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Home Improvement Contractors Beware: Your Arbitration Clause May Be In Peril

Does your arbitration clause comply with Massachusetts' Home Improvement Contractor statute? If not, you may find yourself precluded from arbitration. Home Improvement Contractors should review their standard contract terms, specifically any terms regarding arbitration in light of the Massachusetts Appeals Court's ruling this month in Mamaril, et al. v. Keller, et al.

In Keller, the Plaintiff was a homeowner and the Defendant was a home improvement contractor hired by the Plaintiff to complete some repairs on the Plaintiff's home. The contract signed by the homeowner and the contractor had the following arbitration clause imbedded into the middle of a paragraph:

Should disputes arise after commencement of work and parties cannot come to an agreement customer agrees that all and any disputes shall be settled through arbitration in county where the business Keller Waterproofing & Foundation LLC resides.

A dispute arose over the quality of the Defendant contractor's work on the Plaintiff's house. After months of settlement attempts by each party's counsel, the Plaintiff and Defendant each filed separate actions against each other in separate courts.

On June 27, 2011, the Defendant contractor filed an action in Worcester Superior Court for a declaratory judgment that an arbitration clause contained in the parties' contract was valid and that arbitration should occur in Worcester County. On July 22, 2011, the Plaintiff homeowner sued the contractor in Essex Superior Court on theories, including breach of contract and violation of the Massachusetts Home Improvement statute G. L. c. 142A. The Court found in favor of the Plaintiff homeowner regarding the Defendant's claim and refused to compel the Plaintiff to arbitrate the dispute in accordance with the arbitration terms of the contract. The Defendant appealed.

On appeal, the Defendant argued that the arbitration provision in the home improvement contract between the parties controlled and required the homeowner to engage in arbitration in accordance with the clause. The Plaintiff countered that the arbitration provisions of G. L. c. 142A, which governs home improvement contractors, supersedes the arbitration clause in the parties' agreement.

The Appeals Court agreed with the Plaintiff holding:

While the defendant is correct that G.L. c. 251, §1, controls arbitration provisions generally, that is not the case here. The Defendant is a home improvement contractor; the Plaintiff, a homeowner. The legislature has adopted a series of laws that govern the relationship, including arbitration procedures, between home improvement contractors and homeowners. Based on the familiar tenets of statutory construction, G.L. c. 251 must yield to G.L. c. 142A, when these parties are involved. ...

Significantly, the Appeals Court agreed with the lower court holding that the arbitration provision agreed to by the parties contained deficiencies prohibited by G.L. c. 142A. In the absence of an approved provision for arbitration in a contract, G.L. c. 142A gives homeowners the right to seek arbitration should a dispute arise, but contractors are not afforded the same right. Notably, if contractors include an arbitration provision in a contract, they may do so only with a provision that is "clearly and conspicuously disclosed in the contract, in language designated by the director, and that each party separately signs and dates the provision, thereby assenting to the procedure."

The Appeals Court held that the arbitration clause depicted above met none of these requirements. The arbitration clause was contained in the middle of a long paragraph and is not distinguishable, whether by size, font, or color, from the rest of the text. Nor does the language match, or even closely approximate, that required by Massachusetts' regulations. Finally, the parties did not separately sign and date the provisions. Accordingly, the Appeals Court held that "the provisions of G.L. c. 142A generally, and G.L. c. 142A's arbitration provisions specifically, supersede the arbitration clause in the parties' agreement."

The Keller case serves as a reminder to home improvement contractors that any contract language must comply with G.L. c. 142A, § 2 including any arbitration clauses. Unfortunately, many contractors use similar arbitration clauses as the Defendant in the Keller matter. In light of the Appeals Court's ruling, these contractors should review their own arbitration clauses for compliance with G.L. c. 142A. The case also highlights the perils of what can happen with a poorly drafted home improvement contract.

Contact Attorney Mucci if you have questions about Massachusetts' Home Improvement Contractor statute G.L. c. 142A or are involved in a home improvement contractor dispute.

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