Vitiello v. Home Buyers Resale Warranty Corp.

Citation: 2022 NY Slip Op 05246Docket: 533464

Court: Appellate Division of the Supreme Court of the State of New York; September 22, 2022; New York; State Appellate Court

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In Vitiello v. Home Buyers Resale Warranty Corp., the Appellate Division reviewed an appeal from a Supreme Court order that granted the defendants' motion to stay the action, compel arbitration, and dismiss the class action claim. The case originated from a 2017 contract between Lisa Vitiello and LNAA Construction for a new home, which included a limited warranty administered by Home Buyers Warranty Corporation (HBWC). The warranty contained an arbitration clause mandating that disputes be resolved through binding arbitration governed by the Federal Arbitration Act. After discovering defects in the property, Vitiello initiated arbitration against LNAA, which resulted in the arbitrator denying coverage for some defects and ordering her to pay $625 in arbitration costs.

Vitiello subsequently filed a breach of contract action against LNAA, seeking to declare the warranty void. The Supreme Court denied her summary judgment motion, noting material factual issues but indicated that the arbitration requirement was void. Two years later, Vitiello initiated a new action on behalf of herself and others, alleging deceptive business practices under General Business Law, claiming that defendants improperly forced consumers into arbitration, charged fees for participation, and marketed a defective warranty that did not comply with implied warranty standards.

Defendants sought to compel arbitration, stay the action, and dismiss the class action claim after a failed attempt to move the case to federal court. The Supreme Court granted the motion, compelling arbitration, dismissing the class action claim, and staying the action. This decision was based on the Federal Arbitration Act (FAA) preempting state law due to the defendants' engagement in interstate commerce, the presence of a binding arbitration agreement in the warranty, and the plaintiff's waiver of class action rights. The court affirmed that the FAA applies to contracts involving interstate commerce, establishing a national policy favoring arbitration. The interpretation of "involving commerce" includes activities that substantially affect interstate commerce, regardless of the local nature of the underlying contract. The warranty's administration was deemed relevant, especially since HBWC, the warranty administrator, conducts substantial business across multiple states. The court concluded that HBWC's activities have a significant effect on interstate commerce, thus the FAA is applicable.

The court rejects the plaintiff's argument that General Business Law § 777-b(4)(h) mandates striking the arbitration agreement based on public policy. Established case law indicates that when state law outright prohibits the arbitration of certain claims, the Federal Arbitration Act (FAA) prevails. Consequently, the FAA overrides the restrictions in General Business Law § 777-b(4)(h), necessitating arbitration of the dispute between the plaintiff and defendants as per the arbitration agreement terms. The plaintiff's concerns regarding public policy protections linked to the warranty are deemed acquiesced due to the agreement's broad language covering all warranty-related disputes.

The court also dismisses the plaintiff's claim that prior arbitration decisions involving LNAA would bias any selected arbitrator. The arbitration agreement stipulates that the arbitrator must issue decisions in accordance with applicable state laws, with awards potentially subject to review if outside this scope. Unaddressed contentions from the plaintiff have been considered and found meritless. The court affirms the order with costs.

Additional notes clarify that while Home Buyers Resale Warranty Corporation is named as a defendant, all allegations target its conduct as the warranty administrator. It is confirmed that LNAA is required to arbitrate its claims under the same agreement. The court further finds that defendants can compel arbitration despite not being parties to the original contract, and the plaintiff's assertion that the warranty provision is void due to exclusionary language is both unpreserved and meritless. Lastly, the arbitration clause's explicit waiver of class action rights leads to the dismissal of the plaintiff's class claims.