Standard arbitration clause comes under fire from homeowners caught in San Antonio landslide

Residents in Texas landslide balk at arbitration

AUSTIN, Texas — Several homeowners from a San Antonio neighborhood where a landslide threatened to topple and crush houses complained to state lawmakers Wednesday that mandatory arbitration clauses used in many new home contracts harm them.

Charles Cervantes, 61, said he’s stuck because the home he fled Sunday near the landslide in northwest San Antonio is worthless. Like contracts for most new homes, his contract included a clause requiring him to submit to binding arbitration with the builder, giving up his right to sue, in any dispute over the construction of his house.

“I’m a real small pawn … I’m going to be at their mercy,” Cervantes told the Texas House Committee on Civil and Jurisprudence. “I don’t feel I’m going to be fairly represented. I don’t feel I’m going to be fairly treated.”

Cervantes was among the residents evacuated from about 90 homes after a landslide started and giant crevices, some 15 feet deep, rapidly emerged and split a towering retaining wall. About 25 homes remain evacuated.

Centex Homes, the developer of the upper middle class neighborhood, has acknowledged that it did not have a permit for the 1,000-foot-long retaining wall that began collapsing under the weight of the homes and hill over the weekend. City officials have said it was improperly constructed — a charge Centex and the developer’s parent company, Pulte Homes Inc., deny.

The House judiciary committee heard testimony Wednesday but planned no immediate action. Committee chairman Rep. Todd Hunter, R-Corpus Christi, said the committee planned to propose changes to the state’s arbitration laws before the next legislative session in 2011.

As with most hearings on the arbitration issue, the meeting brought out trial lawyers, arbitration attorneys, consumer advocates and construction industry representatives, but after Sunday’s landslide, homeowners from the development also came to testify that they want changes in state law.

Resident Angelia Ward acknowledged that she signed the contract giving up the right to sue, but she’s angry that she could be forced to pay for arbitration proceedings against the builder through no fault of her own.

“We need someone to speak up for us,” she said. “My life is changed now. What we’re asking for is for the process to be open.”

Consumer advocates say most new homes — added at a rate of 100,000 a year in Texas during the housing boom’s height — include mandatory arbitration clauses. Such clauses require homebuyers to give up their right to sue the builder.

But Ned Munoz, a vice president of the Texas Association of Builders, said arbitration has proven an effective and efficient option for resolving disputes between builders and buyers. Resolving the cases with an arbitrator provides for quicker resolutions for everyone, he said.

He also said not all new homes are built under contracts with arbitration provisions. Many of the state’s homebuilders are smaller operations with which buyers enjoy bargaining power, Munoz said.

“A lot of homebuilders in this state don’t have arbitration provisions,” he said.

Richard Naimark of the American Arbitration Association said arbitration has historically been used primarily to resolve disputes between businesses, where both sides have lawyers and fairly equal bargaining power.

Only since about 1995 have binding arbitration clauses become prevalent in employment and consumer contracts, he said.

“A lot of the horror stories we’re hearing relate to contracts, terms of contracts, that are apparently weighted in favor of one party,” he said, describing some as “antagonist business practices.”