8th Circuit: Arbitrator Decides Whether Non-Signatory to Contract can Compel Arbitration if Contract incorporates AAA Arbitration Rules

In a recent decision, Eckert/Wordell Architects, Inc v. FJM Properties of Willmar, LLC, the 8th Circuit reviewed a Minnesota federal court's order compelling the parties to submit - to an arbitrator - the question of whether a non-signatory party to the contract (FJM Properties) could compel arbitration. The parties' contract incorporated the AAA Rules requiring arbitration. As such, the 8th Ciruit found that the contract provided a "clear and unmistakable indication" that the parties intended for the arbitrator to decide the threshold question of arbitrability; therefore, the 8th Circuit affirmed the Minnesota district court's decision that the issue was to be resolved by the arbitrator, not by a court.

This case is in line with the U.S. Supreme Court decision in Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002), in which the Supreme Court found that a contract incorporating the NASD (National Association of Security Dealers) arbitration rules was a "clear and unmistakable indication" the parties intended for the arbitrator to decide threshold questions of arbitrability.

Standards of Proof for Quantum Meruit Actions: Process Engineers & Constructors, Inc. v. DiGregorio, Inc., (R.I., July 1, 2014)

In Process Engineers & Constructors, Inc. v. DiGregorio, Inc., No. 2013-87 (July 1, 2014), the Rhode Island Supreme Court affirmed a judgment awarded to a sub-subcontractor following a bench trial. 

The case is helpful because it provides standards of proof under Rhode Island law for quantum meruit claims often brought in construction disputes.  The two points are:

1. A plaintiff need only prove it was not at fault for the changed condition (not need to prove cause).
2. No expert testimony is required to prove the costs incurred were "fair and reasonable."  Proof of the value of the services is sufficient.

At trial, the sub-subcontractor plaintiff sought to recover against the party with whom it contracted (the subcontractor) $316,000 based upon extra work performed.  Plaintiff brought breach of contract and quantum meruit causes of action.  The trial justice found that the plaintiff did not satisfy its burden of proof on the breach of contract claims for failure to follow the change order requirements of the contract. 

On its quantum meruit recovery, plaintiff sought to recover for three categories: (1) change order work, (2) increased bond premium charged due to increased contract amount, and (3) additional costs due to replacing a pipe caused by wet insulation. 

As to the first item (unallocated change order work), the trial justice held that the plaintiff failed to meet its burden of showing that a benefit was conferred on defendant and that the defendant accepted the benefit.

The trial justice found in the plaintiff's favor as to the increased bond premium and wet insulation extra work item.  Specifically regarding the wet insulation item, the trial court found that the loss was not due to the sub-subcontractor's action because it was not responsible to dewater the trenches that became wet. 

In its appeal, defendant contended  the evidence presented by the plaintiff was insufficient because the plaintiff did not prove defendant was responsible for the wet insulation.  The Supreme Court framed the issue and its holding as follows:

Whether [plaintiff] only had to prove that it was not responsible for the loss or whether [plaintiff] also had to prove what caused the loss. We hold that [plaintiff] was required to prove only that it was not at fault for the loss; it did not need to prove who was at fault." Emphasis added.

The second issue on appeal concerned the requisite proof that services rendered were "fair and reasonable" for quantum meruit recovery.  Here, the Court shifted the burden on the defendant to establish the claimed charges and costs were unreasonable.  Citing Bruner & O'Connor, the Supreme Court stated:

For purposes of the prima facie case, a plaintiff need only submit evidence of the value of the services; the factfinder is permitted to infer that the charges are fair and reasonable. A plaintiff is not required to put forth expert testimony on the reasonableness of the value of the services during his or her prima facie case. If a defendant wishes to contest the fairness or reasonableness of the value asserted by a plaintiff, the burden shifts to the defendant to prove that the charges were unreasonable. Emphasis added.

The Supreme Court did not explain what level of proof is required for a defendant to establish charges were not "fair and reasonable" or whether expert testimony would be required.  On the specific facts of the case, the Court found that the defendant simply failed to challenge the reasonableness of the costs .  It stated, "[defendant] did not challenge the hourly rates, the number of hours worked, the costs of materials, or the charges for equipment." 

In Texas, Contractual-Liability Exclusions Do Not Exclude Coverage for Property-Damage Claims Based on Failure to Perform Work in a Good and Workmanlike Manner.

