Will Common Law Arbitration Survive Michigan’s New Revised Uniform Arbitration Act?
Posted May. 13th 2015
BY: GENE J. ESSHAKI, ESQ.*
ABBOTT, NICHOLSON, QUILTER, ESSHAKI & YOUNGBLOOD, P.C.
Michigan courts have long recognized a distinction between statutory and common law arbitration. Statutory arbitration is currently governed by MCLA 600.5001. Common law arbitration existed prior to the enactment of any arbitration statute in the state and recognizes that parties to a contract are free to resolve their disputes outside the judicial system via arbitration. Revocability is the main distinction between statutory and common law arbitration. An agreement to submit a matter to common law arbitration may be revoked at any time prior to the award being issued by the arbitrator, while statutory arbitration is irrevocable.
Michigan courts have wrestled with the distinction between statutory and common law arbitration and have even been challenged to declare common law arbitration pre-empted by the Michigan Arbitration Statute, MCLA 600.5001. The Michigan Supreme Court has resisted attempts to abolish common law arbitration and the process continues to be available to parties, at least until July 1, 2013, the effective date of the new Michigan Revised Uniform Arbitration Act (“RUAA”) (MCLA 691.1681), when a further ruling may be required.
Michigan’s existing arbitration statute (MCLA 600.5001) is quite straight forward in establishing the statutory arbitration structure of this state. The statute provides as follows:
- (1) All persons, except infants and persons of unsound mind, may, by an instrument in writing, submit to the decision of 1 or more arbitrators, any controversy existing between them, which might be the subject of a civil action, except as herein otherwise provided, and may, in such submission, agree that a judgment of any circuit court shall be rendered upon the award made pursuant to such submission.
- (2) A provision in a written contract to settle by arbitration under this chapter, a controversy thereafter arising between the parties to the contract, with relation thereto, and in which it is agreed that a judgment of any circuit court may be rendered upon the award made pursuant to such agreement, shall be valid, enforceable and irrevocable save upon such grounds as exist at law or in equity for the rescission or revocation of any contract. Such an agreement shall stand as a submission to arbitration of any controversy arising under said contract not expressly exempt from arbitration by the terms of the contract. Any arbitration had in pursuance of such agreement shall proceed and the award reached thereby shall be enforced under this chapter.
Subsection (3) of this statute exempts collective bargaining agreements from its application and Section 5 further exempts disputes involving any estate, in fee, or for life, in real estate.
Michigan courts have held that MCLA 600.5001 does not abrogate common law arbitration. The courts have reasoned that both Subsection (1), applying to existing disputes being submitted to arbitration, and Subsection (2), applying to subsequently arising disputes under a written contract to be settled by arbitration, require the magic language that “a judgment of any circuit court shall be rendered upon the award made pursuant to such submission.” Further, where such magic language exists, the arbitration provision is irrevocable, except in those instances where the overall contract can be revoked.
Conversely, the courts have also reasoned that in the absence of the magic language that the award shall be subject to confirmation in any circuit court, the parties are left with common law arbitration, revocable by either side at any time prior to entry of the award.
Common law arbitration was developed at a time when the concept of arbitration was disfavored and even repugnant to courts. Historically, courts guarded their jurisdiction quite strictly and were not inclined to permit litigants to remove disputes from their general civil jurisdiction for resolution by private arbitration. Accordingly, under common law arbitration, any party may revoke an agreement to arbitrate at any time up to the point when the award of the arbitrator has been issued.
Initially, it would seem that with modern authorities that universally support private arbitration as a recognized and encouraged dispute resolution process, it would seem logical that the concept of common law arbitration, revocable at-will, would no longer have a place in the jurisprudence of the state. To the contrary, the Michigan Supreme Court as late as 2006, ruled that common law arbitration and statutory arbitration still exist in this state, side-by-side, and serve different yet compatible purposes. See: Wold Architects and Engineers v Strat, 474 Mich 223 (2006). In that case, when faced squarely with the question of whether common law arbitration should be deemed preempted by the Michigan Arbitration Act, a majority of the court held that it was not preempted and was still a valid dispute resolution process available to contracting parties. The essence of the opinion of the Court is that if contracting parties want to utilize a revocable dispute resolution process, they should be free to do so.
