Is this arbitration clause enforceable in North Carolina, and can we seat the arbitration in another state?
The agreement itself is enforceable; the out-of-state SEAT may not be. Under the Revised Uniform Arbitration Act, N.C.G.S. § 1-569.6(a), 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 upon a ground that exists at law or in equity for revoking a contract. The Act splits the gateway questions by statute: the COURT decides whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate (§ 1-569.6(b)), while the ARBITRATOR decides whether a condition precedent to arbitrability has been fulfilled and whether a contract containing a valid agreement to arbitrate is enforceable (§ 1-569.6(c)). Before a controversy arises, § 1-569.4(b) forbids a party to waive or agree to vary the effect of a list of the Act's requirements, § 1-569.6(a) among them, and § 1-569.4(c) provides that a waiver contrary to that section is not effective but does not have the effect of voiding the agreement to arbitrate.
The trap
Two North Carolina statutes attack the place of the arbitration rather than the promise to arbitrate. N.C.G.S. § 22B-3 opens 'Except as otherwise provided in this section' and then makes any provision in a contract ENTERED INTO IN NORTH CAROLINA that requires the arbitration of a dispute arising from the contract to be instituted or heard in another state against public policy and void and unenforceable; the two exceptions are non-consumer loan transactions, and an arbitration commenced in another state pursuant to a forum selection provision with the consent of all parties to the contract at the time the dispute arises. N.C.G.S. § 22B-2 does the same, and more bluntly, for any contract, subcontract or purchase order for the improvement of real property in this State, or the providing of materials for it: a provision is void and against public policy if it fixes the exclusive forum for any arbitration in another state, and equally if it makes the contract subject to the laws of another state, and § 22B-2 carries no exception at all. A third statute points the other way: § 22B-10 makes a contractual jury-trial waiver unconscionable as a matter of law and unenforceable, but says in terms that the section does not prohibit parties from entering into agreements to arbitrate. Whether the Federal Arbitration Act preempts § 22B-3 or § 22B-2 as applied to a contract evidencing interstate commerce is not answered here. Published North Carolina opinions do mention both sections, twenty-five of them § 22B-3 and three of them § 22B-2, but none of those opinions was read on the preemption question, so the point is unread rather than settled, and nothing is asserted about it either way.
9 authorities
- statuteN.C.G.S. § 1-569.6enactment date not established
The words that state the rule
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 upon a ground that exists at law or in equity for revoking a contract.
- statuteN.C.G.S. § 1-569.6enactment date not established
The words that state the rule
The court shall decide whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate. (c) An arbitrator shall decide whether a condition precedent to arbitrability has been fulfilled and whether a contract containing a valid agreement to arbitrate is enforceable.
- statuteN.C.G.S. § 1-569.6enactment date not established
The words that state the rule
(d) If a party to a judicial proceeding challenges the existence of, or claims that a controversy is not subject to, an agreement to arbitrate, the arbitration proceeding may continue pending final resolution of the issue by the court, unless the court otherwise orders.
- statuteN.C.G.S. § 1-569.4enactment date not established
The words that state the rule
(a) Except as otherwise provided in subsections (b) and (c) of this section, a party to an agreement to arbitrate or to an arbitration proceeding may waive, or the parties may vary the effect of, the requirements of this Article to the extent provided by law.
- statuteN.C.G.S. § 1-569.4enactment date not established
The words that state the rule
(b) Before a controversy arises that is subject to an agreement to arbitrate, a party to the agreement may not: (1) Waive or agree to vary the effect of the requirements of G.S. 1-569.5(a), 1-569.6(a), 1-569.8, 1-569.17(a), 1-569.17(b), 1-569.26, or 1-569.28; (2) Agree to unreasonably restrict the right under G.S. 1-569.9 to notice of the initiation of an arbitration proceeding; (3) Agree to unreasonably restrict the right under G.S. 1-569.12 to disclosure of any facts by a neutral arbitrator; or (4) Waive the right under G.S. 1-569.16 of a party to an agreement to arbitrate to be represented by an attorney at any proceeding or hearing under this Article, but an employer and a labor organization may waive the right to representation by a lawyer in a labor arbitration.
- statuteN.C.G.S. § 22B-2enactment date not established
The words that state the rule
A provision in any contract, subcontract, or purchase order for the improvement of real property in this State, or the providing of materials therefor, is void and against public policy if it makes the contract, subcontract, or purchase order subject to the laws of another state, or provides that the exclusive forum for any litigation, arbitration, or other dispute resolution process is located in another state.
- statuteN.C.G.S. § 22B-10enactment date not established
The words that state the rule
Any provision in a contract requiring a party to the contract to waive his right to a jury trial is unconscionable as a matter of law and the provision shall be unenforceable. This section does not prohibit parties from entering into agreements to arbitrate or engage in other forms of alternative dispute resolution.
- statuteN.C.G.S. § 1-569.4enactment date not established
The words that state the rule
(c) A party to an agreement to arbitrate or to an arbitration proceeding may not waive, or the parties shall not vary the effect of, the requirements of this section or G.S. 1-569.3(a), 1-569.7, 1-569.14, 1-569.18, 1-569.20(d), 1-569.20(e), 1-569.22, 1-569.23, 1-569.24, 1-569.25(a), 1-569.25(b), 1-569.29, 1-569.30, 1-569.31. Any waiver contrary to this section shall not be effective but shall not have the effect of voiding the agreement to arbitrate.
- statuteN.C.G.S. § 22B-3enactment date not established
The words that state the rule
Except as otherwise provided in this section, any provision in a contract entered into in North Carolina that requires the prosecution of any action or the arbitration of any dispute that arises from the contract to be instituted or heard in another state is against public policy and is void and unenforceable. This prohibition shall not apply to non-consumer loan transactions or to any action or arbitration of a dispute that is commenced in another state pursuant to a forum selection provision with the consent of all parties to the contract at the time that the dispute arises.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.