Federal District Court in South Dakota Compels Arbitration Despite Defendant’s Failure to First Submit the Dispute to the Project Engineer as Required by the Disputes Clause

Dlorah, Inc. v. KLE Constr., LLC, No. CIV. 16-5102-JLV, 2017 U.S. Dist. LEXIS 11043 (D.S.D. July 17, 2017)

Plaintiff, Dlorah, Inc. (“Dlorah”), filed suit against defendant, KLE Construction, LLC (“KLE”), in connection with an agreement for KLE to perform construction services at an apartment complex in Rapid City, South Dakota.  According to Dlorah, KLE’s actions while carrying out the construction breached the agreement and constituted fraud/deceit.

KLE moved the court to compel arbitration or alternatively stay the proceedings pursuant to an arbitration clause contained in the parties’ agreement.  Dlorah objected to KLE’s motion on three grounds: (i) defendant had not satisfied the conditions precedent to compel arbitration; (ii) the dispute at issue did not fall within the scope of the arbitration clause; and (iii) the arbitration clause was permissive, not mandatory, and therefore permitted Dlorah to file suit in court.  After concluding that the parties had in fact entered into a binding arbitration agreement, the court considered and rejected each of Dlorah’s arguments. Continue reading

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Sharply-Divided Washington Supreme Court Holds That Sureties, Like Insurers, Must Pay Attorney Fees to Prevailing Parties When They Wrongfully Deny Coverage

King Cnty. v. Vinci Constr. Grands Projets/Parsons RCI/ Frontier-Kemper, JV, No. 92744-8, 2017 Wash. LEXIS 743 (July 6, 2017).

King County contracted with three construction firms (collectively, “VPFK”) to construct a tunnel.  The contract required substantial completion by November 14, 2010 (the “contract time”).  It also required VPFK to secure a performance bond from five surety companies, under which the sureties were to remedy any default in VPFK’s performance.

VPFK experienced difficulties with its tunnel-boring equipment and was unable to dig nearly as fast as estimated.  When it became clear that VPFK would not achieve substantial completion by the contract time, King County declared VPFK in default.  The sureties refused King County’s request for a cure, arguing that because the contract time had not passed, no default had yet occurred.

King County filed a breach of contract action against VPFK and the sureties, who denied coverage and adopted all of VPFK’s defenses.  A jury found in favor of King County and awarded nearly $130 million in damages. Continue reading

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D.C. Federal Court Declines to Enjoin Arbitration Because the Arbitrator Could Issue Any Equitable Relief Required, the Integrity of the Arbitration Was Not Threatened and the Movant’s Projected Economic Loss Did Not Prove Irreparable Harm

TK Servs., Inc. v. RWD Consulting, LLC, 2017 U.S. Dist. Lexis 97239 (D.D.C., June 23, 2017)

This litigation arose from a dispute between TK Services, Inc. (“TKS”), as sub-subcontractor, and RWD Consulting, LLC (“RWD”), as prime subcontractor, in connection with a sub-subcontract (the “Subcontract”), whereby TKS agreed to be responsible for managing operation and maintenance-related services (the “Services”) for the Environmental Protection Agency headquarters in Washington DC (the “Project” or the “EPA Building”) in exchange for a monthly fixed fee and a percentage of profits derived from reimbursable projects performed at the EPA Building.  Pursuant to the Subcontract, all funds received by RWD as payment for the Services performed at the Project and all working capital provided by TKS were to be deposited into a joint bank account to which both TKS and RWD were signatories.

In its complaint, TKS alleged that RWD (1) breached the Subcontract by failing to properly compensate TKS and excluding TKS from accessing the EPA Building, (2) converted the funds in the joint bank account by unilaterally closing the account, and (3) was unjustly enriched by its improper conduct.  TKS also moved for a preliminary injunction to sequester the profits received by RWD in connection with the Project, prevent RWD from excluding TKS from the EPA Building and the joint bank account, and reinstate TKS to its prior role under the Subcontract.  Continue reading

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Michigan Appellate Court Rules That, Absent Proof of Prejudice, Defendant’s Filing of a Cross-Complaint Does Not Constitute a Waiver of Arbitration

Universal Acad. v. Berkshire Dev., 2017 Mich. App. LEXIS 975 (Ct. App. June 20, 2017)

The dispute arose out of an agreement between Universal Academy (“Universal”) and Berkshire Development (“Berkshire”), under which Berkshire agreed to provide demolition services to Universal and Hamadeh Education Services (“HES”).  The agreement also contained an arbitration provision which provided in part:

In the event of a dispute between Contractor and the Owner that cannot be resolved, the parties agree to binding arbitration with the American Arbitration Association in accordance with the Construction Industry’s Rules of the American Arbitration Association in effect as of the date of this Agreement.

The agreement was terminated by Universal, alleging material breaches by Berkshire.  Following termination, subcontractors for the project filed a complaint against Berkshire, Universal, and HES, requesting foreclosure of construction liens and payment for services.  In response, Berkshire filed a cross-complaint against Universal and HES, requesting foreclosure of its lien and asserting claims of promissory estoppel and fraudulent inducement.  Five months after it filed the cross-complaint, Berkshire filed a motion to enforce the arbitration agreement between it and Universal. Continue reading

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Connecticut Appellate Court Holds That Owner’s Loss in Arbitration to General Contractor on Claims of Defective Work Operates as Res Judicata to Bar Owner’s Claim Against Subcontractors Who Were Not Parties to the Arbitration

Girolametti v. Michael Horton Assoc., 2017 Conn. App. Lexis 228 (June 6, 2017)

A General Contractor brought claims for unpaid added work, via mandatory arbitration, against a building owner who asserted defective work claims in response.  The Owner abandoned the arbitration mid-process after a partial presentation of its claims.  The arbitrator ruled in favor of the General Contractor, awarding $508,597 in damages, which was affirmed by the Superior Court and Appellate Court.  The Owner then attempted to bring the same defective work claims in state court against the General Contractor, its subcontractors, and the Owner’s testing company on the project.  The defendants all filed motions for summary judgment asserting the defenses of collateral estoppel and res judicata.

The trial court granted the General Contractor’s motion but denied the subcontractors’ and testing company’s motions on the basis that both collateral estoppel and res judicata required privity between those entities and the General Contractor.

The Court of Appeals discussed each motion in detail.  As to the Owner’s claims against the General Contractor, the Court found that the Owner’s complaint involved the same claims of design and installation defects as had been raised or could have been raised in the arbitration.  The Owner had a full and fair opportunity to present his claims against the General Contractor in arbitration.  Thus, the trial court’s grant of summary judgment was affirmed on the basis of res judicata. Continue reading

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