Review of Court Decisions

Dispute Resolution Journal, February-April 2010 | Go to article overview

Review of Court Decisions


CONSTRUCTION

Referee Clause Not an Agreement to Arbitrate

The Supreme Court of Delaware held that a referee clause in a construction contract did not clearly and unambiguously reflect the parties' intent to arbitrate disputes arising out of the project.

The Diamond State Port Corp. (DSPC), the owner/ operator of the Port of Delaware, solicited bids to reconstruct a wharf at the port. The bid documents contained a referee clause stating: "The Director or his designee, shall act as referee in all questions arising under the terms of the Contract ... and the Decision of the Director shall be final and binding. On all questions concerning the interpretation of Plans and Specifications, the acceptability, quality and quantity of materials or machinery and work performed, the classification of material, the execution of work and the determination of payment due or to become due, the decision of the Director, or his designee, shall be final and binding." It also contained a consent-to-suit clause. The document originally contained the AIA 201 standard form with an arbitration clause, but DSPC struck the clause from the bid documents.

Kuhn Construction submitted the lowest bid, which DSPC accepted. Kuhn began construction. When various problems arose, Kuhn allegedly requested assistance from DSPC. When the problems were not resolved, Kuhn began to invoice DSPC for additional work. DSPC rejected these bills and sought to have its executive director initiate a multiparty hearing under the referee clause. Kuhn refused to participate, claiming that the director did not have authority to arbitrate claims, and that the referee clause was intended to deal with day-to-day problems. DSPC sent Kuhn a notice of intent to arbitrate. Kuhn responded with a lawsuit in Delaware's Chancery Court seeking to enjoin the arbitration. DSPC moved to compel Kuhn to arbitrate and to dismiss the complaint. The vice chancellor held that the referee clause was governed by prior court precedent, which required it to grant the motion to compel arbitration and dismiss the complaint.

The Supreme Court of Delaware reversed. First, it said it would not enforce a contract that "unclearly or ambiguously reflects the intention to arbitrate." It concluded that the referee clause in this case was subject to two reasonable interpretations and therefore did not clearly and unambiguously reflect the parties' intent to arbitrate. In support of this conclusion the court noted that the referee clause did not use the terms "arbitrate" or "claims." Furthermore, it observed that DSPC unilaterally struck the arbitration provisions used in the construction industry from the bid document. As a result, there was no basis for Kuhn to discuss arbitration before submitting a bid.

Kuhn Construction Co. v. Diamond State Port Corp., No. 124, 2009 (Del. Mar. 8, 2010).

EMPLOYMENT

Employer's Waiver of Oppressive Provisions Given Effect

The 2nd Circuit required a former employee to arbitrate a sexual harassment claim under federal and state civil rights laws because the employer waived the unconscionable provisions in the clause.

Ragone, a make-up artist, was terminated from her employment at Atlantic Video, a digital and film production company, on April 11, 2006. In her sexual harassment suit, she alleged that soon after she was hired to work for ESPN, an AV client, "she became the victim of severe, pervasive and continuous sexual harassment" and made numerous complaints about the harassment to AV and ESPN management. AV and ESPN were both named as defendants in the lawsuit and they moved to dismiss and compel arbitration based on the arbitration agreement in Ragone's employment agreement.

Ragone opposed the motion to compel arbitration, arguing that she was forced to sign the arbitration agreement under procedurally unconscionable conditions, and that the arbitration agreement itself was unenforceable on the ground that it had substantively unconscionable provisions, among them an oppressive 90-day statute of limitations for filing an arbitration claim, a fee shifting clause, a prohibition on appeals, and a limitation on discovery. …

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