If you have been involved in a construction related arbitration and received an award, you should know it can only be challenged under the limited grounds set forth in the Mississippi Construction Arbitration Act, Miss. Code Ann. §§ 11-15-101, et seq. One of the grounds for challenging an arbitration award is there has been an “evident miscalculation” by the arbitrator. Miss. Code Ann. § 11-15-135(1)(a).

The Mississippi Supreme Court, in a case of first impression, was recently asked what qualifies as an “evident miscalculation” in D.W. Caldwell, Inc. v. W.G. Yates & Sons Construction Company [click here for the Supreme Court decision]. In that case, D.W. Caldwell, Inc. (“Caldwell”) had secured an arbitration award against W.G. Yates & Sons Construction Company (“Yates”). When Caldwell went to confirm the arbitration award, Yates objected claiming that there was an “evident miscalculation” in the arbitration award. The circuit court, over the objection of Caldwell, allowed Yates to offer documents from the arbitration and testimony to establish the “evident miscalculation” and reduced the arbitration award.

The Court, citing its past decisions, reminded the circuit court that its review of arbitration awards was extremely limited and restricted to the exceptions identified in Miss. Code Ann. § 11-15-135. Based upon the language of the statute, the Court concluded that “the ‘evident’ (plain, obvious, or clearly understood) miscalculation must be apparent from nothing more than the four corners of the award and the contents of the arbitration record.” Otherwise, “[l]ooking to evidence beyond ‘the face’ of the award or the arbitration record allows the parties to retry the matter in front of a trial judge.” The Court went on to provide guidance as to what might be considered by the circuit court in a proceeding to confirm an arbitration award holding “courts requested to confirm, modify and/or vacate arbitration awards are not at liberty to permit the examination of witnesses.” The Court therefore reversed the decision of the circuit court and remanded the case directing it to confirm Caldwell’s arbitration award.

The significance of this decision is that parties to arbitration should make sure that the hearing record is complete. However, even if the record is complete, thoughtful consideration should be given as to whether there are sufficient grounds to seek modifying or vacating the arbitration award before making such a request to a court.

 

Just because you have included an arbitration provision in your contract does not mean that any dispute arising out of or related to the contract will be arbitrated. The Mississippi Supreme Court found in Sanderson Farms, Inc. v. Gatlin, that the refusal to pay the required share of the American Arbitration Association ("AAA") fee resulted in Sanderson Farms, Inc. ("Sanderson") waiving its right to arbitration. In that case, the arbitration clause provided in pertinent part as follows:

The cost of such arbitration will be divided equally among the parties to the arbitration. Each party will bear the costs of their own expenses and attorney’s fees. Failure to arbitrate all such claims or controversies arising under or related to this Agreement shall be deemed a breach of the Agreement.

Gatlin paid its share of the arbitration fees but Sanderson failed to pay its share. Gatlin filed suit in circuit court against Sanderson who filed a motion to dismiss arguing that the dispute was subject to arbitration. The circuit court denied Sanderson’s motion to dismiss. On appeal the Supreme Court held:

Sanderson farms waived its right to arbitrate by refusing to pay its one-half of the cost associated with the filing and administrative fees and/or the additional charges presented for payment one month before the scheduled arbitration hearing. This refusal amounts to an act inconsistent with the right to arbitrate. By waiving its right to arbitrate, Sanderson Farms has relinquished the right to seek the protections of the arbitration provision in the boiler contract.

It should also be noted that Rule 54 of the AAA Commercial Rules and Rule 56 of the AAA Construction Industry Arbitration Rules provide for procedures where a party has not paid its share of the arbitrator compensation or administrative charges.

The bottom line is a party may waive its right to arbitration if it does not comply with the requirements set forth in the arbitration clause and find itself in court rather than in arbitration.

