So, what gets arbitrated and what gets litigated?

Home buyers may have reason to be distrustful of arbitrating under National Academy of Conciliators rules (does this group still exist?), but spliting claims into two forums, litigation and arbitration must be costly even if you are possibly getting two bites at the apple. This is the probable outcome from Langfitt v. Jackson, - Ga. App. -, --- S.E.2d ----, 2007 WL 914330 (Ga.App.)... Home buyers may have reason to be distrustful of arbitrating under National Academy of Conciliators rules (does this group still exist?), but spliting claims into two forums, litigation and arbitration must be costly even if you are possibly getting two bites at the apple. This is the probable outcome from Langfitt v. Jackson, - Ga. App. -, --- S.E.2d ----, 2007 WL 914330 (Ga.App.). In this case, the home buyers brought claims in court against the builders. There was a construction contract and a home buyer warranty (HBW), the latter of which contained an arbitration agreement.


This case illustrates the difficulty in separating arbitral from non-arbitral claims in the absence of a broad clause covering all claims. Here, the construction contract did not have an arbitral provision, but the HBW did. Although a claim for breach of the HBW would be clearly arbitrable, it is not so clear that other claims arising from the construction contract are not. Quoting and citing a Texas case (God forbid), the Court states that “[i]n determining whether the arbitration agreement applies to these claims, we must ‘focus on the complaint's factual allegations rather than the legal causes of action asserted.’ (Citation and punctuation omitted.) In re FirstMerit Bank, N. A., 52 S.W.3d 749, 754 (Tex.2001).” The court notes that claims based on the construction agreement but framed in “the language of warranty” must be arbitrated. It’s almost a roundabout method of incorporation by reference as the Court comments on how the construction contract referred to the HBW despite no express incorporation of the HBW arbitration provision.

Before getting to the problem of which claims were covered by the arbitration agreement, the Court had to decide whether the defendants had waived their right to enforce the arbitration provision. The Court determined that defendants did not waive their right to arbitrate home buyer’s warranty claims despite one defendant’s failure to initially raise defense of arbitration at the on-set of the suit. Nor did defendants’ participation in court-ordered mediation or their failure to seek an interlocutory appeal from the denial of a motion to stay and compel arbitration waive the right to raise the issue on a final appeal. (citing Bishop Contracting Co. v. Center Bros., 213 Ga.App. 804, 805(1)(445 S.E.2d 780) (1994)). The Court cited with approval the 11th Circuit’s standard for waiver which requires not only for the party to act inconsistently with the arbitration right, but to in some way prejudice the other party in so acting. (citing USA Payday Cash Advance Center # 1, Inc. v. Evans, 281 Ga.App. 847, 849 (637 S.E.2d 418) (2006), quoting S & H Contractors v. A.J. Taft Coal Co., 906 F.2d 1507, 1514(III) (11th Cir.1990)).

The homeowners also contended that the arbitral provision in the HBW was unenforceable because they didn’t initial the provision as required under OCGA 9-9-2(8). Although it could have relied on its previous decision in Haynes v. Fincher, 241 Ga. App. 179, 525 S.E.2d 405 (1999) (OCGA 9-9-2(8) does not apply to home buyer’s warranties), the Court pretermitted the issue and found preemption by the FAA.

Yet again, the Court seems to ignore the fact that the arbitral provision clearly granted the arbitrator the power to determine what issues were arbitrable. Nevertheless, the court took it upon itself to decide the challenges to arbitrability and remanded to the trial court for determination of the scope of the clause over specific claims.