Kmart Corporation v. Dow Roofing Systems, LLC et al
ORDER granting 7 Motion to Dismiss. Signed by Judge Juan M. Perez-Gimenez on 12/2/2013. (VCC)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
KMART CORPORATION, et al.,
CIV. NO. 12-1679 (PG)
DOW ROOFING SYSTEMS, LLC, STEVENS
ROOFING SYSTEMS, DOES I-X, ABC
INSURANCE COMPANIES, and any other
OPINION AND ORDER
defendant Dow Roofing Systems, LLC (“Dow Roofing”) relating to allegedly
installation at a Kmart store located in Los Colobos Shopping Center in
Carolina, Puerto Rico. See Docket No. 1. On November 20, 2012, defendant
Dow Roofing filed the Motion to Dismiss that is now before the Court. See
Docket No. 7. In the document, defendants request the Court’s dismissal
of the action pursuant to the Federal Arbitration Act and on res judicata
Having considered the issues and arguments raised by both parties,
the Court GRANTS Defendants’ Motion to Dismiss.
The procedural history of this case is succinct. Plaintiffs filed
the Complaint on August 20, 2012. See Docket No. 1.
On November 20, 2012
Dow Roofing filed the Motion to Dismiss (Docket No. 7). Plaintiffs’
Opposition followed on December 21, 2012 (Docket No. 12). Kmart replied
to plaintiff’s opposition (Docket No. 16) and plaintiffs filed a surreply
(Docket No. 19).
compel arbitration. Accordingly, the recitation of facts is drawn from
the Complaint as well as the documents submitted in support of the Motion
to Dismiss. The facts are undisputed.
On January 13 2006, Kmart and Stevens Roofing Systems signed a
Construction Contract (the “Construction Contract”) to have a single-ply
Civil No. 12-1679 (PG)
membrane roof installed on property owned by Kmart and located at Plaza
Los Colobos, 65th Infantry Avenue, Carolina, Puerto Rico. See Docket No.
1 at ¶9-10.
Stevens Roofing Systems (“Stevens Roofing”) later became known as
Dow Roofing. See Docket No. 7 at pg. 3.
The Construction Contract specified that any bid qualification or
condition contained in any document not expressly listed or incorporated
by reference was rejected and not a part of the agreements between the
parties. See Docket No. 12-1 at ¶2.
As a part of the bid and contract documents, the parties agreed
that Dow Roofing would issue a ten (10) year warranty for labor and
material that was not limited by any dollar amount. See Docket No. 1 at
Through the months of April and May 2006, Dow Roofing installed the
single-ply membrane roof at Kmart. See Docket No. 1 at ¶14.
On October 11, 2006, upon conclusion of the roof installation,
Kmart entered into a limited warranty contract with Stevens Roofing (“the
Warranty”). See Docket No. 7-2.
experienced leaking. See Docket No. 1 at ¶17.
On or about August 23, 2011, Kmart began to experience additional
water leakage from the single-ply membrane roof. See Docket No. 1 at ¶19.
Kmart complained and notified Dow Roofing of the situation. See
Docket No. 1 at ¶21.
On August 20, 2012, Kmart filed the Complaint claiming that the
leaks “have been caused by the Defendants’ use of defective materials
and/or the Defendants’ improper installation and repair of the single-ply
See Docket No. 1 at ¶23.
A. FEDERAL ARBITRATION ACT
We treat Dow Roofing’s request to dismiss the breach of contract
claim on the ground that the claim is subject to arbitration as a request
for an order compelling arbitration. See IOM Corp. v. Brown Forman Corp.,
627 F.3d 440 (1st Cir. 2010) (citing Fit Tech, Inc. v. Bally Total
Civil No. 12-1679 (PG)
Fitness Holding Corp., 374 F.3d 1, 6 (1st Cir.2004) (treating a motion to
dismiss based on an arbitration clause as a request to compel arbitration
where the appellant had clearly invoked the arbitration clause contained
in the agreement between the parties)).
The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16 (1994 & Supp.
I 2001) applies in diversity actions where there is a written agreement
to arbitrate a dispute and that dispute arises out of a “transaction
involving commerce.” See 9 U.S.C. §§ 1-2; Bowlby v. Carter Mfg. Corp.,
138 F. Supp. 2d 182, 187 (D. Mass. 2001). Pursuant to the FAA, “commerce”
includes interstate, territorial or foreign commerce, 9 U.S.C. § 1.
