Arbitration Right Lost

Business partners in a limited liability company got into a dispute over the terms of a sublease. The limited liability company's operating agreement included an arbitration clause requiring disputes to be resolved by arbitration. The sublease included an arbitration clause stating that arbitration would be available only if all parties agreed. The court refused to send the case to arbitration.

WHY THIS IS IMPORTANT... Arbitration is a creature of contract. Unless the contract clearly states an agreement to arbitrate, courts are unlikely to compel arbitration. Because these two contracts conflicted on the agreement to arbitrate, the court took the narrower view. It held that because there was no agreement between the parties to arbitrate this claim under the sublease, the right to arbitrate was lost. The net result is that the parties will probably spend the next three years litigating this issue.