Michigan Supreme Court
Lansing, Michigan
Chief Justice: Justices:
Opinion Clifford W. Taylor Michael F. Cavanagh
Elizabeth A. Weaver
Marilyn Kelly
Maura D. Corrigan
Robert P. Young, Jr.
Stephen J. Markman
FILED MAY 4, 2006
WOLD ARCHITECTS and ENGINEERS,
Plaintiff-Appellee,
v No. 126917
THOMAS STRAT and STRAT and
ASSOCIATES, INC.,
Defendants-Appellants.
_______________________________
BEFORE THE ENTIRE BENCH
KELLY, J.
We granted leave in this case to determine: whether "common-law"
arbitration should be deemed preempted by the Michigan arbitration act (MAA),
MCL 600.5001 et seq. and, if common-law arbitration continues to exist, (1) what
language must be included in an agreement to make it subject to the rules of
statutory arbitration; (2) whether common-law arbitration agreements should be
unilaterally revocable; and (3) whether the arbitration in this case, if it was
common-law arbitration, became statutory arbitration because of the conduct of
the parties during the arbitration process.
We hold that common-law arbitration is not preempted by the MAA and
that common-law arbitration continues to exist in Michigan jurisprudence. In
addition, common-law arbitration agreements continue to be unilaterally revocable
before an arbitration award is made. And the common-law arbitration in this case
was not transformed into statutory arbitration because of the conduct of the parties
during the arbitration process.
We affirm the Court of Appeals determination that the trial court erred in
granting defendants’ motion for summary disposition and in denying plaintiff’s
motion to vacate the arbitration award.
THE UNDERLYING FACTS
In June 2000, plaintiff Wold Architects and Engineers, an architectural
engineering firm, entered into an agreement to purchase the assets of defendant
Strat and Associates, Inc. (Strat, Inc.), an architectural firm specializing in
government and institutional work. Defendant Thomas Strat (Strat) is the sole
owner of Strat, Inc. As part of the purchase agreement, Strat entered into a five-
year employment agreement with Wold. Under the agreement, he was expected to
develop business and consult. His compensation was based primarily on the
profitability of Wold’s Troy, Michigan, office. The employment agreement
included an arbitration provision:
The parties agree to submit any disputes arising from this
Agreement to binding arbitration. The arbitrator shall be selected
through the mutual cooperation between the representatives or
counsel for the respective parties, failing agreement on which may
be referred by either party to the Detroit Regional Office of the
2
American Arbitration Association for appointment of an arbitrator
and processing under their Voluntary Labor Arbitration Rules.
[Employment/Incentive Compensation Agreement, p 5.]
The asset purchase agreement, unlike the employment agreement, did not
include an arbitration agreement. The purchase agreement transferred, among
other assets, the renovation then in progress of the Macomb County courthouse.
At the time of contracting, Strat, Inc. had already billed the county for 53 percent
of the total project fee. Wold’s senior accounting staff carefully reviewed the
books and status of the project. Also, Wold had the opportunity to inspect the
status of the project.
After the parties entered into the purchase agreement, Wold concluded that,
rather than 47 percent of the project remaining in need of completion, 70 percent
was incomplete. It began to withhold payments due under the employment
agreement on the basis that Strat, Inc. had overstated the percentage of completion
of the courthouse project and other projects.
Strat filed a demand for arbitration with the American Arbitration
Association (AAA) on January 22, 2002, claiming that Wold owed him payments
under the employment agreement. The AAA wrote both parties on February 12,
2002, indicating that its commercial dispute resolution procedures would govern
all disputes rather than the voluntary labor arbitration rules specified in the
contract. The AAA made the change because it deemed the commercial dispute
procedures more apt for the situation at hand. They state that judgment on the
arbitration award may be entered in the circuit court. The parties did not agree to
3
this change in writing, and no writing signed by the parties exists that contains
such a provision.
In March, Wold filed a counter-demand for arbitration claiming that Strat
had billed too much for the courthouse project. The parties then selected an
arbitrator who held a prehearing conference in July. Document exchanges and
witness disclosures followed. Wold agreed to an administration schedule that
included an evidentiary hearing in October 2002.
Wold sent letters to the AAA in August and September questioning the
scope of the arbitration. On October 8, it revoked its agreement to arbitrate,
claiming that Strat had asserted claims that more properly fell under the asset
purchase agreement, which contained no arbitration clause. It objected to use of
the employment agreement arbitration clause because it created “a mess here that
needs to be cleaned up.”
On October 11, the arbitrator decided that the arbitration hearing would
proceed as scheduled. It was his opinion that the arbitration that was agreed to in
the employment agreement could not be revoked unilaterally.
Wold filed the instant action in Oakland Circuit Court seeking a declaratory
judgment that (1) the pending arbitration was invalid because the asset purchase
agreement did not contain an arbitration provision, and (2) the arbitration
provision in the employment agreement was unilaterally revocable because it
lacked the requisite language to be a statutory agreement that is nonrevocable.
The complaint alleged that defendants either negligently or innocently
4
misrepresented the extent of the completion of the courthouse project, which
amounted to fraud in the inducement. Wold also requested a preliminary
injunction to prevent the scheduled arbitration.
At a hearing, the circuit court denied Wold’s motion to enjoin the
arbitration and for summary disposition. It found that each of the claims
submitted to the AAA could be arbitrated without irreparable harm to Wold. It
ruled that the parties had included in their agreement all language required to
qualify for statutory arbitration.
