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Defense Digest

Caution: The Potential Quagmire of Unwanted Arbitration Clauses Are Often Buried in the Details

Defense Digest, Vol. 29, No. 4, December 2023

December 1, 2023

Key Points:

  • Consider including third parties or remote parties to a complaint.
  • Arbitration clauses can appear in various contracts, including product warranties.
  • The potential dangers of agency relationships in construction.

Most parties follow a simple rule—if you don’t want to arbitrate, don’t agree to an arbitration provision as the means to resolve your dispute. More and more, arbitration provisions for dispute resolution are avoided as arbitration has become both costly and lengthy—the opposite of what had been intended. However, there are times and instances when you may not have a choice about arbitration because the choice has already been made. This is especially true in the context of construction. In construction matters, there are often complicated relationships between parties—owners, contractors, and subcontractors, materialmen, etc.—which establish duties and responsibilities that flow up and down the chain. 

One example that is often ignored or overlooked is an arbitration provision in a warranty from a manufacturer of a product. If you are procuring the product to incorporate into your project, you may be agreeing to the terms of an express warranty. Manufacturers do not typically negotiate their product warranties on a case-by-case basis, and arbitration provisions in a warranty or contract with other parties may attach without warning. 

One such instance was the recent case of SICIS North America, Inc. v. Sadie’s Hideaway, LLC, 368 So.3d 1052 (Fla. 1st DCA 2023), where a property owner elected to sue a tile manufacturer, SICIS North America, and the general contractor, Galvas Construction, Inc. The owner alleged that the exterior tiles installed at its project were defective. The tiles were procured from SICIS by Galvas for the owner. The owner sued Galvas under various theories and sued SICIS for breaches of warranty and negligence. Galvas, in turn, asserted a cross-claim for indemnification against SICIS. 

This scenario represents a typical construction litigation case that we might all find ourselves involved with. However, in Sadie’s Hideaway, since there was an arbitration provision in the warranty documents and Galvas’ indemnification claim arose from that transaction, SICIS moved to compel the owner’s claim and Galvas’ cross-claim to arbitration. The trial court denied the motion to compel arbitration. 

On appeal, the Appellate Court set forth the proper analysis relating to a motion to compel arbitration: “[T]he three elements for courts to consider in ruling on a motion to compel arbitration are: (1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitrate was waived,” citing CEFCO v. Odom, 278 So.3d 347 (Fla. 1st DCA 2019).

The appellate court ultimately reversed and stated:

First, because [the owner] was suing [SICIS] based upon the written warranty, it was bound by the arbitration provision contained in [Galvas’] agreement with [SICIS]. 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 [Galvas]. 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. 

SICIS North America, 368 So.3d at 1055 (internal citations omitted).

The appellate court further held that the evidence established that the owner authorized Galvas to act as its agent when purchasing the tiles from SICIS. Because Galvas’ 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 Galvas to enter into the arbitration agreement with SICIS. As such, the court held that the owner is bound by the agreement between SICIS and Galvas by virtue of the owner’s agency relationship with Galvas.

Ultimately, the owner did not need to sue SICIS. It could have just sued Galvas for the alleged defective tiles. Suing SICIS in this case was the owner’s choice, and in doing so, it complicated its claims between itself, Galvas, and SICIS, such that the arbitration clause in the warranty was ultimately held to apply to some of the owner’s claims—an arbitration provision the owner never agreed to. As a result, the owner and Galvas are tasked with arbitrating claims against a manufacturer under a warranty. 

The lesson is that, prior to bringing suit or a counterclaim or cross-claim, you should thoroughly evaluate the claims asserted, especially those against distant or removed parties. In doing so, you will not unwillingly stroll into an arbitration quagmire.


 

Defense Digest, Vol. 29, No. 4, December 2023, is prepared by Marshall Dennehey to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2023 Marshall Dennehey. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.

Firm Highlights

Thought Leadership

The Ohio Supreme Court Extends Sham-Affidavit Rule to Contradictory Expert Reports

Legal Roundup: Ohio In its June 23, 2026, decision in Moore v. Mercy Medical Center, the Ohio Supreme Court upheld a trial court’s decision to strike an expert witness’s affidavit that contradicted the opinions expressed in the expert’s prior report. This case pertains to allegations of medical malpractice after plaintiff Cheri Moore gave birth to an infant in respiratory distress who required intubation. Moore alleged that a delay in ordering an emergency cesarean section resulted in the need for intubation, causing her child’s injuries. Specifically, Moore sued Dr. Meniru, who completed his first shift at 7:00 a.m. on May 28, 2015, and did not resume treating Moore until 7:00 a.m. on May 29, 2015. One of Moore’s expert witnesses authored a report stating that the doctors, including Dr. Meniru, deviated from the standard of care by not advocating for a cesarean section in the evening of May 28, 2015. Based on this report, Dr. Meniru moved for summary judgment, arguing that the alleged breach occurred during a period when he was not on duty. In response to the summary judgment motion, the plaintiff filed an affidavit from the same expert. Although the expert expressly incorporated his previous report into his affidavit, he also offered an additional opinion: that Dr. Meniru breached the standard of care by failing to begin a cesarean section within 30 minutes of receiving reports of fetal distress. Dr. Meniru filed a motion to strike the expert’s affidavit, arguing that it contradicted the opinions set forth in his prior report in violation of the sham-affidavit rule. The sham-affidavit rule applies to “a contradictory affidavit that indicates only that the affiant cannot maintain a consistent story, or is willing to offer a statement solely for the purpose of defeating summary judgment”. Moore, supra, at ¶ 19, citing Pettiford v. Aggarwal, 126 Ohio St.3d 413, 2010-Ohio-3237. The trial court granted both the motion to strike and the motion for summary judgment, and the Fifth District affirmed. The Ohio Supreme Court accepted two questions of law: (1) whether the sham-affidavit rule applies when the sworn testimony contradicts prior unsworn statements; and (2) whether an inconsistency within the affidavit goes to credibility or admissibility, justifying an order striking the affidavit. Previous rulings by the Ohio Supreme Court regarding the sham-affidavit rule have pertained to contradictions between an affidavit and sworn deposition testimony. See, e.g., Byrd v. Smith, 2006- Ohio-3455, 110 Ohio St.3d 24, 850 N.E.2d 47. However, here, the Court was asked to apply the same rule to contradictions between a sworn affidavit and an unsworn expert report. The Court held that, because Moore’s expert incorporated his prior report into his affidavit, he effectively adopted the report as part of his sworn testimony.

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Thought Leadership

Pennsylvania Superior Court Reaffirms Liberal Pleading Standard in Medical Malpractice Actions

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