Shapiro, Lifschitz & Schram

“This is not a pomp and circumstance firm.”

Marty Saturn – Executive Vice President, Meisel Capital Partners

ENFORCEABILITY OF ARBITRATION AGREEMENTS – Who Decides?

Contracts covering construction disputes often require binding arbitration. Many of these contracts contain language allowing the arbitrator to decide the enforceability of the agreement to arbitrate (the delegation provision).  But some courts have been removing this decision from arbitrators and making the arbitration agreement’s enforceability a question for judicial review. 

A recent Supreme Court decision provides a blueprint to argue both sides of the issue – that is for or against judicial review of an arbitration clause’s enforceability.   In Rent-A-Center West, Inc. v. Jackson,  130 S. Ct. 2772, 177 L. Ed. 2d 403 (2010), the Supreme Court held that under the Federal Arbitration Act (FAA), where an agreement to arbitrate includes language establishing that the arbitrator determines the agreement’s enforceability, the district court can decide that issue if a party specifically challenges the delegation provision.  On the other hand, the arbitrator decides if the arbitrator clause is enforceable if a party challenges the contract as a whole.

That 5-4 decision overruled the Ninth Circuit’s holding that the gateway question was for the arbitrator to decide when the entire contract was challenged. It also continues the pro-arbitration line the Supreme Court has taken in recent years.  Thus, this ruling is important to consider both when litigating and drafting arbitration clauses. When drafting arbitration clauses, the language must clearly state whether a court or arbitrator will decide the enforceability question.  And if a party wants the court to decide this question, it must not argue that the contact is invalid, but, rather must argue only that the delegation provision is invalid. 

This post provides only an overview of this issue and doesn’t constitute specific legal advice.  As always, parties must know their specific rights, duties, and goals for each project and should have an experienced construction attorney assist and advise them in all aspects of the project from contract drafting to close-out.

Did You Know . . .

Members of the SLS trial group have tried in excess of 50 jury trials and 75 bench trials?

The SLS construction group has worked on sports stadiums across the country including Orioles Park in Baltimore and Paul Brown Stadium in Cincinnati?

The SLS construction group has worked on power plant projects across the country?

In 2007 SLS was selected for an Honorable Mention as one of the Best Places To Work in Washington DC?

Ron Shapiro, Steve Schram and Judd Lifschitz have all been selected as SuperLawyers by Law and Politics?

The SLS office building is an historic townhouse constructed in the late 1800s?

SLS has been selected by Martindale-Hubbell as a Preeminent Law Firm?

SLS trial lawyers have argued appeals in the U.S. Circuit Courts of Appeal for the 4th, 5th, 9th, D.C. and Federal Circuit?

SLS trial lawyers have been lead trial counsel in cases in Arizona, California, District of Columbia, Florida, Louisiana, Maryland, New Jersey, New York, North Carolina, Oregon, Texas, and Virginia, - to name just a few?

Virtually all the cases that SLS trial lawyers mediated have been favorably settled at mediation?

The transactional group at SLS was lead counsel on one of the largest, most complex mixed-use projects in downtown Washington, DC involving 4 lenders and 6 property owners?

In appreciation for the outstanding efforts of each of its employees during 2007, SLS gave everyone (attorneys, paralegals, and staff) a 4 day/3 night expense paid trip to Key West, Florida?

The transactional group at SLS has represented tenants in more than 200 retail leases in the Mid-Atlantic region?

Every attorney in the transactional group at SLS has at least 15 years experience?

The transactional group at SLS has represented developers in the purchase, construction, financing and/or sale of more than 75 multi-family apartment projects?

The transactional group at SLS has represented real estate investors and developers with respect to property in Pennsylvania, West Virginia, Delaware, Maryland, the District of Columbia, Virginia, North Carolina, South Carolina, Georgia, Florida, Texas, Tennessee, Michigan and the U.S. Virginia Islands?

Attorneys in the transactional group at SLS have represented eight national banks in commercial real estate loans?

Attorneys in the transactional group at SLS have represented the FDIC, the Resolution Trust Corporation and several banking institutions in loan workout transactions throughout the Mid-Atlantic region?

The transactional group at SLS has represented homebuilders and commercial real estate developers in work-outs of individual loans and also for work-outs of large portfolios involving dozens of properties in several states?

The trial lawyers of SLS have numerous reported decisions to their credit?