Environmental Barrier v. Slurry Systems
Chances are that if you’ve been through an arbitration you’re going to have a strong opinion about it. It’s even likely that your experience has influenced you enough to include or delete arbitration clauses from your contracts. Splitting the baby in two is a normal result and the parties are expected to air their grievances up front - it is, after all, an alternative to the litigation process, and should not be treated as a precursor to some other form of conflict resolution, and the opinion in the matter of Environmental Barrier Co., LLC v. Slurry Systems, Inc. (7th Circ. Doc. No 06-3910) is no exception.
An arbitration claim was filed by a company that had purchased some of the assets of a subcontractor during the subcontractor’s bankruptcy. The original arbitration claim was for $657,273.50 against the general contractor by the company that had purchased the sub’s contract in the bankruptcy (the “sub-purchaser”), and the final arbitration award was $388,919.88. After the sub-purchaser moved to confirm the award in court, the general raised a new issue: that there had been no agreement to arbitrate between the parties. The seventh circuit addressed the issue and found in favor of the sub-purchaser. The court raised policy concerns about allowing a party to sit on the issue of arbitrability throughout an arbitration and then to raise it after the parties have completed the arbitration process and have moved on to court.
“This is not a tactic we can accept, for sound policy reasons. It is terribly wasteful of the arbitrator’s time, the parties’ time, and the court’s time. Anyone who wants to object to arbitrability is entitled to make her position known to the arbitrator and the other party; the other party may then, if it wishes, respond with a petition for an order to compel arbitration under the Federal Arbitration Act…and obtain a judicial determination on arbitrability. In addition, keeping the arbitrability card close to the chest would allow a party like [the general contractor] to take a wait-and-see approach: if it had liked [the arbitrator’s] decision, it would have remained silent, but since it did not, it is now complaining about arbitrability.”
The court is correct, and this is a lesson for anyone getting ready to participate in an arbitration, or considering the merits of not participating. The time to object is in the beginning. The legal process, including arbitration, is about the resolution of disputes and not tactical gamesmanship.
