I’ve said this before, and I’ll say it again: arbitration is a creature of contract. If you don’t want to arbitrate, don’t agree to an arbitration provision as the means to resolve your dispute. Now, with that said, there are times you may not have a choice. An arbitration provision in a warranty from a manufacturer of a product is an example. If you are procuring the product, you are agreeing to the terms of the express warranty. Manufacturers are not negotiating their product warranty on a case-by-case basis considering they are not typically the ones selling the product directly to the end user. This does not mean that is a bad thing. It just means if you elect to sue the manufacturer directly for an alleged product defect or under the terms of the warranty, you should read the warranty and consider the strategic aspect that suing the manufacturer will have on your case.
In SICIS North America, Inc. v Sadie’s Hideaway, LLC, 48 Fla.L.Weekly D1581c (Fla. 1st DCA 2023), an owner elected to sue a tile manufacturer, a general contractor, the architect, and a window and door company. One of the arguments the owner raised was that exterior tiles installed were defective. The tiles were procured by the general contractor. The owner sued the general contractor under various theories and sued the tile manufacturer for breaches of warranty and negligence. The general contractor asserted a crossclaim for indemnification against the tile manufacturer. The tile manufacturer moved to compel the owner’s claim and the general contractor’s crossclaim to arbitration since there was an arbitration provision in the warranty documents and the general contractor’s indemnification claim arose from that transaction. The trial court denied the motion to compel arbitration. On appeal, the appellate court reversed:
First, because [the owner] was suing [the tile manufacturer] based upon the written warranty, it was bound by the arbitration provision contained in [the general contractor’s] agreement with [the tile manufacturer]. As the Florida Supreme Court has explained, “[W]hen a plaintiff sues under a contract to which the plaintiff is not a party . . . we will ordinarily enforce an arbitration clause contained in that contract, absent some other valid defense. . . .” . [The owner] had no valid defense against arbitration, a fact which it apparently realized when it voluntarily dismissed its express warranty claim after the notice of appeal and initial brief were filed.
Second, the trial court erred in not compelling arbitration based upon the agency relationship that existed between [the owner] and [the general contractor]. The essential elements of an actual agency relationship are: (1) acknowledgement by the principal that the agent will act for him; (2) the agent’s acceptance of the undertaking; and (3) control by the principal over the actions of the agent.
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[T]he record evidence establishes that [the owner] authorized [the general contractor] as its general contractor to act as its agent when purchasing the tiles from [the tile manufacturer]. Article 3 of the parties’ agreement provides that [the general contractor] “accept[ed] the relationship of trust and confidence established by the [a]greement,” it would “exercise [its] skill and judgment in furthering the interests of the Owner,” it would “furnish efficient business administration and supervision,” and it would “furnish at all times an adequate supply of workers and materials.” Section 10.1 authorizes [the general contractor] to obtain bids from “suppliers of materials,” and Section 12.1.9 provides that “the Contractor will not be required to make payments to subcontractors or suppliers unless and until the Owner pays Contractor for their work and materials.” In line with its duties pursuant to the agreement, [the general contractor] alleged below in its indemnification claim that a special relationship existed between it and [the tile manufacturer] because [the tile manufacturer] provided “certain materials” to it to install on the project. In addition, [the tile manufacturer] filed with the trial court a signed copy of its purchase agreement with [the general contractor]. Because [the general contractor’s purchase of the tiles was within the scope of work that [the owner] hired it to do, it was unnecessary for [the owner] to expressly authorize [the general contractor] to enter into the arbitration agreement with [the tile manufacturer]. [The owner] is bound by that agreement by virtue of its agency relationship with [the general contractor].
Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.
SICIS North America, supra (internal citations omitted).
The owner did not need to sue the tile manufacturer. It could have just sued the general contractor for the tiles. Also, in numerous cases, it is not the product that is the problem; it is the installation. Did the warranty cover installation or only defects in the product itself? It may likely be the latter and the warranty probably limited the scope of the manufacturer’s liability. It is uncertain in this instance, but even if there was an inherent product defect in the tiles, there are also economic loss rule considerations. The point is – suing the manufacturer was likely overkill in this case by the owner as it could have sued the general contractor that procured the tiles and was responsible for installing the tiles. Now, the owner and general contractor are tasked with arbitrating claims against a manufacturer under a warranty that probably has favorable terms to the manufacturer if indeed the tiles are proven to be defective and the root of the owner’s construction defect claim.