An End to Forced Arbitration for those Suffering from Construction Defects?

12-17-2019
Elliotte Quinn

An End to Forced Arbitration for those Suffering from Construction Defects?

In the fall of 2019, the United States House of Representatives took a key first step in relieving consumers—consumers for everything from major purchases like a home or condominium to the most trivial purchases like a cell phone—from the burden of forced arbitration.  Arbitration is an alternative to litigating a case in court.  In arbitration, one or multiple private lawyers, rather than an impartial judge employed by the government, hear and decide the case.  Arbitration was originally created as a way for sophisticated parties entering into a contract to agree to an alternative means of resolving disputes between them.  But in the years since, arbitration metastasized from its intended use for sophisticated parties who engage in extensive negotiations before entering into a contract to now being found in many or the majority of the form contracts consumers enter into every day when they purchase a product or service.  When consumers purchase everyday products or services, they do not have the knowledge, resources, or time to review the contract for an arbitration provision and attempt to negotiate a modification of the contract to remove the arbitration provision.  The thought of a consumer telling the sales representative at the cell phone store that the consumer wants a multinational telecommunications company to alter its standard form contract to remove the arbitration provision is laughable.

Arbitration is touted as being faster, simpler, and less expensive than litigation in court, but while arbitration undoubtedly can be faster, simpler, and cheaper, in practice these benefits often are not realized.  Arbitration often is no simpler than litigating in court, often is no faster than litigating in court, and is regularly more expensive than litigating in court.  Not only does arbitration often fail to produce the promised benefits, it is widely criticized as being unfair for consumer plaintiffs because the plaintiff has to bear a portion of the costs of the work of the private arbitrators hearing the case, because arbitration imposes high filing fees and related costs on the plaintiff, because the arbitrators are private lawyers who are not impartial in the same way as a judge, and because the arbitrators are not subject to the same appellate review process as for cases decided in court.

In September of 2019, the House of Representatives passed the Forced Arbitration Injustice Repeal (FAIR) Act, H.R. 1423, by a vote of 225-186.  The bill now sits in the Senate Judiciary Committee. The FAIR Act, if enacted, would amend federal law to provide that no pre-dispute arbitration agreement is enforceable for any consumer, employment, antitrust, or civil rights dispute.  Relevant to construction defect claims, developers and contractors building and selling condos and homes routinely include arbitration provisions in their contracts with purchasers. Those provisions attempt to force the purchaser to arbitrate any construction defect claim.  The FAIR Act defines a “consumer dispute” as including a dispute between a person who purchases real property and the seller of that real property, and as a result, the FAIR Act presumably would render unenforceable any arbitration agreement in a contract between a builder and a condo or home purchaser.

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