Court quashes arbitration of claims that were outside arbitration agreement
Arbitration clauses in contracts are enforceable, but if a contract allows only certain claims to be arbitrated, then the party desiring arbitration has to prove that it has such a claim. And in Virginia, the party has to prove it to a judge, not the arbitrator. CWM attorneys represented the owner when both of these issues were contested in Norfolk Redevelopment and Housing Authority v. Everest Construction Management Group, Inc.
The dispute resolution clause in a construction contract between an owner and a contractor stated that if the contractor submitted a claim for more money or a time extension and the owner denied it, then the contractor had 30 days to challenge that decision by either (1) referring the matter to arbitration, (2) pursuing an administrative appeal, or (3) filing a lawsuit. When the contractor attempted to refer two denied claims to arbitration, the owner sought court intervention to quash the arbitration because (1) the contractor had already pursued an administrative appeal with respect to the first claim, and (2) the contractor waited 242 days to refer the second claim to arbitration. The contractor objected, arguing that only the arbitrator, not the court, could decide whether the two claims were arbitrable. The circuit court in Norfolk disagreed with the contractor, and held that it had the authority to decide if the claims could be arbitrated. After an evidentiary hearing, the court agreed with the owner and quashed the arbitration because neither of the claims met the conditions precedent for arbitration.
The lesson? If a contract says only certain claims can be submitted to arbitration, then courts in Virginia have the authority to determine whether a particular claim meets the contract requirements for arbitration.