chevron-down Created with Sketch Beta.
March 16, 2017 Articles

Impracticability of Clause Mandating 30-Day Resolution after Arbitrator Selection

By Hui Liu

A federal court in the Western District of North Carolina recently held that an arbitration clause that required a dispute be resolved in a 30-day time frame after the arbitrator selection was enforceable. The court based its conclusion on the clause’s incorporation of the American Arbitration Association (AAA) rules providing the arbitration panel with discretion to adjust the schedule and condition that an award should be vacated if the panel unreasonably refused to grant a postponement or failed to hear pertinent evidence.

In Tribal Casino Gaming Enterprise v. W.G. Yates & Sons Construction Co., No. 1:16-cv-00030, 2016 U.S. Dist. LEXIS 86100 (W.D.N.C. July 1, 2016), the plaintiff entered into a contract with the defendant contractors to build certain parking decks. The contract had an arbitration clause that provided: “Any controversy or claim arising out of or relating to this Agreement shall, except to the extent modified by the mutual agreement of the parties be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association.” The arbitration clause specified a very tight time frame for resolving a dispute. Specifically, after a claimant notified a respondent of its choice of arbitrator, the respondent would have 15 days to designate its own arbitrator; after that, the two party-arbitrators would then have 15 days to select the third arbitrator. The arbitration panel so designated “shall be required to render a decision within thirty (30) days after being notified of their selection.” But the arbitration clause went on to provide that one of the specified grounds for appeal of any award was “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.”

After the completion of the project, certain parts of the parking decks collapsed. The plaintiff simultaneously filed a lawsuit with the district court and a demand for arbitration with the AAA. Subsequently, the plaintiff moved in the district court to stay litigation and to compel arbitration. The contractors, on the other hand, moved to stay arbitration, alleging that the plaintiff’s claim fell outside the scope of the arbitration clause, or alternatively, the arbitration clause was unenforceable due to its unreasonably short time frame for the arbitration panel to render a decision.

The court first looked at the issue of who—the court or the arbitration panel—had the authority to determine arbitrability. In the court’s view, unless there was “clear and unmistakable evidence” that the parties agreed to arbitrate the issue of arbitrability, the court, as opposed to the arbitration panel, should decide on arbitrability.

In this case, the arbitration clause was silent on the issue of arbitrability. But the court found that the AAA rules, which the arbitration clause incorporated by reference, helped to answer this question. The AAA rules that were in effect at the time of contracting (2008) provided: “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.” This rule, however, was amended in 2013 by adding the following words at the end of the sentence: “or to the arbitrability of any claim or counterclaim.” In the court’s view, the 2013 amendment broadened the scope of the arbitration panel’s authority, and thus the 2008 version meant to limit the arbitration panel’s power on arbitrability issues to existence, scope, and validity of the arbitration agreement. Because the arbitration clause at issue incorporated the 2008 version, the court determined that the parties only delegated the arbitrability issues of existence, scope, and validity to the arbitration panel, and all other issues of substantive arbitrability, including enforceability, were left to the court.

The court then looked at the enforceability challenge raised by the contractors. It first noted that the tight time frame provided by the arbitration clause was understandable in construction projects because claims that arose in the middle of a project would often require immediate attention and resolution. In this post-construction dispute setting, where the feasibility of the tight time frame was more questionable, the court observed that the AAA rules that were incorporated in the arbitration clause gave the arbitration panel the power to adjust the schedule. The court also noted that the arbitration clause specifically provided that an award may be vacated if the panel unreasonably refused to postpone the hearing or to hear pertinent and material evidence. Given these considerations, the court determined that the time frame specified by the arbitration clause was not unconscionable, illegal, or unconstitutional. In its analysis, the court also indicated that given the complexity of the issues underlying the claims, an arbitral panel’s refusal to postpone the hearing or to allow sufficient discovery could be misconduct sufficient to warrant vacating the award.

Procedural deadlines specified in an arbitration agreement must be adhered to if the agreement does not grant the arbitrator or administering body the authority to waive or extend a deadline. When including mandatory procedural deadlines in arbitration agreements, counsel should always consider including a mechanism by which an arbitrator or administering body can for good cause shown extend a deadline. Failure to include such a provision can result in vacatur of an award if a court finds an arbitrator or ADR provider lacked the authority to extend a procedural deadline agreed to by the parties.

Keywords: litigation, ADR, arbitration, arbitrability, impracticability, AAA rules, procedural deadlines

Copyright © 2018, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).