Effective July 1, 2013, the new RUAA takes effect in the State of Michigan. That Act, MCL 691.1681, no longer has the requirement of the magic language “subject to confirmation in a court of competent jurisdiction” and, with one exception, applies on its face to all arbitration agreements.
Section 3(1) of the RUAA provides:
- On or after July 1, 2013, this act governs an agreement to arbitrate whenever made.
Section 3(2) exempts from the RUAA arbitrations between members of a voluntary membership organization if arbitration is required and administered by the organization (i.e. disputes involving real estate agents).
The RUAA governs any agreement to arbitrate whenever made. At first blush, with the removal of the requirement of the statutory, magic language that was previously identified in MCLA 600.5001, it seems clear that any agreement to arbitrate is governed by the new Act and non-statutory, common law arbitration has been pre-empted.
In this regard, Section 6 of the RUAA creates some confusion which may require court interpretation before the final conclusion can be reached that common law arbitration is dead.
Section 6(1) provides:
- An agreement contained in a record to submit to arbitration any existing or subsequent controversy arising between the parties to the agreement is valid, enforceable, and irrevocable except on a ground that exists at law or in equity for the revocation of a contract.
“Record” is defined in Section 1(2)(f) as:
- “Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.
In strictly construing Section 3(1) and Section 6(1) of the RUAA, an argument can be made that common law arbitration will continue within the State of Michigan, even though it must conform to certain of the requirements set forth in the RUAA. Section 3(1) clearly sets forth that effective July 1, 2013, the RUAA governs an agreement to arbitrate whenever made. Nothing could be clearer, nor could any argument be made that, other than the exception created in Section 3(2), all arbitration agreements, including agreements involving real estate, are subject to the terms and provisions of the RUAA.
By contrast, Section 6(1) provides that in order to be valid, enforceable and irrevocable, an agreement containing an arbitration clause must be in a “record.” Under the definitional section of the RUAA, Section 1(2)(f), “record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form. Note: nowhere in Section 1 or in the definitional section is there a requirement that the “record” be signed by the parties. Obviously, the statute of frauds may require signed documents containing an arbitration clause, but the RUAA has no such requirement.
Reading Section 3(1) and Section 6(1) together, leaves the conclusion that the RUAA applies to all agreements to arbitrate. This would naturally include common law arbitration agreements. By the same token, Section 6(1) provides that only where the agreement to arbitrate is contained in a “record” is that agreement valid, enforceable and irrevocable. Does this mean that agreements to arbitrate that are not contained in a record, because they are revocable are still recognizable under Michigan common law? Obviously, oral agreements to arbitrate would have to be extremely circumspect in order to avoid the statute of frauds; however, a strict construction of the RUAA can lead to the conclusion that an oral agreement to arbitrate, while governed by the RUAA, is revocable, and if the long history of common law regarding “the revocability rule” persists, there may still be instances in which common law arbitration will occur in this state.
The difficulty in the interpretation that supports common law arbitration lies in the converse reading of subsection 6(1). Under that subsection, agreements to arbitrate that are not contained in a medium (reproducible writing) are not just revocable; they are also not valid or enforceable. Clearly this language compels the conclusion that common law arbitration has been completely preempted by the RUAA. If all agreements to arbitrate are governed by the new Act and, to be valid, enforceable and irrevocable, an agreement to arbitrate must by evidenced by some form of reproducible record, then oral agreements to arbitrate are invalid and all arbitration is now statutory arbitration.
It will be extremely difficult for the courts to reach the opposite conclusion that common law arbitration persists in this State and, indeed, it is a process whose time has passed. At this point, all that is required is for the Supreme Court to finally declare the patient dead.