Sunday, February 4, 2018

Delay of Game?

Better figure somethin' out soon. 
Adams v. Barr, 2018 VT 12

By Andrew Delaney

The lesson in this case is: “Don’t wait until the last minute.” I suppose, in life, that’s a universally applicable lesson. In this case, for Mr. and Mrs. Adams and their construction company, it’s an expensive lesson as well. And in the spirit of Super Bowl Sunday, we could say, “Don’t let the play clock run out before calling a time-out.”

Barr Law Group filed an arbitration demand against Adams Construction with the American Arbitration Association (the “other” AAA) “claiming that Adams Construction had failed to pay Barr Law Group more than $40,000 in fees for legal services.” Adams Construction filed an answer and counterclaim for $97K. There was discovery, conferences, scheduling, rulings, and yadda, yadda, yadda the case headed to hearing.

But one week before the scheduled three-day hearing, Adams Construction said something like, “Whoa. Hold up. We never should’ve agreed to this arbitration thing. It’s unfair and Barr tricked us into it. We object.” Adams Construction filed an objection to the arbitration and moved to dismiss it. Adams argued, for the first time, that the arbitration provision in the fee agreement was unenforceable. Adams Construction cited legal authority that arbitration provisions are supposed to be fully explained and disclosed. Adams Construction said Barr didn’t do any of that stuff. As to its delay in raising the issue, Adams Construction indicated that it had only recently learned of the legal basis for objection before raising it. 

The arbitrator denied the motion at the beginning of the hearing. After several days of hearings, the arbitrator awarded Barr all its fees, dismissed Adams Construction’s counterclaims, and ordered Adams Construction to pay half of Barr’s legal fees since the arbitrator found the counterclaims were brought in bad faith.

“Adams Construction filed a timely application in the superior court to vacate the arbitration award.” It made the same never-should-have-been-subject-to-the-arbitration-agreement argument as before. Barr responded, arguing that Adams had waived its argument by participating in the entire process and raising the unenforceable argument on the eve of the arbitration.

The trial court agreed with Barr. Adams Construction appeals. Adams points to specific language in the Act that provides for an award’s vacation upon a party’s motion when “there was no arbitration agreement and the party did not participate in the arbitration hearing without raising the objection.”

SCOV looks at the language of the Vermont Arbitration Act and the resulting caselaw. I’m not going to reinvent the wheel. From the fountainhead:
Although we acknowledge that these sources send mixed signals, we conclude that on facts such as these—where a party files counterclaims, chooses an arbitrator, engages in extensive reciprocal discovery over a period of five months, participates in several prehearing conferences, makes a specific request as to the amount of time needed for the hearing, and engages in motion practice—that party may be deemed to have waived an objection to the validity of an arbitration agreement even if the party ultimately raises the objection before the commencement of the actual arbitration hearing.
SCOV notes that the Act’s language seems to suggest an up-to-the-point-of-hearing objection can be timely. And SCOV is clear it is not basing its decision on Adams Construction’s participation in the arbitration hearings themselves. But, SCOV reasons, active participation in arbitration proceedings can trigger the waiver rule. SCOV cites to this case for the idea that active participation can result in waiver, but notes that our case is a bit different because the defendant in the cited case didn’t raise any objection. 

SCOV struggles a bit with the issue, and reviews some out-of-state cases for guidance, but ultimately comes to the conclusion that raising the issue so late in the game—after actively participating in the process right up to the coin toss—means that the challenge is waived. You see what I did there? 

SCOV affirms the trial court on waiver and doesn’t get into Adams Construction’s the-fee-arbitration-provision-is-unenforceable argument.

Enjoy the Super Bowl, folks.

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