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Supreme Court Of Alabama Finds That An Arbitrator Has Power To Determine Location Of Arbitration Proceeding Between Contractors From Different States

In Alliance Investment Company, LLC v. Omni Construction Company, Inc., the Alabama Supreme Court was faced with analyzing who has the power to determine the location of an arbitration proceeding –the arbitrator or the Madison Circuit Court. 2019 WL 1219416 (Ala. 2019).

In 2015, KPS, LLC (“Kroger”) entered into a contract (the “prime contract”) with Omni Construction Company (“Omni”) in which Omni agreed to build a grocery store for Kroger in Madison, Alabama. Omni then entered into a subcontract (the “subcontract”) with Alliance Investment Company, LLC (“Alliance”), in which Alliance agreed to perform concrete work for the construction project. A dispute later arose regarding the payment owed to Alliance for its work on the project, provoking Alliance to sue both Kroger and Omni in Circuit Court. Kroger and Omni jointly filed a motion to stay the Circuit Court proceedings and compel arbitration of Alliance’s claims.

Both the prime contract and the subcontract contained an arbitration clause.  Alliance then filed a demand for arbitration with the American Arbitration Association (“AAA”). A dispute then arose over where the arbitration proceedings should be held.

Alliance, an Alabama company, contended that the arbitration proceedings should be held in Alabama because the prime contract required arbitration occur in Alabama. Kroger and Omni, which are both based in Ohio, contended that the arbitration proceedings should be held in Ohio, arguing that the dispute arose under a provision in the subcontract which requires arbitration in Ohio.

On January 3, 2018, the AAA made an administrative decision that the arbitration would be held in Alabama. Kroger and Omni quickly filed an Emergency Motion to Clarify Order Compelling Arbitration with the Circuit Court, arguing that the subcontract requires the arbitration be held in Ohio, and that the prime contract’s requirement that arbitration be held in Alabama is irrelevant. The Circuit Court then issued an order on January 22, 2018, requiring the Parties to arbitration in Ohio.

Alliance appealed to the Supreme Court of Alabama, arguing that the Circuit Court lacked authority to order the parties to arbitrate in Ohio.  Rule 9(a) of the Construction Industry Arbitration Rules provides, “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement.” 

The Alabama Supreme Court held that, “which argument is correct is not for this Court or the circuit court to decide; rather, that is an issue for the arbitrator to decide under Rule 9(a) of the Construction Industry Arbitration Rules. The Circuit Court lacked the authority to order that the arbitration proceedings be held in Ohio.” The Alabama Supreme Court reversed the Circuit Court’s January 22, 2018 order and remanded the case, directing that the arbitrator should choose the proper forum.

This case should make construction companies and their attorneys aware that a dispute intended to be ultimately resolved in arbitration will be entirely resolved in arbitration. It is important to consider the specific provisions of the Construction Industry Arbitration Rules before unnecessary Circuit Court expenses begin to accumulate.