U.S. Fourth Circuit Court of Appeals Interprets Modified Version of AIA A201 to Require Agreement By Parties to Mediate as Condition Precedent to Arbitration

Perdue Farms, Inc. v. Design Build Contracting Corp.
2008 U.S. App. LEXIS 2861 (4th Cir. Feb. 8, 2008)

The Fourth Circuit held that where a condition precedent to arbitration, in this case voluntary mediation, was not fulfilled, a party to a contract had no right to force arbitration of the underlying dispute. The case arose when an owner sued its general contractor in district court to recoup additional monies due to the owner after the owner directly paid the general contractor’s subcontractors monies in excess of the contract sum. The contractor moved to dismiss the lawsuit, or stay and compel arbitration between the parties, arguing that the dispute was subject to mandatory arbitration. The underlying contract between the parties was a modified version of the AIA Standard Form of Agreement between Owner and Contractor (A101-1997) and incorporated a modified version of the General Conditions of the Contract for Construction (AIA A201-1997). The parties’ contract eliminated a broad mandatory arbitration clause usually found at Article 4.6.1 of the General Conditions. The modified contract instead provided that a claim is subject to mediation only “if mutually agreed by the parties.” The contract then provided that “[c]laims not resolved by mediation shall be decided by arbitration.” The District Court held that the contract eliminated a broad mandatory arbitration clause and instead conditioned arbitration on voluntary mediation. The court held that as the parties chose not to mediate, and in fact did not mediate the dispute, arbitration was never triggered. The court also concluded that although there is a federal policy favoring arbitration in the Federal Arbitration Act, that policy does not compel arbitration where the parties’ contract itself does not require arbitration. On appeal, the Fourth Circuit affirmed the findings of the District Court. The Fourth Circuit held that where a condition precedent to arbitration is not fulfilled, a party does not have a right to arbitrate. The Court held that the clause that all “claims not resolved by mediation shall be decided by arbitration” had to be interpreted in light of the clause providing that a claim is subject to mediation “only if agreed by the parties.” The Fourth Circuit concluded that arbitration was mandatory only where the parties mutually agreed to mediate the claims, in fact did attempt to mediate the claims, and failed. The Fourth Circuit also upheld the findings of the District Court regarding the Federal Arbitration Act, holding that the FAA “does not mandate the arbitration of all [contract] claims, but merely the enforcement … of privately negotiated arbitration agreements.” The Fourth Circuit concluded that the FAA cannot change the terms of a contract to make the contract more susceptible to arbitration than the contract itself provides.

U.S. District Court in New York Holds Economic Loss Rule Does Not Bar Recovery in Cases Involving Violation of Professional Duty

Crown Castle USA, Inc., et al. v. Fred A. Nudd Corporation
2008 U.S. Dist. LEXIS 3416 (W.D. N.Y. Jan. 16, 2008)

The United States District Court for the Western District of New York held that the “economic loss doctrine” did not bar a professional negligence claim against defendant where plaintiff’s claims sought tort liability for defendant’s failure to exercise reasonable care in the design of a prefabricated product.

Fred A. Nudd Corporation (“Nudd”) fabricates steel products, including cellular phone towers (“monopoles”). On January 12, 2001, Crown and Nudd executed a construction services agreement (the “CSA”) where Nudd was to design, fabricate and/or construct twelve monopoles for Crown. In November 2003, a monopole designed by Nudd for another company collapsed. When Crown became aware of the collapse, it became concerned about the monopoles that Nudd designed and manufactured under the CSA. Crown alleges that it began an investigation which revealed that the monopole shafts, base plates, anchor rods and foundations for each of the monopoles were defective, overstressed and did not have the capacity to support the loads for which they were designed. Crown filed a complaint alleging that the monopoles which Nudd designed, fabricated and constructed contained design and construction defects. In its complaint, Crown’s only claim for damages is the costs to repair the allegedly defective monopoles. Continue reading “U.S. District Court in New York Holds Economic Loss Rule Does Not Bar Recovery in Cases Involving Violation of Professional Duty”

U.S. District Court in New York Holds That Completing Surety Could Assert Claims Against Other Project Participants Responsible For Costs of Remediation Work Which Had to Be Addressed to Complete Its Principal’s Work

Liberty Mutual Insurance Company v. N. Picco & Sons Contracting Co., Inc.
2008 U.S. Dist. LEXIS 4915 (S.D.N.Y. Jan. 16, 2008)

The United States District Court for the Southern District of New York (“SDNY”) recently had to decide whether a surety was entitled to assert subrogation rights against other project participants when the surety completed the construction work abandoned by the general contractor and performed remediation work. The SDNY determined that the surety did not voluntarily undertake the remediation work and, therefore, was entitled to assert subrogation rights. Continue reading “U.S. District Court in New York Holds That Completing Surety Could Assert Claims Against Other Project Participants Responsible For Costs of Remediation Work Which Had to Be Addressed to Complete Its Principal’s Work”