Waiving Arbitration by Pursuing Litigation

Cases concerning waiver of arbitration rights typically get into the nitty-gritty of what the parties did prior to one of them seeking to change course. The First Circuit Court of Appeal recently decided one such case, concluding that engaging in discovery for some nine months – including participation in sixteen depositions amid other discovery – constituted waiver of the right to arbitrate. Per the federal court, it was “nose-on-the-face plain” that the opposing party would be prejudiced by allowing the late-game change to arbitration.  Perhaps most critically, there was no real explanation for the change of heart, e.g., a new pleading or cause of action, which probably doomed the request.

The plaintiff failed to mention arbitration in its complaint, and the defendant included only one oblique reference to arbitration via an affirmative defense. Discovery proceeded for more than nine months, and the magistrate judge was called upon to referee discovery disputes no less than four times. Just before the close of discovery, and less than two months away from the trial date, the plaintiff decided it was time to seek to stay the case pending arbitration. Not surprisingly, the defendant opposed the request.

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AIA Contract Dispute Resolution Choices – What Does “Other” Mean?

The AIA contract forms include three options for dispute resolution: arbitration, litigation, and “other.” A Connecticut Superior Court judge has concluded that parties who chose “other” by specifying “Architect” were in fact choosing arbitration by the project architect. Thus, when the contractor didn’t file a motion to vacate the architect’s decision in favor of the homeowners, the contractor failed to take a necessary step to challenge the architect’s decision and that decision was confirmed.  The case is Digiorgio v. Guedes, 2014 Conn. Super. LEXIS 2611 (Oct. 23, 2014).

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Res Judicata, Claim Splitting, and Arbitration

An arbitration claimant who sought to preserve the right to pursue related claims against the same opponent has found its efforts barred by the Rhode Island Supreme Court, in a case with several procedural twists and turns. The case has all the hallmarks of an inequitable outcome for the benefit of a public authority against an architect who provided more services than originally contracted for.

The original design contract had a “not to exceed” fee of $61,500, calculated as a percentage of anticipated construction costs. The public authority administrator reportedly assured the architect that additional services would be required and would be paid for, but the contract was not amended. Ultimately the project was substantially expanded and the architect unsuccessfully sought a revised fee of $156,000. The parties proceeded to statutory arbitration. The arbitrator sympathized with the architect but believed the RI procurement regulations barred any additional compensation above the original contract amount, and issued an award based on the original contract amount. Then the case got interesting.

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New Jersey Establishes Complex Business Litigation Program

The Supreme Court of New Jersey has announced the establishment of a Complex Business Litigation Program, effective January 1, 2015, with designated judges in each county assigned to provide individualized case management to complex business, commercial and construction cases meeting the program criteria. The Complex Business Litigation Program is likely to substantially improve and streamline the litigation of complex business, commercial, and construction disputes in the New Jersey courts, and foster the further development and refinement of New Jersey business litigation case law.
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When Georgia Department of Transportation Comes to a Fork in the Road, They’ll Take It

When Yogi Berra advised “When you come to a fork in the road take it,” he may not have expected his words to apply so literally to navigating Atlanta’s traffic.  Georgia Department of Transportation’s (GDOT) has not quite reached the fork in deciding how it will finance an estimated $710 million highway project along the northern perimeter of Atlanta’s I-285 and Georgia 400.

GDOT’s recently issued Request for Qualifications (RFQ) (available here) is meant to develop a shortlist of bidders for a Design-Build-Finance contract (a form of public-private partnership) to revamp a critical corridor for Atlanta’s commuters.

GDOT estimates that $235 million in federal funds and state motor fuel taxes will be available, but requests each Respondent to provide a description of its “Preliminary Financial Approach” for financing the other $475 million (plus or minus). The RFQ limits Respondents to four pages in describing such a plan, but part of those four pages must “indicate the Respondent’s ability to react flexibly as the project and contractual structure evolve, and indicate the Respondent’s willingness to engage constructively as GDOT advances this innovative approach.”

In other words, GDOT wants Respondents to be concise and make suggestions, but GDOT is not nearing a fork in the road anytime soon as to how the project may ultimately be financed. GDOT will continue to keeps its options open after the shortlisting is complete. According to the RFQ, selected bidders will receive a draft Request for Proposal (RFP) for review and comment by the bidders, and a final RFP will only be issued to bidders after the comment process.

The process GDOT is utilizing – asking for financing approaches but leaving the door wide open as to how financing may actually be accomplished – demonstrates the reality that Public-Private Partnerships (P3s) can take a number of differing forms and that public entities rely on the private sector to bring creative solutions to public projects that are becoming increasingly challenging to finance. For sharing their creativity, GDOT’s RFQ contains a ‘payment for work product’ provision, which allows GDOT to pay unsuccessful bidders up to $1.25 million (in the aggregate) for their efforts in responding.

