Summary:
In a dispute between construction contractors, the Court of Appeals affirmed the trial court order denying a demand for arbitration as untimely. Holding normally a trial court should determine the validity of an arbitration agreement (namely that a valid agreement exists and that the dispute is within the scope of the agreement), here the trial court instead found that even assuming arguendo that there was an enforceable arbitration provision, the demand was untimely. While this placed “the cart before the horse”, the Court of Appeals held that such determination was appropriate. Recognizing that a party can implicitly waive a contractual right to arbitrate “if by its delay or by actions it takes which are inconsistent with arbitration, another party to the contract [would be] prejudiced by [an] order compelling arbitration.” Cyclone Roofing Co., Inc. v. David M. LaFave Co., Inc., 312 N.C. 224 at 229(N.C. S. Ct.1984), the Court of Appeals affirmed the decision by the trial court that the contract explicitly provided that a demand for arbitration was required within 30 days of any dispute and such demand was not made.
Commentary:
Interestingly, the arbitration provision was unclear and ambiguous about which parties had a time limit within which to demand arbitration. Finding that although Marco had “stacked the deck in its favor by reserving a unilateral right to decide whether any potential dispute would be arbitrated”, the Court of Appeals held that the time limit applied to both parties. This seems to show a degree of judicial frustration regarding unilateral and unequal arbitration provisions, which hopefully will grow and become more manifest, particularly in consumer cases where these are more noxious and inequitable.
Cyclone Roofing holds that the “mere filing of ... pleadings [does] not manifest waiver” of arbitration, but that more is required. This includes, for example, where a party had been forced to bear the expenses of a lengthy trial, evidence had been lost because of delay in the seeking of arbitration, use of judicial discovery procedures not available in arbitration, or, by reason of delay, a party has taken steps in litigation to its detriment or expended significant amounts of money thereupon. This would indicate that the mere filing of a bankruptcy or Proof of Claim was not sufficient to waive arbitration, but perhaps further proceedings could rise to the level of waiver, before, during or after a bankruptcy. (Assuming, of course, that an arbitration provision survives the discharge or the confirmation of a plan lacking arbitration provisions.)
For a copy of the opinion, please see:
TM Construction, Inc. v. Marco Contractors, Inc.- Untimely Demand for Arbitration
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