Moldy 'Lemon' Homes Denied Day in Court
Moldy 'Lemon' Homes Denied Day In Court
A Texas House panel today will explore if consumers are being hurt by businesses’ increasing reliance on “binding arbitration.” Consumers will decry the privatized “justice” system that binding arbitration has created, while business interests that give millions of dollars to Texas politicians will rush to the defense of this plaintiff-hostile system.
Texas’ mushrooming toxic mold epidemic is a crash course in the perils of binding arbitration, clobbering consumers with a one-two punch. First, they learn that their new dream home is a moldy lemon. Then they discover that they unwittingly signed “binding arbitration” clauses that strip their constitutional right to a jury trial and force their claims before costly, secretive tribunals that favor the builders who create arbitration business and even serve as arbitrators in construction disputes1.
The model “Residential Construction Contract” promoted by the Texas Association of Builders contains binding arbitration clauses, which are used by virtually every major Texas homebuilder. Meanwhile, consumers are trying to find one example of an arbitrated construction case in which Texas homeowners have gained more than they spent on arbitration. Builders could not build a more favorable system.
A major developer of this privatized “justice” is Contruct Homes providing campaign contributions of more than $2.6 million on all three branches of Texas government .
Unlike court records, arbitration records are not public so it is impossible to fully gauge Contruct Homes’ financial stake in arbitration. Nonetheless, there is evidence that this homebuilder fends off a steady stream of disgruntled customers who seek compensation for “lemon homes.”4 Now, spreading mold problems are bringing such lemon homeowners out of the woodwork.
The Richardsons of Austin Two days after the Richardson family moved into their new $300,000 home last year they discovered that a leaky air conditioning line had bred mold in their attic and spewed water down their walls and under their floors. Although they had ordered special home design features to accommodate Dawn Richardson’s allergic sensitivities, the Richardsons say Contruct Homes fixed the leak but failed to dry or remove the wet building materials. Instead, they merely painted over the mold.
All four family members soon experienced a battery of health problems, including skin rashes, headaches, fatigue, nausea, bloody diarrhea, nose bleeds, dizziness and respiratory infections. The worst symptoms afflicted Dawn Richardson and one-year-old Erica (brain swelling, motor skill impairment and language-skills regression). Environmental health experts have diagnosed Dawn with permanent brain and neurological damage caused by exposure to molds and toxic chemicals.
These health problems drove the Richardsons out just five weeks after they moved into their new home. Construction defects resulted in elevated levels of toxic mold in all three bathrooms and other areas of the house. Indoor air tests detected high levels of volatile organic compounds and “outgassing” of toxic chemicals (including benzene, styrene, xylene and formaldehyde) from synthetic building materials. The Richardsons have filed suit in state district court in Austin to recover related damages from Contruct and some of its subcontractors and suppliers5.
Sitting as a visiting judge at a pretrial hearing on the case late last month, former Texas Supreme Court Justice Rose Spector ruled on Contruct’s pretrial motion to force the case into arbitration. The plaintiffs countered that—even if they had understood the arbitration clause—they had little choice because virtually every major homebuilder in Central Texas uses these clauses.
At the hearing, Judge Spector (who took $5,000 from Contruct’s in prior campaign contributions) said she considered recusing herself because she works as a paid arbitrator for the American Arbitration Association where Contruct sends all of its disputes. Opting against recusal, Judge Spector sent claims involving the contract signatories—Contruct and the adult Richardsons—to an arbitration panel. She kept the remaining claims (involving the Richardson children in state court.
Other Texans who have yet to file suit over their moldy new homes are turning to the Richardsons to learn about how binding arbitration robs consumers of their day in court. **********************
Frequently-Asked Questions about Arbitration under the rules of the Society of Maritime Arbitrators, Inc. (SMA)
Many parties, who have had cordial and long-term commercial relationships with one another, find, from time to time, that they have disputes with each other that can best be resolved through arbitration. Using a panel of neutral commercial maritime arbitrators or a sole arbitrator who are or have been in the shipping business to resolve such disputes is both quick and cost-effective. It also allows for the continued, normal conduct of other ongoing commercial arrangements by isolating the matter in dispute.
