dispute are located. If the dispute arises between a local party and an out-of-state party, the Federal Arbitration Act likely will apply.
 
  • If an arbitration clause is contained within a warranty, whether it is a home/building warranty or a product warranty, then be sure to file a claim for arbitration within the deadline listed in the arbitration clause to avoid losing the right to arbitrate.
 
  • If more than one warranty is issued for a single construction project, which may be the case where multiple product warranties were issued—such as warranties for shingles, windows and siding—review them all for arbitration clauses, as well as for differences in warranty applicability. It is possible that separate claims must be brought for warranties that contain arbitration provisions from claims arising under warranties that allow for mediation and/or litigation of disputes.
 
  • If someone in the construction dispute raises a claim that is not specifically listed in the warranty, such as fraud, but the warranty contains an arbitration provision, then remember that the dispute may still be subject to arbitration even if the warranty does not list that claim as one covered.
 
  • Remember that even if an arbitration clause is contained in a warranty that you believe has unfair or unenforceable provisions, it is possible that the court may still enforce it, even if the rest of the warranty is disregarded or thrown out by the court. 
 
Bottom line—be sure to check all warranties for your project for arbitration clauses, because those clauses may send the parties straight into arbitration.

Please contact us if you have any questions regarding construction law.

 
Construction Law Stephanie U. Eaton
336.631.1062
sroberts@spilmanlaw.com