{"id":902661,"date":"2024-05-08T14:16:21","date_gmt":"2024-05-08T20:16:21","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=902661"},"modified":"2024-05-08T14:16:28","modified_gmt":"2024-05-08T20:16:28","slug":"arbitration-navigating-threshold-issues-in-construction-contracts","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/arbitration-navigating-threshold-issues-in-construction-contracts\/","title":{"rendered":"Navigating Threshold Arbitration Issues in Construction Contracts"},"content":{"rendered":"\n

Daniel D. McMillan, TJ Auner and Marcus Quintanilla | The Dispute Resolver<\/a><\/p>\n\n\n\n

Including an arbitration clause<\/a> in your construction contract may not mean that your dispute will be confined to arbitration. Instead, parties often find themselves in court litigating threshold issues related to the existence and\/or enforceability of an arbitration clause. Common issues include whether the underlying contract containing the arbitration clause is valid, whether the dispute falls within the scope of the clause, whether the parties complied with contractual prerequisites to arbitration, whether issues related to arbitrability are decided by the court or arbitrator, and whether one of the parties has waived their right to arbitrate. This blog post highlights two recent construction cases addressing threshold issues that a party seeking to enforce\u2014or oppose enforcing\u2014an arbitration clause might face.<\/p>\n\n\n\n

Seifert v. United Built Homes, LLC<\/u><\/em>: Delegating Issues of Arbitrability to the Arbitrator<\/u><\/strong><\/p>\n\n\n\n

In Seifert<\/em>, an owner sued a homebuilder in Texas federal court for breach of contract and sought damages and declaratory relief. No. 3:22-CV-1360-E, 2023 WL 4826206 (N.D. Tex. July 27, 2023). The builder moved to compel arbitration. The owner opposed and argued that: (1) there was no agreement to arbitrate because the underlying contract was null and void, and (2) its claim for declaratory relief fell outside the scope of the arbitration clause. The court did not address the merits of either argument. Instead, it determined that these were issues for the arbitrator to decide.<\/p>\n\n\n\n

The court reasoned that the parties had delegated issues of arbitrability to the arbitrator by agreeing to arbitrate under the AAA Home Construction Arbitration Rules. Rule 11(a) of these rules provides that \u201c[t]he arbitrator shall have the power to rule on his or her jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.\u201d The court explained that, under Fifth Circuit precedent, the \u201cexpress incorporation of the AAA rules providing that the arbitrator will determine questions of arbitrability constitutes clear and unmistakable evidence of intent to delegate gateway arbitration questions.\u201d Thus, the court granted the builder\u2019s motion to compel arbitration.<\/p>\n\n\n\n

Professional Construction, Inc. v. Historic Walnut Square, LLC:<\/u><\/em> Waiver by Litigation Conduct<\/u><\/strong><\/p>\n\n\n\n

The court in Professional Construction <\/em>addressed whether, under Indiana law, a contractor waived its right to compel arbitration by initiating a lawsuit for breach of contract against the owner. 224 N.E.3d 352 (Ind. Ct. App. 2023). By way of background, the contractor sent a letter demanding that the owner participate in mediation and arbitration per the parties\u2019 agreement. The owner declined. The contractor then sued the owner in Wisconsin state court asserting claims for breach of contract and seeking relief that included \u201can order compelling Owner to comply with the Construction Contract\u2019s mediation and arbitration clauses.\u201d<\/p>\n\n\n\n

Thereafter, the owner commenced a separate lawsuit against the contractor\u2014in Indiana\u2014asserting claims for breach of contract. The contractor moved to compel arbitration in the Indiana court. The owner opposed, arguing that the contractor had waived its right to arbitration by commencing the lawsuit for breach of contract in Wisconsin. The Indiana trial court denied the motion to compel arbitration and the contractor appealed.<\/p>\n\n\n\n

