The
contract prepared by the builder had a Mandatory Binding Arbitration clause.
Since her claim was for $50,000, including attorney fees, she paid a $750 filing
fee to the American Arbitration Association (AAA). Approximately two weeks
later, AAA required her to pay an additional fee of $2,235. Obviously, since
she had already spent her life savings on the house, she did not have the money
for arbitration. Her attorney asked the court to allow a trial by jury since
she could not afford arbitration. The court said no, and the fourth court of
appeals upheld the decision, denying her the constitutional right to a trial by
jury.
In another case, when the
homeowners refused to close on the house because it was not satisfactorily
completed and many items were left unfinished, the dispute was taken to
arbitration. The arbitrator ruled that the BUILDER was allowed to keep the
$140,000 house along with their fixtures and earnest money, and the BUILDER was
awarded $100,000.
In yet another case, the
arbitrator ruled that the builder had to repair all the items in the house
except the building code violations, and awarded $10,000 in attorney fees to the
BUILDER.
By far, the most damaging
effort has been the promotion and use of Mandatory Binding Arbitration clauses
in homebuilder contracts to avoid warranty responsibility. In order to buy a
home in today's market, homebuyers must give up their Constitutional rights.
Even more incredible, law does not apply in arbitration. Attorneys point out
that in arbitration there is no requirement for due process, right to discovery,
or rules of evidence or procedure, and it subverts all consumer law.
Additionally, the decision of the arbitrator can be filed as a final judgment in
a court, even if the decision is contrary to consumer law.
Worse yet, over the past 6
years HomeOwners for Better Building (HOBB) has been searching for homeowners
who have won in an arbitrated dispute against builders. We have found only
three in the entire United States. One case was in Colorado six years ago and
another one in South Carolina in November of 2001 then, finally a family won the
first victory in the state of Texas in December of 2002.
This is how it works. AAA
has nothing to do with court; it is a free-enterprise business. Some of the
biggest and best clients AAA has are the homebuilders who put Binding
Arbitration Clauses in their contracts and warranties. Contracts may vary, but
basically they read: "All claims... that may arise out of this agreement...
shall upon the demand of either party, be submitted to binding arbitration
before the American Arbitration Association and shall be governed by the
provisions of the AAA Construction Industry Arbitration Rules." In their
literature published in 1996 by AAA, it states: "...AAA created the
Construction ADR Task Force, comprised of 55 representatives of the construction
industry and its advocates... with a goal of improving AAA services and helping
the AAA be more responsive to the needs of the construction industry."
There is no mention of the consumer in any of their literature.
Since the rules were written
by the construction industry, it is not surprising that they were designed to
give the advantage to the homebuilder. One rule in particular is Fast Track,
which clearly is a disadvantage to the homeowner. The homeowner has only thirty
days to find expert witnesses, get estimated cost of repairs, and find an
attorney, all while holding down a job and taking care of a family under
stressful and very difficult circumstances.
Finding an experienced
arbitration attorney in construction is very difficult since most represent the
construction industry, including homebuilders. More and more consumer attorneys
complain that arbitration is too expensive, with costs increasing dramatically
over the past 5 years. Under Fast Track the cost of a $10,001 claim will cost in
excess of $5,000 for just one day of arbitration.
Additionally, under "Fast
Track," discovery is not allowed; therefore, the thirty-day time restraint does
not allow for proper preparation for a hearing, thus making it impossible to
find justice for the consumer. One example is that most builder contracts do
not allow the homeowner to have a set of plans and specifications. Since
discovery is not allowed, the builder is not required to produce the original
set of plans and specifications which are critical in preparing a case involving
a construction dispute under the best of circumstances. On the other hand, in a
court of law the builder would be required to produce any documents the court
deems necessary under rules of discovery to allow the consumer to prepare for
trial.
The strategy and growing
trend is for the homebuilder to take the homeowner to Arbitration. It is often
used early on to stop homeowners from getting their warranty work done or even
to complete the home. The builder's strategy is based on the probability that
the homeowner will back down because of the high cost of arbitration. It is
easy to understand that by requiring binding arbitration agreements in their
contracts, homebuilders are soliciting business for AAA that has resulted in
thousands of favorable decisions for homebuilders.
Homebuilder complaints are
at epidemic proportions, making arbitration a thriving business nationwide. One
survey conducted in San Antonio, Texas, revealed that 75% of homeowners
responding had problems with their builder, and would not recommend their
builder to a friend. A similar survey conducted by The Charlotte Observer
in Charlotte, North Carolina, produced similar results. Homebuilders in some
states are totally unregulated. Frustrated with arbitration and his inability
to get his home builder to correct multiple defects, one young attorney publicly
stated; "Home builders have gone far too long without checks and balances, and
have become entrenched with confidence that they can do almost anything other
professions would not dream of doing. Just look at what many builders actually
put in their Warranty Clauses; Seller makes NO warranty, ...as to quality,
fitness for a particular purpose, ... habitability or otherwise. Are we not
talking about builders selling a home with a thirty year mortgage?"
Sadly, appellate courts are
upholding arbitration decisions with regularity, even over protesting
Constitutional Rights. On July 1, 1999, the 3rd US Circuit Court of Appeals in
Philadelphia upheld the arbitration clause. The court said it didn't matter
that the clause was in fine print on the reverse side of the contract; hence,
the consumers were barred from litigating in court.
There is something
un-American about all of this. With a stroke of a pen to obtain the American
Dream, one must sign away their Constitutional Rights, resulting in subversion
of all existing consumer laws. Indeed, "the pen is mightier than the sword".
Texas Senate Interim
Committee On State Affairs
