Burch v. Second Judicial District Court of Nevada

Brief Fact Summary.

Plaintiff Burch purchased a home and homebuyer’s warranty from Defendant Double Diamond (note: Double Diamond, not the named defendant, is the real party of interest and will hereafter be referred to as “Defendant”). When problems arose with the home, Plaintiffs brought a suit against Defendant. However, the homebuyer’s warranty includes an arbitration provision.

Synopsis of Rule of Law.

While the general rule is that a party is bound by their signature, where a provision of an adhesion contract is unconscionable it will be unenforceable against the weaker party.

Facts.

Plaintiff purchased a home developed and constructed by Defendant. Four months after closing, Plaintiff received a thirty-one page warranty booklet from Defendant. At the Defendant’s request, Plaintiff signed the booklet. However, Plaintiff did not read the booklet. The warranty booklet included a provision requiring all disputes arising from the warranty to be settled through binding arbitration.
The arbitration provision was located on page six of the booklet, following five pages of provisions only applicable to non-Nevada residents. Defendant told Plaintiff the warranty was issued automatically and gave them greater protection. In fact, the warranty actually limited the protection available to them under Nevada law. The provision also granted Defendant the exclusive right to decide the rules governing the arbitration and select the arbitrator.
Plaintiff experienced problems with the home. Defendant offered to provide some, but not all, of the remedial work requested by Plaintiff. Plaintiff filed a claim seeking damages. The trial court granted Defendant’s motion to compel arbitration. In the present case, Plaintiff is seeking a writ of mandamus to compel the trial court to vacate its order compelling arbitration.

Issue.

Is the arbitration provision enforceable against Plaintiff?

Held.

No. The arbitration provision was not enforceable because it was unconscionable.
An adhesion contract is “a standardized contract form offered to consumers . . . on a ‘take it or leave it’ basis, without affording the consumer a realistic opportunity to bargain.” The weaker party in an adhesion contract has to choice as to the terms of the contract. In the present case, the warranty consisted of pre-printed, standardized forms and Plaintiff was given no opportunity to negotiate the terms of the warranty. Therefore, the Court characterizes the warranty as an adhesion contract.
An adhesion contract will be enforced where “plain and clear notification of the terms and an under standing consent” are present and the contract “falls within the reasonable expectations of the weaker . . . party.” However, where the contract or a clause of a contract is unconscionable, it will be unenforceable. For a court to refuse to enforce a contract or clause based on unconscionability there must generally be both procedural and substantive unconscionability.
In determining whether the arbitration provision was procedurally unconscionable, the court considered several facts. The Court determined that because Plaintiff did not have an opportunity to read or negotiate the provisions, the arbitration provision was located on the sixth page of the agreement, and was presented to Plaintiff as an automatic granting of extra protection for their home; Plaintiff did not have a “meaningful opportunity” to agree to the terms of the warranty. Under these facts, the Court found the procedural unconscionability to be great.
In determining that the arbitration provision was also substantively unconscionable, the Court considered the fact that Defendant had the right to both decide the rules governing the arbitration and select the arbitrator. Because the Court determined that the arbitration provision was both procedural and substantive unconscionability, it found that the provision was unenforceable.

Discussion.

In the present case, the adhesion contract included an arbitration provision. Because the Court determined that the provision was both procedurally and substantively unconscionable, the arbitration provision was unenforceable against Plai