More On Arbitration

Law Talk

As you all should know, arbitration has become a favorite method of resolving disputes in construction cases. Mediation is another favored method of doing the same. The reason for this favoritism is that you are more likely to get an arbitrator or mediator with construction experience. This is not always true in court where you will have a judge who has no understanding of construction, nor the fact that construction is not a science. I once had a judge who asked me why I subpoenaed the plans since they are so big and dirty!

In this case, Mr. and Mrs. Bruni ("Bruni") purchased their single family home in a development from James Didion. The contract contained a limited warranty and arbitration provision. Bruni later discovered that their home was defective. Bruni and other homeowners filed suit against the developer alleging construction defects. The homeowners opposed the Motions of the developer stating that the arbitration provisions were unconscionable. The trial court denied the Motions to Compel Arbitration agreeing that the arbitration provisions were unconscionable. The developer appealed. Essentially, the developer was stating that unconscionability must be decided by an arbitrator not the trial court.

The Appellate Court sided with the trial court. The Appellate Court stated that if a party is claiming forgery or fraud, asserting that it never agreed to the arbitration clause, then the court must decide the claim. But if the party is not denying that it agreed to the arbitration clause and instead claims some other defense to the enforcement of the clause, then the court must enforce the arbitration clause and allow an arbitrator to decide the issues.

Here, the Plaintiffs were claiming unconscionability that they never "knowingly agreed" to the arbitration provisions.

Therefore, the trial court and not the arbitrator is required to resolve the unconscionability claim. The reason the court held that the provision was unconscionable was because the provisions were contained in a contract of adhesion (a "take it or leave it" contract), and violated the reasonable expectations of the Plaintiffs (homeowners).

We believe that this is a relatively bad decision. Not because it is unfair, but anyone can say that they did not know what they were signing and therefore the court must decide. Since arbitration is much less expensive than litigation and since many courts are not typically able to resolve complicated construction disputes, this makes it very easy for someone to get out of an arbitration agreement and go to court.