239 So. 3d 569
Ala.2017Background
- Rainbow Cinemas (owner) and Consolidated Construction Co. of Alabama (CCC, contractor) signed a 2015 AIA form construction contract that incorporated AIA A201 general conditions, including an Initial Decision Maker (the architect), a mediation requirement, and an AAA-administered arbitration clause.
- A dispute arose during performance; CCC referred a claim to the architect (initial decision maker) but received no timely decision and then requested mediation and later demanded arbitration. CCC also sued Rainbow and two individual defendants (Keshani and Thakker), alleging fraudulent inducement related to the architect appointment.
- Defendants moved to compel arbitration; the trial court denied the motion. Defendants appealed the denial of the motion to compel arbitration.
- CCC argued below that the contract was unenforceable because it was fraudulently induced (specifically that Rainbow had not actually contracted with the architect to serve as Initial Decision Maker) and argued on appeal that defendants cannot satisfy contract conditions precedent to arbitration.
- Defendants argued the arbitrability issues (including whether conditions precedent were met and whether nonsignatory individuals could compel arbitration) were for the arbitrator to decide based on incorporation of the AAA Construction Industry Arbitration Rules.
Issues
| Issue | CCC's Argument | Defendants' Argument | Held |
|---|---|---|---|
| Whether the arbitration clause is unenforceable due to fraud in the inducement | CCC: contract induced by fraud because Rainbow did not retain the architect as Initial Decision Maker | Defs: CCC offered no substantial evidence of fraud; arbitration clause valid | Held: CCC failed to present substantial evidence of fraud; arbitration clause enforceable |
| Whether conditions precedent (initial decision and mediation) barred arbitration | CCC: conditions precedent unsatisfiable because Rainbow never retained the architect | Defs: Whether conditions precedent were met is a procedural question for the arbitrator | Held: Question is one of procedural arbitrability; arbitrator decides, not court |
| Whether CCC can be compelled to arbitrate claims against nonsignatory individuals (Keshani, Thakker) | CCC: individuals did not sign contract so cannot compel arbitration | Defs: Incorporation of AAA rules delegates threshold arbitrability (including nonsignatory issues) to arbitrator | Held: Because contract incorporated AAA rules giving arbitrator power over jurisdiction/validity, arbitrator — not court — must decide whether nonsignatories can compel arbitration |
| Whether trial court erred in denying motion to compel arbitration | CCC: various arguments supporting denial | Defs: trial court should have compelled arbitration | Held: Trial court erred; order reversed and remanded to grant motion to compel arbitration |
Key Cases Cited
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (procedural questions of arbitrability are presumptively for the arbitrator)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (threshold questions of arbitrability generally for courts absent clear and unmistakable delegation)
- Brasfield & Gorrie, L.L.C. v. Soho Partners, L.L.C., 35 So.3d 601 (Ala. 2009) (initial-decision then mediation prerequisites are procedural arbitrability matters for arbitrator)
- Anderton v. Practice-Monroeville, P.C., 164 So.3d 1094 (Ala. 2014) (inclusion of AAA rules can constitute clear and unmistakable delegation of arbitrability issues to arbitrator, including some nonsignatory questions)
- Ex parte Perry, 744 So.2d 859 (Ala. 1999) (party seeking to avoid arbitration on fraud-in-the-inducement grounds must provide substantial evidence)