It’s Still the Law: Incorporating the AAA Rules Delegates Determination of Arbitrability to the Arbitrator

Holifield v. Barclay Properties, Ltd.

Dallas Court of Appeals, No. 05-21-00239-CV (October 5, 2021)

Justices Schenck (Opinion, linked here), Smith, and Garcia

Ken Carroll

        Barclay built and sold a home to the Holifields. When construction defects allegedly cropped up, the Holifields sent notice of those defects not only to Barclay, but also to others with which Barclay was hoping to do business. Because of that, Barclay sued the Holifields for tortious interference. But the contract between Barclay and the Holifields contained a broad arbitration provision, in which the parties agreed that “any controversy or claim … arising out of or relating to … this Contract [or] … the construction and/or sale of the Property” would be “submitted to binding arbitration with the AAA.” When the Holifields moved to compel arbitration of Barclay’s tortious interference claim, however, the trial court denied that motion. The Dallas Court of Appeals reversed, ruling that “it is for the arbitrator to decide whether Barclay must arbitrate its claim against the Holifields.”

        In addition to being broad in scope, the parties’ arbitration agreement provided that disputes would be arbitrated “in accordance with the Construction Industry Arbitration Rules of the AAA.” AAA Construction Rule 9 dictates that the arbitrator “has the power ‘to rule on his or her own jurisdiction.’” As a result, the Court said, the issue of arbitrability was entrusted to the arbitrator, not the trial court. “When, as here, the parties agree to a broad arbitration clause and explicitly incorporate rules empowering the arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable evidence of the parties’ intent to delegate such issues to an arbitrator.” In fact, the Court said, “Where the parties’ contract clearly and unmistakably delegates the arbitrability question to the arbitrator, the court possesses no power to decide the arbitrability issue.”

        Barclays argued that in Jody James Farms v Altman, 547 S.W.3d 624 (Tex. 2018), the Supreme Court of Texas had rejected the principle that incorporation of the AAA rules constituted “clear and unmistakable evidence of the parties’ intent to delegate” the determination of arbitrability to the arbitrator. Not so, said the Dallas Court. The Supreme Court in Jody James rejected that principle only in the context of an arbitrability dispute between a party that was a signatory to the arbitration agreement and another party that was not. It did not rule on the issue in the context presented here, where both parties had agreed to delegate arbitrability to the arbitrator under the AAA rules.