Builders’ Arbitration Rights on Defects Upheld

In a victory for home builders, the California state Court of Appeal last week upheld a builder’s right to enforce arbitration agreements that include construction-defect claims.

In Basura vs. U.S. Home Corp., the appellate court held that homeowners who agree to an arbitration provision in a residential purchase and sale contract must arbitrate those claims in which interstate commerce is involved, such as the interstate movement of construction materials and equipment.

Plaintiffs in Basura vs. U.S. Home Corp. signed a broad arbitration agreement when they purchased their Palmdale homes, but later refused to arbitrate their dispute with the builders over construction defects, said the builders’ attorney, Sandra Stewart, of Cox, Castle & Nicholson. Among the list of plaintiffs’ complaints was defective framing.

The Los Angeles County Superior Court judge who heard the case refused to enforce the arbitration provision, claiming it was not broad enough, and was therefore not enforceable under a California law, Stewart said.

But the California Court of Appeal judges ruled unanimously that the Federal Arbitration Act, passed by Congress about 80 years ago, preempts, or protects, against state laws that strip away rights to arbitration.

That law does not, however, include enforcement of arbitration agreements that are unfair, according to builder’s attorney Kenneth Bley.

Construction-defect lawsuits have proliferated dramatically in the last decade. The vast majority of those lawsuits are settled out of court through the arbitration process.