Construction Law Insights

Marroquin v. Dan Ryan Builders Mid-Atlantic, LLC, 2020 U.S. Dist. LEXIS 42300, 2020 WL 1171963 (W.D. Va. Mar. 11, 2020)

On September 23, 2017, Oscar and Olga Marroquin (the “Marroquins”) and Dan Ryan Builders Mid-Atlantic, LLC (“Dan Ryan”) entered into a contract (the “Contract”) for Dan Ryan to sell a residential home. The Marroquins signed a Limited Warranty Agreement issued by Quality Builders Warranty Corporation (“QBW”), which was attached to the Agreement of Sale. On October 31, 2017, the Marroquins took possession of the property, but alleged that it was not free from structural defects, would not pass without objection in the trade, was not constructed in a workmanlike manner, and was not fit for habitation. Between February 23, 2018 and May 3, 2018, the Frederick County Inspection Department issued a series of Correction Orders to Dan Ryan concerning the issues with the construction of the Marroquins’ home. In April 2018, the Marroquins emailed Dan Ryan a list of issues related to the home. On July 10, 2018, a building code official sent a

certified letter to Dan Ryan detailing some of the ongoing issues relating to the home. On September 12, 2018, October 15, 2018, and August 1, 2019, the Marroquins’ attorney sent letters to Dan Ryan detailing issues with the home. The Marroquins’ acknowledged that some issues were fixed but the issues in their counsel’s August 1, 2019 letter remained unfixed. The Marroquins filed a lawsuit against Dan Ryan for breach of statutory warranty (Virginia Code § 55.1-357) and breach of the Limited Warranty Agreement. Both the Sales Agreement and the Limited Warranty Agreement required binding arbitration. Dan Ryan removed the case from state court to federal court and then moved to compel arbitration.

The Court granted Dan Ryan’s motion to compel arbitration. When addressing a motion to compel arbitration under the Federal Arbitration Act (“FAA”), courts apply a standard akin to burden on summary judgment. A litigant may compel arbitration under the FAA upon the demonstration of: (1) the existence of a dispute between the parties; (2) a written agreement that includes an arbitration provision that purports to cover the dispute; (3) the relationship of the transaction, which is evidenced by the agreement, to interstate or foreign commerce; and (4) the failure, neglect, or refusal of the other party to arbitrate the dispute. If the party makes this evidentiary showing, the party opposing the arbitration must present sufficient facts to place the entitlement to arbitration in dispute. Where a party shows that genuine issues of material fact exist regarding the existence of an agreement to arbitrate, that party is entitled to a jury trial on that issue. The Court found the first and fourth factors to not be in dispute. As to the third factor, the Court noted the broadness of the Commerce Clause and held that there was interstate commerce because the case involved a Maryland company contracting to build a house in Virginia.

As to the second factor, it involves two aspects: (1) whether there is a valid and enforceable arbitration agreement; and (2) whether the claims asserted in the suit are within the scope of the agreement. The Marroquins did not dispute that their claims were within the scope of the Sales Agreement and the Limited Warranty Agreement. Rather, the Marroquins argued the arbitration clause was unconscionable and, therefore, unenforceable. Under Virginia law, a contract is unconscionable if it is one that no man in his senses and not under a delusion would make, on the one hand, and as no fair man would accept, on the other. The substantive terms of the contract must be so grossly inequitable that it shocks the conscience.

In addressing the Marroquins’ contract of adhesion argument, the Court noted that use of an adhesion contract is a relevant factor, but that adhesion contracts are not per se unenforceable and the Marroquins could not simply rely on inequities inherent in the bargaining process. In addressing the Marroquins’ contention that the arbitration clauses are unconscionable because the Limited Warranty Agreement gave QBW the sole right to designate the arbitration service, the Court held that the terms were not so one-sided as to shock the conscience and that the Limited Warranty Agreement provided for the arbitration to be at the Marroquins’ home, which undermined the Marroquins’ argument that they would be priced out of the arbitration due to travel costs. Finally, the Court found that the Marroquins offered no evidence in support of their argument that there was a grossly unequal bargaining power at the time the Contract was formed. The court stayed the proceedings and directed the parties to arbitrate their dispute.

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