The Texas Supreme Court recently held that insurance coverage for property damage resulting from violations of a general contractor's contractual duty to perform work in a good and workmanlike manner are not excluded by the standard exclusion for "contractual liability" in a commercial general liability policy. Ewing Const. Co., Inc. v. Amerisure Ins. Co. --- S.W.3d ----, 2014 WL 185035 (Tex. Jan. 17, 2014).

 In Ewing, a general contractor had constructed some tennis courts for a school district. After construction was completed, the tennis courts began cracking and became unsuitable for use. The school district sued the general contractor for repairs, claiming the work had not been performed in a good and workmanlike manner.  

The general contractor sought defense and indemnity from its liability insurer, but the insurer denied coverage. In the ensuing coverage lawsuit in federal court, the insurer relied on the contractual-liability exclusion in the policy to deny it had any obligation to defend or indemnify the general contractor. 

Contractual-liability exclusions are common in commercial general liability policies in Texas.  The provision at issue in Ewing excluded coverage for property damage "for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.” The construction contract with the school district required the general contractor to perform its work in a good and workmanlike manner. As the school district claimed the problems with the tennis courts resulted from the general contractor's failure to meet this standard, the insurer argued the contractual-liability exclusion applied. 

The district court granted summary judgment in favor of the insurer based on the contractual-liability exclusion. The Fifth Circuit initially agreed with the district court, but then vacated its opinion and certified the question of whether the exclusion applied to the Texas Supreme Court. The Texas Supreme Court held that the exclusion does not apply.

Central to the Court’s decision was an opinion issued several years ago that interpreted the contractual-liability exclusion. In Gilbert Texas Construction, L.P. v. Underwriters at Lloyd’s London, a contractual-liability exclusion excluded coverage for claims based on liability outside of what the general contractor would have had absent the contract. 327 S.W.3d 118 (Tex. 2010). Specifically, the contractor in Gilbert had agreed to assume liability for damage caused to adjacent landowners' property. 

The Ewing Court distinguished its holding in Gilbert by pointing out that Gilbert addressed whether a CGL policy’s contractual liability exclusion applied to exclude indemnity coverage for a third party’s property-damage claim where the only basis underlying the claim was the insured’s contractual agreement to be responsible for the damage. The contractual agreement at issue in Gilbert specifically obligated Gilbert to repair or pay for damage “resulting from a failure to comply with the requirements of th[e] contract,” thus extending Gilbert’s obligations beyond what would exist under general principles of law.

            In Ewing, the general contractor's agreement to construct the work in a good and workmanlike manner did not enlarge its obligations beyond any general common-law duty it might otherwise have. In Texas, contractors are obligated to perform their work with skill and care even absent an express contractual provision requiring them to do so. The Court reasoned that the exclusion “means what it says,” and excludes liability for damages the insured assumes by contract, such that “assumption of liability” means liability for damages that exceeds the liability an insured would have under general law.  Thus, the Court concluded that a general contractor who agrees to perform its construction work in a good and workmanlike manner, without more, does not enlarge its duty to exercise ordinary care in fulfilling its contract and does not “assume liability” for damages arising out of its defective work so as to trigger the Contractual Liability Exclusion. 

            This decision is generally positive for contractors insured under CGL policies in Texas, as it reduces the substantial uncertainty about coverage of property-damage claims based on construction defects that arose after the Gilbert decision was issued in 2010. However, as the Court acknowledged in Ewing, CGL policies are not performance bonds. Claims based on faulty workmanship are often excluded from coverage by other exclusions specific to the construction industry. For example, CGL policies often exclude claims for property damage to the insured's own work under the "your work" exclusion.

Seventh Circuit (Posner, J.) Allows Limited Discovery To Proceed In US District Court Action Despite Parallel International Arbitration

In GEA Group AG v. Flex-N-Gate Corporation, Shahid Khan (decided 1/10/2014), the Seventh Circuit allowed limited discovery to proceed in an action brought in U.S. District Court despite the fact that an international arbitration was pending between the same parties on the same issues in Germany before the Arbitral Tribunal of the German Institution of Arbitration. 

The U.S. District Court action was different in that GEA named "Flex-N-Gate's CEO, board chairman, and controlling shareholder, the American billionaire Shahid Khan" as a defendant on various grounds from piercing the corporate veil to fraudulent inducement into the contract. The Seventh Circuit permitted the limited discovery because Shahid Khan was not a party to the arbitration or signatory as an individual to the arbitration agreement.  Judge Posner wrote for the Court:

Since fraud is a tort, GEA is entitled to make it the subject of a lawsuit.  But it is a serious charge and Khan is entitled to defend himself against it, which he can't do, it appears, without being able to conduct discovery.  Discovery may yield evidence germane to the arbitration as well, but if so - and, more to the point, if it yields evidence favorable to Flex-N-Gate - that is a consequence that GEA will have brought upon itself by its decision to sue Khan.  You cannot sue someone and prevent him from defending himself.

