Can a party repeatedly object to the arbitrator's jurisdiction, continue in the arbitration process, and then contest the arbitration award after the fact? That issue was recently considered by a federal court in Michigan.1 The court held that a subcontractor who filed a counterclaim and participated in discovery and arbitration hearings, had waived its rights to contest the jurisdiction of the arbitrator, despite written objections periodically placed on the record. This is another warning to those who want or need to seriously challenge the jurisdiction of arbitrators: don't continue in the process if you're going to object to arbitrability!
Target, the subcontractor, marked up the original subcontract but did not modify the arbitration clause. Lakeshore, the general contractor, never agreed to the marked-up version. No subcontract was ever signed. Just the same, work went forward with numerous references to the subcontract, until Lakeshore terminated the subcontract. When Lakeshore started arbitration, Target noted its objection several times to the existence of an arbitration agreement and to the jurisdiction of the arbitrator. Target's counsel even stated that the firm was making a "special" appearance since Target contested arbitrability. Despite these objections, Target filed a counterclaim and participated in 16 depositions and eight days of arbitration hearings. After a $2.5 million arbitration award entered against it, Target moved to vacate the award, arguing that there never was an arbitration agreement and the arbitrator had no jurisdiction.
The federal court discussed many cases concerning waiver of arbitration rights or objections to arbitration. Given the subcontractor's extensive participation in the process, the court wryly noted that Target "would not likely be making these same arguments had the arbitrator found in [its] favor." Further, the court cited other cases for the proposition that one can't "await the outcome and then later argue that the arbitrator lacked authority to decide the matter."
The message is clear. If you intend to argue that there is no arbitration agreement, or that the arbitrator has no jurisdiction, placing periodic written objections in the record while participating in the arbitration process will not preserve your position. Walk the walk – put some action behind the objection.
Footnote
1. The case is Lakeshore Engineering Services, Inc. v. Target Construction, Inc., 2014 U.S. Dist. LEXIS 24873, and is available here (subscription required).This article is for general information and does not include full legal analysis of the matters presented. It should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances. The description of the results of any specific case or transaction contained herein does not mean or suggest that similar results can or could be obtained in any other matter. Each legal matter should be considered to be unique and subject to varying results. The invitation to contact the authors or attorneys in our firm is not a solicitation to provide professional services and should not be construed as a statement as to any availability to perform legal services in any jurisdiction in which such attorney is not permitted to practice.
Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. The Duane Morris Institute provides training workshops for HR professionals, in-house counsel, benefits administrators and senior managers.