The arbitration proceeded as scheduled. On November 27, the arbitrator
issued an award of $104,559.27 to Strat and declared, “This award is in full
settlement of all claims and counter-claims submitted to this arbitration. All
claims not expressly granted herein are hereby denied.”
Defendants then brought a motion in circuit court for summary disposition
pursuant to MCR 2.116(C)(10). They contended that there was no longer a
genuine issue of material fact concerning whether the parties had entered into a
valid arbitration agreement. Wold moved to vacate the award, claiming that it had
revoked the agreement to arbitrate.
The trial court granted defendants’ motion for summary disposition and
denied Wold’s motion to vacate the award. Wold appealed to the Court of
Appeals, contending, among other things, that the trial court had erred in finding
that the employment agreement provided for binding statutory arbitration. The
Court of Appeals held that the trial court had erred in enforcing the common-law
5
arbitration agreement that Wold had revoked before the award was announced.
Accordingly, the Court of Appeals reversed the judgment of the trial court and
remanded the case for further proceedings. Wold Architects & Engineers, Inc v
Strat, unpublished opinion per curium of the Court of Appeals, issued June 17,
2004 (Docket No. 246874). We granted leave to appeal. 472 Mich 908(2005).
STATUTORY ARBITRATION
We review a trial court's determination regarding a motion for summary
disposition de novo. Fane v Detroit Library Comm, 465 Mich 68, 74; 631 NW2d
678 (2001). This case presents questions of law that are also reviewed de novo.
American Alternative Ins Co, Inc v York, 470 Mich 28, 30; 679 NW2d 306 (2004).
Michigan has long recognized that a distinction exists between statutory
and common-law arbitration. Clement v Comstock, 2 Mich 359 (1852); F J Siller
& Co v Hart, 400 Mich 578, 581; 255 NW2d 347 (1977), citing Frolich v
Walbridge-Aldinger Co, 236 Mich 425, 429; 210 NW 488 (1926). Statutory
arbitration is provided for in MCL 600.5001 et seq. In order for an agreement to
qualify for statutory arbitration, it must meet certain requirements:
(1) All persons, except infants and persons of unsound mind,
may, by an instrument in writing, submit to the decision of 1 or more
arbitrators, any controversy existing between them, which might be
the subject of a civil action, except as herein otherwise provided, and
may, in such submission, agree that a judgment of any circuit court
shall be rendered upon the award made pursuant to such
submission.
(2) A provision in a written contract to settle by arbitration
under this chapter, a controversy thereafter arising between the
parties to the contract, with relation thereto, and in which it is agreed
6
that a judgment of any circuit court may be rendered upon the award
made pursuant to such agreement, shall be valid, enforceable and
irrevocable save upon such grounds as exist at law or in equity for
the rescission or revocation of any contract. Such an agreement
shall stand as a submission to arbitration of any controversy arising
under said contract not expressly exempt from arbitration by the
terms of the contract. Any arbitration had in pursuance of such
agreement shall proceed and the award reached thereby shall be
enforced under this chapter. [MCL 600.5001 (emphasis added).]
MCL 600.5011 divests parties of the power to unilaterally revoke
agreements made pursuant to MCL 600.5001. It provides:
Neither party shall have power to revoke any agreement or
submission made as provided in this chapter without the consent of
the other party; and if either party neglects to appear before the
arbitrators after due notice, the arbitrators may nevertheless proceed
to hear and determine the matter submitted to them upon the
evidence produced by the other party. The court may order the
parties to proceed with arbitration. [Emphasis added.]
MCL 600.5025 provides:
Upon the making of an agreement described in section 5001,
the circuit courts have jurisdiction to enforce the agreement and to
render judgment on an award thereunder. The court may render
judgment on the award although the relief given is such that it could
not or would not be granted by a court of law or equity in an
ordinary civil action.
Because MCL 600.5001(1) applies to agreements made when there is an
existing controversy between the parties, it covers agreements to arbitrate that are
made after a cause of action has accrued. By contrast, MCL 600.5001(2) covers
agreements to arbitrate causes of action that have yet to accrue.
The agreement in this case falls under MCL 600.5001(2), because that
statute covers unaccrued claims. The agreement meets the first requirement of
7
MCL 600.5001(2) because it is in writing. But, the agreement does not provide
that a judgment of any circuit court may be rendered upon the award. Therefore, it
does not qualify under MCL 600.5001(2) as an agreement providing for statutory
arbitration, and it is not enforceable under MCL 600.5011 or MCL 600.5025.
COMMON-LAW ARBITRATION
When the parties’ agreement to arbitrate does not comply with the
requirements of MCL 600.5001, the parties are said to have agreed to a common-
law arbitration. Frolich, supra at 429. What characterizes common-law
arbitration is its unilateral revocation rule. 4 Am Jur 2d, Alternative Dispute
Resolution, § 94, p 148. This rule allows one party to terminate arbitration at any
time before the arbitrator renders an award.
Although this Court first used the term “common law arbitration” as long
ago as 1852,1 it was not until 1890 that we specifically stated:
It is conceded that an agreement to submit all matters in
controversy between parties to arbitration, and thus oust courts of
their jurisdiction, is void, and may be repudiated by either party at
any time before award is made. [Chippewa Lumber Co v Phenix Ins
Co, 80 Mich 116, 120; 44 NW 1055 (1890) (emphasis deleted).][2]
1
Clement, supra.
