Thoughts on construction law from Christopher G. Hill, Virginia construction lawyer, LEED AP, mediator, and member of the Virginia Legal Elite in Construction Law

Have the Feds Taken Over Arbitration?

Have the Feds Taken Over ArbitrationImage via Wikipedia

All of us in construction have run into mandatory arbitration clauses in our contracts. These clauses are more or less desirable based upon the size of project and other factors that will provide a topic for another post here at Musings or in my class at Solo Practice University (and likely both).

In drafting and considering the usefulness of these clauses, make sure that you keep in mind that the Federal Arbitration Act applies to actions in federal court. In short, the FAA gives parties to a contract containing an arbitration clause the absolute right to a stay of a law suit pending arbitration.

While this seems obvious, a recent U. S. Supreme Court decision expanded the universe of people that can demand such a stay. In Arthur Andersen LLP v. Carlisle, et. al., the Court stated that any person who is allowed to enforce a contract under state law can obtain such a stay. In short, if a person can make an argument that they have some sort of right to enforce a contract’s terms, that person can get a stay, at least until a court says otherwise.

For contractors and other construction pros, this case only underscores the need to examine your contracts carefully. If third parties, including architects, LEED AP’s on the project and others that could get a benefit from what looks like a straight line agreement, are part of the process, you could end up arbitrating a case that you never anticipated you would be arbitrating.

Consider this latest decision by the U. S. Supreme Court a reminder that you should think carefully about every aspect of a contract before you enter into it. If necessary, have experienced legal counsel review that contract and discuss its implications prior to diving in.

As always, please join the conversation with your comments or subscribe to keep up with the latest Construction Law Musings.

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2 Responses to Have the Feds Taken Over Arbitration?

  1. Christopher,

    I’m a reinsurance lawyer who has done a lot of Federal Arbitration Act work, and who found your excellent article via Twitter. The Arthur Anderson case is certainly a significant one, and I imagine it has repercussions for the construction industry.

    Another development under the FAA that might be relevant to your industry is the Stolt-Nielsen, S.A. v. AnimalFeeds, Inc. case, which will be heard this coming term. The question before the Court is whether an arbitration panel or a court can impose class or consolidated arbitration on the parties when the parties’ contracts are silent on that point. Since the Bazzle case in 2003, courts have been routinely referring this question to arbitrators. Depending on how the Supreme Court rules, it may be that class or consolidated arbitration will not be available unless the parties express an intent to authorize it.

    I suppose class arbitration is not that common in the construction field, but I’d hazard a guess that consolidated arbitration is sometimes sought. If that’s the case, then you might want to keep your eye on the Stolt-Nielsen case.

    Phil Loree

  2. Thanks Philip. I appreciate the heads up and I’m sure there are other lawyers that will appreciate it as well.

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