Cross-8e : Case Problem with Sample Answer
Chapter 3 : Alternative and Online Dispute Resolution
3–7 . Case Problem with Sample Answer: Arbitration
Thomas Baker and others who bought new homes from Osborne Development Corp. sued for multiple defects in the houses they purchased. When Osborne sold the homes, it paid for them to be in a new home warranty program administered by Home Buyers Warranty (HBW). When the company enrolled a home with HBW, it paid a fee and filled out a form that stated the following: “By signing below, you acknowledge that you . . . consent to the terms of these documents including the binding arbitration provision contained therein.” HBW then issued warranty booklets to the new homeowners that stated: “Any and all claims, disputes and controversies by or between the Homeowner, the Builder, the Warranty Insurer and/or HBW . . . shall be submitted to arbitration.” Were the new homeowners bound by the arbitration agreement, or could they sue the builder, Osborne, in court? Explain. [Baker v. Osborne Development Corp., 159 Cal.App.4th 884, 71 Cal.Rptr.3d 854 (2008)]
Sample Answer:
The arbitration agreement was not binding on the homeowners, so they could sue the builder, Osborne, in court. Osborne signed the contract with HBW; that did not bind the homeowners to the agreement because they were not parties to the agreement. The appeals court held the arbitration agreement to be “oppression” against the homeowners. As such, the agreements were one-sided and unconscionable. The homeowners were handed the warranty agreement at the time of closing (final sale) on their houses, but they did not know the terms of the warranty and had no chance to bargain over it. They did not give up their right to sue Osborne for breach of contract and other claims.