This case is an interesting read.  Judge Posner's opinion goes over the procedural history of the dispute commenting throughout in a direct manner about the strategic maneuvering and inter-relationship between international arbitration and US proceedings.

Relying upon Section 3 of the FAA, GEA had a sought a stay in the federal court proceeding mainly because it asserted that it would be prejudiced if Flex-N-Gate could use the discovery in the German arbitration (where such discovery would not be permitted).  A repeated theme and tone of the opinion was that GEA's federal court action may have been premature.  In addressing GEA's argument concerning the use of discovery, the Court wrote:

The ground is that Khan will convey the fruits of his discovery to Flex-N-Gate for use against GEA in the do-over arbitration proceeding.  But that is not a proper concern of the district court, or of this court.  It is the concern of the foreign arbitrators and the foreign courts.  Should Flex-N-Gate try to inject evidence into the arbitration from discovery conducted by Khan in the district court suit, GEA can object and the arbitrators will decide.  What business is it of an American court?  It was GEA that invoked German arbitration.  By doing so, it subjected its claim of breach of contract to the German arbitrators and judiciary.  If the arbitrators allow the fruits of Khan's discovery into the arbitration, and in doing that they are violating German law, there is always the High Regional Court in Frankfurt, and, if necessary, the Federal Court of Justice, for GEA to appeal to.

Read the opinion and let us know what you think. 

Scope of Federal Arbitration Act Allows Contractor to Compel Arbitration

In August, the Supreme Court of South Carolina addressed the reach of the interstate-commerce requirement of the Federal Arbitration Act (FAA). Cape Romain Contractors v. Wando E., LLC, 747 S.E. 2d 461 (S.C. 2013).  It also addressed whether an Owner could compel arbitration of a lien-foreclosure action filed by a subcontractor.

Wando E. owns property along the Wando River. It hired Sean Barnes as its general contractor to build a marina along the river.  Barnes then subcontracted with Cape Romain Contractors to install pilings and a prefabricated, manufactured dock. 

A dispute arose between Barnes and Cape Romain after the project engineer refused to certify further payments due to problems with Cape Romain's work, including angled pilings and misaligned dock sections. Cape Romain insisted its work was correct and argued that the manufacturer was at fault.  The dispute could not be resolved, so Cape Romain filed a $158,413.14 lien on Wando E.'s property.

Cape Romain filed a lawsuit against Barnes and Wando E., alleging breach of contract and seeking to foreclose on the lien.The subcontract between Barnes and Cape Romain was an AIA form contract that required arbitration of disputes.  Thus, Barnes sought to compel arbitration and dismissal of the court case.  For its part, Wando E. wanted to tag along with Barnes to arbitration.  

The trial court, however, refused to compel arbitration. That court found that the contract between Barnes and Cape Romain did not impact interstate commerce sufficiently to "justify or trigger" application of the FAA.  The court also found that Wando E. could not compel arbitration with Cape Romain because they had not agreed to arbitrate and did not have a "special relationship" that justified applying the arbitration provision in the subcontract with Barnes.

The Supreme Court of South Carolina reversed on both issues.  To determine whether the FAA applied, the Court looked to decisions defining the extent of the Commerce Clause under the U.S. Constitution.  For commerce to be "interstate," the commerce either must use the "channels" of interstate commerce, use the "instrumentalities" of interstate commerce, or have a "substantial relation" to interstate commerce.  In this case, the Court held that all three prongs were satisfied -- the marina included raw materials originating in Ohio, Cape Romain used barges to bring materials up the Wando River through the Charleston Harbor (see the map, above), and the project was constructed in navigable waterways of the United States under a permit issued by the U.S. Army Corps of Engineers.  

As to Wando E.'s attempt to compel arbitration, the court declined to reach the question as to whether the attempt was valid on its own.  Instead, the court pointed to Section 21.6 of the Barnes/Cape Romain contract, which allows for, "joinder [of] persons or entities substantially involved in a common question of law or fact whose presence is required if complete relief is to be accorded in an arbitration" so long as that other party consents to joinder.  Since Wando E. consented to joinder, the South Carolina Supreme Court held that Cape Romain could not preclude  Wando E. from joining.  The case was then remanded with a stay imposed in the litigation below. 

