Title: Sherry Gay Hereford, individually and as mother and next friend of Alyssa Hereford, her minor daughter v. D.R. Horton, Inc.
Citation: N/A
Docket Number: 1070396
State: Alabama
Issuer: Alabama Supreme Court
Date: January 9, 2009

rel: 01/09/2009
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334)
229-0649), of any typographical or other errors, in order that corrections may be made
before the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
OCTOBER TERM, 2008-2009
____________________
1070396
____________________
Sherry Gay Hereford, individually and as mother and next
friend of Alyssa Hereford, her minor daughter
v.
D.R. Horton, Inc.
Appeal from Shelby Circuit Court
(CV-04-254)
On Application for Rehearing
SEE, Justice.
The opinion of September 5, 2008, is withdrawn, and the
following opinion is substituted therefor.
Sherry Gay Hereford, individually and as mother and next
1070396
2
friend of Alyssa Hereford, her minor daughter, appeals from a
judgment of the Shelby Circuit Court, affirming a summary
judgment entered by the arbitrator in favor of D.R. Horton,
Inc. (hereinafter "Horton").  We affirm.
Facts and Procedural History
On January 6, 2003, Sherry Gay Hereford entered into a
real-estate contract with Horton for the purchase of a newly
constructed house that Horton had built.  The contract
included 
a 
one-year 
limited warranty that provided that 
Horton
was responsible for repairing any latent defects in the house.
The 
limited 
warranty 
expressly 
disclaimed 
all 
other
warranties, whether express or implied, and provided that the
limited warranty excluded recovery for  "[i]ncidental,
consequential, or secondary damages caused by a breach of this
warranty."  
The limited 
warranty 
also 
contained an arbitration
clause that provided that any dispute arising under the
limited warranty shall be submitted to arbitration in
accordance with the Federal Arbitration Act, 9 U.S.C. § 1 et
seq.  
Several months after the Herefords moved into the house,
they discovered water damage in the third bedroom of the
1070396
3
house.  Hereford notified Horton of the damage, and a
representative of Horton went to the house to investigate the
cause of the water damage.  Horton learned that the water
damage was being caused by leakage from a condensation drain
pipe for the heating, ventilation, and air-conditioning
("HVAC") system, which had become separated at one of its
joints.  Horton repaired the separation in the pipe joint,
removed 
and replaced the 
damaged 
carpet, baseboards,
insulation, and sheet rock in the bedroom, and sprayed the
affected areas with a bleach-detergent solution.  Horton
planned to make further repairs to the bedroom; however, a
dispute 
arose 
between 
Hereford 
and 
Horton 
regarding 
the 
extent
of the repairs, and Hereford refused to allow Horton to make
any further repairs to the house unless Horton agreed to meet
Hereford's specific demands regarding the repairs.
Hereford hired Michael Ridge, a certified industrial
hygienist, to inspect the house and to determine what measures
were necessary to repair the damage caused by the leak in the
HVAC pipe.  The report prepared by Ridge recommended treating
the entire house for mold.  Specifically, Ridge's report
recommended that the third bedroom should be enclosed with a
1070396
4
barrier maintained with a high-efficiency particulate-air
filtration system to prevent the spread of mold while the
third bedroom was being treated.  The report further advised
that all the carpet and padding should be removed from the
house, that the entire house should be cleaned, and that the
contents of the house should be removed and stored during the
repairs and treatment for mold.  Concerned about the possible
health hazards caused by exposure to mold, the Herefords moved
out of the house and into a furnished apartment.
Hereford filed a claim under her homeowner's insurance
policy with Alfa Insurance Company ("Alfa"), requesting that
Alfa pay for the remediation of the Herefords' house and for
the rental of the apartment.  Alfa agreed to Hereford's
requests and hired Pro-Care Complete Restoration Services,
Inc., a professional remediation firm, to treat and repair the
Herefords' house.  Alfa paid over $20,000 for the services
performed by Pro-Care.  The Herefords moved back into their
house after Pro-Care finished treating the house for mold and
made the necessary repairs.
On February 27, 2004, Hereford sued Horton, claiming that
Horton had breached the limited warranty by failing to repair
1070396
5
the damage caused by the leak in the unattached HVAC pipe.
Horton moved the trial court to dismiss Hereford's action or,
in the alternative, to stay the proceedings and compel
arbitration under 9 U.S.C § 1 et seq., the Federal Arbitration
Act.  Before the trial court ruled on Horton's motion, counsel
for Horton notified the trial court that both sides had agreed
to enter into settlement negotiations and, in the event that
settlement negotiations were unsuccessful, to submit the
dispute to a mutually agreeable form of binding arbitration.
