By: Rob Harris
Arbitration junkies might find interesting a Georgia appellate decision that issued last month in Perry Golf Course Development, LLC v. Columbia Residential, LLC.
Almost fifteen years ago, Perry Golf was earmarked to be the developer of a golf course that, together with single- and multi-family housing, was to be a cornerstone of an Atlanta redevelopment. As explained by the court,
“The relevant factual history is undisputed. In the mid 1990′s, the Atlanta Housing Authority (“AHA”) sought to redevelop the Perry Homes public housing development. Perry Golf, Columbia, and Brock Built, LLC, formed an entity, Perry Homes Redevelopment, LLC (“PHR”), to bid on the redevelopment project, and PHR ultimately was awarded the contract by the AHA. In 2001, PHR executed a revitalization agreement with AHA that laid out a general plan for the redevelopment.
“In 2002, the three members of PHR executed an operating agreement that governed each party’s rights and obligations in furtherance of the redevelopment plan. The agreement outlined three main areas of obligations: development of a golf course by Perry Golf, development of multi-family housing by Columbia, and development of single-family housing by Brock Built. The agreement also contained a provision for dispute resolution allowing an aggrieved party to demand binding arbitration.”
The arbitration provision was broad in scope, encompassing “any difference, disagreement[,] or failure to agree between the parties arising out of or in connection with this Agreement or any of the Project Documents including any question regarding the application, existence, validity, performance, withdrawal from or non-performance, or termination of this Agreement or any clause contained within this Agreement or any Project Document or any matter in any way connected with this Agreement or the rights,duties, or obligations of any party to this Agreement or any Project Document.”
In 2005, Perry Golf found itself in a dispute with one of the other parties to the agreement, and filed a demand for arbitration. The arbitrator found the dispute fell within the scope of the arbitration provision, but ruled against Perry Golf, finding that “the project-related obligations in the operating agreement nevertheless were unenforceable as between Perry Golf and Brock Built based on the agreement’s lack of mutuality between the two.”
Some time thereafter, Perry Golf found itself on the outside looking in, as the Atlanta Housing Authority decided to move forward on the redevelopment project with just the housing but not the golf course. Believing that it was legally wronged, Perry Golf filed suit. The Atlanta Housing Authority said “not so fast, there’s an arbitration requirement.” Perry Golf argued “how can this be, since an arbitrator previously found the agreement to be unenforceable.”
The trial court ordered arbitration and the Georgia Court of Appeals recently affirmed, explaining as follows:
“the arbitrator explicitly ruled that the arbitration clause encompassed the dispute at issue and was valid and binding, even though the arbitrator held that the operating agreement’s larger project obligations between Perry Golf and Brock built were unenforceable (not void) due to the lack of mutuality. Therefore, the result of the First Arbitration was not that the arbitration clause itself was unenforceable – it was actually the opposite – nor did the First Arbitration hold that the operating agreement was entirely void. The First Arbitration merely addressed the enforceability of the substantive provisions of the operating agreement as between Perry Golf and Brock Built, and no ruling was made as to the enforceability of obligations as to the parties to this appeal.
“Finally, pretermitting the enforceability of the substantive obligations between Perry Golf and Columbia, we note that the operating agreement contained the following severability clause: ‘If any term or provision of this Agreement is held illegal, invalid or unenforceable, such illegality, invalidity, or unenforceability will not affect the legality, validity or enforceability of the remainder of this Agreement.’”