Tag Archives: arbitration

ASSOCIATION BOUND BY ARBITRATION PROVISION IN PURCHASE-AND-SALE CONTRACTS AND DEEDS

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When an association files a lawsuit pertaining to matters of common interest, the lawsuit is typically filed as a class on behalf of the owners that make up the association (i.e., the association’s members).  How do you deal with an arbitration provision that is included in an owner’s purchase-and-sale agreement or recorded in the deed?  The recent opinion in Lennar Homes, LLC v. Martinique at the Oasis Neighborhood Association, Inc., 47 Fla. L. Weekly D15c (Fla 3rd DCA 2021) dealt with this exact issue with a homeowner’s association ruling that the association was required to arbitrate its latent construction defect claims against the developer (homebuilder).

In this case, a community in Miami consisted of 26 townhouse buildings.  There was a broad arbitration provision in each owner’s purchase-and-sale agreement that included disputes relating to property damage.  Further, with each closing, a special warranty deed was recorded that included a nearly identical arbitration provision.

The association became aware of latent defects relating to the exterior walls of the buildings and filed a lawsuit against the developer (homebuilder).    The developer moved to compel the dispute to arbitration which was denied by the trial court because there was no specific agreement between the association and the developer that required arbitration and the lawsuit dealt with matters that the association was obligated to maintain.

The developer appealed contending that the association was bound by the arbitration provision in its members’ (the real property owners) purchase-and-sale agreements and deeds.   The Third District Court of Appeal, relying on the Second District Court of Appeal’s decision in Pulte Home Corp. v. Vermillion Homeowners Ass’n, Inc., 109 So.3d 233, 235 (Fla. 2d DCA 2013), agreed with the developer: “Consistent with our sister court’s analysis in Pulte, we hold that the Association’s right to proceed in its representative capacity in this case required it to abide by the members’ agreement with [the developer] to arbitrate this dispute.” Lennar Homes, supra.

As an aside, the association also argued that the arbitration provision in the purchase-and-sale agreement and special warranty deed should be deemed void against public policy under Florida Statute s. 720.3075(1)(b) that provides in material part: “It is declared that the public policy of this state prohibits the inclusion or enforcement of certain types of clauses in homeowners’ association documents, including declaration of covenants, articles of incorporation, bylaws, or any other document of the association which binds members of the association, which either have the effect of or provide that: A homeowners’ association is prohibited or restricted from filing a lawsuit against the developer, or the homeowners’ association is otherwise effectively prohibited or restricted from bringing a lawsuit against the developer.”   The Third District Court of Appeal found this argument unavailing as the purchase-and-sale agreement and special warranty deed, both of which included the arbitration provision, are not association documents (e.g., declarations of covenants, articles of incorporation, bylaws, etc.).

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

GENERAL CONTRACTOR INTERVENING TO COMPEL ARBITRATION PER THE SUBCONTRACT

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It is not uncommon that a general contractor’s subcontract will include an arbitration provision.  Or it will allow the general contractor to select binding arbitration as the method to resolve disputes at the general contractor’s SOLE OPTION.   A general contractor’s subcontract should absolutely give the general contractor this important right.  (Keep this in mind when drafting dispute resolution provisions for a general contractor.)

It is also not uncommon for a subcontractor the sue a general contractor’s payment bond surety, and NOT the general contractor.  One reason to do this is to create an argument to avoid the dispute resolution provision in the subcontract.  (Another reason is to avoid any pay-if-paid defense.)  When this occurs, a general contractor may still want to arbitrate the subcontractor’s payment bond dispute and a way to do so is for the general intervene in the lawsuit and move to compel arbitration. Sometimes, it is even practical for the general contractor to immediately initiate the arbitration process against the subcontractor, particularly if the general contractor wants to assert a counterclaim, so that the motion to compel is supported by the formal demand for arbitration (and filed with the American Arbitration Association or other body administering the arbitration).  I have done this on a number of occasions.

By way of example, in U.S. f/u/b/o American Electric Co., LLC, 2021 WL 5280665 (M.D.Fla. 2021), the general contractor hired a subcontractor for a federal construction project.  The subcontract included a binding arbitration provision.