Thereafter, the trial court placed this case on the
administrative docket pending a settlement or resolution of
the dispute by an arbitrator.
The settlement negotiations between Hereford and Horton
were unsuccessful, and the dispute was submitted to
arbitration.  On August 18, 2006, Horton moved the arbitrator
for a summary judgment, arguing that it had not breached the
limited warranty or, alternatively, that even if it had
breached the limited warranty, it was not liable for that
breach because, it argued, the damages sought by Hereford were
only consequential damages, the recovery of which was barred
by the limited warranty.  Hereford responded to Horton's
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6
summary-judgment motion, arguing that the provision in the
limited warranty excluding the recovery of consequential
damages was not enforceable because, she argued, the limited
warranty had failed to meet its essential purpose.  The
arbitrator entered a summary judgment in favor of Horton and
dismissed Hereford's complaint, finding that Hereford could
not 
prevail 
on 
her 
breach-of-warranty 
claim 
because 
Hereford's
damages either were covered by her homeowner's insurance
policy or were excluded under the limited warranty as
consequential damages.
Hereford appealed the arbitrator's decision to the Shelby
Circuit Court, and Horton moved that court to confirm the
arbitrator's decision.  The trial court determined that the
arbitrator's decision was due to be confirmed, and it entered
an order in accordance with that finding.  Hereford now
appeals.
Standard of Review
In R.P. Industries, Inc. v. S & M Equipment Co., 896 So.
2d 460 (2004), this Court reviewed the trial court's order
granting a motion to confirm an arbitration award and denying
the opposing party's motion to vacate that award.  We stated:
1070396
7
"'Where parties, as in this case, have agreed
that disputes should go to arbitration, the role of
the courts in reviewing the arbitration award is
limited. 
Transit 
Casualty 
Co. 
v. 
Trenwick
Reinsurance Co., 659 F. Supp. 1346 (S.D.N.Y. 1987),
affirmed, 841 F.2d 1117 (2d Cir. 1988); Saxis
Steamship Co. v. Multifacs International Traders,
Inc., 375 F.2d 577 (2d Cir. 1967).  On motions to
confirm or to vacate an award, it is not the
function of courts to agree or disagree with the
reasoning of the arbitrators. Application of States
Marine Corp. of Delaware, 127 F. Supp. 943 (S.D.N.Y.
1954).  Courts are only to ascertain whether there
exists one of the specific grounds for vacation of
an award. Saxis Steamship Co.  A court cannot set
aside 
the 
arbitration 
award 
just 
because 
it
disagrees with it; a policy allowing it to do so
would undermine the federal policy of encouraging
the settlement of disputes by arbitration. United
Steelworkers of America v. Enterprise Wheel & Car
Corp., 363 U.S. 593, 80 S. Ct. 1358, 4 L.Ed.2d 1424
(1960); 
Virgin 
Islands 
Nursing 
Association's
Bargaining Unit v. Schneider, 668 F.2d 221 (3d Cir.
1981).  An award should be vacated only where the
party attacking the award clearly establishes one of
the grounds specified [in 9 U.S.C. § 10]. Catz
American Co. v. Pearl Grange Fruit Exchange, Inc.,
292 F. Supp. 549 (S.D.N.Y. 1968).'"
896 So. 2d at 464 (quoting Maxus, Inc. v. Sciacca, 598 So. 2d
1376, 1380-81 (Ala. 1992)).  The standard by which an
appellate court reviews a trial court's order confirming an
arbitration award under the Federal Arbitration Act is that
questions of law are reviewed de novo and findings of fact are
reviewed only for clear error. See Riccard v. Prudential Ins.
Co., 307 F.3d 1277, 1289 (11th Cir. 2002). 
1070396
8
Analysis
Hereford asks this Court to reverse the trial court's
judgment 
affirming the arbitrator's 
decision 
and 
to 
vacate the
arbitrator's decision because, she argues, the arbitrator
manifestly disregarded the law in entering a summary judgment
in favor of Horton.  Before we can reach that question,
however, we must determine whether, in light of the United
States Supreme Court's recent decision in Hall Street
Associates, L.L.C. v. Mattel, Inc., ___ U.S. ___, 128 S. Ct.
1396 (2008), manifest disregard of the law remains a basis for
obtaining relief from an arbitrator's award under the Federal
Arbitration Act. 