Arizona Supreme Court Limits Economic Loss Rule Application

In Sullivan v. Pulte Home Corp., 306 P. 3d 1 (Ariz. 2013), the Arizona Supreme Court considered whether the economic loss rule should apply to a claim for negligent construction raised by the second purchaser of a house.  

The Sullivans purchased their home from the original purchaser three years after the house was finished and occupied. Six years later, the Sullivans discovered problems with a retaining wall in the backyard.  The Sullivans notified Pulte regarding the issue, but Pulte disclaimed any responsibility for the issue.  In response, the Sullivans sued Pulte and alleged consumer fraud, negligent nondisclosure, negligence per se, negligent misrepresentation, and breach of implied warranty.

The trial court dismissed the entire lawsuit.  According to the trial court, Arizona's eight-year statute of repose barred the warranty claim (which was asserted nine years after the original purchase). The economic loss rule barred the remaining tort claims.  The Court of Appeals reversed the trial court's decision as to certain negligence claims.  

The Arizona Supreme Court agreed with the Court of Appeals, noting that the Sullivans never entered into any contracts with Pulte directly.  Even though the Sullivans had contractual remedies available to them had they filed suit prior to the expiration of the statute of repose, the Sullivans did not have the opportunity to negotiate the scope of any warranties that might otherwise have barred the tort claims.  As a result, the Court held that the proper outcome in this case was to allow the Sullivans' tort claims to proceed to discovery and adjudication. 

For Section 1367(b) Supplemental Jurisdiction, “Plaintiff” means “Original Plaintiff,” Not “Third-Party Plaintiff.”

The case of Allstate Interiors & Exteriors, Inc. v. Stonestreet Const., LLC, 2013 WL 5290028 (1st Cir. Sept. 20, 2013) involved the renovation and construction project of a hotel in Providence, Rhode Island (the “Project”).  Parallel proceedings were filed:

• State Court: Mechanic’s lien proceedings brought against the Owner
• Federal Court (diversity jurisdiction): Subcontractor vs. General Contractor

o   Counterclaim (Rule 13): General Contractor vs. Subcontractor

o   Third Party Claim (Rule 14) General Contractor vs. Owner (supplemental jurisdiction)

The General Contractor and Owner were non-diverse – both Rhode Island entities.  There was no dispute amongst the parties that supplemental jurisdiction initially applied to General Contractor’s claim against the Owner because the claims “‘“derive from a common nucleus of operative fact” or “are such that [they] . . . would ordinarily be expected to [be] tr[ied] . . . in one judicial proceeding.”’” Allstate, at *4 (quoting Penobscot Indian Nation v. Key Bank of Me., 112 F.3d 538, 564 (1st Cir. 1997).

The state court mechanic’s lien actions were settled while the federal action was pending.  Notably, the Subcontractor remained a party to the federal court action and the General Contractor did not release its counterclaim against the Subcontractor in the settlement. 

Owner moved to dismiss for lack of supplemental subject matter jurisdiction. To support its argument, Owner relied on 28 U.S.C. Section 1367(b) which “strips federal jurisdiction ‘over claims by plaintiffs against persons made parties under Rule 14, 19, 20, or 24 of the Federal Rules of Civil Procedure . . . when exercising supplemental jurisdiction over such claims would be inconsistent with the . . . requirements of [diversity jurisdiction].’” (Emphasis added.)  The Owner’s reading of Section 1367(b) construed the term “plaintiff” to mean any party that commences an action against another, including a “third party plaintiff.”  The Court rejected the Owner’s broad reading and affirmed the trial court’s denial of the motion finding valid supplemental jurisdiction.  The Court stated:

[W]e now hold that “plaintiff” in section 1367(b) refers to the original plaintiff in the action, and not to a defendant that is also a third-party plaintiff.  In so holding we join several other circuits that have come to the same conclusion. See State Nat’l Ins. Co. v. Yates, 391 F.3d 577, 580 (5th Cir. 2004); Grimes v. Mazda N. Am Operations, 355 F.3d 566, 572 (6th Cir. 2004); Viacom Int’l v. Kearney, 212 F.3d 721, 726-27 (2d Cir. 2000); United Capitol Ins. Co. v. Alpha Hous. & Health Care, Inc., 54 F.3d 156, 160-61 (3d Cir. 1995).  This holding is consistent with Congress’s intent that section 1367(b) should ‘prevent original plaintiffs – but not defendants or third parties – from circumventing the requirements of diversity.” Grimes, 355 F.3d at 572; see also United Capitol Ins. Co., 155 F.3d at 493 (“Because defendants are involuntarily brought into court, their joinders and impleaders were not deemed [by Congress] as suspect as those of the plaintiff, who is master of his complaint.”)

