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A lawsuit in Laredo that pressured KB Home into changing its
10-year warranties on its houses is heading to state district
court, where the warranties could be voided.
The move to state court for Timothy Pruitt, a KB Home customer
seeking a class action, came after U.S. Southern District
Judge Keith Ellison dismissed a federal lawsuit, saying that
only the Federal Trade Commission could enforce a court order
it obtained.
Pruitt's attorney, Alice Oliver-Parrott, refiled the case in
state court in September. The FTC, meanwhile, acknowledged
that it is taking a separate course of action against KB Home,
the dominant homebuilder in San Antonio, that may involve
civil penalties.
Ellison asked the FTC to respond with a "friend of the court"
brief, which the FTC submitted in August. While the FTC
reserved to itself the right to enforce a 1991 court decree
against KB Home, it noted that Pruitt could claim that KB
Home's warranty is unenforceable under state law because it is
violates the decree.
KB Home spokeswoman Cathy Teague said KB Home had not yet
responded to the case filed in state court.
FTC General Counsel William Kovacic told the judge that KB
Home misled the court as to the FTC's position. KB Home's
attorney Michael Shaunessy told the judge that the FTC was
aware of the company's arbitration practices but was
"currently choosing not to act."
Pruitt's federal suit raised the issue of whether a federal
judge could allow an individual to enforce a 1979 FTC
administrative order and the subsequent 1991 court consent
decree.
They would have, among other things, prohibited KB Home from
using mandatory arbitration where the decisions are binding on
the customer.
Since 1995, Kovacic said, KB Home has tried to use binding
arbitration. And since 1999, the FTC has made repeated
attempts to get KB Home to stop.
KB Home gave the FTC assurances verbally and in writing,
Kovacic told the court, but continued a practice of stalling
the FTC and misleading the public and the courts.
Even KB Home's most recent announcement, the June 30 notice
that it no longer would make arbitration decisions binding on
consumers, falls short of the requirements of the decree.
Kovacic said FTC staff is considering "appropriate steps."
KB Home hopes to resolve the FTC's concerns amicably, Teague
said. However, she added, KB Home maintains that its use of
arbitration didn't violate the FTC order "in any way," and
that the FTC's concerns have been resolved.
However, Kovacic said that KB Home's June 30 changes didn't
appear to comply with court orders or the FTC's wishes because
a cost-sharing policy could dissuade customers from filing
claims.
If the FTC proceeds to seek a civil penalty against KB Home,
it would be the second time. In 1991, the FTC sought and
obtained a $595,000 fine against KB Home for violations of the
1979 order.
When KB Home announced in June that it would modify its
arbitration clause, Teague said the change had nothing to do
with the Pruitt lawsuit. The change, she said, was directly
motivated by KB Home's talks with homeowners.
Oliver-Parrott, responding to the Los Angeles-based
homebuilder's policy change, told Ellison that KB Home sought
to give the public the impression it is "gratuitously
choosing" not to enforce a clause that it never should have
used to begin with.
"Obviously, KB Home is attempting to garner some positive
(public relations) and further mislead its customers rather
than being held accountable for its thousands of knowing
violations of a federal court judgment," she said.
"It is impossible to fault them for trying; they have
successfully avoided scrutiny and accountability for almost a
quarter of a century," she said.
In 1995, KB Home informally asked the FTC if it could change
its warranty to use binding arbitration. The FTC refused but
noted that KB Home could request a modification. KB Home made
no formal request but arbitrarily instituted binding
arbitration clauses.
When the FTC got complaints, staff investigated and confirmed
the practice.
In December 1999, the FTC warned KB Home and demanded it
cease. KB Home ignored the FTC's pressure until February 2001
when it made verbal assurances it would stop.
Kovacic told Judge Ellison that KB Home attorney Shaunessy
erred when he said the FTC "failed to act when they have
knowledge of what was going on," and "was currently choosing
not to act."
Shaunessy retracted that statement after being warned to do so
by the FTC, Kovacic said.
apesquera@express-news.net
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