Build Group, Inc v. Indian Harbor Insurance Company

Background

Indian Harbor moved to dismiss or stay Build Group’s case. The parties had an arbitration agreement incorporating the American Arbitration Association’s Commercial Arbitration Rules. Those rules delegated the question of arbitrability—whether the dispute must be arbitrated—to the arbitrator.

Build Group argued that the entire arbitration agreement was unconscionable under California law. The opinion does not describe the underlying dispute between the parties.

Court’s reasoning

The court held that it could not consider Build Group’s unconscionability arguments because Build Group did not specifically refer to the delegation provision or make arguments about who should decide arbitrability. The court relied on Supreme Court and Ninth Circuit precedent requiring a party opposing arbitration to separately challenge the delegation provision, even when the challenge is the same as the challenge to the arbitration agreement as a whole.

Ruling and next steps

The court granted Indian Harbor’s motion to dismiss or stay and stayed the case pending resolution of Indian Harbor’s motion to compel arbitration in the Southern District of New York. The parties must file a status report 14 days after that motion is decided. If the case is sent to arbitration to decide arbitrability, they must file another status report 14 days after the arbitrator decides whether the case is subject to arbitration. The order did not decide whether the dispute is arbitrable or whether the arbitration agreement is unconscionable.