|
| Home | About Our Mediators | Legal Updates | Shannon B. Jones Law Group | Contact Us |
|
LEGAL UPDATES Court of Appeals Finds Arbitration Clause in Residential Builder’s Contract Unenforceable by Denise R. Hannan - March 18, 2009 In Thompson v. Toll Dublin, LLC, the plaintiff, Peter Thompson, entered into a contract to purchase a new residence from Toll Dublin, LLC. The documents relating to the purchase and sale totaled roughly 800 pages, and included Conditions, Covenants and Restrictions, documents relating to the subdivision plan, documents relating to options, various addenda and other purchase-related information.One of the documents included in this large bundle was a “Title 7 Master and Dispute Resolution Declaration.” There also were several other cumbersome documents relating to Title 7. All of these documents were initialed by plaintiff. Title 7 is a statutory scheme that provides procedures for construction defect litigation against builders. It expressly excludes fraud actions from the Title 7 procedures. The Title 7 documents signed by plaintiff included an agreement that the parties agree to resolve disputes pursuant to the “Title 7 Master and Dispute Resolution Declaration.” The Dispute Resolution Declaration expressly required that “Any dispute between any owner and builder or between the association and builder shall be resolved through the procedures established in this Title 7 Master Declaration.” It also provided for mandatory binding arbitration. Plaintiff signed all of the Title 7 documents, and also signed an addendum in which he acknowledged that he had been provided with adequate opportunity to read and review all of the purchase documents. Plaintiff closed on his purchase of the condominium in early 2006. Shortly thereafter, Plaintiff sued Toll Dublin for fraud and concealment. Plaintiff alleged that Toll Dublin was aware of severe mold issues in the condominium prior to the close of escrow and that Toll Dublin concealed this information from plaintiff. In the trial court, Toll Dublin attempted to remove the dispute from the court to private arbitration based on the arbitration agreement in the Title 7 documents. The trial court refused to order the matter to arbitration. It concluded that the arbitration clause in the Title 7 documents was limited to disputes governed by Title 7. Given that Title 7 expressly excludes fraud claims, the trial court concluded that plaintiff’s claims for fraud were not subject to arbitration. Toll Dublin appealed this ruling. On appeal, the Court of Appeals agreed with the lower court’s interpretation of the arbitration clause and found that it was implicitly limited to Title 7 disputes. The Court of Appeals declined to force a party to arbitrate a dispute which was not clearly included in the scope of the arbitration agreement. The Court of Appeals went beyond this initial ruling and also determined that the arbitration provisions were unconscionable and therefore, unenforceable. For a contract term to be unconscionable, the term must be both procedurally and substantively unconscionable. Procedural unconscionability requires oppression or surprise due to unequal bargaining power. Substantive unconscionability requires an overly harsh or one-sided result. Both procedural and substantive unconscionability must be present for the provision to be unenforceable. In this case, the Court of Appeals concluded that the arbitration provisions were both procedurally and substantively unconscionable and, therefore, unenforceable. A range of facts led the Court of Appeals to conclude that the arbitration provisions were procedurally unconscionable. These included the fact that: (1) the plaintiff had no negotiating power, and had to accept the arbitration provision to purchase the condominium; (2) the parties had unequal bargaining power; and (3) the plaintiff was presented with a massive amount of documents which meant that the plaintiff may have been unaware of the arbitration requirements. The Court of Appeals also found that the language of the provisions imposed an overly broad requirement which led to the provisions being substantively unconscionable. Consequently, the Court of Appeals concluded that the arbitration provisions in Toll Brothers’ contract were inapplicable to fraud-based claims and also unenforceable. -Denise R. Hannan, Esq., Partner, drh@sbj-law.com |
| Back | Print Home | About Our Mediators | Legal Updates | Shannon B. Jones Law Group | Contact Us |