Arbitration Clause Found Unenforceable

A recent Tennessee Court of Appeals case, Capps v. Adams Wholesale Co., Inc.,  found that an arbitration agreement contained within a decking manufacturer’s limited warranty was unenforceable as there was no meeting of the minds between the purchaser/homeowner and the manufacturer – despite the fact that “similar arbitration agreements had been upheld” in other cases. Six months after installation of the deck, the decking started to fail. The homeowner sought to replace the material directly from the manufacturer pre-suit; however, the manufacturer refused to do so, stating the complaints were merely cosmetic.
Without the manufacturer’s cooperation, the homeowner filed a lawsuit in the Greene County Chancery Court. In response, the manufacturer moved to dismiss the lawsuit and compel arbitration based on the mandatory arbitration clause in the limited warranty. The decking was sold without any documentation about the warranty or arbitration clause other than a small written notice with each decking bundle stating that the product was subject to a limited lifetime warranty and that the customer could obtain a copy by either calling the provided 1-800-number or visiting the manufacturer’s website. The manufacturer never gave the homeowner a copy of the limited warranty until after the homeowner requested replacement of the defective product.
The trial court denied the manufacturer’s motion to dismiss and the Court of Appeals affirmed. The Court reasoned that although the homeowner was not required to sign off on the arbitration clause or even to read it for it to be enforceable, the homeowner was never given notice of the arbitration clause prior to taking delivery of the decking material and thus never had a chance to refuse acceptance of the product. As such, the Court found the arbitration clause unenforceable due to the lack of mutual assent of the terms. The Court noted that its holding was limited to the specific fact pattern before it.
Warranties, both express and implied, are often the subject of litigation. In a situation like the one reviewed, the corporate defendant attempted to avoid a trial in a county court and instead force the homeowner into a private arbitration forum. Arbitration, however, may not be the most desirable forum, whether from a consumer’s or a manufacturer’s viewpoint. In deciding whether to incorporate a mandatory arbitration clause in a contract – whether for services or manufacturing – significant thought must be given to the risks and benefits of such a clause. Additionally, before a lawsuit is filed, it is important to determine whether an arbitration clause may apply as they often exist in both consumer and commercial contracts and are routinely enforced by courts.

Capps v. Adams Wholesale Co., No. E201401882COAR3CV, 2015 WL 2445970, at *3 (Tenn. Ct. App. May 21, 2015).