A recent Indiana court case reaffirms the judicial commitment to enforcement of arbitration provisions. Koors v. Steffen, 916 N.E. 2d 212 (Ind. Ct. App. 2009), arose from a dispute between a builder (Koors) who entered into a contract for construction and renovation to a home owned by Walter and Heather Steffen. The contract was titled, “Building, Construction and No-Lien Contract.” It included an arbitration clause requiring the parties to submit any disputes or differences arising between them “with respect to any matter or thing arising out [of] or in any wise relating to the contract” to binding arbitration.

During the course of construction, a dispute arose relating to the costs and quality of the work. Koors recorded a mechanic’s lien against the Steffens’ property and, without submitting the dispute to arbitration, filed a lien foreclosure action. The Steffens moved to dismiss based on the arbitration clause. The trial court granted the motion, and compelled the matter to arbitration. On appeal, Koors challenged an implication in the dismissal order that he waived his right to file a mechanic’s lien, and further contended that the Steffens waived their right to demand arbitration. Koors also argued that a stay of litigation, rather than dismissal, was the appropriate remedy.

The contract was starting point for the Court’s analysis of whether Koors waived his mechanic’s lien rights. In the absence of a clear demonstration of the parties’ intention to make such a waiver, it is presumed that the contractor did not waive the right to file a mechanic’s lien. In this case, the contract presented conflicting language on the issue. Though titled a “No-Lien Contract,” it included terms stating that the final payment and retainage would not become due until Koors, if required, delivered to the Steffens “a complete release and forfeit of all liens,” or indemnify against any liens. This language suggests that liens could potentially arise out of the contract, so the Court concluded that Koors did not waive his lien rights.

The court next considered whether Koors agreed to mandatory binding arbitration as his remedy. Based on the arbitration clause, the Court concluded that arbitration was the “agreed-upon remedy for all matters arising out of the contract.” Koors argued that the Steffens waived their right to arbitration by failing to make a demand before his foreclosure suit was filed. Koors presented no authority suggesting that an opposing party’s “pre-litigation failure to demand arbitration results in the waiver of the right to demand arbitration.” The Court likewise found no authority.

Finally, the Court considered whether dismissing the lien foreclosure action or imposing a stay was the appropriate remedy. Concluding that the trial court abused its discretion by dismissing the action, the Court of Appeals determined that a stay was appropriate in this case. Further action by the trial court might be required if the arbitrators determined that Koors had a valid mechanic’s lien and foreclosure was the proper remedy.