Build Group, Inc. v. Indian Harbor Insurance Company

Background

Indian Harbor moved to compel Build Group to arbitrate. The parties’ agreement incorporates the American Arbitration Association’s Commercial Arbitration Rules, which delegate questions about arbitrability—whether a dispute must be arbitrated—to the arbitrator.

Build Group’s Challenges

Build Group argued that the delegation provision was unconscionable, meaning unfairly one-sided or imposed. The court explained that it could consider the overall context of the arbitration agreement only to decide whether the delegation provision itself was unconscionable.

Build Group challenged the agreement’s New York choice-of-law provision, but the court found that the argument did not affect the delegation provision. To the extent Build Group argued that California law should govern the underlying breach-of-contract claim, the court said that issue could be raised in arbitration. The court also noted that both parties appeared to agree that California unconscionability law applied to the delegation analysis.

The court rejected Build Group’s procedural-unconscionability argument because the contract was negotiated between two relatively sophisticated businesses and there was no evidence of oppression or surprise. It also rejected the substantive-unconscionability arguments. The requirement to travel to New York was not enough because inconvenience and expense alone do not make a forum unreasonable. The court found no indication that Build Group would be substantially disadvantaged. It further explained that California authority concerning shared arbitrator fees in employee arbitrations had not been extended to commercial arbitrations between businesses. Finally, the provisions barring punitive and exemplary damages and preventing appeals of arbitration awards did not concern the delegation provision itself.

Authority to Compel Arbitration in New York

The court considered whether Section 4 of the Federal Arbitration Act allowed it to compel arbitration in New York. Although some courts have interpreted that provision as limiting a district court’s authority to the district where the motion was filed, neither party disputed this court’s authority here. The court stated that the better interpretation was that the venue limitation applies when a party files a petition to compel arbitration, not when a defendant moves to compel arbitration in response to being sued in the plaintiff’s chosen district.

Ruling and Effect

The court granted the motion to compel arbitration and stayed the case. The parties must file a joint status report every 120 days until arbitration ends. The court also stated that the parties may instead stipulate to dismiss this action without prejudice if Indian Harbor waives any statute-of-limitations defense based on the period during which the dispute is before the arbitrator.