As required, the general contractor had a Miller Act payment bond.  The subcontractor filed a Miller Act payment bond lawsuit in federal district court against the payment bond surety.  The general contractor moved to intervene in the lawsuit to compel arbitration of the dispute and stay the dispute pending the outcome of arbitration.  The general contractor also claimed that if arbitration is not compelled, it will assert a counterclaim against the subcontractor.  The district court agreed that that the general contractor was entitled to permissively intervene under the Federal Rules of Civil Procedure:

[The general contractor] and [subcontractor] are the parties to the Subcontract, and, pursuant to the Payment Bond, [the general contractor] is jointly and severally liable for any sum the Court may find the Surety Defendants owe to [the subcontractor].  Under the circumstances similar to those presented in this action, other courts have found that the intervening general contractor’s claims share common questions of law or fact with the subcontractor’s suit against the general contractor’s surety. The Court reaches the same conclusion here.  [The general contractor’s] claims and defenses share common questions of law and fact with the [payment bond] action pending, and, thus, [the general contractor] has shown that its interest is based on the action pending before the Court.

American Electric Company, supra, at *3 (internal citations omitted).

Additionally, the district court further found that the subcontractor would not be prejudiced by staying the action and compelling arbitration:

Here, all considerations weigh in favor of permitting [the general contractor] to intervene. First, allowing [the general contractor] to intervene in this action will further judicial economy by preventing a multiplicity of suits and the risk of inconsistent results. If denied intervention, [the general contractor] could still initiate an arbitration action or a separate lawsuit against [the subcontractor] on the underlying contract dispute. Similarly, if [the general contractor] is barred from intervening and [the subcontractor] recovers against the Surety Defendants, the Surety Defendants may file a separate action for indemnity against [the general contractor]. These various proceedings would waste resources dealing with the same dispute and would present the untenable risk of inconsistent results.

American Electric Company, supra, at *5 (internal citations omitted).

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

DISPUTES WILL NOT BE SUBJECT TO ARBITRATION PROVISION IF THERE IS NO “SIGNIFICANT RELATIONSHIP”

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As you know from prior articles, arbitration is a creature of contract.  This means if you want your disputes to be resolved by binding arbitration, as opposed to litigation, you want to make sure there is an arbitration provision in your contract.  If there are certain types of disputes you do not want subject to arbitration, you want to specify those types of disputes/claims in your arbitration provision.  If you are not sure, make sure to discuss the pros and cons of arbitration with your counsel when drafting and negotiating the contract.  However, even with a broad arbitration provision, there are times where a dispute may still fall out of the scope of the arbitration provision, i.e., the dispute is not arbitrable. If this occurs, such dispute will be resolved by litigation.  Parties that have buyer’s remove and do not want to arbitrate their dispute may try to make this argument that the dispute is not subject to the scope of the arbitration provision.  There are times this argument carries weight because the dispute has no significant relationship to the agreement with the arbitration provision, as shown below.

In Deweees v. Johnson, 46 Fla. L. Weekly D2356b (Fla. 4th DCA 2021), a plaintiff purchased a home in a private residential community.  The purchase contract with the developer contained a broad arbitration provision that materially provided that, “all post-closing claims, disputes, and controversies…between purchaser and seller will be resolved by binding arbitration except those arising under section G.5 and G.6 above.”  Dewees, supra.  Sections G.5 and G.6 provided that the purchaser will not interfere in the sales process with other purchasers and will not interfere with workmen during the construction process.   There was also a workmanship and structural defect warranty for the dwelling that also contained an arbitration provision.

A year-and-a-half after the plaintiff entered into the purchase contract, she injured herself while riding her bicycle in the community.  The roads were still under construction and were uneven, which caused the bicycle accident.

The plaintiff sued the developer, the contractor hired to construct the road, and the general contractor.  The claims against the developer sounded in negligence for the developer’s failure to ensure the roads were safe for bicyclists, failing to warn bicyclists using the road of known hazards, and breach of the nondelegable duty to maintain the premises in a safe and reasonable manner.   The developer moved to compel the dispute to arbitration, which the trial court granted.

