Satisfaction of Conditions Precedent to an Arbitration Agreement and Statute of Limitations Issues Should Be Decided By Arbitrator

Expiration of the statute of limitations is a defense to an underlying claim to be determined by the arbitrator, the United States District Court for the Northern District of Texas held.

In Vesta Fire Insurance Corporation v. Employers Reinsurance Corporation, No. 3:05-CV-2404-P, 2006 WL 1506949 (N.D. Tex. May 31, 2006), ERC sought to compel arbitration of a dispute that arose over four years ago. Vesta argued that, by failing to comply with the statute of limitations, ERC failed to satisfy a condition precedent of the arbitration agreement.

The Court granted ERC’s motion to compel, noting that nothing in the parties’ agreement indicated that they “intended to use the statute of limitations on the underlying claims as a time limit for a demand to arbitrate.”

Even if the statute of limitations was a condition precedent to the parties’ arbitration agreement, the Court held that the satisfaction of conditions precedent is a procedural issue for the arbitrator to decide, not a challenge to the enforcement or validity of an arbitration agreement for the court to decide.

The Court pointed to the fact that the Texas General Arbitration Act (“TGAA”) is based on the Uniform Arbitration Act (“UAA”), and most states that have adopted the UAA leave procedural arbitrability issues to the arbitrators. City of Lubbock v. Hancock, 940 S.W.2d 123, 126 (Tex. App. 1996).

Additionally, the Court noted that United States Supreme Court decisions hold that the arbitrator should decide issues of procedural arbitrability. Id. (discussing John Wiley & Sons, Inc. v. Livingston, 317 U.S. 543 (1964)). Finally, the language of the TGAA indicates that courts are only to address issues of substantive arbitrability; satisfaction of conditions precedent is a procedural issue for the arbitrator. Id.