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Texas Court Invalidates KB Home's Forced Arbitration

Texas Homeowners Can Now Sue KB Home for Construction Defects

May 17, 2006

KB Home • Consumer Complaints --- News • KB Home Executives Quit Over Stock Options Probe • Texas Court Invalidates KB Home's Forced Arbitration • KB Home Customers Find FTC Penalties Inadequate • KB Home to Pay $2 Million for Violating Home Warranty Agreement

A Texas judge has ordered KB Homes to stop forcing homeowners to accept mandatory binding arbitration. It's thought to be the first such ruling against a homebuilder in the country.

The settlement means that all binding arbitration clauses in KB Home agreements are invalid and homeowners can now sue KB Home in a court of law rather than being forced into binding arbitration over construction defects.

Laredo District Court Judge Solomon Casseb approved the class action settlement that prohibits KB Home from requiring any past, present or future customers to consent to mandatory binding arbitration in the settle of warranty claims.

Additionally, in August of last year the Federal Trade Commission (FTC) announced that KB Home would pay a $2 million civil penalty to settle charges that it violated the terms of a 1979 consent order for inserting mandatory binding arbitration clauses in its contracts and warranties.

Despite these agreements and fines, HomeOwners for Better Building (HOBB), a non-profit group, says it has obtained information that confirms KB Home has once again disregarded the FTC consent order and the terms of the new class action settlement even before the ink was dry.

Documents show that at the same time KB Home negotiated the settlement and was under the provisional certification of the class action, the company referred at least one homeowner with major foundation problems to its third party warranty provider Home of Texas, who denied the claim and notified the homeowner to submit to Binding Arbitration conducted by Construction Arbitration Services (CAS).

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It's not the first time KB Home has disregarded court orders.

In 1999, the FTC warned KB Home to cease inserting binding arbitrations in their contracts and warranties and warned that it violated a 1979 FTC consent order. The FTC made repeated attempts to get KB Home to stop but the nation's fifth largest builder continued to ignore the FTC until February 2001 when it gave assurances that it would stop.

Houston attorney Alice Oliver-Parrott brought the lawsuit that ultimately led to the settlement agreement with KB Home that mandates court notification of the settlement that applies to all homes that were built after January 1, 1996.

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