Have the Feds Taken Over Arbitration?

Originally posted 2009-05-18 09:00:00. Republished by Blog Post Promoter

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All of us in construction have run into mandatory arbitration clauses in our contracts. These clauses are more or less desirable based upon the size of project and other factors that will provide a topic for another post here at Musings or in my class at Solo Practice University (and likely both).

In drafting and considering the usefulness of these clauses, make sure that you keep in mind that the Federal Arbitration Act applies to actions in federal court. In short, the FAA gives parties to a contract containing an arbitration clause the absolute right to a stay of a law suit pending arbitration.

While this seems obvious, a recent U. S. Supreme Court decision expanded the universe of people that can demand such a stay. In Arthur Andersen LLP v. Carlisle, et. al., the Court stated that any person who is allowed to enforce a contract under state law can obtain such a stay. In short, if a person can make an argument that they have some sort of right to enforce a contract’s terms, that person can get a stay, at least until a court says otherwise.

For contractors and other construction pros, this case only underscores the need to examine your contracts carefully. If third parties, including architects, LEED AP’s on the project and others that could get a benefit from what looks like a straight line agreement, are part of the process, you could end up arbitrating a case that you never anticipated you would be arbitrating.

Consider this latest decision by the U. S. Supreme Court a reminder that you should think carefully about every aspect of a contract before you enter into it. If necessary, have experienced legal counsel review that contract and discuss its implications prior to diving in.

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