2
The Court’s use of “conceded” indicates that this was settled law in 1890
despite the nonappearance of the rule in any opinion by this Court before
Chippewa. This is further shown by the decisions cited from other jurisdictions in
Chippewa such as President, Managers & Co of Delaware & Hudson Canal Co v
Pennsylvania Coal Co, 50 NY 250 (1872), in which the New York Court of
Appeals stated:
(continued…)
8
The Chippewa Court held that, when a common-law arbitration agreement
exists solely as a condition precedent to filing suit, it does not divest the courts of
jurisdiction. Therefore, it is valid and will be enforced. Id. at 121-122, citing
Stephenson v Piscataqua Fire & Marine Ins Co, 54 Me 55 (1866).3 This Court
has not changed the unilateral revocation rule since it decided Chippewa in 1890.
(…continued)
[T]he rule that a general covenant to submit any differences
that may arise in the performance of a contract, or under an
executory agreement, is a nullity, is too well established to be now
questioned . . . . [Id. at 258.]
3
We disagree with the Court of Appeals dicta in Hetrick v David A
Friedman, DPM, PC, 237 Mich App 264, 273; 602 NW2d 603 (1999), that
Chippewa’s discussion of the revocation rule is dicta. “Dicta” is defined as
follows:
“‘Statements and comments in an opinion concerning some
rule of law or legal proposition not necessarily involved nor essential
to determination of the case in hand, are, however illuminating, but
obiter dicta and lack the force of an adjudication.’” [Rowe v
Montgomery Ward & Co, Inc, 437 Mich 627, 719 n 101; 473 NW2d
268 (1991) (Levin, J., dissenting), quoting Hett v Duffy, 346 Mich
456, 461; 78 NW2d 284 (1956), quoting a headnote from People v
Case, 220 Mich 379; 190 NW 289 (1922).]
The issue presented in Chippewa was whether the arbitration agreement
between the parties was enforceable. Thus, a statement of the law regarding the
enforceability of a common-law arbitration agreement was necessary to the
determination of the case. Therefore, it is not dicta.
We also disagree with the Court of Appeals dicta in Hetrick, supra, that
Norton v Hayden, 109 Mich 682; 67 NW 909 (1896), contradicts Chippewa. In
Norton, the issue presented to the Court was whether the “making and delivery of
an award [was] a condition precedent to the right of action[.]” Id. at 684. The
plaintiff argued that, just because the agreement was a common-law arbitration, it
was revocable at any time. Id. at 685. The Court disagreed and stated, “We must
construe the parties contract as the parties have made it.” Id. Viewed in isolation,
(continued…)
9
PREEMPTION
Given that we have long recognized common-law arbitration in Michigan,
the next question is whether the Legislature preempted it when it enacted the
MAA.
The common law, which has been adopted as part of our jurisprudence,
remains in force until amended or repealed. Const 1963, art 3, § 7. Whether a
statutory scheme preempts, changes, or amends the common law is a question of
legislative intent. Millross v Plum Hollow Golf Club, 429 Mich 178, 183; 413
NW2d 17 (1987), citing Jones v Rath Packing Co, 430 US 519; 97 S Ct 1305; 51
L Ed 2d 604 (1977). In Millross we observed:
In general, where comprehensive legislation prescribes in
detail a course of conduct to pursue and the parties and things
affected, and designates specific limitations and exceptions, the
Legislature will be found to have intended that the statute supersede
and replace the common law dealing with the subject matter.
[Millross, supra at 183, citing 2A Sands, Sutherland Statutory
Construction (4th ed), § 50.05, pp 440-441.]
Michigan courts have uniformly held that legislative amendment of the
common law is not lightly presumed. Marquis v Hartford Accident & Indemnity
(After Remand), 444 Mich 638, 652 n 17; 513 NW2d 799 (1994). In interpreting
(…continued)
the statement appears to contradict Chippewa. However, on closer reading, the
Court is merely stating that it must interpret the contract to determine if the parties
made arbitration a condition precedent to bringing an action at law. The
Chippewa Court held that agreements are enforceable in which arbitration is a
condition precedent to bringing an action at law. Therefore, Norton is consistent
with Chippewa’s holding.
10
statutory language, courts must determine and give effect to the intent of the
Legislature. In re MCI Telecom Complaint, 460 Mich 396, 411; 596 NW2d 164
(1999). The first step in ascertaining legislative intent is to look at the words of
the statute itself. House Speaker v State Admin Bd, 441 Mich 547; 495 NW2d 539
(1993).
In this case, the language of the MAA does not show an intention to
abrogate common-law arbitration. It merely sets out guidelines indicating when
agreements to arbitrate will be enforced.
Statutory and common-law agreements to arbitrate have long coexisted. 2
Michigan Law & Practice, 2d, Arbitration § 1, p 504, citing Siller, supra. Frolich,
supra, clarifies that statutory and common-law arbitrations coexist. Nothing in the
MAA indicates that the Legislature intended to change this existing law.
The Legislature is presumed to know of the existence of the common law
when it acts. Bennett v Weitz, 220 Mich App 295, 299; 559 NW2d 354 (1996).
When wording the MAA, the Legislature could easily have stated an intent to
abrogate common-law arbitration.
Defendants argue that the scheme set forth in MCL 600.5001 clearly
evidences the Legislature’s intent to occupy the entire area of arbitration law. As
previously observed, the MAA specifically covers two types of written
agreements. MCL 600.5001(1) covers agreements to arbitrate a controversy that
has already arisen, and MCL 600.5001(2) covers agreements to arbitrate possible
future controversies. The statute does not refer to any other agreement, such as an
11
oral agreement to arbitrate, which could survive our statute of frauds.4 Moreover,
the MAA explicitly removes from its purview arbitration agreements made
pursuant to “collective contracts between employers and employees or
associations of employees in respect to terms or conditions of employment.”
