The Supreme Court of Texas in the case of In re U.S. Home Corporation et al. (Oct. 12, 2007), dealing with arbitration clauses in home building and warranty contracts, upheld the clauses against challenges by purchasers who complained that their homes were built without shower pans. The arbitration clauses were broad. While the construction contract had a mixed mediation/arbitration clause, the warranty contract did not provide for mediation.
Various challenges were asserted in an attempt to defeat arbitration. First the claim was made that the arbitration clauses were contracts of adhesion. The Court dismissed this assertion, noting that plaintiffs only established that the builders would not contract absent an arbitration clause and this was not enough. In particular, the Court stated that "there is nothing per se unconsionable about arbitration agreements."
Second, the claimants asserted the arbitration agreements were procured by fraud. However, the only evidence offered on this point was that the clause was on the backside of the single sheet contract which side they did not read. The Court noted that there was no evidence that they were prevented from reading the clause and that a party cannot avoid an arbitration clause simply by failing to read it.
Third, the claim was made of lack of consideration based upon the builder's rights to cancel under certain cercumstances. The Court dismissed this claim because there was no evidence that any clause allowed the builder to cancel at will or opt out of the arbitration agreement.
Fourth, the claim was made that the arbitration was too burdensome and costly. However, the plaintiffs failed to offer any specific evidence that they would be charged excessive arbitration fees and the lack of such evidence doomed this claim.
Fifth, the claim was made that mediation was a condition precedent to arbitration. The Court found that there was no such requirement in the language of the contract and that the claimants waived such objection since they did not bother to seek mediation before seeking class action certification in court.
Finally, the claimants asserted that they only had a contract with US Homes and were not obligated to arbitrate with individual defendants. However, the Court found that the claimants claims against the individual defendants were founded upon the underlying contracts which contained an arbitration clause. Thus, the claimants seeking rights which arose out of and were dependant on those contracts were subject to the arbitration clauses.