Friday, January 8, 2016

Contract Cannot Eliminate Right to Vacate or Modify Arbitration Award

We have a guest post today from Atlanta lawyer Mark V. Hanrahan of the firm Autry, Hanrahan, Hall & Cook, LLP. In his article, he discusses the recent Georgia case of Atlanta Flooring Design Centers, Inc. v. R. G. Williams Construction, Inc., a case involving the Georgia Arbitration Code and whether parties to a contract could agree to eliminate the statutory right to move to vacate or modify a validly entered arbitration award.

The text of the case can be found here.

In Atlanta Flooring Design Centers, Inc. v. R.G. Williams Construction, Inc., a general contractor and subcontractor entered into a written subcontract which provided for arbitration of disputes. The arbitration provisions provided that any arbitration award shall be final and binding on the parties and that the parties “expressly agree not to challenge the validity of the arbitration or the award.” 

The parties submitted a dispute to arbitration and after the arbitrator rendered an award, the subcontractor filed a motion pursuant to O.C.G.A. § 9-9-13(a) of the Georgia Arbitration Code (“GAC”) alleging its rights had been prejudiced in the arbitration proceedings and seeking an order vacating the award on the statutory grounds set forth in O.C.G.A. § 9-9-13(b). The general contractor moved to dismiss on the basis that by their agreement to arbitrate, the parties agreed not to challenge the validity of the arbitration or award. 

The trial court found that the parties’ agreement not to challenge the arbitration or award was enforceable and granted the general contractor’s motion. The Court of Appeals reversed, finding that the parties’ agreement was unenforceable because it contravened Georgia public policy as expressed in the GAC. 

In reaching its conclusion, the court noted that in Brookfield Country Club, Inc. v. St. James-Brookfield,LLC, the Supreme Court of Georgia held as unenforceable contract language that purported to alter the GAC by expanding the scope of judicial review. Drawing analogy to Brookfield Country Club, the court found that the GAC does not permit parties to waive or eliminate, by contractual provisions, a party’s right to apply to vacate or modify an award on grounds permitted by the GAC. In this connection, the court also drew on decisions by the federal courts which concluded that the statutory grounds for vacatur under the Federal Arbitration Act may not be waived or eliminated by contract. The court noted that these federal decisions found that to rule otherwise would frustrate Congress’s intent to provide for a minimum level of due process for parties to an arbitration. 

The takeaway from this case is that parties cannot, by their contract, limit or expand their rights to judicial review of an arbitration award beyond the rights set forth in the GAC. 

This case squib was provided with the express permission of the author. It appeared initially in the Winter 2016 Newsletter of the Construction Section of the Atlanta Bar Association.

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