Oregon Supreme Court Widens Arbitration Clause to Include Resolution of "Conditions" to Arbitration
There's a lot to chew on in this recent Oregon Supreme Court case arising from a $2.6 million delay and disruption claim, and the basic proposition relied on by the Court is nothing new: arbitration clauses will be broadly applied and, in case of doubt, all disputes potentially within the scope of the arbitration clause will in fact be shipped off to arbitration for resolution.
The interesting twist in this case is in how the Court applied this general rule to the specific issue of who decides -- as between the court and the arbitrator -- whether a particular issue is in fact subject to arbitration. Here, one side argued the claimant had no right to initiate an arbitration because it lacked a valid contractor's license. Traditionally, it was the rule that the Court decides whether an issue is subject to arbitration and the arbitrator decides the merits of the dispute if it is subject to arbitration.
That rule is good as far as it goes, but leaves open an important battleground: if one side argues that (for example) the other side has waived its right to arbitrate (or, as in this case, lacks standing because it has no license), who decides this threshold issue? Under this Oregon case, the threshold issue goes to the arbitrator because it is characterized as a "procedural" defense to arbitration rather than a "substantive" one.
This holding is part of a broader trend - spearheaded by the American Arbitration Association (AAA) - to expand the power of the arbitrator to decide an important array of threshold and jurisdictional defenses to arbitration.
The lesson here is relatively simple: if you enter into an arbitration clause but want the court to maintain some control over which issues actually get referred to arbitration for decision, you need to be very explicit in how you (a) write the clause and (b) define the scope of the arbitrator's authority. Because once the issue is decided by the arbitrator, the courts will not entertain any kind of appeal absent some sort of egregious circumstance.
I AM A CONTRACTOR AND HAVE NEVER HAD A ARBITRATION CLAUSE IN A CONTRACT. BECAUSE I SAW MY HUSBAND ALSO A CONTRACTOR HAVE THAT CLAUSE IN HIS CONTRACT I THOUGHT I WOULD ADD IT TO MINE. BUT THAT WAS BEFORE I UNDERSTOOD IT. SINCE THEN HE HAD TO GO THROUGH ARBITRATION AND IT COST HIM LOTS!! THE CONTRACT I ENTERERED IN TO WITH MY CUSTOMER SAYS THIS: "ANY DISPUTES WILL BE SETTLED IN ARUTRATION" THE GUY ONLY OWES ME $2,108.50. I TRIED TO TAKE HIM TO SMALL CLAIMS COURT. BUT THE CLIENT ASKED THE JUDGE TO SET IT ASIDE BECAUSE OF MY ARBITRATION CLAUSE. WHY CAN'T I JUST GO TO SMALL CLAIMS? I GUESS I JUST DIDN'T UNDERSTAND IT WHEN I PUT IT IN MY CONTRACT.
One of the things I find many clients don't consider when agreeing to AAA arbitration is the sometimes prohibitive costs in even bringing a claim through arbitration. The filing fees are dictated by the amount of the claim and can range in the several thousands just to initiate AAA arbitration! This doesn't account for the arbitrators fees which can range anywhere from $200-$500 per hour and the fees to pay your attorney! I am not a particular fan of arbitration clauses for his very reason. Claims that have merit must be substantiated by real damages of significant value and many clients decide instead as a business decision to just take the loss. Litigation in Court can certainly be expensive as well but at least you don't have to pay the judge and the filing fees are miniscule in comparison to some arbitration forums.