Contact Form

Close X

Contact

  • This field is for validation purposes and should be left unchanged.

102 South Tejon Street, Suite 900 • Colorado Springs, Colorado 80903

Arbitration: The Homebuilder’s Last Bastion

Author: KARL A. BERG, JR.

Arbitration has long been touted as a better way to resolve disputes. Its proponents usually make bold statements that arbitration is easier, faster, and cheaper than litigation. While each of these points may be debated, arbitration offers homebuilders distinct advantages to litigation in disputes with their customers.

Parties are free to determine how claims will be resolved. The most common “alternative dispute resolution” method identified in contracts is arbitration. Although arbitration can be non-binding, it is typically binding and a judgment may be entered on an arbitration award. Thus, if a provision provides that “all disputes arising out of or related to the contract will be resolved by binding arbitration,” the parties must arbitrate their claims unless they both agree to litigate them.

Some builders have been hesitant to use arbitration clauses. The primary reason is probably the perception that arbitration is “arbitrary.” While it is true that arbitrators are not bound by either the procedural or substantive law, since most arbitrators are attorneys, the risk of them making up the law as they go along is relatively small. Some builders also believe they have a better chance of “winning” in Court than in arbitration. However, this notion is incorrect. As most builders know, it is exceedingly difficult to win a case against a homeowner, regardless of the facts. Thus, it seems more likely homebuilders will obtain better results with an arbitrator they select. To allow a jury, i.e. six other homeowners, to decide whether the builder or homeowner is right, is a risky proposition at best. In the hands of skilled plaintiffs’ lawyers, a real prospect exists for runaway jury verdicts against builders. In arbitration, because of the relationship between defense counsel and the arbitrator they selected, this risk is dramatically reduced. Further, including arbitration clauses in every contract would prevent class actions against the builder.

One of the biggest threats to homebuilders are claims based upon alleged violations of the Colorado Consumer Protection Act (“CCPA”). A violation of the act entitles a claimant to treble damages and attorney’s fees. Because such a damages award is probably not covered by a builder’s Commercial General Liability insurance policy, the presence of a CCPA claim often forces builders to settle on unfavorable terms rather than risk a substantial uncovered loss. However, since CCPA claims are subject to broadly drafted arbitration clauses, the risk of a treble damages award may be eliminated for all practical purposes. Only in the most egregious of circumstances can one imagine an arbitrator awarding treble damages against a builder.

Builders should also consider drafting their arbitration clauses so that only they have the right to appoint the arbitrator. Although there is limited authority that such clauses are unenforceable, Colorado has not specifically addressed this issue. A provision which allows the builder to appoint the arbitrator would benefit it substantially. Although the arbitrator appointed could not have a conflict of interest with the builder, i.e. he’s the builder’s brother, nothing would prevent the builder from naming someone else in the industry more sympathetic than the average juror to the challenges builders face.

Finally, arbitration is generally private. As such, in the absence of a confirmation proceeding, few people will ever know of the dispute or how it was resolved.

Although arbitration has certain drawbacks, including the inability to join any third-parties (in the absence of appropriate language) and the lack of any meaningful appeal, on balance builders should utilize arbitration to resolve disputes with their customers. If they do so, the risk of class actions and of large uninsured losses can be eliminated or significantly reduced.


 

Disclaimer: The materials on this website are provided for informational purposes only. They do not constitute legal advice nor do they necessarily reflect the opinions of Mulliken Weiner Berg & Jolivet P.C. or any of its attorneys or clients. There is no implicit guarantee that this information is correct, complete, or up to date.

This website is not intended to create an attorney-client relationship between you and Mulliken Weiner Berg & Jolivet P.C. You should not act or rely on any information in this website without seeking the advice of an attorney.

Please be advised that any response to this web page does not create an attorney-client relationship and, therefore, no attorney-client privilege is attached by this communication. Furthermore, any information you transmit to us will not be treated as confidential. Please do not send us any information regarding any current or potential legal matter(s) absent a written statement confirming our engagement by you as your legal counsel.

In some jurisdictions, this website may be considered advertising. The hiring of a lawyer is an important decision that should not be based solely upon written information about qualifications and experience. Mulliken Weiner Berg & Jolivet P.C. has made every effort to comply with all known legal and ethical requirements in providing this website. We do not desire to represent clients based upon their review of any portions of this website that do not comply with legal or ethical requirements in your jurisdiction.

This site may contain hyperlinks to websites operated by parties independent from Mulliken Weiner Berg & Jolivet P.C. Such hyperlinks are provided for your reference only. Mulliken Weiner Berg & Jolivet P.C. does not control such websites and is not responsible for their content.  Mulliken Weiner Berg & Jolivet P.C.'s inclusion of hyperlinks to such websites does not imply any endorsement of the materials on such websites or any association with their content. Your access and use of such sites, including information, material, products, and services therein, shall be solely at your own risk.

Nothing contained in this website is intended to compare our services to the services of any other law firm or lawyer or to imply specialization or certification by any organization not previously approved by the Colorado State Bar Board of Legal Specialization.

The Mulliken Weiner Berg & Jolivet P.C. law firm is responsible for the content of this website and our principal office is located at 102 S. Tejon, Suite 900, Colorado Springs, CO.

Post a Comment

Your email is never published nor shared. Required fields are marked *

*
*