Many construction contracts and subcontracts provide for arbitration of disputes. Some of them give just one of the parties an option to require arbitration. Such unilateral arbitration clauses are viewed by some courts with disfavor. See DiMercurio v. Sphere Drake Insurance, PLC, 202 F.3d 71, 81 (1st Cir. 2000) (“We adhere to our view that one-sided agreements to arbitrate are not favored.”). Are they nevertheless enforceable in New Hampshire?
To be enforceable, contracts require “consideration,” a bargained-for exchange of value or promises of value on both sides. A legal doctrine called “mutuality of obligation” – or in lay terms, if both sides are not bound, neither side is – comes into play here. It is clear that “the equal obligation . . . to arbitrate disputes . . . is enough to ensure mutuality of obligation and thus constitute consideration,” Rosen v. Genesis Healthcare, LLC, No. 20-cv-1059-PB, 2021 DNH 032 (Feb. 5, 2021). But when an equal obligation to arbitrate is absent, matters are less certain.
If the mutuality requirement is applied separately to the arbitration provision within a larger contract, chances are that a unilateral arbitration clause will not be enforced. Such was the case in United States ex rel. Birckhead Electric, Inc. v. James W. Ancel, Inc., 2014 WL 2574529 (D. Md. June 5, 2014), a payment dispute between a subcontractor and contractor on a federal project. The contractor sought to compel arbitration based on the following clause in the subcontract: “All disputes between the Contractor and Subcontractor, not involving the Owner’s act, omissions or responsibilities shall, at the Contractor’s sole option, be resolved by arbitration in accordance with the rules of the American Arbitration Association.” The court sustained the subcontractor’s objection that unilateral arbitration clauses should not be enforced: “Because the arbitration provision in this case binds only one party, it is unenforceable.”
If, however, mutuality is gauged with respect to the contract as a whole rather than with respect to the arbitration clause viewed in isolation, the outcome will be different. An example is United States ex rel. Harbor Construction Co. v. T.H.R. Enterprises, Inc., 311 F.Supp.3d 797 (E.D.Va. 2018), which construed the following subcontract clause: “At CONTRACTOR’s sole election, any and all disputes arising in any way or related in any way or manner to this Agreement may be decided by mediation, arbitration or other alternative dispute resolution proceedings as chosen by CONTRACTOR.” The court ordered arbitration over the subcontractor’s objection: “[A]s long as the contract as a whole is supported by adequate consideration, an arbitration provision need not impose a mutual obligation to arbitrate in order to be valid.” Id. at 803.
Neither case mentioned Rent-a-Center, West, Inc. v. Jackson, 561 U.S. 63, 70 (2010), which distinguished challenges to “the validity of an agreement to arbitrate” from challenges to “the contract as a whole” – and held that “only the first type of challenge is relevant to the court’s determination whether the arbitration agreement at issue is enforceable.” This might suggest a focus for the mutuality inquiry solely on the arbitration provision. But at least one court has concluded that Rent-a-Center “does not require that an arbitration clause be isolated and subjected to a mutuality test,” United States ex. rel. Maverick Construction Management Services, Inc. v. Consigli Construction Co., Inc., 873 F.Supp.2d 409, 415 (D.Me. 2012).
While the New Hampshire Supreme Court has not announced which approach it favors, it has held in other contexts that mutuality of remedy is not a requirement of a valid contract. Gulf Oil Corp. v. Rybicki, 102 N.H. 51, 54 (1959) (“If want of mutuality of obligation is the gist of their argument, it is no more acceptable. The lease is not invalid merely because the right to terminate it is conferred upon one party alone.”). Because arbitration agreements do not specify the remedy for a breach of contract but only the forum in which the remedy will be determined, this precedent may not be conclusive. But it does suggest that in New Hampshire mutuality of obligation is to be searched for in the contract as a whole, rather than in individual clauses.
To be enforceable, contracts require “consideration,” a bargained-for exchange of value or promises of value on both sides. A legal doctrine called “mutuality of obligation” – or in lay terms, if both sides are not bound, neither side is – comes into play here. It is clear that “the equal obligation . . . to arbitrate disputes . . . is enough to ensure mutuality of obligation and thus constitute consideration,” Rosen v. Genesis Healthcare, LLC, No. 20-cv-1059-PB, 2021 DNH 032 (Feb. 5, 2021). But when an equal obligation to arbitrate is absent, matters are less certain.
If the mutuality requirement is applied separately to the arbitration provision within a larger contract, chances are that a unilateral arbitration clause will not be enforced. Such was the case in United States ex rel. Birckhead Electric, Inc. v. James W. Ancel, Inc., 2014 WL 2574529 (D. Md. June 5, 2014), a payment dispute between a subcontractor and contractor on a federal project. The contractor sought to compel arbitration based on the following clause in the subcontract: “All disputes between the Contractor and Subcontractor, not involving the Owner’s act, omissions or responsibilities shall, at the Contractor’s sole option, be resolved by arbitration in accordance with the rules of the American Arbitration Association.” The court sustained the subcontractor’s objection that unilateral arbitration clauses should not be enforced: “Because the arbitration provision in this case binds only one party, it is unenforceable.”
If, however, mutuality is gauged with respect to the contract as a whole rather than with respect to the arbitration clause viewed in isolation, the outcome will be different. An example is United States ex rel. Harbor Construction Co. v. T.H.R. Enterprises, Inc., 311 F.Supp.3d 797 (E.D.Va. 2018), which construed the following subcontract clause: “At CONTRACTOR’s sole election, any and all disputes arising in any way or related in any way or manner to this Agreement may be decided by mediation, arbitration or other alternative dispute resolution proceedings as chosen by CONTRACTOR.” The court ordered arbitration over the subcontractor’s objection: “[A]s long as the contract as a whole is supported by adequate consideration, an arbitration provision need not impose a mutual obligation to arbitrate in order to be valid.” Id. at 803.
Neither case mentioned Rent-a-Center, West, Inc. v. Jackson, 561 U.S. 63, 70 (2010), which distinguished challenges to “the validity of an agreement to arbitrate” from challenges to “the contract as a whole” – and held that “only the first type of challenge is relevant to the court’s determination whether the arbitration agreement at issue is enforceable.” This might suggest a focus for the mutuality inquiry solely on the arbitration provision. But at least one court has concluded that Rent-a-Center “does not require that an arbitration clause be isolated and subjected to a mutuality test,” United States ex. rel. Maverick Construction Management Services, Inc. v. Consigli Construction Co., Inc., 873 F.Supp.2d 409, 415 (D.Me. 2012).
While the New Hampshire Supreme Court has not announced which approach it favors, it has held in other contexts that mutuality of remedy is not a requirement of a valid contract. Gulf Oil Corp. v. Rybicki, 102 N.H. 51, 54 (1959) (“If want of mutuality of obligation is the gist of their argument, it is no more acceptable. The lease is not invalid merely because the right to terminate it is conferred upon one party alone.”). Because arbitration agreements do not specify the remedy for a breach of contract but only the forum in which the remedy will be determined, this precedent may not be conclusive. But it does suggest that in New Hampshire mutuality of obligation is to be searched for in the contract as a whole, rather than in individual clauses.
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