MCL 600.5001(3).
Also, importantly to this case, MCL 600.5011 specifically removes from its
purview all agreements to arbitrate that do not conform to MCL 600.5001(1) or
(2). For instance, the agreement in this case does not conform to MCL
600.5001(2) and is unenforceable under the MAA. Therefore, we conclude that
the MAA, codified at MCL 600.5001 et seq., does not occupy the entire area of
arbitration law and does not preempt common-law arbitration in Michigan.
Parties wishing to conform an agreement to MCL 600.5001(2) must put it
in writing and require that a circuit court may render judgment upon the award
4
MCL 566.132 provides in relevant part:
(1) In the following cases an agreement, contract, or promise
is void unless that agreement, contract, or promise, or a note or
memorandum of the agreement, contract, or promise is in writing
and signed with an authorized signature by the party to be charged
with the agreement, contract, or promise:
(a) An agreement that, by its terms, is not to be performed
within 1 year from the making of the agreement.
Many, if not all, agreements to arbitrate, by their terms, could be performed
within one year from the making of the contract. This is especially true under
MCL 600.5001(1). Therefore, the statute of frauds would not bar oral agreements
to arbitrate that by their terms could be performed within one year of the making
of the agreements.
12
made pursuant to the agreement. Otherwise, it will be treated as an agreement for
common-law arbitration.
THE UNILATERAL REVOCATION RULE
Given that common-law arbitration exists in Michigan for agreements to
arbitrate future controversies, we now turn to the question whether common-law
arbitration agreements remain unilaterally revocable. The unilateral revocation
rule was developed when courts were highly skeptical of arbitration. Many
thought it to be against public policy for parties to divest the courts of jurisdiction.
E E Trip Excavating Contractor, Inc v Jackson Co, 60 Mich App 221, 244; 230
NW2d 556 (1975).
Some courts have criticized the rule suggesting that this Court should
exercise its powers to change the common law and eliminate the unilateral right to
revoke. Specifically, an opinion and a concurrence from the Court of Appeals
have asked this Court to clear the rule from this state’s jurisprudence. Hetrick,
supra; Tony Andreski, Inc v Ski Brule, Inc, 190 Mich App 343; 475 NW2d 469
(1991) (Griffin, P.J., concurring). The decision in Hetrick and the concurrence in
Andreski argue that the rule is an atavistic vestige of the past, supported only by
public policy arguments over 100 years old:
“The heavily case-loaded courts are no longer jealous of their
jurisdiction. Where the parties, by a fair agreement, have adopted a
speedy and inexpensive means by which to have their disagreements
adjusted, we see no public policy reasons for the courts to stand in
their way. On the contrary we have a clear expression of public
policy in the legislative enactments which provide for statutory
13
arbitration.” [Andreski, supra at 350 (Griffin, P.J., concurring),
quoting E E Trip, supra at 246–247.]
Nonetheless, we are unpersuaded that the time is ripe to change Michigan’s
common-law arbitration unilateral revocation rule. When the Legislature enacted
the MAA, it created a method for binding arbitration that protects the rights of
those who choose such arbitration. By not specifically abrogating the unilateral
revocation rule, the Legislature chose to retain as well the protections that the rule
offers. Parties entering into agreements to arbitrate future claims do not have full
knowledge of what matters would be encompassed by the arbitration.
The unilateral revocation rule protects the right to bring suit when claims
arise that a party did not anticipate and would not want handled outside the courts’
direct protection. The Legislature has determined that public policy concerns do
not require abrogation of the unilateral revocation rule, and we see no need to
contravene that determination. See, e.g., Lowe v Estate Motors Ltd, 428 Mich 439,
467; 410 NW2d 706 (1987).
Second, the unilateral revocation rule leaves an option to parties entering
into contracts in Michigan. As previously stated, parties agreeing to arbitrate
claims that have not yet arisen may choose common-law arbitration specifically
because of the unilateral revocation rule. The rule allows them flexibility in the
event of a dispute. After a claim has arisen, the parties can arbitrate or not. If they
prefer irrevocable arbitration, they can provide for it in their agreement or draft
their agreement so that it provides for statutory arbitration.
14
Because of the long history and continuing utility of the unilateral
revocation rule, we are unpersuaded of the need to overrule the rule. Hence, we
affirm its existence as a useful part of Michigan jurisprudence.
CONDUCT OF THE PARTIES
We conclude that the issue whether the arbitration agreement here became
statutory arbitration because of the conduct of the parties during the arbitration
process must be answered in the negative.
The change from the voluntary labor arbitration rules to the commercial
dispute resolution procedures did not transform the parties agreement from a
common-law arbitration agreement to a statutory arbitration agreement. The basic
requirement of MCL 600.5001 et seq. that the agreement must be made in writing
is not met in this case. It is true that the parties acquiesced in using the
commercial dispute resolution procedures, but that does not change the fact that
there is no written agreement containing the statutorily required language.
Under common-law arbitration, Wold had the right to withdraw from the
arbitration process at any time until the arbitrator made an award. Therefore,
Wold’s unilateral revocation of the arbitration process was in conformity with its
right under common-law arbitration and with the parties’ agreement.