How is a maritime arbitration proceeding initiated in New York?
As the claimant, you simply advise the other party that you are invoking the arbitration clause. Under the most common New York arbitration clause, such as Clause 17 of the New York Produce Exchange Time Charter Party, three arbitrators must be appointed: each party to the dispute appoints one and the two party-appointed arbitrators then appoint the third arbitrator who serves as Chairman of the arbitration panel conducting the proceeding. The claimant appoints the first arbitrator and asks his opponent to appoint his. However, if your contract provides for a sole arbitrator, you begin by providing your opponent with a list of suggested arbitrators upon which you need to reach agreement, so that the sole appointee can be selected. If you cannot agree on a sole arbitrator, you need to apply to the court so that it can appoint one. If the parties agree only to arbitrate but do not mention the number of arbitrators, by law, the dispute will be decided by a sole arbitrator.
5. How is an arbitrator appointed to a Panel?
After you or your lawyers have reviewed the background and experience of potential arbitrators from the roster, you make your selection and contact the arbitrator. You advise the arbitrator of your interest to appoint him or her, identify the parties involved and briefly outline the dispute so that the prospective arbitrator may determine that he or she has the requisite experience in the issue(s) in dispute and has no conflict of interest. The person is usually able to respond promptly to your request for such information. You then confirm that person's appointment in writing. In the United States, arbitrators are required to disclose any and all relationships with principals, lawyers and fellow arbitrators who may be involved in a particular case.
6. Who can be appointed under a clause which provides that the arbitrators shall be "commercial men"?
"Commercial men" has been interpreted by the U.S. Maritime Law Association (the U.S. maritime bar) as meaning "commercial persons", regardless of gender. In a recent court decision in New York, the State's highest Federal court, the United States Court of Appeals for the Second Circuit, interpreted commercial persons to mean individuals who have substantial, practical, commercial experience and who work or have worked for commercial ventures. According to the Court, a lawyer whose only experience has been the practice of commercial law, does not qualify as a commercial person. Arbitration clauses in some Charter Parties provide that the Chairman shall be an Admiralty attorney.
10. Are SMA arbitrators impartial?
Under the SMA Code of Ethics, SMA arbitrators are required to be impartial whether or not they are party-appointed. Under the Federal Arbitration Act, which governs maritime arbitrations in the United States, an award may be vacated for "evident partiality."
24. Are arbitration decisions by SMA members published?
Yes, the SMA publishes its members' decisions as a matter of course in its Award Service. In New York, arbitrators explain the reasons for their decisions. If both parties do not wish the SMA to publish the award, they must so specify at the beginning of the arbitration proceeding. If one party does not want to reveal, in the Award, some information that it considers to be proprietary, the arbitrators will generally accommodate the party making such a request.
25. Are New York or SMA arbitration awards enforceable in court?
Yes, under the Federal Arbitration Act, once you win and your opponent has not satisfied the Award, you can go to court to confirm the award and enforce it. Once the court confirms the Panel's Award, it becomes a judgment that is enforceable in the same manner as any decision rendered by the court, itself. A motion to confirm usually must be made within one (1) year or, if it is an international award, within three (3) years from the date of the Award.
Because the United States is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and to the Inter-American Convention on International Commercial Arbitration, New York arbitration Awards are enforceable in any country, signatory to these Conventions.
27. What are the advantages of incorporating SMA Rules?
If the arbitration clause does not mention SMA Rules, the hearings are conducted according to existing maritime practice and procedure. By incorporating SMA Rules in your arbitration clause, however, you can derive great benefits. The Rules allow you to consolidate disputes, to force your opponent to arbitrate without having to compel arbitration in court, and to have flexibility. You may also have the opportunity to be awarded attorneys’ fees and your share of Panel expenses.
28. Does the SMA offer non-binding "Alternative Dispute Resolution" (ADR)?
The SMA has promulgated Conciliation Rules that were developed in 1988 following the UNCITRAL Model. Conciliation, or mediation, which are non-binding, can resolve all or a part of outstanding disputes while still keeping long-term business relationships intact.
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