Arbitration is usually recommended as a less expensive and quicker way to resolve disputes. Ironically, arbitration can become a rather complicated matter in the construction world. These complications can arise from a multitude of issues, but one issue that recently resurfaced was the question of who decides whether it is correct or not to arbitrate: the arbitrator or a court?
In 1986, the Supreme Court ruled on who should decide whether arbitration should occur or not:
unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator.
AT&T Techs. v. Commun. Workers of America, 476 U.S. 643, 649 (1986)
At first glance, this ruling seems pretty straightforward. The courts decide, right? Not exactly. The language “clearly and unmistakably” has left room for speculation, and cases have been decided on a case-by-case basis ever since this decision. The real question presented by this language is how specific does the language of the contract have to be to allow an arbitrator to decide?
The North Carolina Business Court
The incorporation of the AAA Rules met the “clear and unmistakable” standard. Recently, in Gaylor, Inc. v. Vizor, LLC, 2015 NCBC 98, the North Carolina Business Court took a stab at this “arbitrability” issue. The specific contract in question contained an arbitration clause that held the contract subject to the Construction Industry Arbitration Rules of the American Arbitration Association. According to Rule 9(a), an arbitrator will rule on his/her own jurisdiction. The question was whether this was considered “clearly and unmistakably.” The contract never stated expressly that the arbitrator would decide on arbitrability or even directly cited Rule 9(a). Still, the North Carolina Business Court ruled that the provision satisfied the Supreme Court’s ruling.
This decision has actually become a trend with multiple Federal Circuit Courts handing down the same rulings. The decision makes sense if you think about it. If you agree to comply with the AAA rules, you should not be able to pick and choose which parts of the rules apply.
Why You Should Care
Arbitration can be beneficial, but it can also create a mess for construction parties. Therefore, who decides whether a claim is going to be arbitrated or not is a rather important question. This point is especially true when mechanics lien claims come into play alongside arbitration clauses. Because mechanics liens are born from statutes and arbitration is born solely from contracts, the situation becomes messy. Whether parties are to arbitrate or not can either add or subtract from that mess. Arbitration is considered a more favorable option and recommended by most attorneys. Because of this, you should familiarize yourself with contract clauses that can initiate and affect arbitration. Understand the rules and stay ahead of the game.