X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Click here for the full text of this decision FACTS:Two couples brought claims on behalf of themselves and others similarly situated, alleging their homes were built without shower pans. In the sales contracts that Luis and Norma Cano and Mark and Gloria Schlatter signed with U.S. Home Corp., the parties agreed to mediate and arbitrate all controversies that might arise related to the agreement. Specifically, the contracts stated: “Any controversy or claim arising under or related to this Agreement . . . shall be determined by mediation or by binding arbitration as provided by the Federal Arbitration Act (9 U.S.C. Sections 1 14) and similar state statutes and not by a court of law. The claim will first be mediated in accordance with the Commercial or Construction Industry Arbitration Rules, as appropriate, of the American Arbitration Association. If not resolved by mediation, the claim will be settled in accordance with the Commercial or Construction Industry Arbitration Rules, as appropriate, of the American Arbitration Association.” Written warranties for both homes also provided for arbitration but not mediation of any disputes about whether warranty repairs were necessary. Several years after closing, the two couples asserted that a shower in each home had no pan or lining. They alleged claims for repairs, mold remediation, medical bills and mental anguish. Finding U.S. Home’s remediation plan inadequate, they filed suit in Cameron County against U.S. Home, Lennar Corp. and three U.S. Home employees. U.S. Home and the other defendants moved to compel arbitration, and the plaintiffs moved to certify their class claims. The trial court denied the former and granted the latter in a half-day hearing. HOLDING:The court conditionally granted the writ of mandamus. The Texas Supreme Court analyzed the trial court’s ruling piece by piece. First, the court noted that the trial court found the arbitration clauses were contracts of adhesion and thus procedurally unconscionable. Adhesion contracts, the court stated, are not automatically unconscionable, and there is nothing per se unconscionable about arbitration agreements. Thus, the court found that the plaintiffs proved only that U.S. Home refused to contract with them unless they agreed to arbitration. “This is not enough,” the court stated. Second, the trial court found the arbitration agreements were procured by fraud. But the court found that the plaintiffs pointed to no evidence of misrepresentations, scienter or reliance, instead arguing only that the arbitration clause was on the back of their single-sheet contract. As they conceded that no one prevented them from reading both sides, the court found no fraud. Like any other contract clause, the court stated, a party cannot avoid an arbitration clause by simply failing to read it. Third, the trial court found that the arbitration clauses were not supported by mutual consideration. As both parties agreed to arbitration, the court stated that that finding was “simply wrong.” The plaintiffs, the court stated, pointed to two contractual provisions allowing U.S. Home to terminate the agreement if their home was damaged before closing or if the buyers failed to pay. Neither of these provisions, the court stated, allowed U.S. Home to cancel the contracts at will or to opt out of arbitration if there was a dispute regarding whether it had properly done so. Fourth, the trial court found that arbitration would be unduly burdensome and costly. To sustain such a defense, the court noted that the U.S. Supreme Court requires specific evidence that a party will actually be charged excessive arbitration fees. In this case, the court noted, the plaintiffs presented no evidence other than a schedule of the American Arbitration Association’s usual fees. “This is not enough,” the court stated. Fifth, the trial court found that mediation was a condition precedent to arbitration, and the former having yet to occur the latter could not be compelled. But while the parties’ agreements clearly contemplated mediation before arbitration, the court found no indication that they intended to dispense with arbitration if mediation did not occur first. To the contrary, the court found that the warranty agreements required arbitration without any mention of mediation, indicating the parties intended to arbitrate regardless. The plaintiffs alleged no damage from U.S. Home’s failure to invoke mediation first, the court stated, “and are hardly in a position to do so as (1) they too did not bother with mediation before seeking class certification, and (2) they concede mediation has taken place while this case was under review.” Although the plaintiffs could have asked the trial court to delay arbitration pending mediation, the court found no basis for asking the trial court to cancel it entirely. Additionally, the plaintiffs argued that they did not have to arbitrate with the individual defendants, as only U.S. Home signed the agreement. Assuming this argument could be raised for the first time on appeal, the court found it without merit. None of these individuals, the court stated, had a duty to supply shower pans but for the plaintiffs’ contracts with U.S. Home. As the nonsignatories’ liability arises from and must be determined by reference to the parties’ contract rather than general obligations imposed by law, the suit is subject to the contract’s arbitration provisions, the court stated. Finally, the court declined the defendants’ request to reverse the trial court’s class certification order, pointing out that the U.S. Supreme Court has expressly held that an arbitration clause covering “all disputes relating to a contract” includes disputes about class certification. OPINION:Per curiam.

Want to continue reading?
Become a Free ALM Digital Reader.

Benefits of a Digital Membership:

  • Free access to 3 articles* every 30 days
  • Access to the entire ALM network of websites
  • Unlimited access to the ALM suite of newsletters
  • Build custom alerts on any search topic of your choosing
  • Search by a wide range of topics

*May exclude premium content
Already have an account?

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.