Friday, August 12, 2016

Is 30 Days Enough Time to Fully Arbitrate and Issue an Award for a Claim on a Partial Parking Garage Collapse? Federal Court Says Let the Arbitrator Decide

The plaintiff in Tribal Casino Gaming Enterprise v. W.G. Yates & Sons Construction Company et al entered into a contract for the expansion of an existing facility at Harrah’s Cherokee Casino in Cherokee, North Carolina with defendants in April of 2008.  The project included the construction of two parking structures, one, an eight level 2,300 space facility and the other a six level, 1,200 space facility connected to the hotel structure.  Defendant then contracted with its co-defendant to furnish and erect the precast parking garages. An arbitration clause contained within the prime contract stated in part that:

“Any controversy or claim arising out of or relating to this  Agreement shall…be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association…The parties agree that the only grounds for appeal of any arbitration award…shall be...where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy, or any other misbehavior by which the rights of any party have been prejudiced…The arbitration panel shall be required to render a decision within thirty (30) days after being notified of their selection.”
In February of 2015, a ramp located in the hotel parking garage partially collapsed and the plaintiffs filed suit in February 2016 for damages related to breach of contract, breach of warranty, negligence, gross negligence, and unfair and deceptive trade practices. Plaintiff also filed a demand for arbitration with the AAA at that time.  In May 2016, plaintiff filed a motion to stay pending arbitration and to compel arbitration, and then chose its designated arbitrator. This gave the defendants fifteen days to designate its arbitrator, and then gave those arbitrators fifteen days to select the third member of the panel, with a final decision having to be rendered thirty days later.  Defendants jointly filed a motion to stay the arbitration.

The Court began its analysis by presenting the plaintiff’s argument that the arbitration is enforceable against the defendant based upon the Federal Arbitration Act and the North Carolina Revised Uniform Arbitration Act.  In turn, the defendants do not challenge the validity of the contract, but “contend that [plaintiff’s] claim falls outside the scope of the arbitration clause, or alternatively, that the arbitration clause itself is unenforceable due to its unreasonably short time period within which the arbitration panel must render a decision.” The Court next proceeds to examine if the claim itself is arbitrable.

In order to determine whether the claim itself is arbitrable, the Court begins by pointing to the fact that the contract was signed in 2008. The 2007 AAA’s commercial rules regarding arbitrability read, “"The 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 Court contrasts this to the 2013 update which states, “"The 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 or to the arbitrability of any claim or counterclaim."  By not incorporating similar language to the AAA’s 2013 rules on arbitrability, the Court finds that it has the jurisdiction by stating, “the language that the parties actually incorporated into their agreement, however, only delegated the substantive arbitrability issues of existence, scope and validity. As to all other issues of substantive arbitrability, including enforceability, the presumption is not rebutted, and these issues are left for the Court.”

Finding that it had the jurisdiction to rule on the arbitrability of the plaintiffs claim, the Court presented the defendant’s arguments that the clause is unenforceable because of, “contractual impossibility due to unreasonable time constraints, or constitutional invalidity based upon due process and fundamental fairness.” The court does agree with the defendant that allowing an arbitration panel thirty days to review and assess liability for a partial-collapse of a parking garage years after the project was completed “would be a Herculean feat, if not utterly impossible.” But the Court does not find that the arbitration provision is unenforceable. 

The Court acknowledged that such a thirty day arbitration clause is desirable and even necessary for mid-construction disputes because some issues arise that would require immediate attention, but the contract’s arbitration clause does consider such issues or claims that are more complex and require an extended period of deliberation. “The arbitration clause provides that an arbitration award may be vacated for misconduct of the arbitration panel if the panel, upon sufficient cause, (1) refuses to postpone the hearing, or (2) refuses to hear evidence pertinent and material to the controversy.”  The Court found that the arbitration panel does possess the power to “extend the date for the final disposition hearing and to set discovery deadlines within that timeframe.”  Accordingly, the arbitration clause is not unconscionable, illegal, or unconstitutional, and it does not render the arbitration provision unenforceable.

The Defendant’s motion to hold the arbitration clause unenforceable was denied. 

The author, Brendan 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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