Illinois Appellate Court Deems Arbitration Agreement in Owner/Contractor Construction Contract Unenforceable

The Illinois Appellate Court, in Bain v. Airoom, LLC, recently invalidated a form arbitration agreement in an owner/contractor construction contract – characterizing its language as overly broad and substantively unconscionable.  2022 IL App (1st) 211001.

Mary Bain, filed suit alleging that general contractor, Airoom, LLC, breached its contract to provide remodeling work at her home and violated the Consumer Fraud and Deceptive Business Practices Act (“Consumer Fraud Act”). The trial court granted Airoom’s motion to compel arbitration and dismissed Bain’s complaint with prejudice.   

The Appellate Court, however, reversed and remanded, finding “several significant portions” of the arbitration agreement unconscionable and determining that the agreement could not be salvaged by modification or severance of the offending provisions.

The Appellate court found three provisions unconscionable:

• Bar on Punitive Damages and Attorneys’ Fees. The arbitration agreement barred Bain, an individual consumer, from recovering attorney fees and/or punitive damages.  The Appellate Court found this ban unconscionable because it contravenes the Consumer Fraud Act and the damages available thereunder.
• Confidentiality. The arbitration agreement prohibited either party or the arbitrator form disclosing “the extent, content, or results of any arbitration” without “the prior written consent of both parties.”  The Appellate Court dubbed the provision one-sided because Airoom, as “a repeat player” under the arbitration agreement, would have access to information about past proceedings that Bain would lack.    
• Governing Rules. The arbitration agreement required the arbitration to be conducted under the AAA Construction Industry Arbitration Rules or other rules chosen at “Airoom’s sole and absolute discretion.”  The Appellate Court noted that though the AAA has less expensive options – including rules and fee schedules specifically tailored to individual homeowners – Airoom did not choose, or disclose, such alternatives.  

While Bain v. Airoom involved an individual homeowner, the guidance is not limited to consumer transactions.  Bain v. Airoom should serve as a cautionary reminder to routinely evaluate your arbitration agreement to ensure it is enforceable and not overly broad or generic, not unreasonably one-sided or inequitable, and that it does not run afoul of Illinois statutes or statutory remedies.