I want to sue my home builder over defects; can I get around the contract's arbitration clause?

Unfortunately, arbitration clauses are generally enforceable -- in other words, a court will uphold them without finding that it was unfair for the developer to have included them in your contract in the first place.

Question

I recently purchased a new home from a developer. From the outside, the home looks wonderful. But upon moving in, I began to notice a number of issues. One of the bathrooms, strangely enough, has no running water; the bedroom doors don’t line up with the frames; the kitchen tiles are all cracked; and there is no skylight in the second floor ceiling, as had been promised in the contract documents.

It will easily cost tens of thousands of dollars for me to hire contractors to repair all of this. I want to sue, because I think that a jury of ordinary people would feel sympathetic towards me. However, upon looking at the contract, there’s an arbitration provision that essentially says that I must arbitrate the dispute in another jurisdiction. Can I get around this?

Answer

Dispute resolution provisions are common in many types of contracts, especially construction industry contracts. Sometimes the clauses will send a dispute to mediation before a lawsuit can be filed; sometimes, they will send a dispute to arbitration instead of a lawsuit. In either case, the goal is to push a dispute out of court.

In mediation, a neutral third party will help you to negotiate with your developer over a potential settlement before time and money are spent on attorneys. If the negotiation fails, usually you can proceed to court.

In arbitration, a neutral third-party will render a decision on your claim instead of a judge or jury. Alternative dispute resolution (sometimes called “ADR”) has certain benefits. It is typically faster and less expensive than litigation. The neutral mediator or arbitrator will often have industry experience in construction, rather than a judge, who likely will not.

However, for a plaintiff, dispute resolution clauses aren’t always a benefit. As you point out, a jury of your peers might be more likely to side with a homeowner who was “cheated” over a big development company. An arbitrator with more construction industry might be less likely to have such sympathies.

Unfortunately, arbitration clauses are generally enforceable -- in other words, a court will uphold them without finding that it was unfair for the developer to have included them in your contract in the first place. This is particularly likely if any of the following are true:

  • you were represented by counsel (an attorney) at the closing of the home
  • you had sufficient opportunity to read the contract you signed, and
  • the arbitration clause was in “bold” or underlined in the contract document.

Typically, however, courts will not permit you to litigate a claim against your developer if you agreed to arbitrate disputes under your sales contract.

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