Allstate, at *4. 

Fifth Circuit: Mississippi's Stop-Notice Statute Is Unconstitutional

Today we have a guest post from Forum Member Dorsey R. Carson, Jr. of Burr & Forman in Jackson, Mississippi, relating to a very important case from the Fifth Circuit holding Mississippi's Stop-Notice statute unconstitutional.  

Dorsey R. Carson, Jr.

In Noatex Corp v. King Construction of Houston, LLC, Case No. 12-60385 (5^th Cir. Oct. 10, 2013), the Fifth Circuit Court of Appeals issued its long-awaited ruling on the constitutionality of Mississippi's Stop-Notice statute, Miss. Code Ann. Section 85-7-181. The Stop-Notice statute allowed unpaid subcontractors or materialmen to bind money in the hands of the project owner, thereby preventing those funds from being disbursed to the non-paying prime contractor.  The Stop-Notice statute was a primary protection for construction subcontractors and suppliers in Mississippi.

The Fifth Circuit upheld the decision of the District Court of the Northern District of Mississippi, and ruled that the statute as written did not contain sufficient procedural safeguards, and thus violated the Constitution's guarantee of due process for the taking of property. Specifically, the Fifth Circuit held that the Stop-Notice statute, which required that a contractor's money be held by the owner once the owner received a written notice from an unpaid subcontractor, was an unconstitutional taking without due process because it (1) did not provide for any notice or hearing prior to the binding of the funds, (2) did not require a posting of any bond by the subcontractor, (3) did not require any showing of exigent circumstances, and (4) did not require the subcontractor to submit an affidavit or other writing setting forth the factual background of the dispute and swearing to its authenticity. Accordingly, the Fifth Circuit held that the Stop-Notice statute was unconstitutional and no longer valid.

The immediate effect of this ruling will be to strip subcontractors and materialmen of any legal recourse against owners in the event that they are not paid by the prime contractor. While subcontractors and materialmen would still retain rights against the prime contractor for breach of contract and unjust enrichment, there are no real protections where there is an absconding or bankrupt general contractor.

The Fifth Circuit's decision in Noatex could be the impetus needed for Mississippi to pass a mechanics lien law that extends at least to first tier subcontractors or materialmen, as most of Mississippi's construction industry have sought for years. Currently, Mississippi is the only U.S. state that does not have such a law that applies to the development owner's real property (as distinguished from project funds). Additionally, some members of the Mississippi legislature have already drafted legislation to comply with the Fifth Circuit's due process requirements, although it is currently unknown what additional burdens any new statute, if passed, will place on subcontractors and materialmen. 

Second Circuit Clarifies Standard for Vacating an Arbitration Award Under the Corruption Ground of FAA Section 10(a)(2).

In Kolel Beth Yechiel Mechil of Tartikov, Inc. v. YLL IrrevocableTrust, 2013 WL 4609100, -- F.3d – (2d Cir. 8/30/2013), the Court affirmed the District Court’s denial of an action to vacate an arbitration award. 

The dispute concerned the ownership of a life insurance policy.  Claimant alleged that the respondents had materially breached their obligation to pay the insurance premiums and therefore claimant became the sole owner of the policy.  The parties agreed to submit their dispute to a panel of three rabbis (“the Panel”) to arbitrate the contract dispute.  Each party selected an arbitrator and they both selected the third, neutral arbitrator.  After seven or eight sessions (for more than 30 hours total) and one fact witness, the Panel issued an award in favor of the claimant. 

Respondents moved to enjoin the enforcement of the arbitration award and for vacatur of the same.  The District Court confirmed the arbitration award and denied respondents action for vacatur. 

On appeal, the Second Circuit framed the issue as follows:

Whether there was ‘abundantly clear’ evidence of corruption to vacate the arbitration award under the FAA, where (1) no records of the arbitration proceeding were kept; (2) all parties agreed that the arbitrators could reach their decision by any legal, factual or other basis; (3) an affidavit submitted to the district court alleged that the neutral arbitrator was overhead promising one of the parties a favorable ruling; (4) the affiant testified that he was threatened for making his testimony; and (5) the arbitration panel issued its ruling with only two of the three arbitrators present.