CONCLUSION
We hold that common-law arbitration is not preempted by the Michigan
arbitration act, MCL 600.5001 et seq., and that common-law arbitration continues
to exist in Michigan jurisprudence. Parties wishing to conform their agreements to
15
MCL 600.5001(2) must put their agreements in writing and require that a circuit
court may enforce them. Otherwise, their agreements will be treated as
agreements for common-law arbitration. In addition, common-law arbitration
agreements continue to be unilaterally revocable before an arbitration award is
made. And the common-law arbitration in this case was not transformed into
statutory arbitration because of the conduct of the parties during the arbitration
process.
We affirm the decision of the Court of Appeals and remand this case to the
trial court for further proceedings consistent with this opinion.
Marilyn Kelly
Clifford W. Taylor
Michael F. Cavanagh
Elizabeth A. Weaver
Stephen J. Markman
16
STATE OF MICHIGAN
SUPREME COURT
WOLD ARCHITECTS and ENGINEERS,
Plaintiff -Appellee,
v No. 126917
THOMAS STRAT and STRAT and
ASSOCIATES, INC.,
Defendants-Appellants.
_______________________________
CORRIGAN, J. (concurring).
I concur with the majority’s decision to affirm the Court of Appeals
determination that the trial court erred in granting defendants’ motion for
summary disposition and in denying plaintiffs’ motion to vacate the arbitration
award. A majority of this Court has decided to retain the common-law rule that
arbitration agreements are unilaterally revocable at any time. Even if I were
inclined to abrogate the unilateral revocation rule, a majority of this Court is not so
inclined. Thus, I commend this important policy choice to our Legislature. I urge
that body to examine whether it is prudent to retain the common-law unilateral
revocation rule. The common-law rule is rooted in an antiquated notion that
arbitration is an inferior method of resolving disputes. It undermines the well-
established doctrine that parties enjoy the freedom to contract.
The unilateral revocation rule apparently originated in the statement of
Lord Coke in Vynior’s Case, 4 Coke, part VIII, 81b, 82a:
For a man cannot by his act make such authority, power, or
warrant not countermandable, which is by the law and of its own
nature countermandable; as if I make a (a) letter of attorney to make
a livery, or to sue an action, & c. in my name; or if I assign auditors
to take an account; or if I made one my factor; or if I submit myself
to an arbitrament; although these are made by express words
irrevocable, or that I grant or am bound that all these shall stand
irrevocably, yet they may be revoked.
This Court has referred to the unilateral revocation rule only in cases before the
Legislature enacted the Michigan Arbitration Act (MAA), MCL 600.5001 et seq.,
and virtually always in confusing dicta. As the Court of Appeals explained in
dicta in Hetrick v David A Friedman, DPM, PC, 237 Mich App 264, 272-275; 602
NW2d 603 (1999) (emphasis in original), this Court’s jurisprudence regarding the
rule has been inconsistent at best:
Our Supreme Court’s nineteenth century decisions did not
consistently hold that common-law arbitration agreements are
revocable whereas statutory agreements are not. In some cases, the
Court at least suggested that either type of arbitration was revocable
at the will of either party (which is arguably consistent with the
nineteenth century statute, which did not provide that arbitration
agreements were irrevocable). In McGunn v Hanlin, 29 Mich 475
(1874), the Court held that a common-law arbitration agreement that
did not contain a covenant not to sue could not be enforced. Id.,
480. However, the Court expressly declined to consider “whether a
statutory agreement, before the arbitrators have acted, stands on a
different basis,” thereby leaving the possibility that even statutory
agreements were revocable. Id. In Chippewa Lumber Co v Phenix
Ins Co, 80 Mich 116; 44 NW 1055 (1890), the Court broadly stated
that arbitration agreements in general are unenforceable—without
analysis, without reference to any arbitration statute, and without any
distinction between statutory and common-law arbitration. Id., 120.
2
Notwithstanding this sweeping declaration, the Court ultimately held
that the parties’ arbitration agreement—which utilized arbitration
only as a condition precedent to filing a lawsuit—was enforceable.6
Id., 120-121. Because the Court ultimately enforced the limited
arbitration agreement, its statement that an agreement to submit all
matters to binding arbitration would have been unenforceable is
dicta, not a binding statement of law.[1] Edelberg v Leco Corp, 236
Mich App 177; 599 NW2d 785 (1999). Moreover, because these
cases blurred the distinction between common-law and statutory
arbitration agreements, neither case warrants application of the
unilateral revocation rule today, under the MAA.
* * *
The Supreme Court implicitly rejected the unilateral revocation rule
in Frolich v Walbridge-Aldinger Co, 236 Mich 425, 429; 210 NW
488 (1926). There, the Court stated that the parties’ arbitration
agreement was “not in conformity with our statutory requirements (3
Comp Laws 1915, § 13646 et seq.) and makes no reference to the
act, but in any event it is an agreement for a common-law
arbitration.” Frolich, supra, 429 (emphasis added). However, the
Court did not refuse to enforce the arbitration agreement on the
ground that a common-law arbitration agreement was revocable by
either party. Instead, the Court held that the plaintiff was entitled to
bring a lawsuit because the defendant failed to comply with the
arbitration agreement by cooperating with the plaintiff’s effort to
arbitrate. Id., 432. Indeed, it can be inferred from the Frolich
decision that the Court would have enforced the parties’ common-
law arbitration agreement if the defendant had honored the terms of
the agreement.
1
The Chippewa Lumber Court held that the arbitration agreement was
enforceable and not unilaterally revocable because the agreement made arbitration
a condition precedent to bringing suit. Chippewa Lumber, supra at 120-122. This
Court has similarly held in several other cases that an agreement containing a
clause making arbitration a condition precedent to filing suit or rescission of the
contract is enforceable and not unilaterally revocable. See, e.g., Ripley v Lucas,
267 Mich 682; 255 NW 356 (1934); Baumgarth v Firemen’s Fund Ins Co, 152
Mich 479; 116 NW 449 (1908); Norton v Hayden, 109 Mich 682; 67 NW 909
(1896).
