A Homeowner Nails Bob PerryBy Andrew Wheat
May 13, 2005
An extraordinary lemon-home case involving Texas’ most powerful homebuilder has homeowners and builders reversing their traditional roles in such disputes.
A cornerstone of the homebuilding industry’s largely successful efforts to legally outmaneuver homebuyers is the so-called binding arbitration clause that the industry routinely inserts into new home contracts. This oft-overlooked legalese drives disgruntled homeowners out of public courts, forcing them to file claims with a private arbitration company—one often handpicked by the builder or its warranty company.
Groups such as Public Citizen, Consumers Union, and Homeowners Against Deficient Dwellings warn that arbitration amounts to a kangaroo court that deprives consumers of legal protections that the Anglo-American court system took centuries to refine. At the stroke of a pen, consumers who sign binding arbitration contracts sacrifice their rights to a trial by jury and to appeal adverse rulings. Gone, too, are legal discovery, public court records, the development of case law and rulings based on legal precedents. For these reasons, consumers repeatedly have petitioned courts to release them from forced arbitration. Courts overwhelmingly knock down these appeals, citing U.S. Supreme Court rulings that strictly enforce arbitration on consumers.
Consumer groups say arbitrators appear to favor the builders and home-warranty companies that steer so much business their way. Since most arbitration rulings are kept secret, however, there is no way to measure this alleged bias. Homeowner activists have taunted defenders of arbitration for years by challenging them to produce a single case in which a Texas consumer has won a significant arbitration award from a builder. Now that such a case finally has surfaced there is no denying that it’s a weird one.
Robert and Jane Cull paid Perry Homes $233,730 in 1996 for a new home in Mansfield, outside Fort Worth. This house, which the Culls bought for their retirement, came with two significant features: a warranty against major structural defects and a seriously defective foundation. The resulting lawsuit that the Culls filed in state court in 2000 alleged that the house “shifted and cracked to such a degree that it materially affects the physical safety of the occupants.” Pursuant to an arbitration clause in the Culls’ warranty, Warranty Underwriters Insurance then petitioned the court to kick the dispute into arbitration. Up until this point, Robert Cull v. Perry Homes read like the script of so many lemon-home disputes. Like the foundation of the Culls’ home, however, this old plot suddenly began to twist.
Just days before their trial was scheduled to start, the Culls suddenly asked the court to force their own lawsuit into arbitration. In late 2001, the couple testified that they now opted for arbitration in order to resolve their legal odyssey as soon as possible. The Culls attributed this urgency to their advancing ages and the economic hardships caused by owning a lemon home that plummeted in value once its defects surfaced, according to subsequent court filings. The judge agreed to submit the case to arbitration.
On Christmas Eve 2002, a year after Fort Worth visiting state judge Sidney Farrar sent the lawsuit into arbitration, an arbitrator issued an award in the case. That settlement inspires in homeowner activists the kind of awe ordinarily reserved for virgin births. Arbitrator Robert Prather’s award directed the Culls to collect more than $800,255 from the warranty company and Perry Homes. This award included $242,759 in home costs, $157,496 in attorney and other legal costs, $200,000 for mental anguish and $200,000 more in punitive and statutory damages for “knowing, unconscionable, intentional and/or willful and malicious conduct.” There was little doubt that an arbitrator finally had slapped a Texas homebuilder with significant damages.
But if the homeowners in Robert Cull v. Perry Homes abandoned their traditional roles, so did the homebuilding industry. State appellate judges in Fort Worth now are considering an appeal filed by Perry Homes and the warranty company. This appeal asks the court to void the damages the arbitrator awarded in a case—a case that never would have gone to arbitration but for the arbitration clause of the homebuilding industry’s own making.
Perry Homes argues in its appeal that it became the victim of a bastardized system after this case proceeded for one year in state court and then got bumped into private arbitration. As a result, the appeal says, plaintiffs used the advantages that public courts offer to gather documents and testimony that made their case that Perry Homes negligently saddled them with a lemon home. The plaintiffs then presented this evidence to the arbitrator, who threw the book at the defendants.
Parts of Perry Homes’ appellate briefs sound like they were lifted from a consumer pleading railing against the defects that make arbitration a kangaroo court. “In arbitration,” one such brief argues, “a party faced with discovery obtained in judicial proceedings does not have substantive and procedural protections available in court with respect to that discovery—e.g., legal sufficiency standards, appeal rights and rules of evidence.”
This appeal by Perry Homes makes one other fascinating claim that consumers typically invoke: arbitrator bias. As evidence, Perry Homes cites the fact that arbitrator Robert Prather previously had represented some homeowners in construction litigation. By contrast, homeowner plaintiffs in other cases repeatedly have claimed that an arbitrator had close ties to the homebuilding industry or favored an industry that brings arbitrators so much business. The bias claim in this case is extraordinary, coming as it does from Texas’ largest individual campaign contributor. Apparently, someone who has built so much bias into the political system knows it when he sees it.
The $4.6 million that Bob Perry gave to Texas candidates and PACs in the 2004 election cycle alone makes him the state’s leading kingmaker. Perry is one of the top underwriters of Texans For Lawsuit Reform (TLR). This pro-arbitration business group runs Texas’ largest PAC. It spent $31 million in 2004 to make it harder for consumers to hold businesses accountable in court. Perry Homes’ top in-house lawyer, John Krugh, helped draft 2003 legislation to create the nine-member Texas Residential Construction Commission, a state agency dominated by building-industry representatives—including Commissioner John Krugh. This special-interest coup prompted Rep. Garnet Coleman (D-Houston), to tell the Austin American-Statesman, “In Texas you can buy your own state agency, then regulate yourself.”
Many state judges also are beneficiaries of Bob Perry’s political largesse. Bob Perry and his wife personally have given more than $100,000 to Texas judicial candidates since 2000. Perry has not directly contributed to the appeals judges who now are mulling Cull v. Perry Homes. Nonetheless, their chief justice, John Cayce, got $13,430 from Perry-backed TLR in 2002 for his failed Texas Supreme Court run. In fact, three of the Texas Supreme Court’s sitting justices have taken a total of $25,000 directly from Bob Perry. It’s the court of last resort for Cull. v. Perry Homes.
Andrew Wheat is research director of Austin-based Texans for Public Justice.