Source: https://betterchancery.com/2017/06/19/arbitration-clause-challenge-after-arbitration/
Timestamp: 2019-04-25 10:48:20+00:00

Document:
When Paige Electric Company retained the law firm of Davis & Feder, the retainer agreement included a clause requiring any dispute arising out of the agreement, including claims of legal malpractice, to be submitted to arbitration. Paige did sue the law firm, which invoked the arbitration clause, and the case was heard by Arbitrator Larry Latham, who ruled entirely in the law firm’s favor and denied Paige any relief.
Paige filed motions in Circuit Court to declare the arbitration clause void and to vacate the award. The circuit judge denied the motions, dismissed the suit with prejudice, and Paige appealed.
¶10. “In arbitration cases, . . . the scope of review is extremely limited.” Wilson v. Greyhound Bus Lines Inc., 830 So. 2d 1151, 1155 (¶9) (Miss. 2002). “The scope of judicial review of an arbitration award is quite narrow, and every reasonable presumption will be indulged in favor of the validity of arbitration proceedings.” Id. (quoting Craig v. Barber, 524 So. 2d 974, 977 (Miss. 1988)).
¶11. Addressing Paige Electric’s claim that the arbitration clause in the retainer agreement was unconscionable, and its alternative claim the malpractice claims involving the lien should be severed from the arbitration award and set for trial, the circuit court concluded that the company had waived any objection, as it had voluntarily consented to the arbitration.
¶12. Mississippi has not addressed the precise issue of whether a challenge to the validity of an arbitration clause may be brought post-arbitration. But other jurisdictions have held that participation in arbitration proceedings waives the right to object to an arbitrator’s authority. “A party cannot ‘sit silent, wait until an adverse award is issued, and then first argue that the arbitrator did not have the authority even to hear the claim.’” Advocate Fin. Grp. v. Poulos, 8 N.E.3d 598, 609 (¶53) (Ill. App. Ct. 2014) (quoting First Health Grp. v. Ruddick, 911 N.E.2d 1201, 1213 (Ill. App. Ct. 2009)); see also Ahluwalia v. QFA Royalties LLC, 226 P.3d 1093, 1098 (Colo. App. 2009) (“If a party willingly allows an issue to be submitted to arbitration, it cannot await the outcome and later argue that the arbitrator lacked authority to decide the matter.”). “[W]illing participation is consent to the arbitrator’s power to resolve the dispute.” Unite Here Local 23 v. I.L. Creations of Maryland Inc., 148 F. Supp. 3d 12, 19 (D.D.C. 2015). “Given that arbitration is an optional alternative to judicial resolution of disputes[,] . . . when the parties have agreed to arbitration, the law discourages the loser from seeking a second de novo (or even quasi-de novo) shot at obtaining its desired result[.]” Id. at 18-19.
[It] didn’t do that. What [it] did do, however, was go through the entire arbitration process, two and a half days of arbitration hearings, and then submit a post-hearing memorandum . . . [that] very clearly indicates the lien claims were considered and are part of the arbitration.
And, therefore, the court finds [Paige Electric] waived any objection [it] may have had with regard to the arbitration of the lien claims. Whether the court agrees they would have been included or not, the parties agreed to include them, the arbitrator was presented those.
for suit” and that Jerry Paige “wants to sign contract against [SCS and] Studio Inn and file suit.” There is no evidence that Paige Electric signed a second contract for the lien work at an hourly rate; nor is there evidence Davis & Feder billed Paige Electric for this work.
¶14. At no point prior to or during the arbitration hearing did Paige Electric object to arbitrating the lien claims. Paige Electric was represented by counsel throughout this process, and the parties agreed to arbitration; it was not court-ordered. In a letter to Davis & Feder, dated June 12, 2013, counsel for Paige Electric stated that “[t]here is no objection to this [arbitration] procedure,” and he requested that “appropriate steps be taken at this time to arrange for arbitration of this claim[.]” Thus, we find no error in the circuit court’s determination that Paige Electric waived its right to object to the validity of the arbitration clause and to the arbitration of the lien claims.
¶15. Notwithstanding the waiver of the claims, we find no merit to Paige Electric’s claim that the arbitration clause was procedurally unconscionable because the arbitration clause was not properly explained to Jerry Paige, and because the clause is “inconspicuous” and used “overly broad verbiage.” Whether an arbitration clause is procedurally unconscionable can be shown by: “(1) lack of knowledge; (2) lack of voluntariness; (3) inconspicuous print; (4) the use of complex, legalistic language; (5) disparity in sophistication or bargaining power of the parties; and/or (6) lack of opportunity to study the contract and inquire about the terms.” See Caplin Enters. Inc. v. Arrington, 145 So. 3d 608, 614 (¶12) (Miss. 2014) (citing MS Credit Ctr. Inc. v. Horton, 926 So. 2d 167, 177 (¶29) (Miss. 2006)).
¶16. The retainer agreement was a simply-worded five-page agreement, and the arbitration clause took up an entire page of the contract, in an easy-to-read font. Compare E. Ford Inc. v. Taylor, 826 So. 2d 709, 716-17 (¶21) (Miss. 2002) (finding an arbitration provision “procedurally unconscionable,” as the “preprinted” arbitration clause “appears less than one third the size of many other terms in the document, [and] appears in very fine print and regular type font”). Moreover, in the June 12, 2013 letter from Paige Electric’s counsel to Davis & Feder, the attorney stated that “[Jerry] Paige advises me that his contract with Davis [&] Feder requires all disputes with clients be arbitrated,” indicating an understanding by Jerry Paige of the agreement’s terms and conditions.
Broad arbitration language governs disputes “related to” or “connected with” a contract, and narrow arbitration language requires arbitration of disputes that directly “arise out of” a contract. . . . Because broad arbitration language is capable of expansive reach, courts have held that “it is only necessary that the dispute touch matters covered by the contract to be arbitrable.” Horton, 926 So. 2d at 176 (¶¶24-25) (quoting Pennzoil Exploration & Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1067-68 (5th Cir.1998)). We find the lien claim against the hotel owner was directly “related to” Paige Electric’s claims against SCS; the lien against the hotel owner was necessary only in the event that Paige Electric could not collect a judgment from SCS.
¶18. Accordingly, we find the circuit court did not err in denying Paige Electric’s motion to declare the arbitration clause invalid, or alternatively, to sever Paige Electric’s lien claims from the arbitration award and set those claims for trial.
Unless you can build a convincing case based on those factors in ¶15 up there, you will find it mighty hard to get around an arbitration provision in a freely-negotiated contract.
If you’re planning to include an arbitration clause in your retainer agreements, be sure it’s as broad as possible.
When you wait until after the arbitration is concluded to raise the issue of the validity of the arbitration clause, you’ve waited too late.
We’ll talk in another post about Paige’s claim that the arbitration clause should have been vacated by the circuit court.
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