Do You Know What Your Arbitration Clause Says?

Whether a construction claim should be heard by an arbitrator or litigated in a court of law is a common issue in construction-related disputes. If you operate in the construction industry, chances are your contracts’ arbitration clauses incorporate the AAA Construction Industry Arbitration Rules and Mediation Procedures, a set of standardized arbitration rules promulgated by the American Arbitration Association (AAA) specifically for construction contracts. These rules include procedures for mediation and for three different arbitration “tracks”: a regular track, a fast track, and a separate track for large, complex construction disputes.

Some parties and attorneys prefer to argue their claims in court to a judge, rather than to an arbitrator. In the past, certain courts have made the distinction that, unless the parties have agreed otherwise, an arbitrator will answer the question of whether certain conditions have been met that justify arbitration (known as “arbitrability”). and a court will decide whether a particular issue is subject to arbitration (known as the “scope of arbitration”). This can be a blurry line.

A late January 2016 decision of the Florida Court of Appeals held that when parties agree to the AAA Construction industry Arbitration Rules for the regular track, they also agree to submit all issues of arbitrability to the arbitrator. Glasswall, LLC v. Monadnock Const., Inc., ___ So.3d ___, 2016 WL 314117 (Fla. Ct. App. January 27, 2016). Section R-9 of the AAA’s regular track states that “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.” The Florida appellate court determined that incorporation of Section R-9 means the arbitrator has the power to decide issues of both procedural and substantive arbitrability.

The effect of this departure from the general rule should be considered by all operating in the construction industry. Attempting to litigate an issue of arbitrability if your contract incorporates section R-9 of the AAA Construction Industry Arbitration Rules may prove fruitless and unnecessarily costly if your jurisdiction follows the Glasswall precedent from Florida. Further, if your contract incorporates section R-9, and arbitration has commenced, you may not be able to compel a stay of the arbitration by filing with the courts. A further consideration is the standard of review that a court may ultimately apply to arbitrability determinations that are made by an arbitrator. Under Glasswall’s reasoning, it seems likely a court would apply an extremely deferential standard of review to arbitrability determinations if challenged after the issuance of an arbitration award.

Glasswall should give pause to those in the construction industry who prefer to arbitrate only a narrow category of claims, but have most other claims litigated. A consequence of Glasswall may be that a greater number of construction claims will be held arbitrable. After all, arbitrators have some self-interest in keeping claims in arbitration. Readers are encouraged to review their contracts to determine whether they incorporate the AAA Construction Industry Arbitration Rules and Mediation Procedures. A full set of the AAA Construction Industry Arbitration Rules and Mediation Procedures (updated July 2015) can be found online through the American Arbitration Association’s website: www.adr.org.