Kolel, at *4.

The Second Circuit confirmed that its standard for vacating an award under the “corruption” ground of section 10(a)(2) was the same standard as under section 10(a) for “corruption, fraud, or undue influence” – “[e]vidence of corruption must be abundantly clear in order to vacate an award.” Kolel, at *3 (emphasis added).  The evidence must be “direct and not speculative.” Kolel, at *3, 5. Denial is appropriate where “a reasonable person would not “have to” conclude that [an arbitrator] was partial to a [party], or biased against [parties challenging the award].”Kolel, at *6.

Although the Court referenced the appellate record had a substantial amount of “he-said, she-said” conflicting accounts, the Court found “only one affidavit that is from an individual without an obvious stake in the outcome of the arbitration and with firsthand knowledge of the pertinent facts or evidence.” Kolel, at *5.  That witness stated that he overhead the neutral arbitrator tell a non-party to inform the claimant that the Panel would be issuing a favorable decision to claimant.  The Court found that the appellants failed to prove with clear and convincing evidence “corruption.” Kolel, at *6.  Even accepting the assertions in the affidavit as true, the appellants “failed to suggest – let alone prove – what, if anything, [the neutral arbitrator] stood to gain or what special connection he had with [claimant] that would have given plausible reason to corrupt his decision.” Kolel, at *6.

In addition, the Second Circuit found that vacatur was not required given that the award was made after only one witness testified.  “The Panel’s decision to hear only one witness does not make the arbitration fundamentally unfair.” Kolel, at *7.  The Court explained that particularly where the issue is one of contractual interpretation, a question of law, reference to external evidence is not necessarily required. Kolel, at *7.  The Court reaffirmed its recent holding, in LJL 33rd St. Assoc., LLC v. Pitcairn Props., Inc. 2013 WL 3927615, -- F.3d --, at *8, that “[a]rbitrators have substantial discretion to admit or exclude evidence.” 

Throughout its reasoning, the Court made reference to (i) the absence of a detailed record of the proceeding and (ii) unreliable, contested facts.  When entering into the arbitration agreement and at the preliminary conference, parties should carefully evaluate whether they should incur the additional costs to better preserve a record (e.g. stenographer) of the arbitration to permit effective review by a court should that become necessary.  Also, when challenging an award, submit properly authenticated and reliable (e.g. not hearsay) affidavits to support the claims of vacatur.  At least the Kolel court appeared turned-off by the bickering on tangential issues between the parties.

Federal Arbitration Act Requires the Arbitration of Massachusetts Consumer Protection Claims

Massachusetts has a powerful consumer protection statute commonly known as Chapter 93A.  General Law Chapter 93A affords a private right of action on behalf of consumers (§ 9) and businesses (§ 11) for unfair or deceptive acts and practices.  Where a violation is shown, a party may recover reasonable attorney’s fees and potentially treble damages (upon proof of a willful violation).  Chapter 93A is routinely pled in business contract and tort actions in Massachusetts. 

In 1982, the Massachusetts Supreme Judicial Court (“SJC”) “held that, even where a consumer executed a valid contract agreeing to arbitrate all disputes, a plaintiff may not be compelled to arbitrate a claim alleging unfair or deceptive trade practice in violation of G.L. c. 93A, § 9.” Hannon v. Original Gunite Aquatech Pools, Inc., 385 Mass. 813, 826-827, 434 N.E.2d 611 (1982).  Thus, absent agreement at the time the dispute has ripened, a party could keep Chapter 93A claims (and perhaps the entire dispute if the facts are intertwined with each other) out of arbitration despite an otherwise enforceable agreement to arbitrate.

On August 12, 2013, the SJC held that even Chapter 93A claims “must be referred to arbitration where the contract involves interstate commerce and the agreement to arbitrate is enforceable under the Federal Arbitration Act, 9 U.S.C. §§ 1, et seq. (2006) (FAA).”  McInnesv. LPL Financial, LLC, 466 Mass. 256, -- N.E.2d – (2013).  The Court acknowledged that the Hannon decision “made no reference to the FAA” and, although not expressly stating it, found Hannon was wrongly reasoned for matters that implicate interstate commerce by disregarding the FAA which would have superseded any state prohibition of arbitration under the supremacy clause.  In so ruling, the Court reversed and remanded two separate lower court rulings denying a motion to compel arbitration because of the existence of the consumer protection claims.