Deciding whether a particular claim is covered by a broad arbitration provision requires a determination whether a significant relationship exists between the claim and the agreement containing the arbitration clause, regardless of the legal label attached to the dispute. [A] significant relationship is described to exist between an arbitration provision and a claim if there is a ‘contractual nexus’ between the claim and the contract.

A contractual nexus exists between a claim and a contract if the claim presents circumstances in which the resolution of the disputed issue requires either reference to, or construction of, a portion of the contract. More specifically, a claim has a nexus to a contract and arises from the terms of the contract if it emanates from an imitable duty created by the parties’ unique contractual relationship.  In contrast, a claim does not have a nexus to a contract if it pertains to the breach of a duty otherwise imposed by law or in recognition of public policy, such as a duty under the general common law owed not only to the contracting parties, but also to third parties and the public.

Dewees, supra (quotations and citations omitted).

For plaintiff’s claims to be subject to the arbitration provision in the purchase contract, they must not only arise from the purchase contract, but also have a significant relationship to the purchase contract.  But here, plaintiff’s claims against the developer do NOT have a significant relationship to the purchase contract.  For this reason, the appellate court reversed the trial court’s order compelling the dispute to binding arbitration.  Plaintiff’s claims “do not refer to or implicate contractual duties created or governed by the Purchase Contract or Dwelling Warranty but concern duties generally owed to the public, including all invitees using the roadways in [the community].  None of the allegations in the complaint require reference to or construction of any portion of the Purchase Contract or Dwelling Warranty.  The allegations instead rely on obligations that would extend to anyone who might be injured by the developer’s tortious conduct.”  Dewees, supra.     There was no contractual nexus between the purchase contract and the plaintiff’s dispute against the developer.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

WAIVER OF ARBITRATION BY NOT SUBMITTING CLAIM TO INITIAL DECISION MAKER…REALLY!

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Arbitration is a form of dispute resolution that is a creature of contract.   If you want an arbitrator to resolve your disputes, you need to ensure there is an arbitration provision in your contract.   There are pros and cons to arbitration.  One con is you lose the right to appeal.  A couple of pros, however, are that your arbitrator(s), which you generally have some control in the selection of, will be versed in the construction industry and it can be a more efficient forum to resolve disputes in the times of COVID.   Once you have your scheduling conference with the appointed arbitrator(s), you will be able to agree upon a set final hearing (trial) time and have milestone dates that work backwards from the final hearing date.  This is much more efficient than being placed on an unrealistic trial docket or having to deal with the gamesmanship of motions just to be able to get your case at-issue for trial.

However, the right to arbitrate your dispute can be waived.  This was the issue in Leder v. Imburgia Construction Services, Inc., 2021 WL 3177338 (Fla. 3d DCA 2021), which I will be the first to tell you the ruling is quite baffling to me.  In a nutshell, the contractor, by not complying with the submission of a claim to the Initial Decision Maker was found to have waived the dispute resolution provision in the AIA contract.  Not sure this makes sense, but this was the ruling.

The contract, which was clearly an AIA contract, between the owner and contractor contained a dispute resolution provision.  It contained an arbitration provision to resolve disputes.  However, prior to arbitration, there were other dispute resolution steps parties had to follow.  The parties were required to submit claims to the Initial Decision Maker.  In this contract, the parties identified the “Miami Shores Village Building Department Official” as the Initial Decision Maker.  The AIA defaults to the architect as the Initial Decision Maker, but sometimes parties will agree on a third-person to serve in this role.  (I have never seen parties select a public body or official to serve in this role!).   The Initial Decision Maker’s decision is a condition precedent to mediation, which is then a condition precedent to litigation.   This is boilerplate AIA language in contracts with a contractor and owner.

The owner filed suit against the contractor after the contractor abandoned the project due to a dispute over a change order.  The contractor moved to dismiss the suit based on the arbitration provision.  The owner argued the contractor waived the right to arbitrate by not complying with the dispute resolution provision prior to abandoning the project, i.e., by not submitting the change order dispute to the Initial Decision Maker.   The trial court found the owners’ argument without merit and dismissed the complaint based on the arbitration provision.  The appellate court, on the other hand, found the owners’ waiver argument compelling and reversed the dismissal.

