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Arbitration Clause Thrown
Out Builders using arbitration clauses to mitigate construction defect complaints were dealt a blow on July 17 when the Nevada Supreme Court ruled one such clause unenforceable. The ruling came from a complaint made by James and Linda Burch of Reno, Nevada, concerning the home they purchased two years earlier from Reno builder Double Diamond Homes, LLC. The Burches contacted Double Diamond to fix numerous problems in the home. After failed mediation, the Burches sued the home builder in district court. The district court ruled that there existed a valid contractual agreement, namely the homebuyer warranty, and that it compelled the Burches to resolve any disputes through arbitration. The Supreme Court disagreed, threw out the district court’s ruling, and left the Burches free to pursue a lawsuit. What Killed The Arbitration Clause? The Supreme Court found that the clause was a "contract of adhesion," which means it was offered to all customers on a "take it or leave it" basis. Such a contract doesn’t allow the "weaker party" an opportunity to bargain for a better deal. Double Diamond’s contract was also a pre-printed, standardized contract form buried on page six of a 31 page booklet, located after six pages of material only relevant to people outside of Nevada. The Burches claimed they did not read the arbitration agreement nor any of the 31 page Home Buyers Warranty booklet in which it was located. The court found the presentation and manner of the arbitration clause to be "procedurally unconscionable." The court also found that the Burches failed to receive a copy of the booklet until four months after they closed escrow on their home. The contract also gave the builder exclusive right to decide the rules of the arbitration and choose the arbitrators. Both provisions were found to unconscionable. Although overturning the district court’s decision and allowing a lawsuit instead of binding arbitration, the court was careful to note that it has found adhesion contracts and arbitration clauses to be valid in other cases. Under the circumstances in this case, however, the court said the Home Buyers Warranty and its arbitration clause are unconscionable and, therefore, unenforceable. |
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