Michigan Court Holds Violation of Arbitration Agreement Obligating AAA to Appoint an Arbitrator Possessing Specified Qualifications is Subject to Pre-Award Redress

Oakland-Macomb Interceptor Drain Drainage Dist. v. Ric-Man Constr., Inc.,
2014 Mich. App. LEXIS 204 (Mich. Ct. App. Jan. 30, 2014)

The Michigan Court of Appeals, applying the Federal Arbitration Act, 9 U.S.C. § 1, et seq., ruled that while a court generally will not entertain a suit to address pre-award objections to the impartiality or expertise of an arbitrator, pre-award relief is available where a third-party arbitration administrator appoints an arbitrator who fails to meet specific qualifications spelled out in the parties’ arbitration agreement.

The case involved a multi-million dollar dispute between a public sector drainage district and a construction company (the “parties”) arising out of a construction contract. The parties, by amendment to the construction contract added a detailed arbitration agreement. The new arbitration agreement submitted the parties’ dispute to the American Arbitration Association (AAA). The provision outlined arbitrator selection criteria to be followed by the AAA in the event that it had to appoint one of the three arbitrators contemplated by the arbitration agreement. Among other things, the agreement required that the attorney member of the panel be a member of the AAA’s Large Complex Construction Dispute panel with at least 20 years of experience in construction law with an emphasis in heavy construction.

After the parties were unable to select the attorney arbitrator for their panel, the position was left to be filled by the AAA. However, the AAA appointed an arbitrator who did not satisfy the contractual selection criteria, even though another arbitrator who did satisfy the selection criteria was available. The drainage district immediately objected and subsequently filed this action in state court seeking enforcement of the arbitration agreement. The construction company responded, arguing that a) the drainage district’s action was premature, b) a court cannot second guess an arbitration decision, and c) the drainage district was simply unhappy with the arbitrators selected. The lower court agreed with the construction company.

On appeal, the Court of Appeals reversed, holding that “a party may petition a court for relief before an arbitral award has been made if: 1) the arbitration agreement explicitly specifies detailed qualifications the arbitrator(s) must possess; and 2) the third-party arbitration administrator fails to appoint an arbitrator that meets those qualifications.”

The Court observed that having a panel with the specialized qualifications necessary to make an informed decision about the case motivates parties’ decisions to arbitrate technically and legally complex matters. The Court further observed that, in this case, the criteria and method for choosing arbitrators were “at the heart of the arbitration agreement”. Finally, the Court noted that parties enter into arbitration agreements with the expectation that third-party arbitral agencies will honor important provisions of their agreement. Here, notwithstanding the plain language of the arbitration agreement, the AAA failed to follow arbitrator selection provisions.

To view the full text of this decision, courtesy of Lexis ®, click here .

James M. Kwartnik, Jr.

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