The Texas Supreme Court reconfirmed the broad enforceability of arbitration clauses in home purchase agreements in In re U.S. Home Corporation and Lennar Corporation v. David Garcia, et. al. The U.S. Home case adds new arrows to a homebuilder’s quiver when fighting homeowner challenges to arbitration clauses.

The case involves two couples who filed class action claims against their homebuilder and individual employees of the homebuilder alleging the homebuilder constructed their homes without shower pans. The trial court denied the homebuilder’s request to compel the case to arbitration. The Texas Supreme Court granted the homebuilder’s writ of mandamus on the trial court’s decision (filed by Gardere Wynne Sewell LLP) and directed the trial court to grant homebuilder’s motion to compel arbitration after favorably deciding a number of arguments that homeowners frequently assert to try to avoid arbitration agreements.

  1. "Adhesion contract” argument. If a homebuilder refuses to contract with a homeowner unless the homeowner agrees to arbitration, that, in itself is NOT a contract of adhesion.
  2. Fraud argument. A homeowner’s failure to read the arbitration clause in a purchase agreement is NOT fraud, even where the arbitration clause is placed on the back of a double-sided contract.
  3. Lack of consideration argument. The fact that a homebuilder has the right to terminate a purchase agreement under certain defined circumstances does NOT mean the purchase agreement lacks consideration.
  4. Excessive cost of arbitration argument. Presenting evidence that an arbitration clause is subject to the AAA and submitting a schedule of the AAA’s usual fees is NOT sufficient to establish that arbitration would be unduly burdensome and costly on the homeowner.
  5. Failure to mediate argument. Failure to mediate a case prior to compelling a case to arbitration where the contract requires mediation is NOT grounds for invalidating the arbitration agreement.

The Court further recognized that a clause in the parties’ warranty agreement indicating the parties “may request” arbitration does not render the arbitration clause in the purchase contract ambiguous. To the contrary, the “may request” clause in the warranty agreement constituted a binding promise to arbitrate if either party requested arbitration

Finally, the Court rejected plaintiffs’ argument that they did not have to arbitrate with the individual homebuilder-employee defendants because only the homebuilder signed the contract containing the arbitration agreement. Because these homebuilder employees did not have a duty to supply the plaintiffs’ homes independent of the purchase agreement, the employees’ liability “arises from and must be determined by reference to the parties’ contract rather than general obligations imposed by law” and was thus subject to the contract’s arbitration agreement.

What does this mean to a homebuilder’s day-to-day operations? Insisting that your buyers agree to an arbitration clause as part of a sale does not make the arbitration clause unenforceable, and you can assure your employees that they are protected by the arbitration provisions in your purchase agreements even though they are not parties to the contracts. Gardere Wynne Sewell’s Construction Team represents eight of the top 10 builders in Texas and seven of the top 10 builders in the nation, providing services such as drafting purchase and sale agreements and warranty agreements and litigating construction cases ranging from single home construction defect cases to product liability cases involving thousands of homes to class actions.