The Owners contend that the arbitration provision in the contract is unenforceable as it was waived. We agree.

Although a dispute arose between the parties, neither party initiated a claim with the Initial Decision Maker. Under the contract, a condition precedent to mediation is filing a claim with the Initial Decision Maker, and a condition precedent to arbitration is demanding mediation of the Initial Decision Maker’s decision. In this case, either party had the ability to initiate a claim with the Initial Decision Maker because the dispute relating to the fifth change order affected both parties and was related to the construction contract. However, neither party elected to do so.

***

In the instant case, the Contractor waived its right to arbitrate based on its pre-litigation action and the language in the parties’ contract. As stated above, prior to binding arbitration, there are other steps that the parties to the contract must take to preserve its contractual right to arbitrate—submitting a claim to the Initial Decision Maker, and thereafter, pursuing mediation. Neither party utilized this procedure to resolve their dispute relating to the…change order, including taking the first step—initiating a claim with the Initial Decision Maker. As such, we conclude that the parties waived their right to arbitrate under the terms of their contract. Therefore, we reverse the order granting the Contractor’s motion to dismiss the amended complaint and, on remand, the trial court is instructed to order the Contractor to file an answer to the Owners’ amended complaint.

Leder, supra, at *2-3.

The morale of this case is if there is a dispute resolution provision — comply with it — versus having to deal with this bonkers ruling where the court deemed a waiver of the arbitration provision and the entire dispute resolution process just because the claim had not been submitted to the Initial Decision Maker!

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

COURTS GENERALLY FAVOR THE ENFORCEMENT OF ARBITRATION PROVISIONS

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In recent posts (here and here) I have discussed arbitration provisions and cases dealing with the enforceability of arbitration provisions.

The case of Lemos v. Sessa, 46 Fla.L.Weekly D701a (Fla. 3d DCA 2021) deals with two noteworthy principles when it comes to arbitration that warrant another post about arbitration provisions.

First, courts will and should try to resolve any ambiguity in arbitration provisions in favor of arbitration. 

Second, when there is an offending arbitration provision or one that includes language that violates public policy, the trial court “should sever the offending provisions from the arbitration clause so long as such severance does not undermine the parties’ intent.” Lemos, supra.   This principle is reinforced when the arbitration provision is in an agreement that contains a severability provision.

In Lemos, a client sued her former attorney.  The retainer or engagement agreement included an arbitration provision.  The arbitration provision contained fee-shifting and cost-shifting provisions that violated pubic policy. The engagement agreement also included a severability provision. The client claimed the arbitration provision should not apply because it was both ambiguous and violative of public policy.  On appeal, the appellate court found the arbitration provision was not ambiguous as it required claims regarding the attorney’s representation to be subject to arbitration.  While the appellate court did find the fee-shifting and cost-shifting clauses in the arbitration provision to be contrary to public policy, such offending and invalid clauses could be severed from the arbitration provision “because their removal neither subverts the essence of the arbitration clause, nor causes us to drastically rewrite the parties’ agreement.” Lemos, supra.

The gist  is that courts generally favor the enforcement of arbitration provisions.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

QUICK NOTE: COMPELLING ARBITRATION BASED ON EQUITABLE ESTOPPEL

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In the prior posting, I discussed arbitration provisions and to clearly and unmistakably include in the arbitration provision the person — judge or arbitrator — you want to determine the arbitrability of a given dispute.

In another posting, I discussed how the doctrine of equitable estoppel can be used by a non-signatory to a contract with an arbitration provision to compel arbitration or to compel a non-signatory to arbitration. This occurs “when a signatory to a contract containing the arbitration clause raises allegations of substantially interdependent and concerted misconduct by both a non-signatory [to the contract] and one or more of the signatories to the agreement.” Kratos Investments LLC v. ABS Healthcare Services, LLC, 46 Fla.L.Weekly D603a (Fla. 3d DCA 2021) (internal citations omitted).

