Allstate Ins. Co. v. Toll Bros., Inc.

171 F.Supp.3d 417

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.

No. 5:15-cv-05225

United States District Court, E.D. Pennsylvania.

Signed March 21, 2016

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.

MEMORANDUM OPINION

Motion to Compel Arbitration, ECF No. 27—Granted in Part

Joseph F. Leeson, Jr., United States District Judge

I. Introduction

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:

Arbitration: Buyer, on behalf of Buyer and all permanent residents of the Premises, including minor children, hereby agree [sic] that any and all disputes with Seller [which the Agreement defines as Toll PA XIII, L.P.], Seller's parent company or their subsidiaries or affiliates arising out of the Premises, this Agreement, the Home Warranty, any other agreements, communications or dealings involving Buyer, or the construction or condition of the premises including, but not limited to, disputes concerning breach of contract, express and implied warranties, personal injuries and/or illness, mold-related claims, representations and/or omissions by Seller, on-site and off-site conditions and all other torts and statutory causes of action (“Claims”) shall be resolved by binding arbitration in accordance with the rules and procedures of Construction Arbitration Services, Inc. (“CAS”) or its successor or an equivalent organization mutually agreed upon by the Parties. If CAS is unable to arbitrate a particular claim, then that claim shall be resolved by binding arbitration pursuant to the Construction Rules of Arbitration of the American Arbitration Association or its successor or an equivalent organization mutually agreed upon by the Parties. In addition, Buyer agrees that Buyer may not initiate any arbitration proceeding for any Claim(s) unless and until Buyer has first given Seller specific written notice of each claim (at 250 Gibraltar Road, Horsham, PA 19044, Attn: Warranty Dispute Resolution) and given Seller a reasonable opportunity after such notice to cure any defect, including the repair of the Premises, in accordance with the Home Warranty. The provisions of this paragraph shall be governed by the provisions of the Federal Arbitration Act, 9 U.S.C. §§ 1, et seq. and shall survive settlement.

BUYER HEREBY WAIVES THE RIGHT TO A PROCEEDING IN A COURT OF LAW (INCLUDING WITHOUT LIMITATION A TRIAL BY JURY) FOR ANY CLAIMS OR COUNTERCLAIMS BROUGHT PUR

SUANT TO THIS AGREEMENT. THE PROVISIONS OF THIS SECTION SHALL SURVIVE SETTLEMENT.²

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.

II. The arbitration clause is enforceable.

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.

A. The Agreement of Sale was supported by consideration.

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) (“Antkowiak claims he received no additional consideration for signing the Engagement Agreement....Even if we were to assume that this is an appropriate matter for a court, and not an arbitrator, to decide, see Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006), the argument is unavailing.”).

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) (examining whether an arbitration agreement was supported by consideration); see also Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 160–61 (3d Cir.2009) (recognizing that questions of contract formation are generally for the courts, and that consideration is a requirement of contract formation under Pennsylvania law).

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) ) (“The district court decided that it should address the contract-formation question....We agree with the district court that the existence of a contract is an issue that the courts must decide prior to staying an action and ordering arbitration, unless the parties have committed even that gateway issue to the arbitrators.”); see also Granite Rock, 561 U.S. at 296–97, 130 S.Ct. 2847 (observing that in Buckeye, the Court distinguished between the “generally nonarbitral question whether an arbitration agreement was 'ever concluded' from the question whether a contract containing an arbitration clause was illegal when formed” (emphasis added)). 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...