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.
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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 brendan.carter@navigant.com.
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