3
In Siewek v F Joseph Lamb Co, 257 Mich 670; 241 NW 807
(1932), the Court implicitly distinguished between statutory and
common-law arbitration agreements, and stated that the latter were
revocable unless they came under one of two exceptions: arbitration
as condition precedent to a lawsuit, or arbitration relating to
construction, paving, or installation contracts.7 Id., 676. Again, the
Court’s reliance on an obsolete statute and two obsolete exceptions
renders its statement of the unilateral revocation rule irrelevant under
the MAA and modern, proarbitration public policy.[2] Rembert[ v
Ryan Family Steak Houses, Inc, 235 Mich App 118, 132-133; 596
NW2d 208 (1999)].
_______________________________________________________
6
Interestingly, the Court described this arbitration procedure
as “an expeditious, inexpensive, and proper method, if not a better
one than is afforded by a suit.” Chippewa Lumber, supra, 121
(emphasis added).
7
See also Detroit v A W Kutsche & Co, 309 Mich 700, 708;
16 NW2d 128 (1944).
_______________________________________________________
Thus, the common-law rule is not firmly entrenched in our jurisprudence, but is
instead an aberration primarily based on conflicting case law and nonbinding
dicta.
In 1961, our Legislature enacted the MAA, modeling it on the Uniform
Arbitration Act, which requires the enforcement of arbitration agreements. MCL
600.5011. Since the enactment of the MAA, this case is the Court’s first
opportunity to consider the validity of the common-law unilateral revocation rule.
2
Further, the Siewek Court’s statement that “the general rule that a
[common-law] arbitration agreement is not a bar to action” is dicta. Siewek, supra
at 676.
4
While the Court of Appeals recognized the rule in Tony Andreski, Inc v Ski Brule,
Inc, 190 Mich App 343, 350; 475 NW2d 469 (1991), and E E Tripp Excavating
Contractor, Inc v Jackson Co, 60 Mich App 221, 243; 230 NW2d 556 (1975),
these cases have been sharply criticized.3 In Tony Andreski, Inc, supra at 350-351,
Judge Griffin dissented, expressing his disagreement with Michigan’s
“anachronistic” common-law rule. The Hetrick panel thereafter criticized the rule
and called for an end to it:
The rule is the last vestige of that bygone judicial age when
arbitration agreements were regarded as unlawful attempts to oust
the courts of jurisdiction. This rule serves no useful purpose today,
particularly when the overwhelming public policy of this state favors
arbitration to resolve a wide variety of disputes. As this Court held
in Rembert, supra, 133, “our Legislature and our courts have
strongly endorsed arbitration as an inexpensive and expeditious
alternative to litigation.” Indeed, even the E E Tripp Court, which
revived the unilateral revocation rule for common-law arbitration,
observed that judicial jealousy of arbitration had become obsolete. E
E Tripp Excavating Contractor, Inc, supra at 246-247. We see no
reason to adhere to an antediluvian principle recited as dicta in the
days of Ulysses S. Grant’s presidency and Queen Victoria’s reign.
We would therefore enforce common-law arbitration agreements on
the same terms as any other contract, and consign the unilateral
revocation rule to legal history’s dustbin. [Hetrick, supra at 276-
277.]
I agree with Judge Griffin in his dissent in Tony Andreski, Inc, and with the
Hetrick panel that the unilateral revocation rule appears to serve no purpose in
today’s proarbitration legal climate. Even accepting the Court of Appeals
3
Additionally, the E E Tripp Excavating Contractor panel did not apply the
unilateral revocation rule because the defendant did not unambiguously manifest
its intent to revoke the arbitration agreement. Id. at 249.
5
statement in E E Tripp Excavating Contractor, supra at 243, that “historically,
common-law arbitration agreements could be revoked or repudiated at will by a
party any time prior to announcement of the award,” the purpose behind the rule is
no longer valid. As our Court of Appeals has recognized, the unilateral revocation
rule originated at a time when courts disfavored arbitration as an ouster of our
jurisdiction over legal claims. See Hetrick, supra at 271 (“The origins of the
unilateral revocation rule lie in the nineteenth century, when American law
disfavored arbitration as second-rate justice at best, or an unlawful usurpation of
judicial authority at worst.”); E E Tripp Excavating Contractor, supra at 244
(“The most widely espoused justification for the rule is that specific enforcement
of an arbitration agreement improperly ousts the courts of jurisdiction. Attempts
by contract to foreclose judicial inquiry were against public policy.”) As E E
Tripp Excavating Contractor, supra at 244, noted, the most common policy
arguments for the unilateral revocation rule are no longer relevant:
Criticism of the unilateral revocation rule has mushroomed. . .
.
* * *
The heavily case-loaded courts are no longer jealous of their
jurisdiction. Where the parties, by a fair agreement, have adopted a
speedy and inexpensive means by which to have their disagreements
adjusted, we see no public policy reasons for the courts to stand in
their way. On the contrary we have a clear expression of public
policy in the legislative enactments which provide for statutory
arbitration.
