Following the construction industry and related legal topics in the United States.


Thursday, January 11, 2007

Where goes arbitration and, who says so?

Once again a court, this time the Georgia Supreme Court, has concluded that courts, not arbitrators should decide an issue of arbitrability in the first instance--the issue being the res judicata effect of a previous arbitration. See Bryan County v. Yates Paving & Grading Co., Inc., 2006 WL 3438073 (Ga. Nov. 30, 2006). The Court's decision could expand the role of Georgia courts in deciding procedural issues that are not expressly reserved for arbitration in an agreement between the parties.

This case arose from a public works contract between Bryan County and Yates Paving & Grading Co., Inc., ("Yates"). Yates filed a demand for arbitration and, after a full hearing, won an award of monetary damages, which was confirmed by the trial court and affirmed on appeal. Three years later, Yates filed another demand for arbitration under the contract, claiming the County's wrongful conduct rendered Yates unable to bid on other government contracts. Bryan County answered and asserted in a cross-claim that the new claims for damages were barred by the doctrine of res judicata because they were not raised in the first arbitration. Bryan County filed a motion for summary judgment on its claim that res judicata barred the demand for arbitration and, following a hearing, the trial court granted summary judment to the County and denied Yates' motion to compel arbitration. The Court of Appeals reversed, holding that because the res judicata effect of the first arbitration award fell within the scope of the parties' agreement to arbitrate, the arbitrator, not the court, should have decided whether the arbitration was barred by res judicata.

A four-justice majority found the question of arbitrability is undeniably an issue for judicial determination unless the parties clearly and unmistakably provide otherwise; and, reversed the Court of Appeals--this in the face of the parties' agreement having provided that "all claims, disputes and other matters in question between [the parties] arising out of, or relating to the Contract Documents or the breach thereof will be decided by arbitration."

The three-justice dissent found quite to the contrary, that the issue was one to be decided by the arbitrator, particularly in light of the noted provision in the parties' agreement. The dissent went on to say that they would conclude that a claimed defense of res judicata does not present a "gateway dispute" about whether the agreement to arbitrate is valid or whether the particular claim in dispute falls within the scope of the agreement. Rather, it is a question, like waiver, delay, laches, and estoppel, that bears on the final disposition of the parties' dispute and, as such, presents an issue of procedural arbitrability for the arbitrator to decide.

In any event, care should be taken in crafting one's arbitration clauses to be quite express, especially in Georgia.

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