One of our key rights as American citizens is access to the judicial system to redress a wrong. But when consumers sign contracts with binding arbitration clauses, they forfeit that right to enter a courtroom and sue a corporation.
Instead of a judge or jury deciding the merits of their case, third-party arbitrators issue rulings that cannot be easily appealed through the courts and overturned. Our Founding Fathers would be appalled at the tight restrictions that these clauses retain. The threat of a lawsuit holds companies accountable, deters fraud and helps prevent the production of substandard products.
Binding arbitration clauses are often buried deep inside contracts, overlooked by the average consumer eager and excited to gain possession of the goods or services in question. Once trouble arrives, that clause closes doors. The owners of Willowbrook townhomes plagued with deficient construction have discovered this legal roadblock in their struggle with KB Home, the developer of the East Manatee community.
The multibillion-dollar national home builder did come to an agreement with the Willowbrook Condominium Association authorizing a third-party contractor of the association's choosing to repair the damage. Some homeowners, however, are dissatisfied with that pact and accuse the company of already performing inadequate repairs of defective exterior decks and interior water intrusion, causing mold and floor damage. More than 60 owners insist the company buy back their units.
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How can KB Home be held accountable? Primarily through a change in Florida statutes. Persistent Willowbrook residents lobbied the Manatee County Board of Commissioners to support state legislation that would more or less void mandatory arbitration clauses in contracts for home sales and construction. Last week, sympathetic commissioners described the homeowners' plight as a travesty and agreed to seek that legislation. The county will place the proposal on its agenda for its Tallahassee lobbyist to pursue during the Legislature's next session, in March.
Even if the developer-friendly Legislature rejects such a change in state law, KB Home is not out of the woods. In 2005, the Federal Trade Commission fined the company for violating a 1979 consent order that required KB sales contracts carry mandatory arbitration of warranty repair disputes only binding on the company -- not homeowners.
One would think that would apply to Willowbrook owners, allowing them to pursue lawsuits.
Arbitration favors big companies with teams of lawyers capable of fighting wars of attrition. The process is often overly complex, too expensive and too drawn out for consumers.
Witness the experience of one Willowbrook buyer, Roxanne Miller. She related her tragic story to Herald reporter Nick Williams for an article last week.
Miller suffered through two years of arbitration proceedings before a ruling was reached on a settlement. She rejected the offer. By then, the process has taken a devastating toll, ruining her financially. Miller then moved back to Chicago.
While arbitration clauses are common in residential sales contracts, they clearly favor builders. The state of Florida should not play favorites here. The rights of redress for citizens should be re-established by banning mandatory arbitration that eliminates the option of a civil lawsuit.
Until then, it's buyer beware of these contract clauses.