Once a party receives an arbitration award, it does not necessarily mean that it will voluntarily be paid. Frequently, the party receiving the arbitration award must have it confirmed by the court and converted into a judgment. However, the party against whom the award has been made may challenge the award and seek to have it vacated. If the dispute involves an agreement related to construction, the parties must follow the procedures set forth in the Construction Arbitration Act, Miss. Code Ann. §11-15-101, et seq. If the dispute is unrelated to construction, the parties must follow the procedures set forth in the Mississippi Arbitration Act ("MMA"), Miss. Code Ann. §11-15-1, et seq. In a recent decision, the Mississippi Court of Appeals found the party against whom an award had been granted failed not only to timely challenge the arbitration award but also failed to set forth sufficient grounds to justify vacating the arbitration award and reversed the trial court’s findings. [click here to view decision].

In reversing the trial court, the Court of Appeals first considered the timeliness requirements for vacating an arbitration award under both the MMA and the Federal Arbitration Act ("FAA"), 9 U.S.C. §§1, et seq. Under the FAA, a motion to vacate must be served within three months after the award is filed or delivered. 9 U.S.C.§12. However, under the MMA provides as follows:

An application to vacate or modify an award shall be made to the court at the term next after the making and publication of the award, upon at least five days’ notice, in writing, being given to the adverse party, if there be time for that purpose; and if there be not time, such court, or the judge thereof, may, upon good cause shown, order a stay of proceeding upon the award, either absolutely or upon such terms as shall appear just, until the next succeeding term of court.

 

Miss. Code Ann. §11-15-27.  Because the challenging party complied with neither of these provisions, the Court of Appeals found the trial court had erred when it concluded the challenger’s motion for vacation was timely.

In addition, the challenger did not set forth any of the grounds that might justify the vacating of an arbitration award. These grounds are very limited and set forth in 9 U.S.C. §10(a) or under Miss. Code Ann. §11-15-23. Accordingly, the Court of Appeals reversed the trial court for finding otherwise.

Although this case dealt with the MMA, the Mississippi Construction Arbitration Act also has strict filing deadlines for challenging an arbitration award and extremely limited grounds for challenging an award. It is therefore imperative that upon receipt of the arbitration award contractors consult their lawyer or the Mississippi Construction Arbitration Act to determine the time limitations for modifying or vacating an arbitration award.

I recently came across a decision form the District Court for the Southern District of Mississippi that caught my attention. Although it was not construction related, it addressed a situation where the parties had included the right to appeal an arbitration award in their agreement to arbitrate. [click for decision] This would appear to be inconsistent with the concept of finality, which is one of the public policy reasons for arbitration. Further, under the Mississippi Arbitration Act, Miss. Code Ann. §§ 11-15-1, et seq. and the Mississippi Construction Arbitration Act, Miss. Code Ann. §§ 11-15-101, et seq. there are extremely limited grounds for having an arbitration award challenged.

Nonetheless, in this district court decision, the federal judge thought that even though there were no Mississippi court decisions addressing this issue, that if confronted with the question of whether parties could include a right to appeal an arbitration award for reasons stated in the arbitration clause, the Mississippi court would enforce the provision allowing an appeal. The district court, quoting the Fifth Circuit, stated that "when, as here, the parties agree contractually to subject an arbitration award to expand judicial review, federal arbitration policy demands that the court conduct its review according to the terms of the arbitration contract." (citation omitted)

There remain no Mississippi decisions adopting the position of the district court. However, this decision should highlight the need for contractors to carefully read arbitration clauses included in their contract. If you have concerns with any aspect of the arbitration clause, those concerns should be resolved before you sign the contract.

Arbitration has found some favor in the construction industry with parties over the last decade in part because of its finality. Unlike civil litigation, the right to appeal an arbitrator’s award is extremely limited under the Mississippi Construction Arbitration Act, Miss. Code Ann. §11-15-101, et seq. The specific grounds for vacating an arbitrator’s award are set forth in Miss. Code Ann. § 11-15-133(1).  Click here to read Miss. Code Ann. § 11-15-133(1).

