Friday, March 14, 2008
Arbitration Provisions in Homebuyers’ Contracts Held Unconscionable
C.A. Panel Says ‘Legalese’ Buried in ‘Voluminous’ Documents Cannot Be Enforced
By STEVEN M. ELLIS, Staff Writer
The Superior Court is the proper forum to determine whether homebuyers who entered into extended warranty contracts containing arbitration provisions requiring arbitration of their very enforceability actually agreed to the provisions, the Fourth District Court of Appeal has ruled.
Holding in an opinion released Wednesday that the homebuyers’ contentions that they never knowingly agreed to the arbitration provisions required the trial court to resolve any claims of unconscionability, Div. Two affirmed the decision of San Bernardino Superior Court Judge John P. Wade that the arbitration provisions—which were contained in contracts of adhesion—were unconscionable and violated the homebuyers’ reasonable expectations.
The question arose after plaintiffs who had purchased single-family homes in two housing developments in Yucaipa filed suit against the builders of the homes, James H. Didion Sr. and Howard Roberts Development Co., which they claimed was Didion’s alter ego, contending that the homes were defective.
At the time of purchase, the homebuyers had enrolled in an express limited warranty program provided by the builders that the builders told the homebuyers was “an added bonus” or “extra protection.” The terms of the warranty were set forth in preprinted and “voluminous” documents, and contained arbitration provisions that covered all claims against the builders—not just warranty disputes.
The plaintiffs, who generally were not familiar with real estate documents or with “legalese,” charged that there was no negotiation for the provisions, and that they had understood that the documents were being presented to them on a “take it or leave it” basis. Those that actually received warranty documents prior to the transaction said that they were never told to read them before signing, much less given time to do so.
The warranty actually provided coverage, subject to sweeping exclusions, for the whole home for just one year, and for the electrical, plumbing and mechanical systems for just two years. After that, the only coverage it provided was for “load-bearing elements,” and then only if the damage to them made the home “unsafe, unsanitary, or otherwise unlivable.”
Some versions of the warranty purported to relieve the builders of any liability except under the warranty, and the warranty included arbitration provisions purporting to require the purchaser to arbitrate disputes arising from or related to not only the warranty, but also the home, the sale of the home, and the arbitration provisions themselves.
Pursuant to the arbitration provisions, the builders moved to compel arbitration, but Wade denied the motions, finding that the warranty “agreement” was unconscionable.
The builders appealed, arguing that any question of unconscionability was for an arbitrator to determine, and that the court—if allowed to consider such question—could only consider the arbitration provisions by themselves, and not the overall warranty.
They further argued that the arbitration provisions, by themselves, were not unconscionable, that the trial court should have severed any provisions it found unconscionable provisions from the warranty, and that the overall warrant was not unconscionable or otherwise unenforceable.
However, the Court of Appeal, in an opinion by Justice Betty Ann Richli, rejected the builders’ arguments and agreed with the trial court’s conclusion that the warranty represented a contract of adhesion and violated the plaintiffs’ reasonable expectations.
“The reality of the transaction was that plaintiffs had to accept the arbitration provisions if they wanted to buy a house… Even assuming that plaintiffs could have negotiated over some terms of the purchase and sale agreement, such as the purchase price, it seems apparent that any attempt to negotiate over the terms of the Warranty would have been fruitless.”
Attorneys for the builders could not be reached for comment.
However, attorney Barry C. Vaughan of Kasdan Simonds Riley & Vaughan, told the MetNews that he was “gratified” by the decision and that he “hopes to see more like it.”
Vaughan said that the plaintiffs’ bar has been dismayed over the last few years by court decisions which have appeared “all too eager to send consumers off to arbitration and close the courthouse doors to them.”
He said that the decision demonstrated that “courts now recognize that although arbitration can be very appropriate in a business context, in a consumer setting it can have very unfair consequences.”
Justices Art W. McKinster and Jeffrey King joined Richli in her opinion.
The case is Bruni v. Didion, 08 S.O.S. 1527.
Copyright 2008, Metropolitan News Company