South-Western Legal Studies in Business

Common-Law Arbitration Differs from Arbitration Created Under Statutory Procedures
Description

Michigan high court held that the state arbitration statute specified language to make arbitration agreements binding. Arbitration agreements under common-law may be revoked unless the parties later commit to binding arbitration.

Topic

Alternate Dispute Resolution

Key Words

Arbitration; Award; Revocation; Common Law

C A S E   S U M M A R Y
Facts

Wold Architects bought Strat and Associates. As part of the agreement, Wold hired Thomas Strat under a five-year employment agreement. The employment agreement contained an arbitration provision, but the agreement to buy Stratís company did not. Disagreements then arose about whether the assets Strat was selling to Wold were actually as claimed. Strat filed for arbitration with the American Arbitration Association, claiming that Wold owed more money. The AAA agreed to arbitrate the matter, but said that the purchase of the firm was a commercial dispute separate from the employment agreement. Wold initially talked to the AAA about arbitrating the dispute but then decided to sue Strat, contending that the employment arbitration agreement did not apply to the sale of the company and that arbitration regarding the sale of the company could be revoked by either party because it failed to include language required by state law to be a binding agreement. After complicated proceedings, the matter was appealed to the Michigan high court.

Decision

This matter is not subject to binding arbitration because there was not an arbitration agreement to control disputes regarding the purchase of Stratís firm. Initial discussions to arbitrate the matter were voluntary, so were not binding. Until parties agree to binding arbitration, which requires specific language set down in Michigan law, either party has the right to walk away from the common-law arbitration agreement and go to court instead. The Michigan Arbitration Act provides specific language to create binding arbitration agreements. Parties who ignore that language and process can agree to arbitration by a common-law arbitration process, but such arbitration is not binding until the parties transform the matter by a binding agreement.

Citation

Wold Architects and Engineers v. Strat, 713 N.W.2d 750 (Sup. Ct., Mich., 2006)

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