6
In most states, the common-law rule permitting unilateral revocation of arbitration
has been altered by statute. La Stella v Garcia Estates, Inc, 66 NJ 297; 331 A2d 1
(1975), citing 6 Williston, Contracts (rev ed, 1938), § 1920, Sturges, Commercial
Arbitrations & Awards (1930), § 26, and Domke, The Law & Practice of
Commercial Arbitration (1968), § 4.01. Many states have rejected or criticized the
ouster and revocability doctrines that form the basis for the unilateral revocation
rule. See, e.g., IP Timberlands Operating Co, Ltd v Denmiss Corp, 726 So 2d 96,
103-105 (Miss, 1998) (rejecting the ouster doctrine and expressly overturning “the
former line of case law that jealously guarded the court’s jurisdiction”); Kaiser
Foundation Health Plan of the Northwest v Doe, 136 Or App 566, 577-579; 903
P2d 375 (1995) (holding that agreements to arbitrate may be specifically
enforceable under common law and thus directing that judgment on an oral
settlement incorporate the parties’ agreement to arbitrate any remaining issues);
Wylie Independent School Dist v TMC Foundations, Inc, 770 SW2d 19, 23 (Tex
App, 1989) (holding that agreements to arbitrate future disputes are specifically
enforceable on the basis of policy supporting alternative dispute resolution);
United Ass’n of Journeymen & Apprentices of the Plumbing & Pipefitting Industry
v Stine, 76 Nev 189, 202-214; 351 P2d 965 (1960) (rejecting the common-law rule
that agreements to submit all disputes to arbitration were unenforceable, and ruling
instead that an agreement to arbitrate a future dispute was valid and enforceable);
Rueda v Union Pacific R Co, 180 Or 133, 166; 175 P2d 778 (1946) (“The rule that
‘parties cannot stipulate beforehand to submit their rights generally to the
7
judgment of a designated third party for a final determination’ is unsound. The
rule that such agreements oust the courts of jurisdiction has an unworthy genesis,
is fallacious in reasoning and has been followed merely because of ancient
precedent.”); Hoboken M R Co v Hoboken R Warehouse & Steamship Connecting
Co, 132 NJ Eq 111, 117-119; 27 A2d 150 (1942) (explaining that New Jersey had
not adopted the ouster doctrine and that arbitrator’s decisions are enforceable);
Park Constr Co v Independent School Dist No 32, 209 Minn 182, 184-189; 296
NW 475 (1941) (rejecting the notion that arbitration agreements “oust” courts of
jurisdiction and overruling earlier decisions that general agreements to arbitrate
are void as contrary to public policy); Ezell v Rocky Mountain Bean & Elevator
Co, 76 Colo 409, 411-413; 232 P 680 (1925) (rejecting the argument that
common-law agreements to arbitrate are void as being against public policy as
attempts to oust the courts of jurisdiction, and holding that parties who contract to
submit to common-law arbitration are bound by that contract).4
4
The Harvard Negotiation Law Review has also urged courts to disavow
the traditional unilateral revocation rule:
It is not appropriate for a court to assume all ADR [alternative
dispute resolution] agreements are unenforceable under antiquated
“ouster” and “revocability” doctrines that traditionally precluded
specific enforcement of pre-dispute agreements to arbitrate. Ouster
theory proposed that parties cannot “oust” courts’ power to resolve
legal claims, and revocability condoned a party’s unilateral
revocation of an arbitration agreement. These doctrines have no
solid basis. Nonetheless, some courts continue to apply them,
(continued…)
8
Arbitration is now favored as an efficient, inexpensive, and fair method of
resolving disputes. Rembert, supra at 127-133; see also Port Huron Area School
Dist v Port Huron Ed Ass’n, 426 Mich 143, 150; 393 NW2d 811 (1986) (“It is
well-settled that arbitration is a favored means of resolving labor disputes . . . .”);
Detroit v A W Kutsche & Co, 309 Mich 700, 703; 16 NW2d 128 (1944) (“The
general policy of this State is favorable to arbitration . . . . If parties desire
arbitration, courts should encourage them.”) The unilateral revocation rule does
nothing to encourage arbitration other than convince parties aware of the rule that
they have nothing to lose, because they can revoke the arbitration any time before
the award. Rather than encouraging parties aware of the rule to enter arbitration,
the unilateral revocation rule discourages it by making arbitration an unreliable
method of dispute resolution. In today’s legal climate, where arbitration is no
(…continued)
perhaps due to judicial skepticism of private processes or resentment
of the Supreme Court’s seemingly pro-arbitration agenda.
* * *
Courts should not . . . mask their concerns [regarding pro-
arbitration policy] in espousals of antiquated ouster and revocability
doctrines. These doctrines are based on faulty legal assumptions and
misguided jealousies of private processes that threatened courts’
domain. [Schmitz, Refreshing contractual analysis of ADR
agreements by curing bipolar avoidance of modern common law, 9
Harv Negotiation L R 1 (2004), pp 3-4, 28-29.]
See also 12 Corbin, Contracts (interim ed), § 1173, p 330 (“The earlier judicial
attitude that regarded the specific enforcement of arbitration as too difficult or
otherwise undesirable was already moribund and, by reason of both legislation and
popular opinion, should be extinct.”).
9
longer disfavored, but is an approved and trusted method to resolve disputes,
Michigan should no longer countenance a rule that is grounded in distrust of
arbitration and discourages parties from relying on arbitration.
Further, the rule tends to benefit those who are aware of it, such as lawyers
and other sophisticated parties. It can be harmful to nonlawyers and less
sophisticated parties who have no knowledge of the legal rule and are blindsided
by it.5 While the unilateral revocation rule exists, an unknowing party who enters
an arbitration agreement may expend substantial amounts of time and money by
participating in the arbitration process, only to have the other party revoke the
agreement immediately before the arbitrator renders an award. The rule thus is a
trap for the unwary. It discourages good-faith participants and leads to
disillusionment of parties who are trapped by its application.
