May 23, 2007

Honey, Where Did We Put Those Extra Square Feet?

While the class action lawsuit at The Beacon was dropped three months ago, Damion Matthews notes that abc’s recent 7 On Your Side consumer alert (“the square footage potential buyers are given can sometimes be wrong”) might just suggest that the square footage lawsuit at The Metropolitan ("BEN BEDI VS. FOLSOM/FIRST, LLC") continues on.

Any “plugged-in” reader’s care to provide an update or the inside scoop? And yes, we’re still looking for an update on the similar lawsuit over at Watermark (“CATALINA GARCIA VS. SAN FRANCISCO CRUISE TERMINALS LLC, A LIMITED et al”) as well.

UPDATE: And in under an hour, a "plugged-in" reader provides an update on both.

Beacon Class Action Lawsuit Dismissed Without Prejudice [SocketSite]
Some Area Homes Have Wrong Measurements [abc7news]
A Class Action Suit At The Metropolitan? [SocketSite]
Now Serving: The Watermark [SocketSite]

First Published: May 23, 2007 7:08 AM

Comments from "Plugged In" Readers

The Ben Bedi v. Folsom/First LLC case remains in litigation. They were ordered to arbitration (the agreement had an arbitration provision) in March, but the plaintiffs/buyers have now tried to amend the complaint to get around the arbitration provision and stay in court -- argument is that buyers were fraudulently induced into signing the contract with an arbitration clause. The hearing on whether the claim can go forward in court or will be sent to arbitration should take place within the next few weeks.

The Catalina Garcia lawsuit was sent to arbitration in January where the fight continues.

Lesson: don't sign any contract with an arbitration clause, or cross out the arbitration provision. Otherwise you're basically signing away your right to sue for any defect, fraud, etc. True -- you can pursue your claim in arbitration if you have about $50,000 to pay the arbitrator in addition to whatever you are paying your lawyer. And then you'll probably lose anyway because the private arbitrator wants the repeat business the builder provides.

Posted by: Trip at May 23, 2007 7:56 AM

Trip - that is an extremely helpful characterization.

Posted by: will_h at May 23, 2007 8:29 AM

These cases are really worth watching as they have implications for the entire new home construction industry in the area - especially if there is a legal precedent set. From what I understand, it's basically a question of how the unit area is determined and if you can disregard the area figures set out in the condominium map and use a different (i.e., more generous) unit area estimate. I think it would benefit the public more if everyone played by the same rules (the condo area in the condominium map is the condo area) as this makes comparison of different units on a price per square foot basis much easier. However, this may not be in the best interest of the developers as inflating the area figures inflates their profits. It would seem prudent for anyone buying a condo to determine exactly where the unit area estimate came from and at least be aware if the number is not the same size listed in the final engineering survey shown in the condominium map.

Posted by: Miles at May 23, 2007 12:14 PM

Agree with Miles -- but unfortunately, with these going to private arbitration (unless the Folsom/First LLC succeed with their fraudulent inducement theory -- a long shot), there will be no precedent. Neither the public nor the courts will even know what the result is, and even if it were leaked it would have no effect whatsoever on any future case. Another reason to avoid arbitration clauses. E caveat emptor -- have to do your homework before you sign the closing papers.

Posted by: Trip at May 23, 2007 12:21 PM

I doubt it will be easy to get an arbitration clause struck unless the market softens a lot moving forward.

Posted by: Amen Corner at May 23, 2007 1:05 PM

Has anyone tried to cross out the arbitration clasue in a contract for a new development and closed the deal? I would love to here about someone's experience?

Posted by: rhans at May 23, 2007 4:40 PM

new development signer about a year ago...
we were allowed to not initial the arbitration portion - which meant that we did not agree to binding arbitration as our last resort- thus reserving our right to file legal action if needed (hopefully it never will be) before binding arbitration
but we didn't 'cross it out'

Posted by: anonoclause at May 23, 2007 5:04 PM

Ditto, anonoclause in all respects. I'm not sure the developer even noticed. A neighbor reported they tried to cross out the clause, but that the developer wouldn't go along.

Posted by: another anonoclause at May 23, 2007 6:07 PM

Why is binding arbitration such an inferior route than suing someone in court? Aren't the legal costs significantly higher for the court route where the majority of awards go to the legal counsel? Additionally, isn't binding arbitration a lot faster than suing someone in court? As far as the bias issue - there would seem to be some incentive to be more accommodating of the developer, but if the bias was excessive it seems that you could/would sue the arbitrator for bias? Or is there a clause in these arbitration proceedings that everything is final (e.g. no appeal) and you hold the arbitrator harmless?

Posted by: Miles at May 23, 2007 7:25 PM

Miles -- you're right that there are pros and cons, but for those trying to sue for a remedy (rather than defend), the cons generally outweigh the pros.

Some pros (I'm sure I'm missing things)
1) Generally quicker than proceeding in court
2) May end up paying your lawyer less since the proceedings are quicker

And some cons:
1) No jury (the arbitrator decides)
2) No appeal even if legal errors are made
3) Less discovery (and usually the one being sued has all the info)
4) May have to pay your lawyer more since arbitrations settle less often and there is less opportunity for a judgment short of trial (the arbitrator is paid hourly and has no incentive to wrap things up)
5) You have to pay 1/2 the arbitrator's fee -- tens of thousands
6) Builders/defendants are a good source for repeat business, arbitrators are biased
7) Nearly impossible to actually prove bias and sue or otherwise get relief from it

Binding arbitration makes good business sense in contracts between equals -- e.g. two big businesses. But they are awful for individuals/consumers. Hence the big battles in these two cases to try to avoid arbitration.

Posted by: Trip at May 23, 2007 8:28 PM

Trip,
In commercial contracts, I've seen compromises such as 1) mutual agreement by the parties as to who the arbitrator will be (to prevent developer bias) or 2) tripartite arbitration with 3 judges or a panel. Have you seen these strategies in real estate transactions?

Posted by: anonsf at May 23, 2007 9:27 PM

Thanks for the info Trip - I wasn't aware that there was less opportunity for discovery (it looks like the arbitrator can limit discovery at their discretion) which can really weaken the process for the individual bringing the grievance.

Posted by: Miles at May 23, 2007 10:55 PM

I'm not a real estate lawyer (in fact, I have no involvement at all in the industry other than as a homeowner and maybe buyer). So I can't say what kinds of provisions might be in use in the industry. Naming the arbitrator in advance might even the playing field, and a three-arbitrator panel helps avoid nutty rulings, but it is three times as expensive.

I actually prefer arbitration for business disputes (faster and helps avoid crazy jury verdicts that will just get reversed on appeal anyway). And I've seen very favorable arbitrator rulings in consumer cases. But the process has been shown to generally favor corporate defendants.

Posted by: Trip at May 24, 2007 7:08 AM

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