Amanda Mackey and Greg Mackey v. Schooler's Construction, L.L.C.

• Court: Missouri Court of Appeals
• Decided: February 15, 2022
• Docket: WD84309
• Status: Published

Opinion

In the Missouri Court of Appeals Western District AMANDA MACKEY and GREG ) MACKEY, ) Respondents, ) v. ) WD84309 ) SCHOOLER'S CONSTRUCTION, L.L.C., ) Appellant. ) FILED: February 15, 2022 )

APPEAL FROM THE CIRCUIT COURT OF BOONE COUNTY THE HONORABLE J. HASBROUCK JACOBS, JUDGE

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. FACTUAL AND PROCEDURAL HISTORY

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.”

2 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.

3 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

4 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

5 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.

STANDARD OF REVIEW

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).

ANALYSIS

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

1 Schooler’s does not argue on appeal that either the arbitrability issues, or any issues concerning the validity of the arbitration agreement, should be decided by the arbitrator rather than the court pursuant to a delegation clause either contained in the arbitration agreement or incorporated by reference into the arbitration agreement.

6 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 provide the Mackeys with a one-year builder warranty in exchange

for $356,000. The Mackeys accepted the offer. Although the limited warranty was

executed three months after the sale contract and addendum were executed, the

limited warranty was part of the parties’ whole contract, as the parties agreed in

both the contract and addendum that Schooler’s would provide a one-year

warranty that the Mackeys would acknowledge and accept by their signature at

closing. Because the parties’ contract as a whole establishes the essential

elements of a contract, a valid arbitration agreement exists.

The arbitration provision in this case requires arbitration of “[a]ny

controversy or claim arising out of or relating to this Limited Warranty, or the

7 breach thereof.” Throughout its briefs, Schooler’s asserts that any claim that

arises out of or relates to either the sale contract, the addendum, or the limited

warranty is subject to arbitration under this provision because all three

documents form the “whole contract” and “must be read together in an effort to

capture what was intended.” While we agree that all three documents form the

parties’ whole contract, the plain language of the arbitration provision expressly

limits its application to only those claims that arise out of or relate to the limited

warranty. See St. Louis Reg'l Convention v. Nat'l Football League, 581 S.W.3d

608, 617 (Mo. App. 2019) (noting that, in analyzing the scope of an arbitration

agreement, we enforce any exclusions or exceptions in the agreement).

Therefore, in determining the scope of the arbitration agreement, our only

concern is whether the Mackeys’ claims arise out of or relate to the limited

warranty.

Arbitration is solely contractual and, therefore, “[p]arties cannot be required

to arbitrate a dispute they have not agreed to submit to arbitration.” Id. at 616.

To decide whether the parties contracted to arbitrate a particular dispute, “the

usual rules of state contract law and canons of contract interpretation apply.” Id.

at 617. Courts must ascertain the intent of the parties through the plain and

ordinary meaning of the contract terms and give effect to that intent. Id. Courts

“should order arbitration of any dispute that touches matters covered by the

parties’ contract.” Id. “A motion to compel arbitration of a particular dispute

should not be denied unless it may be said with positive assurance that the

8 arbitration clause is not susceptible of an interpretation that covers the asserted

dispute.” Lunsford v. Deatherage, 518 S.W.3d 890, 896 (Mo. App. 2017) (quoting

Dunn Indus. Grp., Inc. v. City of Sugar Creek, 112 S.W.3d 421, 429 (Mo. banc

2003)). “Doubts as to arbitrability should be resolved in favor of coverage.” Id.

(quoting Dunn, 112 S.W.3d at 429).

“For a tort claim to be subject to arbitration, it must raise some issue the

resolution of which requires reference to or construction of some portion of the

parties’ contract.” St. Louis Reg’l, 581 S.W.3d at 617. “Where a tort claim is

independent of the contract terms and does not require reference to the

underlying contract, arbitration is not required.” Id. “The relationship between

the tort claim and the contract is not satisfied simply because the dispute would

not have arisen absent the existence of the contract between the parties.” Id.

In this case, the Mackeys’ claims assert that Schooler’s breached duties that

it assumed, under common law, when Schooler’s agreed in the sale contract to

construct the Mackeys’ house. In Count I of their petition, the Mackeys assert that

Schooler’s performed its work in a negligent manner. “Where the parties have

entered into a contract, our common law has imposed the duty to perform with

skill, care, and reasonable expedience and faithfulness in regard to the thing to be

done or accomplished within the contract.” Autry Morlan Chevrolet Cadillac, Inc.

v. RJF Agencies, Inc., 332 S.W.3d 184, 193 (Mo. App. 2010) (quoting Am. Mortg.

Inv. Co. v. Hardin-Stockton Corp., 671 S.W.2d 283, 293 (Mo. App. 1984)). “The

negligent failure to observe and perform any portion of that duty gives rise to an

9 action in tort.” Id. (quoting Am. Mortg., 671 S.W.2d at 293). In Count II, the

Mackeys assert that Schooler’s, as the general contractor, breached its implied

contractual duty to perform its work in a good and workmanlike manner.

“Missouri courts recognize that a general contractor does impliedly warrant that

the work agreed upon will be done in a workmanlike manner.” Helterbrand v.

Five Star Mobile Home Sales, Inc., 48 S.W.3d 649, 660 (Mo. App. 2001).

