Review of Court Decisions
Narrow Arbitration Clause
The D.C. Court of Appeals held that condominium owners could not be forced to arbitrate with the builder over defective construction because the parties' agreement only covered damages arising from the construction plans.
The condo owners filed a lawsuit after the building's water and sewer systems broke. The lawsuit alleged that flooding caused toxic mold and water damage and asserted numerous common law, contract claims, strict liability, and statutory claims. The builder moved to compel arbitration. The condominium owners opposed the motion to compel, arguing that the dispute was outside the scope of the arbitration clause in the condo purchase agreement, which covered disputes "involving delivery of the Unit in accordance with the Plans." The trial court denied the builder's motion to compel arbitration.
The D.C. Court of Appeals affirmed, finding that the dispute over poor construction was not covered by the arbitration clause, which only covered disputes about construction plans. It found support for its decision in the fact that the arbitration clause was in the "plats and plans" section of the agreement. The court also reasoned that because the arbitration clause designated the project architect as the arbitrator, the parties intended to arbitrate disputes within the architect's realm.
2200 M. Street LLC. v. Cheryl H. Mackell, Nos. 04 CV-550, 552, 586, 587 D.C. App. LEXIS 703 (D.C. Cir. Dec, 31, 2007).
Enforceability Challenge Procedures
The Massachusetts Supreme Judicial Court held that, under state arbitration law, judges must conduct an expedited evidentiary hearing when faced with a challenge to a motion to compel arbitration.
St. Fleur sued her employer in state court, alleging racial and sexual discrimination. The employer, WPI Cable Systems, moved to dismiss the complaint and compel arbitration based on the arbitration agreement St. Fleur signed while employed by WPI. St. Fleur contended that this agreement was unenforceable because her manager misrepresented its nature and contents. The court denied WPI's motion to compel arbitration after a hearing but without hearing any evidence on the validity of the arbitration agreement.
Hearing the appeal on its own motion, the Massachusetts Supreme Court reversed and remanded the case to the trial court for an evidentiary hearing on the validity of the arbitration agreement.
Next the court ruled that even though the dispute fell within the scope of the Federal Arbitration Act, state trial courts are required to apply Massachusetts arbitration law to determine whether the arbitration agreement is invalid. The FAA did not preempt state arbitration law, the court found, because state law places arbitration agreements on the same footing as other contracts.
The court then addressed the procedure required by the Massachusetts Uniform Arbitration Act. Section 2 directs trial courts to "proceed summarily to the determination of the issue" when a party challenges the enforceability of an arbitration agreement. The court interpreted the phrase "proceed summarily" to mean that judges must conduct an expedited evidentiary hearing to decide challenges to a motion to compel arbitration. It based this conclusion on judicial interpretations of that phrase as used in the Uniform Arbitration Act, which was the model for the Massachusetts arbitration statute. The court found this approach to be consistent with how courts handle other challenges to contractual provisions.
St. Fleur v. WPI Cable Systems/Mutron, No. SJC 09961, 2008 WL 44476 (Mass. Jan. 04, 2008).
Agreement in Writing Requirement
The Court of Appeals for the Western District held that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) requires an agreement in writing signed by the parties in order to be enforceable. …