Wednesday, October 29, 2014

Be Careful What You Ask For: Understanding the Applicability and Enforcement of an Arbitration Clause

The following post is courtesy of Daniel Dorfman at Harris Winick Harris, LLP.

A Texas Court of Appeals has recently handed down an important opinion addressing the applicability and enforceability of arbitration provisions. The case offers important lessons to developers and owners in the construction industry whose contracts generally contain arbitration provisions. Seven Hills Commercial LLC v. Mirabal Custom Homes Inc., No. 05-13-01306-CV, --- S.W. 3d ----, 2014 Tex. App. LEXIS 8705 (Tex. App.--Dallas Aug. 7, 2014, no pet. h.)

The appeals court in the Seven Hills decision made clear that even non-signatories to an arbitration clause may be compelled to arbitrate their disputes, depending upon the terms of the contract.  This means that corporate owner representatives can compel or be compelled to arbitrate claims pursuant to agreements that they did not enter into, or which they may not even had knowledge of before the claims arose.

Moreover, the Seven Hills case demonstrates that it is permissible for a court to make the initial determination as to whether claims asserted by any individual actor are subject to arbitration, by comparing the arbitration clause to the claims being asserted.  In other words, the court in Seven Hills served as a gatekeeper to arbitration: It simply determined that the arbitrator has the primary responsibility to decide whether parties to a dispute are bound by an arbitration provision.