In deciding a motion to compel arbitration, a court must ascertain
whether: “(i) there exists a written agreement to arbitrate, (ii) the
dispute falls within the scope of that arbitration agreement, and (iii)
arbitration.” See Combined Energies v. CCI, Inc., 514 F.3d 168, 171 (1st
Cir.2008). As the Supreme Court has explained, it is a “fundamental
principle that arbitration is a matter of contract.” See Rent-A-Center v.
Jackson, 561 US 63 (2010).
Our first inquiry is whether an arbitration agreement exists. As
with any contract, the existence of an arbitration agreement depends on
the parties’ intentions. McCarthy v. Azure, 22 F.3d 351, 355 (1st Cir.
1994). In order to conduct the analysis, the Court must look to Puerto
Rico law in the matter of contracts because general principles of state
contract law control the determination of whether a valid agreement to
arbitrate exists. See Soto-Fonalledas v.Ritz-Carlton, 640 F.3d 471, 475
(1st Cir. 2011).
satisfied for a valid contract to exist: (1) consent of the contracting
parties; (2) a definite object which may be the subject of the contract
and (3) a cause for the obligation which may be established. 31 P.R. Laws
Ann. tit. 31, §§3391 (2008).
Any controversy or claim arising out of or relating to this
document, or the breach thereof, shall be settled by
arbitration in accordance with the Construction Industry
Civil No. 12-1679 (PG)
Rules of the American Arbitration Association at the
Boston, Mass., Regional Office and judgment upon the award
rendered by the Arbitrators may be entered in any court
having jurisdiction thereof.
See Docket No. 7-2 at ¶12.
Construction Contract includes all the terms agreed upon by the parties
and specifically states that: “[b]id qualifications or conditions (and
any other terms or conditions) contained in any proposal letter or other
reference in Paragraph 6 hereof (Special Conditions) are hereby rejected
and are not a part of the contract between the parties.” See Docket No.
12-1 at ¶2. It is worth noting that Paragraph 6 contains no “Special
Warranty’s arbitration clause constitutes an additional term that was not
negotiated by the parties and was, in fact, rejected via the Construction
After conducting our review of the agreements between the parties,
we disagree with Kmart’s restrictive reading of the Construction Contract
and the Warranty. In reaching this conclusion, we look into the parties’
regard for the subject matter, motive, and purpose of the agreement, as
Transport, Inc., 549 F.3d 578, 581-82 (1st Cir. 2008)(citing Biddeford
Internet Corp. v. Verizon New Eng., Inc., 456 F.Supp.2d 165, 171-72
(D.Me.2006)). In construing the agreement between the parties the Court
is also mindful of the strong federal policy favoring arbitration.
The Construction Contract provides that Dow Roofing would issue a
ten-year Labor and Material Warranty to Kmart to “cover all work items
installed by the roofing contractor, whether or not those items are
covered by the manufacturer’s warranty.” See Section 1.07(A) of Docket
No. 12-1. Also, the “Scope of Work” section of the Construction Contract
provides that “[u]pon completion and final acceptance of the roof by the
Aside from the arbitration clause, Kmart does not challenge any other term or
condition contained in the Warranty.
Civil No. 12-1679 (PG)
restricted labor and material warranty shall be issued to the Kmart
Corporation.” See Docket No. 12-1 at pg. 25.
The parties thus contemplated that Dow Roofing would issue the
Warranty after Kmart accepted the roof installation. Implicitly, then,
the parties acknowledged that the terms of the Warranty would not be part
of the Construction Contract itself but would be in effect after the
Construction Contract was signed and through a separate document.
Consequently, once the work was completed and accepted, Dow Roofing
issued and signed the Warranty which was also signed by Kmart through
Frederick Stoyle, Regional Facility Manager. See Docket No. 7-2. Kmart
Moreover, the Construction Contract contains no language regarding
Warranty is not at odds with the provisions contained in the Construction
Contract. Similarly, in the case of Pelletier, the plaintiff argued that
a Dispute Resolution Clause she had signed contemporaneously with an
Application for Employment was unenforceable because the latter contained
a merger clause. The Court found that the merger clause contained in the
terminate employment, did not nullify the Dispute Resolution Agreement
which only dealt with the mechanism for resolving disputes.
