In Country Life Homes, Inc. v. Shaffer, (Del. Ch., Jan. 31, 2007), 2007 WL 333075, read opinion here, the Chancery Court addressed an issue of "competing arbitration awards" and determined that the first decision would prevail. The buyers of a home signed a construction agreement that included an arbitration clause and they later signed a warranty agreement that also provided for arbitration by a different arbitration service. The arbitrator selected pursuant to the warranty agreement (the second agreement), rendered his decision first and found in favor of the builder on claims regarding the construction of the house. A few weeks later, an arbitrator who heard claims based on the first agreement rendered his decision in favor of the homeowners. Arguably the decisions of each arbitrator, though reaching different conclusions, covered the same claims.
The court reasoned that when 2 conflicting agreements between the same parties on the same subject matter exist, the newer agreement will control to the extent that the new contract is inconsistent with the old one. (citation omitted to case law and to Corbin’s treatise on contracts in which he describes the new contract as "both a rescission and discharge by substitution" of the old one.) Here the court noted a recent decision giving the arbitrator the power to decide arbitrability if the parties simply incorporate the rules of the arbitration service, such as the AAA. See James & Jackson LLC v. Willie Gary LLC, 906 A.2d 76, 80 (Del. Ch. 2006).
The court also discussed the Delaware statutes for "confirming" arbitration awards, or modifying them and/or vacating them under 10 Del. C. Sections 5713; 5714 or 5715, as well as the public policy that favors upholding decisions by arbitrators in binding arbitrations. See footnote 17.
In sum, because the parties agreed that the first arbitrator’s award was final and binding, the decision of the second arbitrator was beyond his powers to grant, thus giving res judicata effect to the first arbitration decision.
In a closing footnote the court recognized that the result might be unsettling due in part to the conclusion in the court’s opinion being impacted by the better administration by the arbitration service that scheduled the hearing faster and rendered a decision sooner (even though the second decision was from the arbitration service where the first claim was filed.)
This case underscores the uneven handling of claims by the various ADR providers such as the AAA, which in my view also emphasizes the need for a few drafting tips to be observed when drafting arbitration clauses:
(i) do not become a hostage to the arbitration service provider. (For example, in this case, if the provider was faster in handling and scheduling the claim, and rendering a decision, that decision may have prevailed.)
(ii) consider your own timetable for scheduling the arbitration hearing and use your own procedure for selecting the arbitrator;
(iii) do not simply incorporate the rules of the AAA, for example. As noted in the Willie Gary case, supra, such wholesale use of the AAA rules, for example, may prevent the court from granting expedited injunctive relief–and this case provides a striking example of why service providers such as the AAA, in my opinion, are ill-suited for providing expedited treatment of an urgent matter and how, in my humble view, their lack of administrative speed can have an adverse impact on one’s case.
Yes, one might conclude that the use of an independent arbitrator (such as a retired judge, for example), may be more effective that the use of an ADR service company.