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.

Enforcement of Arbitration Provisions in Construction Contracts

When will a court enforce arbitration provisions in construction contracts?

A court will enforce arbitration provisions in construction contracts only when the provision is mandatory and not permissive.

In Advance Industrial Coating, LLC v. Westfield Insurance Company, the Middle District of Florida, answered the above question on Westfield’s motion to stay pending arbitration.  2015 WL 1822510 (M.D. Fla. Apr. 16, 2015).  Advance Industrial sued Westfield Insurance to recover on a 255.05 public construction bond relating to a construction project.  Westfield was the surety for the project’s general contractor, RTD Construction.  The Westfield bond secured all of RTD Construction’s required payments to its subcontractors and suppliers on the project.

RTD Construction entered into a subcontract with Advance Industrial to provide surface preparation work on the project.  Advance Industrial finished its work and RTD Construction breached the subcontract by failing to make payment.  Advance Industrial sued Westfield, and Westfield moved to stay the case pending the resolution of arbitration.

The court looked to Florida law to determine whether the arbitration agreement was valid.  The following three questions must be answered: (1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration has been waived.

Westfield argues that the subcontract between Advance Industrial and RTD Construction contained an arbitration provision.  Westfield states that since determination of its liability to Advance Industrial is dependent on whether RTD Construction is liable to Advance Industrial, any arbitration award as to this issue will resolve the claims against Westfield.  Advance Industrial argues that Westfield, as surety, is not a party to the subcontract and cannot invoke the arbitration provision.

The court reviewed the subcontract, which stated that “[a]ny controversy of dispute arising out of this Contract, or the breach thereof, may be decided by arbitration…”  The court held that this is a permissive arbitration provision and not a mandatory provision.  Since arbitration was not required by RTD Construction and Advance Industrial, Westfield is not entitled to a stay of the case.

Construction Lien and Arbitration Provision – How to Recover Attorney Fees

Construction Lien and Arbitration Provision – Can a contractor recover attorney fees in a lien foreclosure action where the contract contains an arbitration provision?

Yes, however it is critical for the contractor to file its lien foreclosure action in court.  In Snell v. Mott’s Contracting Services, Inc., 141 So. 3d 605 (Fla. 2d DCA 2014), Snell hired Mott’s to perform remodeling working.  The contract contained an arbitration provision but no provision for prevailing party attorney fees.  A dispute arose and Mott’s recorded a construction lien.  Snell filed a complaint in county court to contest the validity of the lien.  Mott’s moved to stay the action and compel arbitration – but never filed a lien enforcement action.  The county court granted the motion to stay and compelled arbitration.

The arbitration award was in favor of Mott’s and held that Mott’s was entitled to a reasonable attorney’s fee award.  Mott’s filed the arbitration award and moved the court to confirm the award and enter final judgment determining Mott’s entitlement to attorneys’ fees.  The county court confirmed the arbitration award as to the amount awarded to Mott’s but found that Mott’s was not entitled to attorneys’ fees under section 713.29, Florida Statutes, because it failed to take any action to foreclose the claim of lien within the statutory time period.

On appeal, the Second District Court of Appeal affirmed the county court’s decision.  The court held that 713.29, Florida Statutes, only authorizes an award of attorneys’ fees where a contractor brings an action to enforce a construction lien “in a court of competent jurisdiction” within the statutory time requirements.  Arbitration is not a “court of competent jurisdiction”.  Since Mott’s failed to satisfy the requirements of the statute, it could not recover its attorneys’ fees.