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Legal Issues, August 2002
By Edward F. Morrison, Jr.

SELLERS OF HOMES WIN DISPUTE REGARDING
ENFORCEMENT OF ARBITRATION AGREEMENTS

In what could potentially be an important victory for sellers of new home construction, and perhaps existing construction, a California Appellate Court has ruled that homeowners who initialed arbitration clauses in their home sale contracts were obligated to arbitrate their construction defect claims under Federal Law.

In the case of Basura v. US Home Corp., 48 individuals purchased residential homes in the Palmdale area. All of the plaintiff homeowners initialed the arbitration clauses with the builder. The builder, for unstated reasons, failed to initial the arbitration clauses as to 28 of the plaintiffs. After suit was filed, the builder attempted to enforce the arbitration clauses. The homeowners argued that the arbitration clauses were not enforceable because certain of the purchase contracts had not been initialed by the builder and because California state law permits a purchaser to pursue a construction defect case in court even if the purchaser signed an arbitration clause.

The Trial Court denied the builder's petition to compel arbitration. On appeal, the Appellate Court reversed holding that the Federal Arbitration Act prohibits courts from invalidating agreements under state laws applicable only to arbitration provisions.

The Basura case is a victory for sellers of new construction, and perhaps existing construction, in that it provides the basis to enforce an arbitration agreement which, in many cases, will be beneficial to the home seller.