Arbitrator to decide disputed contract clause

The circuit court should have granted a construction company’s motion to compel arbitration after being sued by homeowners for allegedly defective construction.

An arbitrator must interpret the arbitration clause in the parties’ contract and determine whether it is impossible to conduct arbitration within the clause’s terms.

Overview

The Alexanders, the homeowners in this case, claim that allegedly faulty construction by their contractor, Brush Arbor, caused the home to sustain water damage. After the Alexanders filed their complaint, Brush Arbor moved to compel arbitration based on a clause in the parties’ contract that stated: “Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the Better Business Bureau under its Construction Industry Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.”

In the circuit court, the Alexanders and Brush Arbor agreed that the BBB “does not have any construction industry arbitration rules.” The court concluded that to “order arbitration under the terms of this agreement would be an order to conduct an impossibility[,]” and denied the motion. Brush Arbor argued in a motion for reconsideration that an arbitrator was the proper decision maker regarding the arbitration clause’s validity. The court denied that motion as well.

Arbitrator decides

The parties’ dispute centers on the proper interpretation of the arbitration clause. The Alexanders “essentially argue that the contractual language requiring arbitration using the Better Business Bureau’s rules means rules promulgated by the Better Business Bureau. Because the Better Business Bureau has not promulgated its own rules, they reason, it is impossible to enforce this clause.

“Brush Arbor responds that the agreement did not require the Better Business Bureau to promulgate any such rules. Instead, it argues, it would have been perfectly proper under the contract for the Better Business Bureau’s arbitrator to use construction industry arbitration rules or any other rules that the Better Business Bureau might choose to employ. …

“Brush Arbor further contends that the doctrine of impossibility does not apply even if the agreement contemplated that the Better Business Bureau would devise its own rules of arbitration.”

The issue in this case is “straightforward.” Does the parties’ dispute arise from, or relate to, their contract? “The answer is plainly yes. … and, therefore, an arbitrator must resolve them. We hold that the circuit court erred in concluding otherwise.

“The fact that the controversy or claim deals with the interpretation of the arbitration clause of the contract does not change the outcome. The arbitrator will need to (1) interpret the arbitration clause, (2) depending on how the arbitrator interprets the arbitration clause, determine whether the impossibility defense applies, and (3) finally, depending on the arbitrator’s answer to that question, resolve the Alexanders’ underlying claims.”

Reversed.

Brush Arbor Home Construction v. Alexander, et al. (McCullough) Record No. 180454, Feb. 21, 2019; Loudoun Circuit Court (Sincavage). Christopher Ivan Kachouroff, Robert John Cynkar for Appellant; Thomas Kenneth Plorchan Jr., Jessica Elizabeth McCollum for Appellees. VLW 019-6-007, 5 pp.