Nuts & Bolts | Construction Law Blog

Many construction participants know arbitration provides a fair, efficient and expeditious process well-suited to resolving construction disputes. One key to maximizing the efficiencies of arbitration is to avoid disputes over the threshold issue of whether an arbitration agreement is enforceable. This blog examines a recent Missouri case highlighting one potential pitfall to avoid so that an agreement to arbitrate is enforceable under Missouri law.

In a recent ruling, the U.S. Supreme Court sustained the well-established principle that the Federal Arbitration Act pre-empts state laws that specifically disfavor arbitration agreements.

In Kindred Nursing Centers, L.P. v. Clark, et al, 16-32 (May 15, 2017), the U.S. Supreme Court overruled a Kentucky Supreme Court decision not to enforce arbitration agreements between a nursing home and residents that had been signed by family members on behalf of the residents pursuant to powers of attorney. In the underlying case, two family members each held a power of attorney that designated the family member as an “attorney-in-fact” providing broad authority to manage the affairs of the residents. Notably, one power of attorney provided for the family member to institute legal proceedings and to enter into contracts, and the other power of attorney provided “full power” to the family member to transact, handle and dispose of all matters including entering into contracts. The family members used their powers of attorney on behalf of the residents to sign contracts with the nursing home that contained broad arbitration agreements.

Arbitration continues to be the chosen dispute resolution process for many in the construction industry. Generally, arbitration is considered an efficient and cost-effective way to resolve most typical construction disputes.

Selecting arbitration as the dispute resolution process requires a written agreement. Most often, the arbitration agreement is included among many terms and conditions in the contract for a project. It is typically much easier to negotiate terms of arbitration agreement before a dispute arises as opposed to afterward, when parties often disagree about everything. Therefore, for those who want to make the most of the arbitration process, some advance planning is necessary to draft and negotiate a tailored arbitration agreement to take maximum advantage of the benefits.