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View of downtown Newark from atop the Federal BuildingView of downtown Newark from atop the Federal Building (Carmen Natale)

Want to build a house down the shore? Have an office in your commercial property renovated? Make sure you review your construction agreement first. Even form construction contracts in New Jersey may have pitfalls for both sophisticated and unsophisticated parties due to dynamics outside the state. New case law from the United States Supreme Court and New Jersey courts highlight the enforceability of arbitration provisions in construction agreements.

The U.S. Supreme Court recently upheld the preemption of the Federal Arbitration Act, 9 U.S.C. §§1-16 (FAA), over inconsistent state law regarding the validity of arbitration provisions in contracts. In May 2017, the U.S. Supreme Court reversed a Kentucky Supreme Court decision invalidating an arbitration agreement entered into by the personal representatives of certain decedents using powers of attorney. The Kentucky Supreme Court concluded that access to courts and juries were “fundamental constitutional rights” that were “sacred” and “inviolate” under Kentucky law. Given the sanctity of those rights, the Kentucky Supreme Court reasoned that the personal representatives did not have the right under the decedents’ powers of attorney to waive them. The U.S. Supreme Court vacated that decision on the basis that the FAA preempted the Kentucky Supreme Court’s reluctance to enforce arbitration agreements. While recognizing the continuing viability of state law contract defenses, like fraud or unconscionability, the U.S. Supreme Court would not allow a state to implement “legal rules that apply only to arbitration or that derive their meaning from the fact that agreement to arbitrate is at issue … for example [any state] law prohibiting outright the arbitration of a particular type of claim.” Kindred Nursing Ctrs. v. Clark, __ U.S. __, No 16-0032 (May 15, 2017) (internal quotations and citations omitted).

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