The Mississippi Court of Appeals recently considered a challenge to an arbitrator’s award which was confirmed by the circuit court. (It appears from the opinion that the arbitration was governed by the Construction Industry Arbitration Rules for the American Arbitration Association.) The appellant objected to the arbitrator’s decision not to grant appellant a continuance when requested and also prohibiting appellant from introducing evidence that it had not produced during discovery. The Court found that the refusal to grant the continuance was justified by the appellant’s dilatory conduct in refusing to pay its half of the arbitration cost and its four changes in legal counsel. The Court also found the arbitrator acted within its authority when it denied appellant’s admission of evidence where it failed to produce any documents during the discovery period or prior to the arbitration.

Once again, the lesson to be learned is that while arbitration is a more informal proceeding than litigation, there are procedural rules that govern arbitration. When an arbitrator renders a decision on these procedural matters, the courts will be inclined to enforce such decision because of the extremely narrow scope of appellate review.

In a recent Mississippi Supreme Court decision the Court considered language in a contract which contained an arbitration provision, which excluded aesthetic-effect claims from arbitration. Click here to see decision. The contract in question was the AIA Document A101-1997 Standard Form of Agreement Between Owner and Contractor and AIA Document A201-1997 General Conditions for the Contract for Construction. The Owner maintained that because the contract stated "[a]ny Claim arising out of or related to the Contract, except Claims relating to aesthetic effect and except those waived…shall, be subject to mediation as a condition precedent to arbitration or the institution of legal or equitable proceedings by either party" there had been no clear waiver of its right to a jury trial. The trial court disagreed and on appeal the Mississippi Supreme Court affirmed.

The Court found the language of the contract required arbitration of all claims with the exception of those relating to aesthetic effect. Opinion on whether there had to be an express waiver of the right to a jury trial, the Court stated:

No caselaw suggests that, to be valid, an arbitration agreement must include an express statement which waives the right to a jury trial.

[T]he Constitution does not ‘confer the right to a trial, but only the right to have a jury hear the case once it is determined that the litigation should proceed before a court. If the claims are properly before an arbitral forum pursuant to an arbitration agreement, the jury trial right vanishes.

McKenzie Check Advance of Miss., LLC v. Hardy, 866 So.2d 446, 455 (¶30)(Miss. 2004)(citations omitted). Section 11-15-103 requires only a written agreement to arbitration.

Thus, the Court makes it clear that where a contract includes an agreement to arbitrate disputes, there is no need to have an express waiver of the right to a jury trial.

 

Parties frequently include arbitration clauses in their construction documents. In such instances, when a dispute arises, the party with a claim may ultimately need to pursue it by filing a demand for arbitration. When the arbitration clause requires compliance with the American Arbitration Association’s ("AAA") Construction Industry Arbitration Rules, or another alternative dispute organization, the claimant can simply file a demand for arbitration with that organization. When the agreement does not specify an alternative dispute organization or a method for the initiation of arbitration, the claimant must rely upon the procedures set forth in the Mississippi Construction Arbitration Act ("the Act"), Miss. Code Ann. §§ 11-15-101, et seq. (Rev. 2004). Under the Act, the claimant shall:

…within the time specified by the contract, if any, file with the other party a notice of an intention to arbitrate which notice shall contain a statement setting forth the nature of the dispute, the amount involved, and the remedy sought….

According to the Mississippi Court of Appeals, such a "demand for arbitration" must be initiated within three (3) years from the time the cause of action accrues. This issue was addressed by the Court of Appeals in Haycraft v. Mid-State Construction Company, Inc. In that case, Haycraft filed suit against Mid-State sometime in 1994. Mid-State filed a motion to have Haycraft’s complaint dismissed because the agreement between the parties included a provision that permitted Mid-State to require arbitration. The court therefore dismissed Haycraft’s lawsuit.