Whether or not to include an arbitration provision in your contract is a dispute resolution consideration that should be factored in on the frontend.  Further, whether or not to compel a given dispute to arbitration based on an arbitration provision (whether or not you are a non-signatory to the contract with the arbitration provision and want to raise equitable estoppel) is another dispute resolution consideration that should be factored in when the dispute arises.  It is always best to consult with counsel during the contract drafting and negotiation process and when the dispute arises to best prepare for your dispute resolution options moving forward

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

CLEARLY DETERMINING IN CONTRACT WHO DETERMINES ARBITRABILITY OF DISPUTE

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As you know from prior postings: “Arbitration provisions are creatures of contract and must be construed ‘as a matter of contract interpretation.’ ”  Fallang Family Limited Partnership v. Privcap Companies, LLC, 46 Fla.L.Weekly D639e (Fla. 4th DCA 2021) (citation omitted).    Thus, if you prefer to arbitrate potential disputes, instead of litigating potential disputes, you want to include an arbitration provision in your contract.  While there are positives and negatives to arbitration, no different than litigation, these positives and negatives should be considered during the contract negotiation process when dealing with the dispute resolution process in the contract.

Generally, under the law, the arbitrability of a dispute is determined by the court.  However, this can be deferred to the arbitrator with clear and unmistakable language in the contract.

By way of example, the American Arbitration Association includes a rule that allows an arbitrator to rule on the arbitrability of the dispute, i.e., the claims asserted are subject to the governing arbitration provision in the contract.   Recent law has suggested that if the objective is to authorize an American Arbitration Association arbitrator to make this determination, the contract clearly and unmistakably needs to state this intent and generally referring to the American Arbitration Association rules is not good enough.  For this reason, I have included in arbitration provisions language that specifically states, “In the event of any dispute as to the arbitrability of any claim or dispute, the parties agree that an appointed arbitrator within the American Arbitration Association shall make this determination.”  I have also included in arbitration provisions the converse so that if there is a dispute as to the arbitrability of a claim or dispute, the court, and not the arbitrator, will make this determination.

In Fallang Family Limited Partnership, the arbitration provision simply read: “In the event of any dispute under this agreement the parties agree to submit to binding arbitration in the state of Florida with a panel of one arbitrator. The arbitrator shall be chosen by the AAA [American Arbitration Association] and the AAA rules and procedure shall apply, and the arbitration will be governed by the law of the state of Florida.”  A lawsuit was filed and the court compelled certain claims to arbitration finding that such claims were arbitrable; however, the court authorized the arbitrator to make the final determination as to the arbitrability of the claims.

As mentioned, the rules of the American Arbitration Association allow the arbitrator to rule on the arbitrability of claims subject to the arbitration provision.  However, the simple arbitration provision did not clearly and unmistakably specify this intent.  The Fourth District concluded “that the general reference to the ‘AAA rules’ in this case left ambiguity as to whether the arbitrator has authority to decide arbitrability to the exclusion of the trial court.” Fallang Family Limited Partnership, supra.  Based on this ambiguity, the Fourth District held that the trial court’s ruling was right making the initial determination as to which claims were arbitrable with the final decision left to the arbitrator.  Fallang Family Limited Partnership, supra (“[W]e conclude that the trial judge’s order in this case properly made a preliminary decision as to which counts of the complaint are covered by the arbitration agreement, based on a limited showing of the facts in this multiple count, factually complex case, and properly left the final decision as to what was arbitrable to the arbitrator.”).

The bottom line is that, naturally, it may not be the most efficient for the trial court to make a preliminary determination as to the arbitrability of the claim with a final decision left to the arbitrator.  However, this ruling was due to the fact that the American Arbitration Association’s rules were incorporated into the contract but did NOT clearly and mistakably say that the arbitrator, and the arbitrator alone, would rule on the arbitrability of claims.  For this reason, there is value taking the extra step in the contract to clearly and mistakably reflect this intent, one way or the other.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

MILLER ACT PAYMENT BOND SURETY BOUND TO ARBITRATION AWARD

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Here is an interesting case binding a Miller Act payment bond surety to an arbitration award against its prime contractor (bond principal) that it received sufficient notice of.  Notice is the operative word.  The surety could have participated in the arbitration, elected not to, and when its prime contractor (bond principal) lost the arbitration, it was NOT given another bite out of the apple to litigate facts already been decided.

