Saturday, November 14, 2015

North Carolina Business Court Allows Subcontractor’s Unfair Business Practice Claim Against General Contractor to be Arbitrated, Stays Same Claim Against Other Defendants

Electrical subcontractor Gaylor, Inc. of North Carolina (Gaylor) brought an action against general contractor Vizor, LLC (Vizor) and seven other defendants stemming from an apartment building construction project in Chapel Hill, North Carolina.  Gaylor asserted eight total claims against the defendants with four claims stemming from the subcontract directly with Vizor, three claims against non-contracted parties, and a final claim under North Carolina’s unfair and deceptive trade practice statute (UDTP) against all eight defendants.  Gaylor brought a motion to compel arbitration against Vizor and all of the non-contracted parties brought a motion to stay non-arbitrable claims, pending the arbitration. 

The contract between Gaylor and Vizor contained an arbitration clause which stated all claims and disputes arising out of the contract shall be subject to arbitration which shall be conducted in accordance with Construction Industry Arbitration Rules of the AAA (CIAR). Gaylor and Vizor did not dispute the validity of the arbitration clause nor the arbitrability of claims arising from the subcontract.  The parties disagree as to the enforceability of the arbitration of the UDTP claim. 

The Court began its analysis by stating that the Supreme Court held that, “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. Communs. Workers of Am., 475 U.S. 643,649 (1986) The court further points to the Fourth Circuit’s finding that, “clauses requiring arbitration to resolve disputes regarding the terms of this Agreement [or] concerning the interpretation of the provisions of this agreement…do not clearly and unmistakably commit questions of arbitrability to arbitration.” Carson v. Giant Food, Inc., 175 F.3d 325 (4th Cir. 1999) The court found that the arbitration provision provided in the contract alone would not satisfy the “clear and unmistakable” standard of the Fourth Circuit. The Court next looks to Rule 9(a) of the CIAR, which reads, “the arbitrator shall have the power to rule his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement.”

The Court points to a federal district court in Virginia that recently observed that, “[al]though the Fourth Circuit has not yet addressed whether an incorporation of the AAA Commercial Rules satisfies the “clear and unmistakable” test, the seven circuits that have explicitly addressed this question have held “that the express adoption of these rules presents clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.” United States ex rel. Beauchamp & Shepard v. Academi Training Ctr., No 1:11cv371, 2013 U.S. Dist. LEXIS 46433 (The CIAR shares same provision as AAA Commercial Rules). The Court finds the Virginia federal district court’s reasoning persuasive and rules that the UDTP claim must be submitted to the arbitrator to determine if it arises out of or relates to the subcontract. 

The Court next finds that a stay in the UDTP litigation against the non-contracted parties “is appropriate to avoid piecemeal litigation of that claim. Should the arbitrator determine that the UDTP claim against Vizor is arbitrable…a stay would avoid litigation…against the [non-contracted parties] while arbitration of the same claim proceeds against Vizor alone.”  Further, the court notes that if the arbitrator determines the UDTP is not arbitrable, the claim would be litigated in its court, only once, after the arbitration. 

The authorBrendan Carter, is a contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law. He is an attorney and a Senior Consultant with  
Navigant's Global Construction Practice based out of Boston, MA.  He may be contacted at 
617.748.8311 or 

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