Construction Contract precludes any “bid qualification” or “condition”
however, is a separate, stand-alone instrument that does not incorporate
bid qualifications or conditions regarding the scope of the Construction
Contract itself, which is the installation of the single-ply membrane
roof. The Warranty deals with the remedies available to Kmart in case of
leaks caused by defects in the roofing materials or in the installation.
The fact that the Construction Contract includes a merger clause does not
override the validity of the Warranty which was issued separately and in
accordance with the parties’ agreements.
Having found that the parties consented to the Warranty, the Court
looks into whether there is a definite cause for the obligation.
Civil No. 12-1679 (PG)
Kmart alleges that the Warranty lacks consideration because it does
rationale is that since the Construction Contract already provides that
Dow Roofing would issue a warranty, the Warranty itself does not confer
any new rights to Kmart. We find this argument unpersuasive.
A bilateral obligation assumed by each one of the parties to the
contract, has, as its consideration, the promise offered in exchange, and
both parties must be bound based on mutual consideration that yields
either a benefit or a detriment to each party. See Soto-Fonalledas, 640
requiring Dow Roofing to issue a Warranty does not confer any specific
rights to Kmart arising under the Warranty. That is to say, the source of
the remedies available to Kmart is not found in the Construction Contract
but on the Warranty itself. Thus, Kmart’s lack of consideration argument
obligations, the Court looks into the object of the Contract. As with the
namely, to provide a remedy to Kmart in case of leaks in the roof
manufactured and installed by Dow Roofing.
Because all the requirements for a Contract under Puerto Rico law
are present here, the Court concludes that the parties entered into a
valid arbitration agreement. Next, we examine whether the dispute falls
within the scope of that arbitration agreement.
Congress enacted the Federal Arbitration Act (FAA) to promote a
liberal federal policy favoring arbitration and to guarantee that “[a]
written provision in ... a contract evidencing a transaction involving
commerce to settle by arbitration a controversy thereafter arising out of
enforceable, save upon such grounds as exist at law or in equity for the
revocation of any contract.” See Constructora Andrade Gutierrez, S.A. v.
American Intern. Ins. Co. of Puerto Rico, 467 F.3d 38 (1st Cir. 2006)
(citing Campbell v. Gen. Dynamics Gov't Sys. Corp., 407 F.3d 546, 551-52
(1st Cir.2005) (internal citations omitted)).
It is axiomatic that arbitration is a creature of contract. See
United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582,
Civil No. 12-1679 (PG)
80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960). Where there is a validly formed and
enforceable arbitration agreement, “a court may order arbitration of a
particular dispute only where the court is satisfied that the parties
agreed to arbitrate that dispute.” See Granite Rock Co. v. Int'l Bhd. of
Teamsters, 130 S.Ct. 2847, 2856, 177 L.Ed.2d 567 (2010) (citing First
Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920,
131 L.Ed.2d 985 (1995); AT & T Techs., 475 U.S. at 648–49, 106 S.Ct.
parties' intent, not to substitute our own preferences. See Municipality
Capital, 415 F.3d 145, 151 (1st Cir.2005); Unite Here Local 217 v. Sage
Hospitality Resources, 642 F.3d 255 (1st Cir. 2011).
following principles. If “the terms of [the Arbitration Clause], its
conditions and exclusions, are clear and specific, and leave no room for
ambiguity or for diverse interpretations, they should be thus applied.”
See Unisys Puerto Rico, Inc. v. Ramallo Bros. Printing, Inc., 1991 WL
735351 (P.R.), 128 D.P.R. 842, 852 (1991) (citing 31 P.R. Laws Ann. tit.
31, § 3471 (2008) (“If the words should appear contrary to the evident
intention of the contracting parties, the intention shall prevail”)).
Furthermore, consistent with the federal pro-arbitration policy, there is
a presumption that “ambiguities as to the scope of the arbitration clause
itself [must be] resolved in favor of arbitration.” See Powershare, Inc.
v. Syntel, Inc., 597 F.3d 10 (1st Cir. 2010)(citing Volt Info. Scis.,
Inc. v. Bd. of Trs. of Leland Stanford Jr. University, 489 U.S. 468, 47576 (1989)).