In BRC Uluslararasi Taahut VE Ticaret A.S. v. Lexon Ins. Co., 2020 WL 6801933 (D. Maryland 2020), a prime contractor was hired by the federal government to make security upgrades and interior renovations to a United States embassy in the Czech Republic.  The prime contractor hired a subcontractor to perform all of the installed contract work.   The prime contractor terminated the subcontractor for default during the course of construction.

The subcontractor demanded arbitration in accordance with the subcontract claiming it was wrongfully terminated.  The subcontractor also filed a lawsuit asserting a Miller Act payment bond claim against the prime contractor’s surety (as well as a breach of contract action against the prime contractor). The subcontractor made clear it intended to pursue its claims in arbitration and hold the payment bond surety jointly and severally liable.  The parties agreed to stay the lawsuit since the facts were identical to those being arbitrated. The arbitration went forward and an award was entered in favor of the subcontractor and against the prime contractor for approximately $2.3 Million.

The subcontractor moved to lift the stay entered in the lawsuit to confirm the arbitration award against the prime contractor and Miller Act payment bond surety.  The prime contractor moved to vacate the award.

Beginning with the prime contractor’s motion to vacate the arbitration award, the Federal Arbitration Act gives limited grounds to support vacating an arbitration award.  The grounds the prime contractor raised will not be discussed. They were all denied because it is difficult to vacate an arbitrator’s final award and that is the important take-away message.  In support of this (and contained in a noteworthy, lengthy discussion by the Court), the Court stated: “The FAA [Federal Arbitration Act] creates a ‘strong presumption in favor of confirming arbitration awards,’ and ‘judicial review’ of such awards ‘must be an extremely narrow exercise.’” BRC Uluslararasi Taahut, supra, at *4.

Of significance here, the subcontractor moved to enforce the arbitration award against the Miller Act payment bond surety, as it should.  Even though the surety was not a party to the arbitration, it was on notice of the arbitration, was notified the subcontractor would look to hold it jointly and severally liable, and the surety consented to the stay of the lawsuit pending the outcome of the arbitration. The Court noted, “[s]uch notice is sufficient to bind [the surety] to the arbitration award.” BRC Uluslararasi Taahut, supra, at *9 (citing cases showing that if the surety has notice of the proceedings against its principal, it can be bound by an arbitration award against the principal).  Further, the Court intuitively stated:

[The surety] clearly knew that the arbitration would occur.  Now dissatisfied with the outcome, [the surety] wishes not to be bound by the very proceeding [the surety] averred would avoid duplicative litigation.  The Court suspects that had [the prime contractor] prevailed in arbitration, [the surety] would be singing a different tune.  [The surety] will not be afforded a second bite at the litigation apple simply because it must now honor its obligations as the surety on the project.

Id.

Remember, if you are arbitrating rights, do not neglect to timely file your Miller Act payment bond lawsuit, or for that matter, any statutory payment bond lawsuit.  Give the surety NOTICE that you intend to hold it jointly and severally liable for any arbitration award entered against its prime contractor (bond principal).   Whether the surety elects to participate in the arbitration is within its discretion, but the key is to give the surety notice so that if you do prevail, you find yourself in same shoes as the subcontractor discussed in this case—binding the payment bond surety to the award entered against the prime contractor.  The prime contractor and its surety should also recognize this likely outcome.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

QUICK NOTE: EVIDENTIARY HEARING REQUIRED BEFORE COMPELLING NON-SIGNATORIES TO ARBITRATION

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As you know from prior articles, arbitration is a creature of contract where parties agree to resolve their dispute through arbitration, not litigation.  What if the parties are non-signatories to the arbitration agreement?

In a recent case, the trial court compelled parties that did not sign the governing agreement with an arbitration provision to arbitration.  One of the parties argued that the non-signatories to the agreement entered into another agreement which incorporated the agreement with the arbitration provision.  The trial court agreed and compelled the parties to arbitration.  The appellate court reversed because the party opposing arbitration disputed the underlying facts. As such, the appellate court held that the trial court was required to hold an evidentiary hearing to resolve disputed issues of fact.  This evidentiary hearing was important because the parties being compelled to arbitration were not the actual parties to the arbitration agreement, albeit they were related parties.

