Arbitration Under Attack

Kegler Brown Construction Newsletter

The construction industry traditionally has been receptive to arbitration as a speedy and cost-effective alternative to litigation. However, recent criticisms of arbitration have led major trade association forms like AIA and ConsensusDOCS to give parties a chance to choose either arbitration or litigation by checking a box in the contract form.

Courts also have been hard on arbitration recently, particularly when involving consumers or residential construction. Several recent cases have refused to enforce arbitration provisions, finding them unconscionable in certain circumstances. A contract clause is unconscionable where there is an absence of meaningful choice for the parties, together with draconian contract terms unreasonably favorable for the other party.

A recent Ohio court took this trend further yet when it ruled that, by failing to include in the arbitration provision a notice that the homeowner was waiving its constitutional right to a jury trial, the arbitration clause was unenforceable. Bayes v. Merle’s Metro Builders, 2007-Ohio-7125. If this trend continues, arbitration will no longer be a speedy and cost-effective alternative for consumer disputes and overwhelmed courts will have no one to blame but themselves.

In the interim, entities doing business with consumers should exercise great care to draft arbitration clauses that go to great lengths to explain the significance of the arbitration clause (i.e. waiving a jury trial) and to provide a “level playing field” in the arbitration process, in order to increase the chances the clause will be found enforceable if challenged.