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After a project owner lost its arbitration against a construction contractor it filed a lawsuit against its Architect to recover damages for breach of contract on the same project. The trial court granted summary judgment to the Architect on the basis that the adverse arbitration award constituted collateral estoppel and barred the suit against the Architect.  This was reversed on appeal – with the court holding the doctrine of collateral estoppel was inapplicable because that doctrine only applies to preclude a party from relitigating, in a subsequent action or proceeding, an issue that was clearly raised in a prior action or proceeding and that was decided against that party.  Crystal Clear Dev. v. Devon Architects, 97 A.D.3d 716 (NY 2012).

Here, the contract between the owner and architect was separate and distinct from the contract with the contractor, “and different duties and obligations were promised.”  “The arbitration, which was mandated by the construction contract, did not include claims by or against the defendants.”  The court held that the Owner failed to establish that the issues of negligence or breach of contract by the architect were “actually litigated, squarely addressed, and specifically decided in the prior arbitration proceeding.”  Consequently, collateral estoppel could not be applied, and summary judgment could not be based on that principle.

Partial summary judgment was properly granted to the architect on that part of the complaint that sought to recover damages for lost profits because the court found this to be “special or extraordinary damages” not recoverable as general damages that were the “natural and probable consequence of the breach.”   To recover such damages, the court explained, there must be a demonstration that the damages were contemplated by the parties in entering into the subject contract.”  Here, the court found “A review of the terms of the subject contract demonstrates that there was no intent by the parties to allow for economic loss as a potential basis for damages in the event of a breach.”

A gross negligence count of the complaint was also correctly dismissed on summary judgment because as explained by the court, “The plaintiff’s conclusory assertion that the defendants performed their duties … recklessly and with … willful disregard” was unsupported by any factual allegations of conduct evidencing a reckless disregard for the rights of others.

Comment:  This short (two page decision) covers a lot of legal ground quite well and succinctly.   With regard to the lack of collateral estoppel, this is a good reason to provide by contract the same mechanism and jurisdiction for resolving all disputes.   Including an arbitration provision in the construction contract but a litigation contract in the architect’s contract resulted in having two separate disputes involving the same project and apparently many of the same problems.  The current AIA contract language provides for consolidation and joinder in the event that arbitration is selected as the dispute resolution mechanism.  Use that type of language to avoid the situation described in this decision.

The sections of the decision dismissing the claims for lost profits and gross negligence are also instructive.  Too many courts fail to grant summary judgments on frivolous claims of gross negligence that contain no supporting factual allegations.  Even “notice pleading” requires some solid factual allegations be pleaded that would, if proved later at trial, establish there was gross negligence.  Merely saying there was gross negligence does not constitute “factual allegations.”  It seems that plaintiff attorneys have an idea that it would be malpractice for them not to assert that an allegation of an ordinary mistake also constitutes “gross negligence” or “fraud.”  I long for the day that courts begin issuing sanctions and fines against plaintiffs and their attorneys for filing such abusive claims.

 

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. 15, No. 2 (Feb 2013).

Copyright 2013, ConstructionRisk, LLC