Too Costly to Be Fair: Texas Appellate Court Finds the Arbitration Clause in a Residential Construction Contract Unenforceable

Businessman looking at money worried

The Court of Appeals of Texas considered whether the lower court erred in refusing to enforce an arbitration clause in a construction contract between the parties.

November 21, 2022
Gus Sara - The Subrogation Strategist

In Cont’l Homes of Tex., L.P. v. Perez, No. 04-21-00396-CV, 2022 Tex. App. LEXIS 7691, the Court of Appeals of Texas (Appellate Court) considered whether the lower court erred in refusing to enforce an arbitration clause in a construction contract between the parties. The Appellate Court considered the costs of the arbitration forum required by the contract in the context of the plaintiffs’ monthly household income. The court also compared the arbitration cost to the estimated cost of litigating the dispute. The court held that the arbitration clause was substantively unconscionable on the grounds that the arbitration costs were not affordable for the plaintiffs and not an “adequate and accessible substitute to litigation.” The Appellate Court affirmed the lower court’s decision denying the defendant’s motion to compel arbitration.

The plaintiffs, Giancarlo and Krystle Perez (collectively, the Perezes), hired the defendant, Continental Homes of Texas, LP d/b/a Express Home (Express Homes), to build a new home in San Antonio. Express Homes provided its standard contract, which included a binding arbitration clause. The clause stated that every potential dispute between the parties occurring before and after the closing of the purchase of the home was subject to binding arbitration, to be administered and conducted by the American Arbitration Association (AAA). The clause also stated that the costs of the arbitration were to be split by the parties.

Mr. Sara may be contacted at sarag@whiteandwilliams.com



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