• Court of Appeals Finds that Party to a Construction Contact Expressly Waived Its Right to Compel Arbitration of Breach of Contract Claim
  • February 12, 2016 | Authors: David S. Coats; John T. Crook; David S. Wisz
  • Law Firm: Bailey & Dixon, L.L.P. - Raleigh Office
  • Many construction contracts contain a provision requiring the parties the conduct arbitration of any claims arising out of the contract in lieu of litigation. A question sometime arises whether a party who invokes the arbitration clause after litigation has already commenced has waived their right to compel arbitration - either expressly or impliedly. In the recent case of T.M.C.S., Inc. d/b/a TM Construction, Inc. v. Marco Contractors, Inc., (No. COA15-354, Dec. 1, 2015), the Court of Appeals held that failure to comply with a specific deadline set forth in the parties’ contractual arbitration clause constituted express waiver of the right to arbitrate.

    In TM Construction, the plaintiff (TM) was a North Carolina licensed general contractor who entered into an agreement with Marco, a construction management company based in Pennsylvania, to renovate a Wal-Mart retail store. The parties’ contract contained a provision whereby “all claims or disputes between the Subcontractor (TM) and the Contractor (Marco) arising out of or related to this Subcontract or the breach thereof . . . shall be decided by arbitration, at the option of the Contractor” in accordance with the rules of the American Arbitration Association. The provision further went on to say, however, that “notice of the demand for arbitration shall be filed in writing with the other party to this agreement and, upon acceptance by the Contractor, if required, filed with the AAA. Such notice must be made within 30 days after the claim or dispute has arisen or within 30 days after the Subcontractor’s work under this Subcontract has been completed, whichever is later.” After a dispute arose between the parties both as the scope of work and payment for the same, on September 4, 2013, TM filed a claim of lien on the real property and served Marco with a claim of lien on funds, and thereafter filed a Complaint in Forsyth Superior Court on its claim of lien. Marco filed an Answer denying any liability, but it was not until September 2014 when Marco filed a motion to compel arbitration proceedings in Pennsylvania (pursuant to separate forum selection clause in the contract). The trial court denied that motion, and Marco appealed.

    The Court of Appeals initially recognized that there is a distinction in North Carolina between an untimely demand for arbitration and a waiver of the right to arbitration. Because the contract contained a specific deadline by which notice of a claim must be made, there was no question of “implied waiver” but instead the issue was whether Marco had forfeited its contractual right to demand arbitration. Marco conceded that the contract contained a 30-day provision, but argued that it required the party asserting the claim (i.e., TM) to submit to the other party (i.e., Marco) a written notice of a demand for arbitration, and such notice would activate Marco’s option to accept the demand or instead allow the dispute to proceed in some other forum. Consequently, since TM never demanded arbitration, Marco argued that its September 2014 demand was timely.

    The Court agreed that the “at the option of the Contractor” phrase seemed to “stack the deck in [Marco’s] favor by reserving a unilateral right to decide whether any potential dispute would be arbitrated.” On the other hand, the notice provisions were clearly bilateral in nature. Furthermore, since Marco drafted the contract, the language of the arbitration clause should be strictly construed against it. As a result, the Court felt that both parties were subject to the 30-day time limit placed on arbitration demands related to disputes under the contract, and thus Marco’s failure to demand arbitration within 30 days after TM gave notice of the lien on funds and lien on real property constituted a waiver of the right to arbitrate.