5
The unilateral revocation rule is not common knowledge among laymen.
Even research might not uncover the existence of the rule. For example, the
American Arbitration Association’s (AAA) “Beginner’s Guide to Alternative
Dispute Resolution” does not mention the unilateral revocation rule. Instead, the
AAA guide merely explains that arbitration awards are final: “AAA arbitration
awards are final, binding, and legally enforceable, subject only to limited review
by the courts. Of course, parties may also agree in advance that awards will be
advisory only.” The AAA’s “Drafting Dispute Resolution Clauses—A Practical
Guide” states, “To be fully effective, ‘entry of judgment’ language in domestic
cases is important.” However, the guide does not warn a drafter of the possible
consequences of omitting such a clause from the agreement. Thus, even if an
unsophisticated party looks to the AAA guides, that party will not discover the
existence of the unilateral revocation rule.
10
I dispute the majority’s contention that parties entering into an arbitration
agreement would be left without options without a unilateral revocation rule.
Instead, I believe that the unilateral revocation rule undermines our contract
doctrine by unfairly limiting the options available to contracting parties. This
Court has stated that arbitration agreements are grounded in contract. Arrow
Overall Supply Co v Peloquin Enterprises, 414 Mich 95, 98; 323 NW2d 1 (1982).
“‘[T]he arbitration promise is itself a contract. The parties are free to make that
promise as broad or as narrow as they wish . . . .’” Port Huron Area School Dist,
supra at 151 n 6, quoting United Steelworkers v American Mfg Co, 363 US 564,
570; 80 S Ct 1343; 4 L Ed 2d 1403 (1960) (Brennan, J., concurring). Thus, parties
to an arbitration contract should be bound by the same contract principles as
parties to any other contract. Under general contract principles, a valid contract is
enforceable and may not be revoked unilaterally.6 Unless a contract condition
6
Indeed, this Court has reiterated on numerous occasions its commitment
to enforcing unambiguous contracts as they are written. See, e.g., Rory v
Continental Ins Co, 473 Mich 457, 491; 703 NW2d 23 (2005) (“Consistent with
our prior jurisprudence, unambiguous contracts . . . are to be enforced as written
unless a contractual provision violates law or public policy.”); Quality Products &
Concepts Co v Nagel Precision, Inc, 469 Mich 362, 380; 666 NW2d 251 (2003)
(“Our obligation to respect and enforce the parties’ unambiguous contract absent
mutual assent to modify that contract precludes us from [permitting unilateral
modification of the contract].”); Wilkie v Auto-Owners Ins Co, 469 Mich 41, 51;
664 NW2d 776 (2003) (“This approach, where judges divine the parties’
reasonable expectations and then rewrite the contract accordingly, is contrary to
the bedrock principles of American contract law that parties are free to contract as
they see fit, and the courts are to enforce the agreement as written absent some
highly unusual circumstance, such as a contract in violation of law or public
policy.”); Terrien v Zwit, 467 Mich 56, 71; 648 NW2d 602 (2002), quoting Twin
(continued…)
11
causes a contract to be void or voidable, such as coercion or fraud, the terms of an
arbitration agreement, like any other contract, should be upheld. The parties
should not be required to include a provision specifically stating that the
arbitration is irrevocable. The revocation rule limits the parties’ freedom to
contract by precluding them from entering a common-law agreement to arbitrate
that would be enforceable and irrevocable.
Conversely, parties should also be free to include in their common-law
arbitration agreement a clause allowing either party to unilaterally revoke the
agreement. Thus, a decision to abrogate the unilateral revocation rule would not
limit the options of contracting parties by creating a situation where common-law
arbitration agreements could never be unilaterally revoked. The parties are limited
only by the terms by which they themselves choose to be bound. Accordingly, I
do not believe that the unilateral revocation rule is necessary to either protect the
right to bring suit or provide parties flexibility in the event of a dispute.
In sum, I believe that the common-law rule allowing unilateral revocation
of arbitration agreements is based on the outdated notions that arbitration is an
(…continued)
City Pipe Line Co v Harding Glass Co, 283 US 353, 356; 51 S Ct 476; 75 L Ed
1112 (1931) (“‘The general rule [of contracts] is that competent persons shall have
the utmost liberty of contracting and that their agreements voluntarily and fairly
made shall be held valid and enforced in the courts.’”). These cases make clear
that the unilateral revocation rule is an anomaly in our otherwise consistent case
law affirming the freedom to contract and the enforceability of unambiguous
agreements.
12
unfavorable means of resolving disputes and that arbitration ousts the courts of
their rightful jurisdiction over disputes. The courts are no longer jealous of their
jurisdiction, and arbitration is now a favored method of dispute resolution. The
unilateral revocation rule has a questionable history in Michigan jurisprudence and
has not been recognized by this Court since the Legislature enacted the MAA in
1961. Abrogation of the rule would not limit the options of parties entering
arbitration agreements, but would instead encourage arbitration and allow parties
the freedom to agree by contract to revocable or irrevocable arbitration as they see
fit. Arbitration agreements are contracts and should be governed by the same
contractual principles as other agreements. Therefore, I urge the Legislature to
consider the wisdom of retaining the common-law unilateral revocation rule in its
current form.
Maura D. Corrigan
Robert P. Young, Jr.
13