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A Better Partnership
January 31, 2014

COA enforces arbitrator-qualification provision under the FAA

In a case of first impression in Michigan, the Court of Appeals analyzed a court’s role in enforcing provisions of arbitration agreements under the Federal Arbitration Act (“FAA”).  In Oakland-Macomb Interceptor Drain Drainage District v. Ric-Man Construction, Inc., the parties entered into a detailed arbitration agreement, which required one arbitrator be a lawyer with a background in construction litigation, among other things.  Further, the agreement stated that if the parties could not agree on the arbitrator, the American Arbitration Association (“AAA”) would appoint one.  After a dispute arose, the AAA selected an attorney-arbitrator who clearly did not meet the qualifications even though apparently a suitable attorney-arbitrator was available.  The Drainage District filed suit, prior to any arbitration award, arguing that the AAA repudiated their agreement by failing to provide a suitable candidate.  The Court of Appeals, reversing the trial court, held that when a provision of an arbitration agreement is “central and key to the entire agreement to arbitrate” a court should enforce the agreement prior to an arbitration award. 
The court began by indicating that generally under the FAA courts will not hear suits on the impartiality or expertise of an arbitrator prior to an arbitration award.  The court reasoned, however, when the suit is brought to enforce “key provisions of the agreement to arbitrate,” judicial intervention is proper prior to an arbitral award.  Turning to the FAA, Section 5 states that if parties agree to a method for appointing an arbitrator “such method shall be followed”; Section 4 permits an aggrieved party to petition a federal district court to enforce selection procedure.  Thus, under the FAA, the court stated, courts have a duty to protect arbitral procedures.  Moreover, the court reasoned, as most courts are reluctant to set aside arbitral awards, often times the only meaningful chance for relief is prior to the award.
Therefore, a party may request pre-award relief if: “(1) the arbitration agreement explicitly specifies detailed qualifications the arbitrator(s) must possess; and (2) the third party fails to appoint an arbitrator that meet these specified qualifications.”  As the arbitrator the AAA selected was obviously not qualified, the court directed the trial court to enforce the agreement and order the FAA to appoint a qualified arbitrator.

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