The Donahue family has a problem. They wanted to put a pool in the backyard of their KB home. That is, until they found out the size of what was already here...
"A 20 inch gas main," Keith and Heather Donahue say in unison.
That's right. A 20 inch gas line runs right through their yard. The Donahues and KB home disagree about how much KB's salesman told them about the gasline.
"You know, it was kind of an unpleasant thing to find out," says Keith, "but I thought, what do I do now?"
The Donahues sued KB. But before they ever got their day in court, they learned that when they bought the house, they had signed away their right to sue the company.
In fact, you may not realize it, but if you've recently bought a home from KB, you've also agreed never to take the company to court. Instead, you've agreed to resolve all warranty disputes through binding arbitration. That's where a third-party hears both sides, then makes a decision that is binding on both parties.
"For consumers, it's not such a good idea," St. Mary's Law Professor L. Wayne Scott tells the Trouble Shooters, "because it tends to be controlled by the industry that writes the contract."
Scott says arbitration rarely benefits the homeowner, because it's expensive and the ruling can't be appealed or overturned.
"You're throwing yourself out of the courthouse."
KB is not the only homebuilder to require binding arbitration. Many large homebuilders have it in their contracts. But KB's situation is different.
In the late 1970's KB, then Kaufman & Broad, was investigated by the Federal Trade Commission for deceptive trade practices. In a consent order with the FTC, the company agreed to provide all homeowners with a specific warranty that allows for non-binding arbitration. That is, if the homeowner isn't satisfied with the decision, he or she can sue.
But that's not the warranty KB is offering today.
"I said, 'well, what happens if i want to sue you?'" explains KB homeowner Alicia Williams, "They said, 'you can't sue us. If you flip to your warranty book, it says that you signed a contract saying you can't sue us."
The Trouble Shooters have obtained a 1995 letter in which the FTC reminded KB that "the order would not permit K&B to offer such a warranty."
"It's contained within the warranty agreement that they give to every person who buys a KB home, and yet, it's illegal," says Houston attorney Robert Collins.
Collins accuses KB of violating the federal order. He and several other attorneys have filed a lawsuit in the U.S. District Court in Laredo. Collins claims if they win, KB homeowners will have the right to take the company to court, if they're unhappy with repairs under their basic warranties.
KB argues that binding arbitration is an industry standard now and that Collins and his client have no standing. KB believes only the FTC can sue over a potential violation.
In a letter to the Trouble Shooters, KB says, "We are working through these matters with the FTC. We are confident that we will be able to resolve these issues amicably in the near future."
As for the Donahues, a gas line doesn't fall under their basic warranty, so the FTC order wouldn't affect them. But Thursday, in an effort to foster good will with it's customers, KB Home released the family from binding arbitration.
Federal judge Keith Ellison hasn't ruled yet on the Laredo case, but he did say during a March hearing that he was "troubled that KB is doing something that the FTC has told it not to." The Trouble Shooters will keep you posted.
Friday on News 4 WOAI at ten, the Trouble Shooters look at the big picture: Is KB truly deserving of all the protest and criticism, or is a victim of an activist feeding frenzy? You'll be surprised by what we've uncovered.
http://web.archive.org/web/20051109052137/www.woai.com/troubleshooters/story.aspx?content_id=73BBABF1-D905-4C9D-99D7-66E26B862CBD
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