Construction Law Today : Construction Lawyer & Attorney : Joshua Glazov : Design Build Contracts, Construction Bankruptcy

Yesterday, the US Supreme Court ruled that when (a) there's a dispute over whether the arbitration provision in a contract is enforceable, and (b) the contract says that the arbitrator should decide that question, then the arbitrator will decide that question.  As the lawyers say: if the contract says so, the arbitrator decides questions of arbitrability and whether the dispute is arbitrable.

Rent-A-Center v. Jackson: Backstory and Decision

In Rent-A-Center, West, Inc. v. Jackson (PDF), an employee sued his former employer for racial discrimination.  They had a contract providing that any employee claims related to his employment must be submitted exclusively to arbitration, not to a court.  The contract also said the arbitrator, not a judge, should decide any questions about whether to enforce the arbitration terms of the contract. 

To make a long story short, in a 5-4 vote, the Justices agreed that under the Federal Arbitration Act, the contract in this case should be enforced as written.  So, they sent the case back to the arbitrator to decide whether the employee's discrimination claims should be heard, and ultimately decided, in arbitration or in court.  A principal reason for the Justices' decision: the employee attacked the entire contract for being "unconsionable," not just the arbitration provision or the part referring arbitrability disputes to the arbitrator.  

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In presentations I often mention that every construction contract is the beginning of a construction dispute.  The same usually applies to architects agreements and other design contracts too.  With that in mind, I'd like to hear from you.  What terms do you prefer in your contracts for resolving disputes: nothing, mediation, arbitration?  Vote below.  And add a comment to elaborate on your vote...

 

 

 

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Judges to owner: demanding that your contractor foreclose their mechanics lien within 30 days or lose it forever waives your right to require arbitration.

 

The Backstory of Illinois Concrete-I.C.I., Inc. v. Storefitters, Inc.

Unfortunately, the Illinois Appellate Court (Second District) decision in Illinois Concrete-I.C.I., Inc. v. Storefitters, Inc. (PDF) doesn't give us too many background details.  Here's what we can gather: an owner entered into a contract with a contractor to provide some type of construction work for the owner.  The contract had an arbitration clause, presumably one that says that if the owner and the contractor get into a dispute, they must submit the dispute to binding arbitration instead of resorting to the courts.

The owner and the contractor got into a dispute.  The owner didn't pay.  So the contractor recorded a lien against the property they'd worked on.

Under Section 34 of the Illinois Mechanics Lien Act (PDF) an owner (and others too) can serve a written demand on anyone holding a mechanics lien against their property (a "mechanics lien holder") demanding that the mechanics lien holder sue to foreclose their mechanics lien within 30 days (a "Section 34 demand").  And if the mechanics lien claimant doesn't go to the clerk of the court and file their foreclosure complaint before that 30 days expires, the mechanics lien claimant forfeits their lien.

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There's been a lot of recent decisions by judges applying the Illinois Home Repair and Remodeling Act (the "Act"). The Act is that statute requiring contractors working on people's homes to: (a) have a written contract, (b) include certain terms in the contract (e.g. price, insurance, dispute resolution), (c) give the homeowners a special brochure, and (d) get a receipt for giving the brochure. The judges in one case, Smith v. Bogard, held that homeowners needn't pay a contractor who fails to comply with the Act.

Well, Ashley Brandt over at the Illinois Construction Law Blog has done a great job analyzing two more recent decisions that go the other way:

• Artisan Design Build, Inc. v. Bilstrom from the Illinois 2nd District Appellate Court hearing an appeal from DuPage County
• K. Miller Construction Company, Inc. v. McGinnis from the Illinois 1st District Appellate Court hearing an appeal from Cook County

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In Vacating Arbitration Awards: Reasons In The Federal Arbitration Act Are The Only Way For Now - Part 1, we talked about the background facts and the judges' decision in Saipem America v. Wellington Underwriting Agencies Limited.  That was the case about claims for damage to an oil drilling platform while in transit from Texas to Israel.  Today we're going to talk about some of the lessons from the Saipem decision and how they could affect you.

• If you're going to have an arbitration clause in your contract, you need to think about what you want it to cover and ensure its language expresses your intentions.  If you have a dispute with your counterparty, the verbal perimeter you establish in your arbitration clause will decide which disputes get arbitrated, which disputes don't, and which ones you spend time and money on disputing whether they get arbitrated.

• Do you want to narrowly circumscribe the claims that get arbitrated?  For instance, arbitrate only claims for beach of your contract.  But keep in mind that if you pick this option, you may wind up with a dispute where some of the claims (breach of contract) get arbitrated, but others (negligence) don't.  If that happens you might have to can pay for two parallel proceedings - one in arbitration and one in court.  And those proceeding may even yield contradictory decisions.
  
• Or do you want a broader sweep on which claims go to arbitration?  For instance, all of claims the could arise from your relationship with your counterparty, regardless of classification (e.g., fraud, violation of statutes, interference with other contracts you have with third-parties).
  

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The U.S. Court of Appeals for the 5th Circuit (hearing cases in Texas, Louisiana, and Mississippi) just issued a new arbitration decision re-affirming that the reasons for vacating an arbitration award in Section 10 of the Federal Arbitration Act (the "FAA") are the only reasons for vacating an arbitration award governed by the FAA. 

The case is Saipem America v. Wellington Underwriting Agencies Limited.  Making the case a little more remarkable, retired U.S Supreme Court Justice Sandra Day O'Connor was one of the judges who heard and decided this case.  (Even after they retire from the Supreme Court, justices still hear cases in lower federal courts).

Factual Backstory

The owner of an offshore oil drilling platform in Texas (the "owner") hired an international oil equipment installation and transport contractor (the "prime contractor") to move the platform to Israel and install it there.  The prime contractor bought insurance from several insurers (collectively, the "insurers") to insure the load-out, transportation, and installation of the platform.

The prime contractor entered into a subcontract with Saipem America, Inc. (the "subcontractor") to act as the prime contractor's maritime warranty surveyor.  And the owner also entered into a separate contract with the subcontractor.  Under that contract the subcontractor acted as the owner's "certified verification agent" during transportation and installation of the platform. 

The subcontract included the following arbitration provision:

Any dispute arising out of or in connection with this Subcontract which cannot be amicably settled shall be referred to arbitration in The Hague, The Netherlands, in accordance with the Rules of the International Chamber of Commerce currently in force. Any settlement agreement or arbitral award shall be final and binding upon Parties.

The platform got damaged between Texas and Israel.  The owner and prime contractor made insurance claims against several of the insurers.  The insurers then looked for who might be responsible for the damage.  They wanted to make subrogation claims to get back at least part of the money they just paid-out to the owner and prime contractor.
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