An arbitration clause that gave one party sole discretion in deciding whether to arbitrate a claim was unenforceable. A district court granted contractor’s motion to compel arbitation but this was reversed on appeal because of the one-sided nature of the clause rendering it “substantively unconscionable.” The question was whether the provision was fair and reasonable. Atlas Electrical Construction, Inc. v. Flintco, LLC,550 P.3d 881 (New Mexico, 2024).
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On March 18, 2024, the Court of Appeals of New Mexico issued a decision in the case of Atlas Electrical Construction, Inc. v. Flintco, LLC, reported at 550 P.3d 881. The court reversed the district court’s decision to compel arbitration and stay proceedings in Atlas Electrical’s breach of contract claim against Flintco.
The central issue on appeal was whether the arbitration provision in the subcontract between Atlas Electrical and Flintco was substantively unconscionable and therefore unenforceable. The arbitration clause in question gave Flintco, at its sole discretion, the option to choose between arbitration or litigation to resolve any disputes arising under the subcontract.
The Court of Appeals concluded that this provision was indeed substantively unconscionable. The court reasoned that the clause was facially one-sided, granting only Flintco the power to decide the forum for dispute resolution. This lack of mutuality and the unilateral control over the dispute resolution process rendered the arbitration agreement substantively unfair.
Therefore, the Court of Appeals held that the arbitration provision was unenforceable, reversed the district court’s order compelling arbitration, and remanded the case for further proceedings on Atlas Electrical’s breach of contract claim.
Risk Management Comment: ConstructionRisk, LLC, when reviewing and redlining contracts for our clients, routinely strikes out the arbitration clause entirely and replaces it with litigation of disputes in the state in which the project is located. It has been our experience that litigation is preferable for a number of reasons.
About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk Report, Vol. 27, No. 3 (April 2025).
Copyright 2025, ConstructionRisk, LLC
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