The Federal Arbitration Act, 9 U.S.C. § 2, provides, in
pertinent part: "A written provision in ... a contract
evidencing a transaction involving commerce to settle by
arbitration a controversy thereafter arising out of such
contract or transaction ... shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in
equity for the revocation of any contract."  "Section 2 has
the effect of preempting conflicting Alabama law, in
particular 
§ 
8-1-41(3), Ala. Code 
1975, 
which 
makes 
predispute
1070396
9
agreements to arbitrate unenforceable." Title Max 
of
Birmingham, Inc. v. Edwards, 973 So. 2d 1050, 1053 (Ala. 2007)
(citing Garikes, Wilson, & Atkinson, Inc. v. Episcopal Found.
of Jefferson County, Inc., 614 So. 2d 447, 448 (Ala. 1993)).
Therefore, in Alabama, predispute arbitration provisions are
enforceable so long as the party moving to compel arbitration
proves "the existence of a contract calling for arbitration
and ... that that contract evidences a transaction involving
interstate commerce." Title Max of Birmingham, 973 So. 2d at
1052 (citing Polaris Sales, Inc. v. Heritage Imports, Inc.,
879 So. 2d 1129, 1132 (Ala. 2003)).
As a preliminary matter, we first address whether the
arbitration 
agreement 
between 
Hereford 
and 
Horton 
was 
governed
by the Federal Arbitration Act.  The limited warranty states
that arbitration would be "governed by the procedures of the
Federal Arbitration Act, 9 U.S.C. 1 et  seq."  Moreover, in
its motion to compel arbitration, Horton specifically invoked
the "Federal Arbitration Act" and moved the trial court to
stay all proceedings and to compel Hereford to arbitrate her
breach-of-warranty claim against Horton.  The parties agreed
that Hereford's purchase of the house was a transaction that
1070396
10
involved interstate commerce; the real-estate sales contract
expressly provides that "[t]he Seller and Buyer acknowledge
that this Agreement necessarily involves interstate commerce
by virtue of the materials and components contained in the
dwelling."  Therefore, we hold that the arbitration
proceedings in this case were governed by the Federal
Arbitration Act.
Having determined that the arbitration in this case was
conducted pursuant to the Federal Arbitration Act, we must now
address whether manifest disregard of the law is a valid
ground for obtaining relief from an arbitrator's decision
under the Federal Arbitration Act.  "'In cases governed by the
[Federal Arbitration Act], the federal substantive law of
arbitration governs, despite contrary state law or policy.'"
Birmingham News Co. v. Horn, 901 So. 2d 27, 44 (Ala. 2004)
(quoting Maxus, Inc., 598 So. 2d at 1379), overruled on other
grounds by Horton Homes, Inc. v. Shaner, [Ms. 1061659, June
20, 2008] ___ So. 2d ___ (Ala. 2008).  The Supreme Court of
the United States has stated that the Federal Arbitration Act
"'create[s] a body of federal substantive law,'" which is
"'applicable in state and federal courts.'"  Buckeye Check
1070396
11
Cashing, Inc. v. Cardegna, 546 U.S. 440, 445 (2006) (quoting
Southland Corp. v. Keating, 465 U.S. 1, 12 (1984)).   
Under § 10 of the Federal Arbitration Act, a party is
entitled to have an arbitrator's award vacated upon a showing
of one of the following four grounds:
"(1) 
where 
the 
award 
was 
procured 
by 
corruption,
fraud, or undue means;
"(2) where there was evident partiality or
corruption in the arbitrators, or either of them;
"(3) where the arbitrators were guilty of
misconduct in refusing to postpone the hearing, upon
sufficient cause shown, or in refusing to hear
evidence pertinent and material to the controversy;
or of any other misbehavior by which the rights of
any party have been prejudiced; or
"(4) where the arbitrators exceeded their
powers, or so imperfectly executed them that a
mutual, final, and definite award upon the subject
matter was not made."
9 U.S.C. § 10(a).  
In Birmingham News, we noted that the four grounds listed
in 9 U.S.C. § 10(a) for vacating an arbitrator's award had
been adopted by this Court as "applicable to an appeal of an
arbitration award in this state." 901 So. 2d at 46.  This
Court then adopted a fifth ground that could serve as an
independent basis for vacating an arbitrator's award, namely,
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12
"manifest disregard of the law."  901 So. 2d at 50.