Check out this article for more information on this case.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

NOW IS THE TIME TO REVISIT CONTRACT LANGUAGE IN LIGHT OF COVID-19 TO ADDRESS FUTURE CONTRACTS

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Now is the time!  Today!  If you are currently in the process of negotiating or executing contracts, now is the time to ensure the contract protects your interest in light of this new world we enter into.   The impacts associated with COVID-19 may have been realized by some parties, but not others.  Regardless, the full extent of the COVID-19 impacts has likely been realized by no one — we are dealing with an unknown, prospective impact.

Will projects get suspended?  Will they stop and start back up due to disinfecting?  Will they slow down due to health concerns and preventative measures?  Will there be unanticipated material lead times?  Will current material lead times or material orders  be delayed?  Will material prices increase?  Will there be a labor shortage and/or inefficiencies with the labor force?  Will labor costs increase in order to address the preventative measures and anticipated inefficiencies?

These are some questions you may be asking, plus more.   You are asking these questions because of the unknown factor associated with COVID-19 and any future health crisis.  This is the reason now is the time — the time to ensure your contract best captures the risk of the unknown.

Here are considerations:

1.  Force majeure wording. –   This needs to be beefed up and tweaked to address COVID-19 and, potentially, other pandemics / health crisis.   You need to have an understanding who is bearing the cost risk for a project being shut down (by the government or otherwise), suspended, or slowed-down due to this issue.    Leaving it alone is a mistake.  All contracts until this pandemic hit left it alone meaning no contract truly addressed the global pandemic we are all facing.

2.  Additional safety and preventative health measures. – This needs to be factored in as the additional measures will add a cost to the project.  The measures may also add a cost in that they will add certain inefficiencies into the project that need to be factored into the schedule and general conditions.

3.  Material price escalations.- Could the cost of materials increase due to supply chain issues?  It is certainly a possibility and should be considered.  Further, it is likely that to avoid this issue, a party wants to accelerate the ordering of materials at today’s price, and there may be additional storage costs associated with doing this.   Conversely, what if the price of materials skyrocket post-contract?  This issue could break a party’s performance, profitability, and financial wherewithal to perform.  A party may want to address protection from any uncertainty with material price escalations.

4.  Material lead times and material delays.- If there are delays tied to COVID-19, how this being allocated?  There could be a realistic delay in material deliveries that impacts the project’s schedule.  The delay is not the ordering party’s fault but the result of impacts associated with the pandemic.  Based on this concern, this may result in the discussion of material accelerations and the additional storage costs associated with doing this (also discussed above).

5.  No-damage-for-delay.-  A no-damage-for-delay provision is common.  However, a party may want to deliberately carve-out from this issue delays associated with or tied to COVID-19 or any pandemic / health crisis.  The carve-out language should be broad and include language “arising out of or relating to” COVID-19 or any pandemic / health crisis based on the uncertainty as to how impacts may be realized.

6.  Contingencies.- Certain contracts, such as GMP contracts, contain a contingency.  Parties may want to add a contingency in the contract for COVID-19 and pandemics / health crisis.  A certain sum is built into the contract sum to address the unknown costs that could be incurred.

7.  Dispute resolution.- Knowing that the onslaught of COVID-19 cases will start affecting the judicial system, parties may want to revisit their dispute resolution provisions to see how disputes can be more efficiently resolved.  Parties may consider turning towards more specific arbitration provisions that modify standard contractual language.  Since arbitration is a creature of contract, parties can essentially start negotiating the rules of arbitration within the parameters of the contract.  Parties may demand pre-suit mediation provisions, executive settlement meetings, or partnering agreements as vehicles to efficiently resolve disputes and avoid delays or inefficiencies with the judicial system.

These are some talking points.  There will be others based on the scope.  I remain available to assist any party that wants to revisit their standard form contracts or needs help in drafting or negotiating contracts.   A party should not rely on their same-ole contract forms.  Also, a party should not rely on the same-ole negotiation as COVID-19 brought new issues to the table and highlighted the significance of other issues and contractual provisions.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.