Canaan Homes LLC v. Perchuhy Kazhoyan Cummings
1047224
Va. Ct. App.Aug 29, 2023Background
- In Aug. 2020 Canaan Homes contracted with the Cummingses to build a house for $767,827; the contract contained Clause H (Default/Termination) and Clause I (Dispute Resolution/Arbitration).
- Clause I required "final and binding arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association or the Construction Arbitration Inc at our option," and included a timing sentence about filing a demand for arbitration relative to the statute of limitations.
- The Cummingses sent a written default notice on Aug. 10, 2021, declaring the contract "null and void," and sued in April 2022 for violations of the Virginia Consumer Protection Act, conversion, and to invalidate a mechanics lien.
- Canaan Homes moved to compel arbitration, arguing the clause incorporated the AAA Rules (which vest arbitrability decisions in the arbitrator); the Cummingses argued the clause was void/unconscionable (including a claim the clause required waiting years to demand arbitration) and that default voided the arbitration clause under Clause H.
- The trial court denied arbitration, concluding the contract did not incorporate the AAA Rules and finding Clause I ambiguous and unenforceable; the Court of Appeals reversed, holding the clause incorporated the AAA Rules, that arbitrability belongs to the arbitrator, Clause H did not void arbitration, and Clause I is reasonably read and enforceable.
Issues
| Issue | Plaintiff's Argument (Cummingses) | Defendant's Argument (Canaan Homes) | Held |
|---|---|---|---|
| Who decides arbitrability? | Court should decide because contract only "refers" to AAA rules as procedural, not as incorporated term. | Clause I incorporates AAA Construction Industry Rules, which give the arbitrator authority to decide arbitrability. | Reversed: incorporation is clear; arbitrator decides arbitrability. |
| Does Clause I incorporate the AAA Rules? | The language is merely descriptive and does not clearly incorporate the AAA Rules. | The phrase "in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association" incorporates those rules. | Reversed: contractual language incorporates the AAA Rules. |
| Did Clause H (default termination) void arbitration? | Default notice rendered the contract null and void, eliminating arbitration obligation. | Clause H suspends performance but does not strip parties of remedial procedures (including arbitration) pending a factfinder's determination of default. | Affirmed (trial court correctly found Clause H did not void Clause I). |
| Is Clause I unenforceable because timing sentence is ambiguous/unconscionable? | The sentence could be read to require filing only after the statute of limitations expires (unreasonable and unconscionable). | The provision reasonably reads as allowing a reasonable time to file (i.e., does not mandate waiting until after limitations expire); even if awkward, it is enforceable. | Reversed: the better, reasonable reading extends the limitations period for arbitration and does not render Clause I unenforceable. |
Key Cases Cited
- Brush Arbor Home Constr., LLC v. Alexander, 297 Va. 151 (Va. 2019) (contractual interpretation de novo for arbitration clauses)
- Waterfront Marine Constr., Inc. v. N. End 49ers Sandbridge Bulkhead Grps. A, B & C, 251 Va. 417 (Va. 1996) (absent clear intent, courts resolve arbitrability)
- Simply Wireless, Inc. v. T-Mobile US, Inc., 877 F.3d 522 (4th Cir. 2017) (language incorporating arbitration provider rules constitutes clear intent to delegate arbitrability)
- Brenco Enters., Inc. v. Bitesquad.com, LLC, 297 F. Supp. 3d 608 (E.D. Va. 2018) (referencing AAA rules manifests intent to commit arbitrability to arbitrator)
- TotalEnergies E&P USA, Inc. v. MP Gulf of Mexico, LLC, 667 S.W.3d 694 (Tex. 2023) (agreement to arbitrate "in accordance with the rules of the AAA" incorporates AAA Rules)