HOUSTON -- If you buy a cell phone, a car, or even the biggest purchase of all, a house, you may have signed away your rights to sue because of a “binding arbitration” clause in the purchase contract.
In Houston, one case has gotten national attention, singled out by critics of arbitration as an example of how they say arbitration is biased against consumers.
Arbitration relies not on a court of law but private individuals, often lawyers, who hear both sides then, render a decision as to who is right, the consumer or the business.
That was the case when a couple bought a new home near Lake Houston. They contended it had a huge defect and wanted compensation from the builder.
"They had a cracked foundation,” said Victoria Fair Woo, one of the homeowner’s attorneys. “It went from the front of the house to the back of the house.”
But they didn't go to court: the purchase contract required them to use arbitration.
The arbitrator they got was from a list of those approved by the American Arbitration Association. The association on its Web site said its goal is to provide “fair and excellent decision makers for many types of disputes.” It said its arbitrators are "neutral" so there's a "level playing field." And that a "fundamental requirement" is that the arbitrators make "disclosures" about potential conflicts of interest.
In the case of the Humble homeowners, their purchase contract required arbitration and so their lawyers selected among those listed by the American Arbitration Association. The one they got was a Houston lawyer named Stephen Paxson.
"They listed off his qualifications, they listed off his disclosures, I found nothing objectionable about him,” said Woo.
But that would soon change. After hearing both sides, Paxson ruled against the homeowners on every issue. Then, some days later, the lawyers say they learned something about Paxson that deeply troubled them.
"He's the GHBA's general counsel,” said James Evans, another lawyer for the homeowners.
GHBA is the Greater Houston Builders Association.
It turns out, the arbitrator who denied the homeowners any compensation, had done legal work for the GHBA..
"I was just astonished," said Evans.
Alleging they’d never been told of the apparent conflict of interest, the homeowner’s attorneys went to court.
"I filed a motion to have the arbitration award thrown out," said Woo.
A Harris County judge, and later the Texas Court of Appeals agreed with the homeowners’ lawyers: they tossed out Paxson's ruling, saying his work for the builders association might create the impression he was biased in the builders' favor.
Then, last year, a national consumer group, Public Citizen, seized on the case as one example of several from around the country. The group said the homebuilding industry was trying to use arbitration to "evade accountability." The group issued a report, “Home Court Advantage”, alleging that home “buyers have little defense against arbitrators with conflicts of interest. “ The report said it found “buyers enjoy little assurance that their cases won’t be handled by an arbitrator who is affiliated with the building industry.”
But was that what Steve Paxson was doing, trying to pass himself off as impartial when he really wasn’t?
"To have somebody accuse one--me--of being unfair and hiding facts was very troubling and untrue,” Stephen Paxson told 11 News.
Asked if he felt he had hidden his affiliation with the builders association, he told 11 News, “Certainly not."
Paxson said his affiliation with the GHBA was right on his resume and in other materials the homeowners’ attorneys could have reviewed before agreeing to use him.
He said he isn't partial to builders, he said he has actually sued them in other cases in which he was the plaintiff’s attorney.
As to the case of the house with the cracked foundation, Paxson said he was never provided enough evidence.
“The idea is you need to present evidence that proves your case. “
11News: “And you don't think they proved their case.”
Paxson: “Yes, I do not believe they proved their case."
The homeowners’ lawyers eventually reached a confidential settlement with the builder.
Paxson stands by the arbitration system as fair to home buyers. However, Paxson is no longer listed with American Arbitration Association which said it has dropped him.
Texas lawmakers recently held a hearing in Austin and heard complaints about arbitration. A committee may introduce new laws when the legislature meets again next year.
Meantime, the Texas Association of Builders pointed out that if you think arbitration is bad, tell the builder to take it out of the contract.
"There are a lot of builders in the business out there who want to make deals right now,” said association director Scott Norman.