The Indiana Court of Appeals explained that commencing a lawsuit for breach of contract before a court \u201cis a presumptive waiver of the right to arbitrate.\u201d This presumption could be rebutted, however, if invoking the judicial process \u201cdoes not signify an intention to proceed in a court to the exclusion of arbitration.\u201d The court determined that, under the circumstances, the contractor did not act inconsistently with its right to arbitrate by commencing the lawsuit in Wisconsin. It reasoned that there were no attempts to litigate the merits of the dispute and that the contractor\u2019s complaint had specifically requested an order requiring the owner to comply with the agreement\u2019s arbitration clause. As such, the Indiana court compelled the owner to arbitration.<\/p>\n\n\n\n

Lessons From These Two Recent Cases<\/u><\/strong><\/p>\n\n\n\n

Seifert<\/em> and Professional Construction<\/em> underscore the importance of anticipating threshold issues to arbitration\u2014both when drafting an arbitration clause and preparing for a dispute. Consistent with Seifert<\/em>, most state and federal courts hold that incorporation of AAA Construction Arbitration Rules and Mediation Procedures or JAMS Construction Arbitration Rules & Procedures, which each provide that arbitrators are to decide arbitrability issues, effectively delegates to arbitrators authority to decide most gateway issues. However, some courts have decided otherwise. Construction arbitration clauses can expressly include in the body of the agreement a delegation clause providing that the arbitrators, not the court, decide questions of arbitrability\u2014something parties might consider doing as a matter of \u201cbelts and suspenders\u201d where that is what is intended.<\/p>\n\n\n\n

As to the question of waiver, the court in Professional Construction<\/em> reached a common-sense conclusion\u2014filing a lawsuit and requesting that a party be compelled to arbitrate should not by itself give rise to waiver of the right to arbitrate. This is especially so since the U.S. Supreme Court ruled in Morgan v. Sundance<\/em> that prejudice is not<\/em> a necessary element to establish waiver of the right to arbitrate under the Federal Arbitration Act, making it easier for a court to find that there has been waiver. 596 U.S. 411 (2022). While state arbitration law may have a different standard for waiver, the Supreme Court\u2019s decision in Morgan<\/em> is likely to be considered by state courts as they assess the standard for waiver of the right to arbitrate under state law. Indeed, the California Supreme Court is poised to decide in Quach v. California Commerce Club, Inc.<\/em>, whether to continue to apply a prejudice requirement to waiver of the right to arbitrate under California law. 78 Cal. App. 5th 470 (2022), review granted August 24, 2022, S275121; see also<\/em> Daniel D. McMillan, et al., Goodbye Saint Agnes?<\/em>, Daily Journal (Nov. 10, 2022), https:\/\/www.dailyjournal.com\/articles\/369872. <\/p>\n\n\n\n

Arbitration continues to be a frequently specified alternative to the courthouse for resolving construction disputes. The recent cases of\u00a0Seifert<\/em>\u00a0and\u00a0Professional Services<\/em>\u00a0illustrate that issues of arbitrability and waiver of the right to arbitrate continue to be raised. Paying close attention to the language of the arbitration agreement, the parties\u2019 conduct, and the applicable arbitration rules and law may minimize unexpected procedural outcomes and make it more likely that you can avoid the courthouse.<\/p>\n\n\n\n

\n\n\n\n

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net<\/a>.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Daniel D. McMillan, TJ Auner and Marcus Quintanilla | The Dispute Resolver Including an arbitration clause in your construction contract may not mean that your dispute will be confined to arbitration. Instead, parties often find themselves in court litigating threshold issues related to the existence and\/or enforceability of an arbitration clause. Common issues include whether… Continue reading Navigating Threshold Arbitration Issues in Construction Contracts<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[41,9],"tags":[9895,42,224],"class_list":["post-902661","post","type-post","status-publish","format-standard","hentry","category-arbitration","category-construction-contracts","tag-advise-consult","tag-arbitration-2","tag-construction-contract","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nNavigating Threshold Arbitration Issues in Construction Contracts - 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