Judge: Arbitration case presents 'exceptional circumstances' for abstention

By John O'Brien | Jun 17, 2013

CHARLESTON – A federal judge has ruled he does not have jurisdiction over home warranty company’s attempt to force an unsatisfied customer into arbitration.

U.S. District Judge Joseph Goodwin on June 10 ruled he must abstain from ruling on a petition to compel arbitration filed Feb. 1 by Homebuyers Warranty Corporation. Lois Hanna has alleged that the arbitration provision in the warranty she obtained from Homebuyers is one-sided and unconscionable.

She sued the company on Nov. 27 in Kanawha County Circuit Court, and Homebuyers’ effort to begin arbitration followed in federal court.

Goodwin used a six-factor test to determine if he should abstain from the case.

“Here, I have no reason to doubt the adequacy of the state forum,” Goodwin wrote.

“Not only do state courts have concurrent jurisdiction over claims under the (Federal Arbitration Act), but the primary questions in this matter all pertain to state law.

“Additionally, given the complexities of the underlying state court claim, and the interrelatedness of the factual issues that must be resolved in determining both liability and enforceability of the arbitration provision, the state court is clearly in the best position to protect the parties’ rights.”

Hanna had entered into a contract with Innovative Design & Construction whereby Innovative agreed to sell Hanna a home it was constructing in Cross Lanes.

The agreement between Hanna and Innovative included an agreement by Innovative to procure a Homebuyers Warranty Corporation warranty for the home.

In November 2011, HBW received a structural defect claim under Hanna’s warranty and referred the claim to New Home Warranty Insurance Company for investigation and it, in turn, enlisted the assistance of National Home Insurance Company to investigate and adjust the claim under Hanna’s warranty, according to the suit.

Hanna contends that their response to her warranty claim has been improper, fraudulent and in bad faith. Her lawsuit was filed against Innovative and other parties.

Homebuyers denied Hanna’s allegations and that she states valid claims for relief and intend to plead arbitration as an affirmative defense when it responds to her state court complaint, according to its petition.

The arbitration agreement in Hanna’s warranty applies to all of her claims against the petitioners, according to the petition.

Goodwin wrote that two factors weighed against abstention, including the fact that Hanna did not argue that the federal forum is inconvenient. Such an argument wouldn’t work anyway, Goodwin said, because of the close proximity of Kanawha Circuit Court and the federal court in Charleston.

The third factor, though, was whether a court order compelling her to arbitrate would result in piecemeal litigation because her claims against the remaining state court defendants would remain pending in state court.

“(M)any of the state court defendants were not part of the arbitration agreement, and therefore piecemeal litigation would likely have nonetheless resulted if the petitioners moved in state court to compel arbitration and the state court granted the petition,” Goodwin wrote.

Goodwin also wrote that the more time the state has invested in the proceedings, the less appropriate it is for a federal court to intervene and disrupt those proceedings.

The fifth factor is that the central issue in the matter is whether the arbitration agreement is valid and enforceable under state law, he wrote. The sixth is whether the state court can adequately protect the parties’ rights.

“After consideration of the factors together in light of the particular circumstances of this case, I find that this case presents the sort of ‘exceptional circumstances’ warranting abstention,” Goodwin wrote.

“I have no reason to doubt the petitioners’ ability to pursue their rights in the state court system, and I cannot find that the arbitration issue can only be resolved efficiently in this court.”

Homebuyers is represented by John P. Fuller and James W. Marshall III. Hanna is represented by Christopher L. Brinkley and Marvin W. Masters of The Masters Law Firm.

From the West Virginia Record: Reach John O’Brien at jobrienwv@gmail.com.

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