Approximately six years later Haycraft filed an application for arbitration. Mid-State filed an objection to Haycraft’s demand for arbitration with the circuit court. The court found Haycraft’s application for arbitration untimely based upon the general three (3) year statute of limitation found at Miss. Code Ann. §15-1-49 (Rev. 2003). The Court of Appeals agreed and found Haycraft’s right to demand arbitration began when its cause of action accrued. It was therefore Haycraft’s obligation to initiate an application for arbitration within three (3) years from that date or its cause of action would be barred by the statute of limitation. Because Haycraft did not timely pursue its right to arbitrate, Haycraft’s claim was barred.

The key point to remember is that a claimant must act timely to preserve its right to arbitration. A demand or application for arbitration must be timely submitted to the opposing party or the claim’s right to relief may be barred by the three (3) year statute of limitation.

During the last several decades arbitration has become a valuable method for resolving disputes between parties in the construction setting. A simple arbitration provision might read as follows:

Claims and disputes not resolved shall be decided by arbitration which shall be in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association currently in effect.  The locale of any arbitration shall be Jackson, Mississippi.

Simple and straightforward, but is it enough? It depends on what your expectations are for arbitration. An arbitrator is bound by the requirements of the arbitration clause. Therefore, if you are drafting an arbitration clause, you might want to consider including certain "bells and whistles" that will get you to the finish line faster. Here are some items you might want to consider including in an arbitration clause. 

  • Location of the arbitration proceeding;
  • Number of arbitrators and experience requirements;
  • Limitations on discovery;
  • Specific rules governing admissibility of evidence at hearing, i.e. state or federal rules of evidence verses the liberal rules for admissibility of the AAA;
  • Time within which arbitration hearing must be conducted; and
  • Payment of fees and costs.

Remember, it is your arbitration clause so draft it to suit your business objectives.

The Mississippi Supreme Court handed down a decision this month upholding the proposition that an arbitration agreement can be enforced against someone who did not sign the agreement. However, the facts of the case were unusual in that the individual (Donna Stuckey) against whom arbitration was ordered presented evidence that at least some of the documents involved in the transactions contained forged signatures.

In this case, the defendants had pledged certain property to the bank as collateral for loans made to their cattle business. Mrs. Stuckey’s name appeared approximately fifty-five times on documents containing arbitration provisions. However, Mrs. Stuckey claimed the only document she actually signed was one deed of trust which did not include an arbitration provision. Mrs. Stuckey admitted she was one of the owners of the cattle business. She asserted numerous claims, including forgery, against the bank and one of its employees who was also an owner of the cattle business. She further claimed she suffered damages when the bank employee took profits from the sale of cattle without her knowledge or permission. Because the only document which Mrs. Stuckey admitted had been signed by her did not include an arbitration provision, she disputed the matter was subject to arbitration.

The Supreme Court disagreed, concluding that it did not matter whether Mrs. Stuckey’s signature was forged and it did not matter that the deed of trust had no arbitration clause. The Court held since Mrs. Stuckey was a co-owner in the cattle business she was a third-party beneficiary to the loan agreements which included arbitration provisions. The Court also concluded that Mrs. Stuckey was equitably estopped from claiming she was not subject to arbitration on the basis that she could not claim breaches of duties associated with the loan documents and at the same time claim that she was not bound by the provisions in those documents.

This decision serves as a reminder of two principles: (1) You can’t have your cake and eat it too. The Mississippi Supreme Court recognizes and disfavors simultaneous attempts to claim the benefits of a contract and to disclaim application of certain contract provisions. (2) Arbitration continues to be favored by courts.

 

Effective October 1, 2009, the American Arbitration Association issued amendments to the Construction Industry Arbitration Rules and Mediation Procedures.  The revised rules and procedures can be viewed by clicking on this link:  Construction Industry Arbitration Rules and Mediation Procedures.  The American Arbitration Association has also provided a Summary of Significant Changes that can be found by clicking on this link: Summary of Significant Changes.