By: Antony L. Sanacory and William W. Fagan

This Claim is Too Strong to Have to Arbitrate!

Just when you think you’ve heard it all. An architect sues for breach of contract and copyright infringement, and the owner files a motion to stay the lawsuit pending arbitration. The architect’s opposition? That the owner’s breach is so “obvious” and the architect’s claim is so strong, the court should refrain from ordering them to arbitrate. Seriously. The federal court judge, allowing the motion to stay, noted that “the strength of a case is not relevant in determining the proper forum.” The existence of the arbitration clause was not disputed, and so the parties must proceed to arbitration. The lawsuit has also been stayed for other defendants, not signatory to the arbitration clause, where those claims are dependent on the outcome of the arbitration. Even if that outcome is a foregone conclusion, per the plaintiff. The case is Eberhard Architects, LLC v. Bogart Architecture, Inc., 2014 U.S. Dist. LEXIS 161438 (N.D. Ohio, Nov. 17, 2014).

The Irony of Defamation Lawsuits – Construction Edition

There is a certain irony in any defamation lawsuit, which is a public request for redress arising from a statement the claimant says should not have been made public. Now we have the construction version. Company A sues Company B, claiming statements of B about the quality of A’s work defamed A. The lower court construed the statements as opinion (and thus not defamatory). The Massachusetts Appeals Court has held that the statement could have been verified and so was factual, but it was subject to a “conditional privilege” that barred the defamation claim. The decision – now very public! – is in the matter of Downey v. Chutehall Construction Co., Inc.[1]

A new roof was installed on a Boston townhouse in 2005. Several years later, the homeowners engaged another contractor to examine leaks. The investigating contractor wrote that the original roofing work in 2005 “was installed over a [sic] EPDM roof system that had fiberboard roof insulation that was soaking wet.” In the ensuing lawsuit by the homeowners against the original roofer, that company took umbrage over this statement, bringing its own claim against the investigating contractor based on the quoted statement.

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Court Interprets “Substantial Completion” To Extend Repose Period

The HVAC sub finished a new condo unit system in August 2001. The condo was substantially complete in early 2002. But since the developer did not pay necessary fees, the city did not issue a certificate of occupancy until August 2003. Which date should be used to start the Wyoming ten-year statute of repose period? The Wyoming Supreme Court majority, over a dissenting opinion, adopted the last date and allowed a lawsuit filed in late 2012 to move forward. Watch for the Wyoming contractors or designers associations to file legislation to address this decision.

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Failure to Comply With Prompt Pay Act Trumps Claimed Failure to Perform

When a New Jersey public authority failed to comply with the NJ Prompt Pay Act,[1] it was obligated to pay the contractor even though it argued the contractor’s work was defective. That was the decision of the NJ Appellate Division in the case of Aire Enterprises v. Warren County.[2] After the county’s architect approved the contractor’s final requisition, the county’s failure to nullify the architect’s action or issue a timely written notice rejecting the requisition meant that payment was due.

The $300,000 contract included laying about 400 carpet tiles. It is not clear from the decision, but the tiles may have been purchased by the county, and not by the contractor. About “thirty to fifty” tiles began lifting from the floor within a month after installation. The contractor performed remedial work, and issued a final requisition for $12,250. Twenty days later, the architect certified the final requisition for payment. The county never paid, nor did it issue any written notice to the contractor. However, when additional carpet tiles began to lift, the county decided to replace all of the carpet tile.

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Court Cannot Invalidate Arbitration Venue Clause

A federal court in Kentucky has confirmed that it is without authority to tinker with the venue clause in an arbitration agreement. The plaintiff subcontractor is from Kentucky, and the joint venture prime contractor partners from Massachusetts and Pennsylvania; the project is in Kentucky. The subcontractor filed suit in Kentucky, and the JV prime moved to compel arbitration in Boston, per the subcontract arbitration clause. The sub argued that the venue clause was “unfair and unreasonable.” The court did not even consider that argument. Quoting from an Ohio federal court decision, the Kentucky court noted that “enforcement of a forum-selection clause . . . in an arbitration agreement may be inconvenient and burdensome to the parties in some instances.” However, and more critically, the court “does not have the authority to invalidate a term of an arbitration agreement simply on the forum non conveniens argument that it is unfair, unreasonable, or inconvenient to one of the parties.” (emphasis added)

As the arbitration clause is enforceable, the Kentucky sub will have to arbitrate its claims in Boston. The case is Weddle Enterprises, Inc. v. Treviicos Soletanche, J.V., 2014 U.S. Dist. LEXIS 146812 (W.D. KY, Oct. 15, 2014), available here (subscription required). This decision continues the tradition of the courts deferring to the arbitration forum on procedural issues, which would include venue.