Initial Here: Arbitration Clauses & Residential Construction in Tennessee

By Paul Whitt | August 31, 2015

Initial Here: Tennessee’s Unique Requirement for Arbitration Clauses Concerning Residential Construction

flagThe Tennessee Arbitration Act (“TAA”), which is found at Tenn. Code Ann. § 29‑5‑301, et seq., contains a unique provision concerning arbitration provisions related to residential construction. Specifically, Tenn. Code Ann. § 29‑5‑302(a) provides as follows:

A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable save upon such grounds as exist at law or in equity for the revocation of any contract; provided, that for contracts relating to farm property, structures or goods, or to property and structures utilized as a residence of a party, the clause providing for arbitration shall be additionally signed or initialed by the parties.

So, any arbitration provision to which the TAA applies must be separately “signed or initialed by the parties” in order to be enforceable. This is despite the very clear position of the TAA, and Tennessee courts applying the TAA, in favoring the arbitration of disputes. This is also required regardless of the overall conspicuous nature of the arbitration provision – such as bold font, all upper case font or even underlining. If the provision is not separately “signed or initialed by the parties,” and there is no other signed document between the parties agreeing to arbitrate the particular dispute, a party may avoid the enforcement of the arbitration provision by pointing to the lack of a separate signature or initial of the provision by the party seeking to avoid the enforcement of the provision.

A word of caution: Before relying on the absence of a separate signature or initial for an arbitration provision as a means of avoiding arbitration, make sure that the TAA actually applies. This is because the Federal Arbitration Act (“FAA”), which is found at 9 USC § 1, et seq., preempts the TAA as to any transaction to which the FAA applies, and the FAA merely requires that there be a written agreement to arbitrate – and does not require the arbitration provision itself be separately signed or initialed. See 9 USC § 2. This is important because even claims that appear to be solely situated in Tennessee may be subject to the FAA, and not the TAA, simply because, among other reasons, the project in question implicated interstate commerce by involving the use of products purchased and distributed across state lines. See Hubert v. Turnberry Homes, LLC, 2006 Tenn. App. LEXIS 648 (Tenn. Ct. App. Oct. 4, 2006).

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