A homeowner purchased a home and signed a purchase contract with the builder. The contract included an arbitration clause. The homeowner later was injured from an explosion involving his home’s garbage disposal. The homeowner sued the builder for premises liability and negligence, claiming that the builder had improperly installed the garbage disposal. The builder moved to compel arbitration, but the homeowner opposed the motion claiming the arbitration agreement was unconscionable because arbitration is costly and would prevent him from pursuing his claims. The trial court denied the builder’s motion and the court of appeals affirmed. The builder then petitioned the Supreme Court of Texas for review.
In Lennar Homes of Tex. Inc. v. Rafiei, 687 S.W.3d 726 (Tex. 2024), the Supreme Court of Texas reversed the judgment of the court of appeals and held that the homeowner did not provide evidence to support a finding that the delegation clause was unconscionable due to the prohibitive costs. The court first addressed how to determine unconscionability by comparing the total costs of arbitration and litigation, followed by deciding whether the difference in cost is so substantial as to prevent the homeowner from bringing his claims. The homeowner provided an attorney’s affidavit and the AAA Administrative Fee Schedules but did not address how the cost to arbitrate prevented him from bringing his claims. Additionally, the homeowner did not present evidence that he sought a reduction of the administrative fees or an agreement to arbitrate with one arbitrator, a cheaper route. The court decided it would be speculative to conclude the delegation provision is itself unconscionable without that evidence from the homeowner. The homeowner failed to provide evidence that he could afford litigation, but not arbitration. The homeowner argued that the arbitration process favors the builder, a corporate entity, but a supposed unequal bargaining power alone does not provide enough evidence to show an arbitration agreement is unconscionable. The court discussed the difference between litigating and arbitrating. Finally, the court decided that there was not enough evidence to find the delegation clause unconscionable and reserved the question of the unconscionability of the arbitration agreement as a whole for the arbitrator.
By: The Editors