Arbitration Agreements: What Constitutes Waiver And What Constitutes A Contract Of Adhesion?

Lawyers in Tennessee see more and more arbitration clauses in contracts and thus more and more people trying to avoid these provisions by arguing that the provision was waived or invalid because the contract requiring arbitration was a contract of adhesion.

In Skelton v. Freese Construction Company, Inc.  the Tennessee Court of Appeals gives us some insight into both these issues. In this case, the defendant did not file its motion to compel arbitration until three years after the commencement of the suit. During that time, the defendant had filed an answer, answered discovery and filed a motion to dismiss based on standing. 

However, in reviewing the record, the Court of Appeals determined that much of the delay had been occasioned by the plaintiff. Specifically, the plaintiff had failed to timely comply with court orders, had changed counsel and filed amended complaints to correct standing issues and other errors. In addition, some of the delay was related to the parties’ attempts to resolve the arbitration issue on their own. Moreover, the Court of Appeals noted the defendant had expressly reserved its right to arbitrate the dispute in its answer to the plaintiff’s second amended complaint and had filed its motion to compel within two months of the filing of the second amended complaint (which finally resolved the standing issues). Further, the Court of Appeals noted the defendant’s motion to dismiss was related to standing as opposed to the merits of the underlying case. All in all, there was not a "clear, unequivocal and decisive" act by the defendant which signaled its intention to forgo its right to arbitrate.

As for the adhesion issue, the plaintiff filed an affidavit stating the contract had been presented to him in a "take-it or leave-it" manner. The Court of Appeals found this conclusory statement to be insufficient and noted that in general, in order to find a contract of adhesion, evidence must be submitted to establish: (1) the other party would not have performed the service without execution of the contract, (2) the other party refused to negotiate on the provision; (3) the services could not be obtained from another provider; (4) one party to the negotiations was weaker than the other; or (5) one party to the negotiations possessed superior knowledge of subject matter. In this case, no such evidence was presented and so the trial court was reversed and the case was remanded for entry of an order compelling arbitration.