Arbitration in Construction Contracts

Arbitration in Construction Contracts

Many construction contracts contain arbitration provisions, requiring that all disputes be decided by arbitration as opposed to in court.  A court has a three-pronged test to determine whether a dispute is subject to arbitration: (1) whether there is a valid agreement between the parties to arbitrate; (2) whether the specific issue is subject to arbitration; and (3) whether the right to arbitration was waived.

The recent case of Am. Eagle Veteran Contracting, LLC v. Eiland highlights when a party waives its right to arbitration by actively participating in the lawsuit or by acting in a way that is inconsistent with the right to arbitrate.  2016 WL 6023934, at *1 (Fla. Dist. Ct. App. Oct. 14, 2016).

In American Eagle, American Eagle, the general contractor, subcontracted with Architectural Drywall for work on a construction project.  The contract between American Eagle and Architectural Drywall contained an arbitration provision.  A dispute arose between the parties and Architectural Drywall sued American Eagle for breach of contract as a result of American Eagle’s failure to make payment.  American Eagle responded by filing a motion to stay the proceedings pending arbitration.

Architectural Drywall filed a motion for summary judgement.  American Eagle responded by filing a motion to stay the proceedings, compel arbitration, and to strike Architectural Drywall’s motion for summary judgement.  While American Eagle’s motion to compel was still outstanding, the trial court granted summary judgment in favor of Architectural Drywall.

On appeal, American Eagle argued that summary judgement was inappropriate because a genuine issue remained relating to American Eagle’s motion to compel arbitration.  The Fifth District Court of Appeals agreed with American Eagle, finding that the trial court erred in failing to rule on the motion to compel arbitration prior to the entry of summary judgment.  Florida public policy favors arbitration and parties with an agreement for arbitration have a right to arbitrate disputes.

By consistently claiming its right to arbitration from the beginning of the action and not filing an answer or any other pleading in response to the complaint, American Eagle did not waive its right to arbitration.  A party must be careful not to take any action in litigation that may cause it to unintentionally participate in litigation.  Such action may be construed as waiver of the right to arbitrate.