“Workmanlike in this context is defined as ‘work which is completed in a skillful

manner and is non-defective.’” Id. at 661 (citation omitted). Lastly, in Count III,

the Mackeys assert that Schooler’s, as the vendor-builder of the residence,

breached its implied warranty of habitability. “A purchaser is granted a right of

recovery against a builder-vendor under an implied warranty of habitability or

quality where structural defects are present in consequence of poor workmanship

or substandard materials or both.” Captiva Lake Invs., LLC v. Ameristructure, Inc.,

436 S.W.3d 619, 629 (Mo. App. 2014).

Although the Mackeys’ claims are not based on a breach of the limited

warranty, the central issue in each of their claims – Schooler’s responsibility for

alleged defects in the foundation that affect the structural soundness of the

residence and for minor, punch list items of construction – is the same issue that

the limited warranty purports to define. The “Final Inspection” section of the

limited warranty provides that (1) Schooler’s responsibility for repairs is limited to

that stated in the limited warranty; and (2) the Mackeys acknowledge that the

10 limited warranty’s purpose is to identify Schooler’s responsibility for latent or

hidden construction defects:

Upon the acceptance of possession BUILDER’S responsibility to make further repairs to the Residential Dwelling is expressly limited to the following: (a) completion of all minor items of construction on the punch list and (b) performance of the warranty repairs under this Limited Warranty. BUYER and BUILDER acknowledge that the purpose of this Limited Warranty is to identify BUILDER’s responsibility for construction defects of a latent or hidden kind that would have not have [sic] been found or otherwise discovered by a professional inspection of the Residential Dwelling prior to Closing.

The determination of the extent of Schooler’s responsibility for the latent

and hidden foundation defects and the minor punch list construction items

alleged in the Mackeys’ claims may depend upon a determination of the legal

effect of this provision of the limited warranty on that responsibility. See

Lunsford, 518 S.W.3d at 896-97. At a minimum, “the dispute touches on matters

covered by the [limited warranty].” St. Louis Reg'l, 581 S.W.3d at 617.

Consequently, “we cannot say ‘with positive assurance that the arbitration clause

is not susceptible of an interpretation that covers’” the Mackeys’ claims.

Lunsford, 518 S.W.3d at 897 (quoting Dunn, 112 S.W.3d at 429). Because any

“[d]oubts as to arbitrability should be resolved in favor of coverage,” id. at 896,

the Mackeys’ claims fall within the scope of the arbitration agreement. Points I

and II are granted.

In Point III, Schooler’s addresses the Mackeys’ affirmative defense that the

limited warranty is unenforceable because it is a contract of adhesion and is

11 unconscionable.2 In their response to the motion to compel arbitration, the

Mackeys contended the limited warranty is a contract of adhesion because

Schooler’s provided it to them on the day of closing, insisted they sign it, and

gave them no opportunity to review it or negotiate its terms. The Mackeys

alleged that, if they did not sign the limited warranty, then the closing would not

have taken place, and “they would have no home at all.”

Section 435.350, RSMo 2016, of the Missouri Uniform Arbitration Act

provides that contracts, like the limited warranty, that warrant new homes against

construction defects are not contracts of adhesion:

A written agreement to submit any existing controversy to arbitration or a provision in a written contract, except contracts of insurance and contracts of adhesion, to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract. Contracts which warrant new homes against defects in construction and reinsurance contracts are not “contracts of insurance or contracts of adhesion” for purposes of the arbitration provisions of this section.

(Emphasis added.)

Moreover, even if the limited warranty were a contract of adhesion, “courts

do not view adhesion contracts as inherently sinister and automatically

unenforceable.” Hartland Comput. Leasing Corp. v. Ins. Man, Inc., 770 S.W.2d

525, 527 (Mo. App. 1989). Instead, only those provisions that “fail to comport”

2 The party asserting a defense, such as unconscionability, to the formation of an agreement’s arbitration clause bears the burdens of proof and persuasion on that issue. Lopez v. H & R Block, Inc., 491 S.W.3d 221, 226 n.4 (Mo. App. 2016).

12 with the parties’ objectively reasonable expectations and “are unexpected and

unconscionably unfair are unenforceable.” Fouts v. Regency N. Acquisition, LLC,

569 S.W.3d 463, 467 (Mo. App. 2018) (internal quotation marks and citation

omitted).

In their response to the motion to compel, the Mackeys argued that one of

the limited warranty’s provisions concerning exclusions from coverage is

unconscionable and renders the entire limited warranty unenforceable. Because

the limited warranty contains a severability clause and the provision that the

Mackeys assert is unconscionable is not a part of, let alone a necessary part of,

the agreement to arbitrate, the arbitration clause would still be enforceable even if

the exclusions provision were deemed unconscionable.3 See Eaton v. CMH

Homes, Inc., 461 S.W.3d 426, 436 (Mo. banc 2015) (noting that generally, courts

“will give effect to a severability clause when the clause being severed is not a

necessary part of the contract”). See also Greenpoint Credit, L.L.C. v. Reynolds,

151 S.W.3d 868, 875 n.5 (Mo. App. 2004).

The Mackeys did not allege in their response to the motion to compel that

the arbitration clause is unconscionable. Now, in their brief on appeal, they make

only the bare assertion that “the purported arbitration clause is itself

unconscionable.” This conclusory and unsupported statement is insufficient to

preserve the issue of the arbitration clause’s alleged unconscionability for our

review. Shuttlewagon, Inc. v. Higgins, 628 S.W.3d 185, 201 n.10 (Mo. App. 2021).

3 We express no opinion on whether the exclusions provision at issue is unconscionable.

13 The Mackeys failed to meet their burden of proving that the arbitration clause is

unenforceable because it is a contract of adhesion or is unconscionable. To the

extent that the circuit court relied on this basis to deny the motion to compel, it

erred in doing so. Point III is granted.

CONCLUSION

The order denying Schooler’s motion to compel arbitration is reversed. The

cause is remanded to the circuit court to stay the proceedings and order the

parties to proceed to arbitration.

____________________________________ LISA WHITE HARDWICK, JUDGE ALL CONCUR.