Baker v. Osborne Legal Review

Thomas Baker and others bought new homes from Osborne Development Corp. The new homeowners later filed a complaint against Osborne Development Corp. for multiple construction defects in the houses they purchased. The complaint alleged causes of action for strict liability, and other breaches of contract, and negligence. Baker and the other homeowners had along with the home purchases signed a builder application form containing the following language: â€Å"CONSENT TO THE TERMS OF THESE DOCUMENTS INCLUDING THE BINDING ARBITRATION PROVISION contained therein.† By signing the application, the homeowners were presumed to have â€Å"agreed to the terms of the warranty. † (Baker v. Osborne Development Corp. , 2008). The question posed is whether the new homeowners are bound by the arbitration agreement they signed, or whether they could just sue Osborne Development Corp. in court. The Fourth Appellate District of the California Court of Appeal answered both questions in its 2008 decision when it held that arbitration provisions in the HBW 2-10 warranty were â€Å"unenforceable,† because they were â€Å"unconscionable.† The warranty was unconscionable because the arbitration language was broad and did not â€Å"clearly and unmistakably† reserve the sole authority to decide whether the arbitration provision was enforceable to the arbitrator. The arbitration provision was procedurally unconscionable because it was hidden in a booklet not available when Baker executed the warranty application. It was substantively unconscionable because it was solely intended to benefit Osborne, as Osborne would have no reason to sue Baker after the close of escrow. In NCR Corp. v. Korala Associates, Ltd., (2008), the court of Appeals weighed the issue by determining the scope of the arbitration agreement based on the reason that a party should not be compelled to arbitrate a dispute which it has not agreed to arbitrate. To determine whether or not a c ase is arbitrable, the Sixth Circuit looked at the allegations in each count of the complaint to determine whether the agreement was a necessary part of each claim. The standard used by the Sixth Circuit was this; whether â€Å"an action could be maintained without reference to the contract or relationship issue† (NCR Corp.v. Korala Associates, Ltd. , 2008, p. 4). If it could, then it is likely to be outside the scope of the arbitration agreement. Going by the Court decisions in Baker and NCR, the homeowners are not bound by the arbitration clause, and are therefore free to pursue damages in a court of law. References Baker v. Osborne Development Corp. (2008) 159 Cal. App. 4th 884 [– Cal. Rptr. 3d –] NCR Corp. v. Korala Associates, Ltd. , No. 06-3685, 2008 WL 140978 (6th Cir. Jan. 16, 2008)