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    Enforcement of Arbitration Clauses in Contracts

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    Thomas Baker and others who bought new homes from Osborne Development Corp. sued for multiple defects in the houses they purchased. When Osborne sold the homes, it paid for them to be in a new home warranty program administered by Home Buyers Warranty (HBW). When the company enrolled a home with HBW, it paid a fee and filled out a form that stated the following: "By signing below, you acknowledge that you... CONSENT TO THE TERMS OF THESE DOCUMENTS INCLUDING THE BINDING ARBITRATION PROVISION contained therein." HBW then issued warranty booklets to the new homeowners that stated: "Any and all claims disputes and controversies by or between the Homeowner, the Builder, the Warrant Insurer and/or HBW...shall be submitted to arbitration."

    Would the new homeowners be bound by the arbitration agreement, or could they sue the builder, Osborne, in court? (Baker v Osborne Development Corp., 159 Cal.App.4th 884,71 Cal.Rptr.3d 854 (2008)

    Discuss what courts are saying about the enforcement of arbitration clauses in contracts.

    Utilize the decision in the NCR Corp v Korala Associates, Ltd. as a basis for answer. For more
    information on this case go to http://www.ca6.uscourts.gov/opinions.pdf/08a0029p-06.pdf.

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    Solution Preview

    When Osborne sold the homes to Thomas Baker and others he paid for and administered the Home Buyers Warranty in which Thomas Baker and Others were required to sign that they "you acknowledge that you... CONSENT TO THE TERMS OF THESE DOCUMENTS INCLUDING THE BINDING ARBITRATION PROVISION". By signing this clause and accepting the warranty booklets from HBW Thomas Baker and others are bound submit themselves to arbitration.

    Consider the case NCR Corp v Korala Associates, Ltd. The suit was related to unauthorized copying of computer software by KAL. Here was however, an agreement in 1998 between two companies that any dispute regarding the software would be submitted to arbitration. NCR however, sued ...