Recognition of manifest disregard of the law as a nonstatutory
ground for vacating an arbitrator's award originated in a
statement made by the Supreme Court of the United States in
Wilko v. Swan, 346 U.S. 427 (1953).  In that case, the Supreme
Court remarked that the "[p]ower to vacate an award is
limited," but it went on to state that "[i]n unrestricted
submission, such as the present margin agreements envisage,
the interpretations of the law by the arbitrators in contrast
to manifest disregard [of the law] are not subject, in the
federal 
courts, 
to 
judicial 
review 
for 
error 
in
interpretation." 346 U.S. at 436-37.  As we noted in
Birmingham News, all the federal courts of appeals and a
majority of state appellate courts, including this Court in
Birmingham News, thereafter adopted manifest disregard of the
law as a fifth ground for vacating an arbitration award. 901
So. 2d at 48-50.
In March of last year, the Supreme Court of the United
States, in Hall Street Associates, L.L.C. v. Mattel, Inc.,
supra, rejected the conclusion that it had adopted manifest
disregard of the law as an additional, nonstatutory ground for
1070396
The Supreme Court noted that the use of the phrase
1
"manifest disregard" in Wilko was particularly vague and that
it could have had several possible meanings.  The Court
surmised that the use of the phrase "manifest disregard,"
instead of intending to create "a new ground for review," may
merely have "referred to the § 10 grounds collectively, rather
than adding to them. ... Or, as some courts have thought,
'manifest disregard' may have been shorthand for § 10(a)(3) or
§ 10(a)(4), authorizing vacatur when the arbitrators were
'guilty of misconduct' or 'exceeded their powers.'" Hall
Street Associates, ___ U.S. at ___, 128 S. Ct. at 1404.
Relying on these latter two possible meanings, some courts
have held that "manifest disregard" survives as a judicial
gloss on the specific grounds for vacatur listed in § 10 of
the Federal Arbitration Act.  See Stolt-Nielsen SA v.
AnimalFeeds Int'l Corp., 548 F.3d 85, 94 (2d Cir. 2008)
(citing with approval decisions of other courts that have held
that "manifest disregard" survives as a gloss on the § 10(a)
grounds of the Federal Arbitration Act).  We do not address
whether manifest disregard of the law remains as a judicial
gloss on the grounds specified in § 10(a) of the Federal
Arbitration Act or is merely "shorthand for § 10(a)(3) or §
10(a)(4)."  We simply note that by the express language of the
Supreme Court of the United States the text of the Federal
Arbitration Act "compels a reading of the § 10 and § 11
categories [of relief] as exclusive." ___ U.S. at ___, 128
S.Ct. at 1404.
13
relief from an arbitrator's decision.  The Supreme Court
stated that such a reading was "too much for Wilko to bear"
and that the text of the Federal Arbitration Act "compels a
reading of the § 10 and § 11 categories [of relief] as
exclusive." ___ U.S. at ___, 128 S.Ct. at 1404.   Under the
1
Supreme 
Court's 
decision 
in 
Hall 
Street 
Associates, 
therefore,
manifest disregard of the law is no longer an independent and
1070396
14
proper basis under the Federal Arbitration Act for vacating,
modifying, or correcting an arbitrator's award.  In light of
the fact that the Federal Arbitration Act is federal law, and
in light of the Supremacy Clause of the Constitution of the
United States, Art. VI, we hereby overrule our earlier
statement in Birmingham News that manifest disregard of the
law is a ground for vacating, modifying, or correcting an
arbitrator's award under the Federal Arbitration Act, and we
also overrule any such language in our other cases construing
federal arbitration law.
Hereford has raised manifest disregard of the law as the
only ground on which she seeks to have the arbitrator's award
vacated.  Because manifest disregard of the law, by itself, is
not a valid ground for relief from the arbitrator's award and
because Hereford has not argued that this Court should vacate
the decision of the arbitrator on any of the grounds specified
in § 10(a) of the Federal Arbitration Act, she has not
demonstrated that she is entitled to relief from the trial
court's decision confirming the arbitrator's decision.
Conclusion
Because manifest disregard of the law is not a proper
1070396
15
ground under the Federal Arbitration Act for vacating,
modifying, or correcting an arbitrator's decision, Hereford
has not demonstrated any error by the trial court.  Therefore,
we affirm the judgment of the trial court confirming the
arbitrator's decision in favor of Horton.
APPLICATION OVERRULED; OPINION OF SEPTEMBER 5, 2008,
WITHDRAWN; OPINION SUBSTITUTED; AFFIRMED.
Cobb, C.J., and Lyons, Woodall, Stuart, Smith, Bolin, and
Parker, JJ., concur.
Murdock, J., concurs in overruling the application for
rehearing and concurs in the result as to the opinion.