Where a subcontractor submitted a claim against the general contractor for  payment, it submitted the matter to arbitration and the general contractor replied with a counterclaim in that arbitration and also initiated a third-party arbitration claim against a related subcontractor.  When the arbitrator ordered consolidation and permitted an indemnity claim between subcontractors the impleaded subcontractor sought a court  order to separate the arbitrations and to exclude the indemnity claim from the arbitration.  The court denied that request and the subcontractor appealed and obtained a reversal, holding that the matters should not have been joined since the individual subcontracts, although each mandating arbitration, did not dictate that matters involving separate subcontractors would be joined in a single arbitration proceeding.

In Seretta Construction, Inc. v. Great American Insurance Co, 869 So. 676 (2004), Pertree Constructors was the general contractor.  It subcontracted with Seretta to erect concrete tilt-up walls, and it subcontracted with Five Arrows to prepare and paint the wall surfaces.  The subcontracts included identical arbitration provisions stating:  “Any claim, dispute or other matter in question between the Contractor and the Subcontractor relating to this Agreement shall be subject to arbitration upon the written demand of either party.  Such arbitration shall be in accordance with the construction industry arbitration rules of the American Arbitration Association then obtaining.  This Agreement so to arbitrate shall be specifically enforceable under the prevailing arbitration law, and the award rendered by the arbitrator shall be final, and judgment may be entered upon it in any court having jurisdiction thereof.”

At issue in this case was whether it was appropriate for disputes under separate subcontracts that each had their own arbitration provision to be joined into a single arbitration proceeding contrary to the will of one of the subcontractors involved.  In reviewing this issue, the court considered decisions of courts outside the state of Florida and found that some courts adopt the view that they have the power to direct that related arbitration matters be joined into a single arbitration proceeding. That line of cases relies upon doctrines of convenience and economy to resolve in one proceeding disputes which arise out of common facts and circumstances.  In contrast to that line of cases, however, federal courts and several state courts hold that they have no power to compel consolidation where the contracts do not expressly provide for the same.  They reason that for the court to “rewrite” the contracts or subcontracts to allow consolidation procedurally may conflict with the rights of one or more of the parties under their contracts.

The Florida court concluded even though a consolidated arbitration in this case would be more expeditious and economical, the court would follow the approach of the federal courts and states that do not permit courts to order consolidation in the absence of an agreement by the parties to allow such consolidation.

Practice Note: As stated by the court in this case, it would have been more economical and efficient to combine the issues and disputes that arose out of common facts and circumstances into a single arbitration proceeding.  By having a single arbitration, responsibility for the various claims, counterclaims, damages, and indemnification between parties could be resolved in a prompt and logical manner.  Although courts in some states may impose consolidation despite the fact that the contracts do not call for such consolidation, this is certainly not always the case – as seen by the decision here.  If you are signing an agreement containing arbitration provisions and you desire that all issues and matters related to common facts be resolved in a single consolidated arbitration, instead of piece-meal in different arbitrations, you should include express language in the contract to provide for such consolidation.

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 6, No. 7 (Sep 2004).

Copyright 2004, ConstructionRIsk.com, LLC