Read the Fine Print - Arbitration a dead end street for homebuyers

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http://www.austinchronicle.com/issues/dispatch/2002-08-30/pols_feature3.html

August 30, 2002

Read the Fine Print

BY EMILY PYLE

" We had no idea that by signing a contract we were giving up the right to

ever have our story heard by a jury, " says homeowner Dawn . " You

never imagine that the people building your home are trying to hurt you. "

In March 2001, Dawn and her husband filed suit against Weekley

Homes, claiming their new $300,000 Austin house was contaminated with toxic

mold resulting from a water leak that began the previous year, just days

after they moved in. Though the family spent only five weeks living in their

new home, Dawn says both she and her young daughter suffered

neurological damage that physicians diagnosed as environmental toxic

exposure, which may be irreversible. Under the terms of their contract -- an

arbitration clause says she wasn't aware of -- a judge ordered

the family in June 2001 to enter into arbitration with Weekley. The

s have refused to arbitrate, saying the costs involved are too

high, and the chances of winning are too low.

" This system is a dead-end street for consumers, " said. " Builders

have figured out a way to shield themselves from being held accountable for

their actions. "

More and more Texas homeowners who try to take homebuilders to court are

finding they have signed away their right to sue. The binding arbitration

clauses now present in most major home construction contracts keep lawsuits

out of the courts and into the hands of private arbitrators. Though

consumers can look at arbitrators' résumés before making their selections,

records of arbitrators' decisions, which could suggest whether the

arbitrator was biased, are (unlike judges' records) shielded from public

view. By the terms of most arbitration clauses, arbitrators' decisions

cannot be appealed.

" We may be witnessing the birth of a private judicial system created by

corporations seeking to avoid legal responsibility for their actions, " says

Joan Claybrook, president of the consumer advocacy group Public Citizen.

Texas Watch and Texans for Public Justice have also addressed arbitration,

compiling reports of abuses and badgering the Lege for reform.

Binding arbitration clauses that shield businesses from consumer lawsuits

have been creeping into many kinds of contracts over the past two decades,

including credit card agreements and employment contracts. Clauses in home

construction contracts have come under the closest scrutiny by consumer

advocates and legislators, as growing public concern over health risks

associated with mold sparks hundreds of new lawsuits against builders. The

state Legislature's House Subcommittee on Binding Arbitration held a public

hearing in May, and in December will issue recommendations in a report

containing testimony and information from consumers, businesses, and experts

from both sides.

Reggie , director of Consumers Union's Southwest Regional Office,

compared binding arbitration to a bullet: It does the same amount of harm to

consumers whether they see it coming or not. Yet the practice does have its

defenders, who say arbitration is faster and cheaper than court proceedings,

which may drag on for years. Arbitration cases take just days or weeks to

settle, and some contracts specify deadlines by which cases must be settled.

" If there is a problem with the home we want to get it fixed as fast as

possible, " said Burchfield, general counsel for Weekley Homes.

While its defenders say arbitration is cheaper than the courts, it can also

be more expensive, due to filing fees, arbitrators' fees, fees for use of

the arbitrators' rooms, and other additional costs. According to Public

Citizen's report " The Cost of Arbitration, " one family awarded $18,819 in an

arbitrated dispute over their Austin home faced $13,069 in costs -- as well

as attorney fees, which arbitrators did not order the builder to pay.

India , senior vice president of the American Arbitration

Association -- the largest arbitration firm in the U.S. and the Weekley

Homes' arbitrator of choice -- says any bias is eliminated when consumers

are allowed to choose their arbitrators, much as lawyers are allowed to

choose juries. " You wouldn't choose an arbitrator where there was any

appearance of bias, " says.

Yet many consumer advocates say the arbitration firms themselves are biased.

Contracts often allow builders to choose the firm used, and firms seeking

repeat business from builders may have an incentive to decide against

consumers. " If you were a business, who would you be more likely to want to

arbitrate for you -- someone who had decided against you in the past, or

someone you knew would decide for you? " asks Texans for Public Justice

Research Director Wheat.

TPJ also suggests that contributions from homebuilders to Texas

office-holders may give rise to bias on a much grander scale. The Weekley

family has donated more than $300,000 to candidates in gubernatorial,

legislative, and appeals court races since 1997, according to the

nonprofit's records. Meanwhile, the PAC arm of Texans for Lawsuit Reform,

run by Weekley's brother , has contributed nearly $2.6 million

to statewide races since 1997. In the same time, the family of Bob ,

another major Texas homebuilder that employs binding arbitration in its

construction contracts, has donated over $2.2 million to state races. Other

homebuilder PACs have donated nearly $1.8 million more, according to TPJ.

HB 1862, an arbitration reform bill authored in 2001 by state Sen.

Van de Putte, D-San , would have banned pre-dispute arbitration

agreements, prohibited arbitrators found to be " prejudiced " from presiding

over cases, allowed courts to void arbitration decisions when arbitrator

fraud could be proven, and permitted class action arbitration suits. The

bill also contained a provision preventing HMOs from entering into

pre-dispute arbitration agreements. But Texans for Lawsuit Reform and

likeminded " tort reform " groups urged Governor Rick to veto the bill

because of the anti-arbitration clause, which he ultimately did.