Opinion ID: 2375340
Heading Depth: 1
Heading Rank: 7

Heading: NRS Chapter 40 rights

Text: NRS Chapter 40's construction defect provisions, NRS 40.600-.770, were created to ensure a speedy and fair process for resolving construction defect disputes between homeowners and contractors. To further that objective, the Legislature enacted provisions governing prelitigation notice, inspection, right to repair, mediation, settlement offers, and disclosures, among other things, incorporating advantages and penalties designed to encourage homeowners and contractors to resolve their disputes before resorting to the courts. See, e.g., Senate Daily Journal, 68th Leg., at 14-16 (Nev., June 17, 1995) (remarks by Senator James). As we have previously pointed out, NRS Chapter 40 is designed to protect the rights of homebuyers by providing a process to hold contractors liable for defective original construction or alterations. Westpark Owners' Ass'n v. Dist. Ct., 123 Nev. 349, 359, 167 P.3d 421, 428 (2007) (citing Hearing on S.B. 395 Before Assembly Comm. on the Judiciary, 68th Leg., at 23 (Nev., June 23, 1995) (statement of Valerie Cooney), and interpreting the chapter so as not to defeat or undermine this purpose). To that end, in contrast to the common law, NRS Chapter 40 allows homeowners to bring negligence claims against contractors for construction defects. Olson v. Richard, 120 Nev. 240, 243-44, 89 P.3d 31, 33 (2004). Further, the chapter provides successful claimant homeowners with certain rights and benefits, including attorney fees, costs, and several other types of consequential damages. NRS 40.655 (limiting the homebuyers' recovery of anything not listed in the statute). NRS Chapter 40's provisions apply to any construction defect claims, NRS 40.635(1) (exempting personal injury and wrongful death claims from NRS Chapter 40's purview); Olson, 120 Nev. at 243, 89 P.3d at 33, and the chapter's provisions [p]revail over any conflicting law otherwise applicable. NRS 40.635(2). Thus, we have recognized that, in enacting NRS Chapter 40, the Legislature did not limit a homeowner's recovery to defects covered by contract or warranty. Skender v. Brunsonbuilt Constr. & Dev. Co., 122 Nev. 1430, 1435, 148 P.3d 710, 714 (2006); Olson, 120 Nev. at 243, 89 P.3d at 33. Nor, we now conclude, may contractors limit a homeowner's recovery to defects covered by contract or warranty. To allow such exculpatory terms would defeat the protective purposes behind the statutes and thwart the public policy of this state, as expressed by the Legislature in NRS Chapter 40. In this case, the purchase agreement arbitration provision states that, with respect to construction defect claims, NRS Chapter 40's construction dispute provisions apply, if and to the extent that the limited warranty covers the alleged defect. In limiting NRS Chapter 40's application to only those defects covered by the limited warranty, the provision is substantively unconscionable, as it attempts to avoid NRS Chapter 40 liability and violates public policy. In Armendariz v. Foundation Health Psychcare, 24 Cal.4th 83, 99 Cal. Rptr.2d 745, 6 P.3d 669, 679-80 (2000), the California Supreme Court analyzed an arbitration agreement's applicability to unwaivable statutory rights in light of U.S. Supreme Court language on the subject: Assuming an adequate arbitral forum, we agree with the Supreme Court that [b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum. [quoting Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 U.S. 614, 628, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985)]. . . . That is, [the U.S. Supreme Court's language] sets a standard by which arbitration agreements and practices are to be measured, and disallows forms of arbitration that in fact compel claimants to forfeit certain substantive statutory rights. Like the California court, we agree that arbitration agreements cannot be used to avoid rights and liabilities imposed by statute when doing so would violate the public policy of this state. Kindred v. Dist. Ct., 116 Nev. 405, 414, 996 P.2d 903, 909 (2000) (citing Mitsubishi Motors, 473 U.S. at 628, 105 S.Ct. 3346). Indeed, contract terms that violate public policy are often one-sided in favor of the more powerful party, rendering them substantively unconscionable. See, e.g., State Farm Mut. Auto. Ins. v. Hinkel, 87 Nev. 478, 481-82, 488 P.2d 1151, 1153 (1971) (discussing a contractual exclusionary clause in light of Nevada public protections under insurance statutes and noting that [i]t was not the intent of the legislature to require the appellant to offer protection with one hand and then take a part of it away with the other); 8 Richard A. Lord, Williston on Contracts § 18:10 (4th ed.2010) (pointing out that substantively unconscionable terms are those that are unreasonably favorable to the more powerful party, such as terms that impair the integrity of the bargaining process or otherwise contravene the public interest or public policy). Further, even with respect to covered claims, the arbitration provisions impermissibly fail to preserve the Gonskis' statutory rights. Although the purchase agreement's arbitration provision states that NRS Chapter 40 applies to covered defects, the purchase agreement and limited warranty arbitration provisions then limit Pulte Homes' liability in a manner inconsistent with Chapter 40's damages provision, rendering the arbitration clause misleading, oppressive, and unenforceable as against public policy. For example, the purchase agreement provision states that the parties shall bear their own attorney fees, and the limited warranty provision provides that the requesting party must initially pay for the arbitration costs and its own expenses. [7] But under NRS 40.665, a prevailing homeowner is entitled to recover reasonable attorney fees and additional costs. [8] D.R. Horton, 120 Nev. at 556, 96 P.3d at 1164. Accordingly, the arbitration provisions compel the Gonskis to forfeit their statutory right to attorney fees and, potentially, costs, all the while indicating that NRS Chapter 40 applies. As a result, the arbitration provisions impliedly waive the Gonskis' statutory rights under NRS Chapter 40, such that substantive unconscionability exists. [9] See Graham Oil v. ARCO Products Co., 43 F.3d 1244 (9th Cir.1994) (invalidating an arbitration agreement that waived statutory damages). Based on the above, significant substantive unconscionability exists. Such substantive unconscionability tips the balance so that the arbitration clauses governing the Gonskis' construction defect claims must be declared unconscionable. Accordingly, the district court manifestly abused its discretion in compelling arbitration.