Arbitration is a private dispute resolution procedure that is intended to be more efficient and less expensive than a traditional court trial. In arbitration, a private individual or panel of private individuals act as both judge and jury and decide the outcome of a matter in controversy. Because arbitration is a private process, parties can only be forced to arbitrate issues that they agree to arbitrate. The arbitrability of any particular issue is based upon the parties’ agreement. Of course, once a contractual relationship breaks down, the parties may disagree over the arbitrability of their dispute.
In construction contracts, arbitration clauses tend to be sufficiently broad that, in general, it is difficult to successfully challenge the arbitrability of any dispute arising out of or pertaining to the subject agreement and/or project. In Girolametti v. Rizzo Corp., 152 Conn.App. 60 (Conn.App.,2014), the Connecticut Appellate Court elaborated on the procedure for preserving the issue of arbitrability for judicial review and the severable nature of arbitration clauses.
In Girolametti, the plaintiff sought to vacate the arbitration award that had entered in the defendant’s favor. The court first questioned whether the plaintiff had properly preserved the arbitrability issue for judicial determination and noted that, to properly preserve the issue, “[a] party has two procedural options.” Girolametti v. Rizzo Corp., 152 Conn.App. 60, 67 (Conn.App.,2014). A party’s first option for challenging arbitrability is to “refuse to submit to arbitration at the outset and instead compel a judicial determination of the issue of arbitrability.” Id. A party’s second option is “to present the issue to the arbitrator during arbitration.” Id. In Girolametti, the plaintiff participated in the first 33 out of a total of 35 arbitration hearings, and, therefore, the court held that the plaintiff had not refused to participate “at the onset.” Id. With regard to the second option, the court held that the issue of arbitrability must not have been properly presented to the arbitrator because it was not mentioned in his award. Id. The court’s decision is illustrative of the difficult choice a party in the plaintiff’s position can face.
As discussed in other posts, there is a strong public policy in favor of arbitration, and, for that reason, the statutory scheme currently in place only provides limited grounds upon which an arbitrator’s award may be challenged. For that reason, a party may be hesitant to refuse to participate in arbitration if there is an arbitration clause that arguably applies. A party that does not participate in arbitration and loses the argument concerning the arbitrability of the dispute forever waives its right to challenge the claim on the merits. However, proceeding through the arbitration first, has potential pitfalls as well. The court in Girolametti acknowledged that the plaintiff may have stated its concerns regarding the disputes arbitrability during the arbitration but the court viewed the arbitrator’s failure to address this issue in his award as a sign “that the arbitrator did not consider the issue as having been raised during the arbitration.” Id. Given that there is no specific procedure for asserting such a position and given that a party obviously has no control over the contents of an arbitration award, a party that seeks to maintain the arbitrability issue for later determination while participating in arbitration, must find a way to overstate its objection to the proceeding.
After the arbitration concludes, a challenged to the arbitrability of the dispute – if properly preserved – may be asserted by an objection to a motion to confirm the award or by an application to vacate the award. Id. As made clear by the Appellate Court in Girolametti, however, a challenge to the arbitrator’s award based upon arbitrability of the dispute must be raised within 30 days of the award. Id.
Finally, it is important to note that, if the challenge to arbitrability is based upon the agreement being illegal, the illegality must affect the enforceability of the arbitration clause and not merely the agreement as a whole. “An arbitration provision is severable from the remainder of the contract and, unless the challenge is to the arbitration clause itself, the issue of the contract’s validity is considered by the arbitrator in the first instance.” Id. at fn4.
Questions pertaining to arbitrability and/or the enforceability of arbitration clauses are very complicated. If you should have any such questions, please give me a call.