According to the Warranty, Dow Roofing warrants to Kmart that it
will “repair any leaks in the Stevens Roofing System” that is installed
by an authorized contractor for a period of ten years from the date of
the “substantial completion and acceptance of the Roofing System.” See
Docket No. 7-2 at ¶1.
Furthermore, the Warranty limits Stevens’ liability to repair of
the Roofing System as follows:
If upon Stevens inspection, Stevens determines that the
leaks in the Roofing System are caused by defects in the
Stevens Roofing material or workmanship of the Stevens
Civil No. 12-1679 (PG)
Authorized Roofing Applicator (except as provided in
paragraph Nos. 3 and 4), Owner’s remedies and Stevens
liability shall be limited to Stevens repair of the Roofing
System using methods determined to be suitable at Stevens
discretion, subject to the limitations set forth herein.
See Docket No. 7-2 at ¶2.
Applying the aforementioned principles, we find that the terms of
arbitration agreement. See e.g., Brown v. ITT Consumer Fin. Corp., 211
federal pro-arbitration policy, the Court is convinced that the dispute
falls squarely within the scope of the arbitration clause.
arbitration forum has not waived its right. Dow Roofing filed a timely
motion to compel arbitration and nothing in the record points to any
waiver of its right to arbitrate the instant dispute.
Courts have stated that “waiver is not to be lightly inferred, and
mere delay in seeking arbitration without some resultant prejudice to a
party cannot carry the day.” See Page v. Moseley, Hallgarten, Estabrook &
Weeden, Inc., 806 F.2d 291, 293 (1st Cir. 1986). Kmart has made no such
claim. Thus, we find that the last requirement is satisfied.
B. Res Judicata
In its Motion to Dismiss, Dow Roofing invokes the doctrine of res
judicata as a second reason why plaintiffs’ claims should be dismissed.
Dow Roofing makes reference to a complaint that Kmart filed against the
same defendants in the case titled Kmart Corp. v. Dow Roofing Systems,
LLC, No. 11-1310 (JAF), 2012 WL 967476 (D.P.R.2012). The case concerned a
dispute between Kmart and Dow Roofing regarding leakage in the roof of a
Kmart store located in Route
2, KM 149.5, Mayaguez, Puerto Rico
(“the Mayaguez case”).
The Court ultimately dismissed the latter pursuant to the Federal
Arbitration Act. Hence, Dow Roofing asserts that the present claim is
barred as a result of the judgment in the 2012 case. Kmart counters that
there is no identity of claims, as required for a res judicata defense
Civil No. 12-1679 (PG)
and thus Dow Roofing may not claim that the issue has been previously
The doctrine of res judicata dictates that “a final judgment on the
merits of an action precludes the parties from relitigating claims that
were or could have been raised in the prior action.” See Haag v. United
States, 589 F.3d 43, 45(1st Cir.2009). Res judicata commonly attaches if
three requirements are discernibly present: “(1) a final judgment on the
merits in an earlier action; (2) an identity of the cause of action in
both the earlier and later suits; and (3) an identity of parties or
privies in the two suits.” See Havercombe v. Dep’t of Educ. of P.R., 250
F.3d 1, 3 (1st Cir. 2001) (citing Kale v. Combined Ins. Co. of Am., 924
F.2d 1161, 1166 (1st Cir. 1991)).
We agree with Kmart that the requirements for res judicata to take
effect have not been met. In the earlier case, the Court did not conduct
a substantive analysis of the validity of the Mayaguez Warranty because
Kmart did not raise the same challenges to the Warranty that have been at
the heart of the present action. The Court’s holding in the Mayaguez case
is limited to the scope of the arbitration agreement included in that
particular warranty. Since the Court did not rule on the enforceability
of the Warranty and did not discuss the defenses of lack of consent and
consideration which are the cornerstones of Kmart’s arguments in the
present action, the Court’s earlier ruling as to the Mayaguez Warranty is
not an adjudication of the issues now before us.
Based on the foregoing, the Court finds that the arbitration clause
included in the Warranty signed by Kmart and Dow Roofing is valid and
enforceable. Therefore, the Motion to Dismiss is GRANTED.
IT IS SO ORDERED.
In San Juan, Puerto Rico, December 2, 2013.
s/ Juan M. Pérez-Giménez
JUAN M. PEREZ-GIMENEZ
SENIOR U.S. DISTRICT JUDGE
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