Improper Application of Arbitration Clause Leads to Remand in Properplates Case

Indiana, like other states, has a strong policy favoring arbitration agreements, and Indiana courts construe arbitration clauses broadly to make matters abitrable so long as they reasonably fit within the language of the clause. In Haddad v. Properplates, Inc., the Indiana Court of Appeals identified a rare instance where a dispute did not reasonably fit within the language of the arbitration agreement.

The Haddads entered a construction contract with a contractor, Properplates. When a dispute arose, the Haddads filed a complaint in Indiana state court alleging various claims. Properplates denied those claims, filed counterclaims, and moved to dismiss without prejudice and compel arbitration of all claims. The trial court granted Properplates’ motion, and the Haddads appealed.

The Indiana Court of Appeals reversed finding that the Haddads’ claims did not fit within the arbitration clause at issue. The arbitration provision provided, in part, that “in the event CONTRACTOR has a dispute concerning this Contract, the CONTRACTOR must submit such dispute to either the American Arbitration Association or to such other private arbitration service which has been approved by the secretary of the Executive of Consumer Affairs and Business Regulations, and the consumer shall be required to submit to such arbitration as provided under current state and federal laws.” The Court of Appeals found that the Haddads only agreed to arbitrate Properplates’ counterclaims. The arbitration agreement did not require the Haddads to submit their own affirmative claims to arbitration.

Properplates admitted that the Haddad’s claims were not arbitrable, but it argued that by denying those claims, Properplates created a Contractor “dispute” under the arbitration agreement. The Court of Appeals rejected that argument concluding it was contrary to the plain language of the contract, which contemplated certain disputes would not be arbitrable.

The Court of Appeals acknowledged there was overlap between Properplates’ counterclaims and the Haddads’ claims. However, Indiana Code Sec. 34-57-2-3(f) provides that a trial court may determine that claims not subject to the arbitration agreement may be litigated first before entering an order to arbitrate. Thus, the Court of Appeals reversed and remanded the case for the trial court to determine whether to delay the arbitration pending resolution of the Haddads’ claims.

Properplates is a reminder that there can be limits to typically broadly construed arbitration agreements. Any limits imposed by courts on such agreements will depend on the language of the agreements and the approach a particular state’s law takes with respect to arbitration and contract interpretation generally. The best way to avoid having to litigate these sorts of arbitrability disputes is by drafting an arbitration clause with clear, plain language that effectively delineates the parties’ agreed scope of arbitrable disputes.