Subcontractor sought to litigate claims against a prime contractor instead of arbitrating them as called for by the disputes clause of the subcontract. It argued that the disputes clause of the incorporated by reference prime agreement specified litigation of claims. The subcontract clause stated that disputes between the prime and sub were subject to the dispute resolution procedures of the Prime Contract, if any, but if there was no specific requirement in the prime agreement for dispute resolution or “should the [Owner] not be involved in the disputes, any such controversy or claim shall be resolved by arbitration….” The court rejected the subcontractor’s argument that the owner was “involved” in the dispute merely by virtue of the third party beneficiary status the owner had under the subcontract, when the Owner was not in fact a party to the action. Arbitration of the subcontractor claim was therefore required. Austin Commercial, L.P. v. L.M.C.C. Specialty Contractors, Inc., 268 So. 3d 215 (2019).
At the trial court level, the court found the mere existence of a dispute resolution provision in the prime contract rendered the subcontract arbitration clause inapplicable. It therefore concluded the dispute could be litigated as desired by the subcontractor. In reversing that decision, the appellate court found, “The trial court’s interpretation of the Consultant Agreement’s dispute resolution provision does not give a reasonable meaning to its incorporated terms from the prime contract; namely the applicability of the prime contract’s dispute resolution provision.”
The court rejected the subcontractor’s broad interpretation of what it means for the owner to be “involved” in the dispute, concluding, “[Subcontractor’s] broad interpretation of ‘involved’ invites an interpretation contrary to its plain and ordinary meaning. ‘Involve’ is defined, in pertinent part, as ‘[t]o relate to or affect’ or ‘[t]o show to be a participant; connect or implicate. American Heritage Dictionary.
When these definitions are correctly applied, the court says the owner is clearly not “drawn in as a participant” to the lawsuit because it is not a party and as such need not participate in it.
Comment: It is understandable that the subcontractor would prefer to litigate it claim against the prime contract instead of arbitrate it. We have written several articles explaining the many benefits of litigation over arbitration. In order to have obtained the right to litigate its claims against the prime, the subcontractor could have negotiated a change to the contract language to expressly provide for litigation instead of arbitration in all disputes involving only the prime a subcontractor. Having failed to do that, it should not have attempted to force arbitration of its claims in this instance.
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 ConstructionRisk 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. 21, No. 6 (July 2019).
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