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A design-builder brought an arbitration action against its engineering subconsultant after the expiration of the statute of limitations.  The engineer filed suit to stay the arbitration – arguing that the issues in dispute (concerning pre-bid quantify estimates) arose under the parties’ teaming agreement rather than under the subcontract, and were therefore not subject to arbitration.  It also argued that the statute of limitations for filing suit or arbitration had lapsed. The circuit (trial) court agreed, but this was reversed on appeal.  The appellate court explained the issues were: (1). Was Corman’s demand for arbitration barred because it was not brought within three years of the date that Corman discovered the alleged negligence giving rise to the claim? and (2.) Did the circuit court err when it concluded that the claim asserted by Corman fell within the substantive scope of the arbitration provision in the Design Subcontract?

The court concluded, “Our answer to each of these questions is no. Corman’s right to arbitration was not time-barred by the statute of limitations set forth in CJP § 5-101, even if its demand for arbitration was made more than three years after discovering Gannett Fleming’s alleged negligence. And Corman’s claim, even if just for extra material costs incurred as a result of Gannett Fleming’s breach of the Teaming Agreement, falls within the substantive scope of the arbitration provision in the Design Subcontract.” Gannett Fleming, Inc. v. Corman Construction, Inc., 243 Md.App. 376220 A.3d 411 (2019)

Timeliness of the Arbitration Demand

The appellate stated that the agreement between Gannett Fleming and Corman does not contain a term that imposes any time limitation on the parties’ ability to seek arbitration to resolve their disputes. The court noted that this is not a case in which Corman let litigation drag on only to assert, months or years later, a right to handle the dispute outside of court. “In our view,” says the court, “the expiration of a statutory limitations period does not render a demand for arbitration untimely—and, thus, the right to arbitration waived—unless the parties provide for this in their arbitration agreement….  On its face, CJP § 5-101 applies only to ‘civil action[s] at law’. And arbitration proceedings are not civil actions at law….  Additionally, no other Maryland statute makes CJP § 5-101 applicable to demands for arbitration.”

The court further stated, “[O]ur courts engage with the facts of each case to decide whether the party seeking arbitration has intentionally and unequivocally waived that right. Finding a demand for arbitration untimely for failure to satisfy the statute of limitations for civil actions at law would substitute fact-bound analysis with a bright-line rule.”

Was the Dispute under the Teaming Agreement or the Subcontract?

The engineer argued that the circuit court’s opinion erroneously blurred the two distinct contractual relationships created by the Teaming Agreement and the Design Subcontract. It argued that the design-builder’s claim relates only to the alleged negligent provision of pre-bid services under the Teaming Agreement, which contains no arbitration provision, and was therefore not subject to the arbitration provision of the subcontract. In reviewing that argument, the appellate court stated,

“Here, it is true that the Teaming Agreement and Design Subcontract are separate contracts, imposing differing duties on the parties. The Design Subcontract did not bind Gannett Fleming to perform any additional pre-bid services; the default provisions for pre-bid services were determined “[n]ot [a]pplicable” (i.e. , they were “stricken” from the modified form agreement). But, on its face, the language of the provision extends beyond disputes “aris[ing] out of” the subcontract agreement, and includes disputes “relat[ing] to” the agreement or its breach. The arbitration clause in the Design Subcontract is broadly worded, leaving vague the precise bounds of its scope.

In evaluating the substantive scope of the arbitration provision de novo , we cannot agree with Gannett Fleming that a dispute about faulty pre-bid estimates—upon which the bid was based and which presumably played some role in NCDOT’s decision to award the contract to Corman—is not “relate[d] to” the parties’ agreement to work together to build bridges and culverts in North Carolina. Indeed, it appears to this Court that the faulty pricing estimates for the project are intricately and inextricably related to the performance of the Design Subcontract or its breach. The information provided by Gannett Fleming under the Teaming Agreement was used to price and schedule all post-bid activities under the Design Subcontract. Corman asserts that the information provided by Gannett Fleming was flawed and that those errors led to project delays and increased costs as the parties worked to perform under the Design Subcontract. The Design Subcontract obligated Corman to pay Gannett Fleming for all services rendered for this project. This would include the pre-bid services provided under the Teaming Agreement. Otherwise, those services would have gone uncompensated.

The agreements, each signed by both parties, contemplate each other and explicitly reference each other. As we see it, the Teaming Agreement was a foundational premise upon which the Design Subcontract was later crafted. It was step one of two for the overall project, making firm the pricing and scope of services to be provided by Gannett Fleming.

Here, the parties, working together to secure and then complete a highway-construction project, opted for a broad arbitration clause and imposed no hard deadlines on bringing claims. Because the parties’ agreement did not limit the period in which arbitration can be demanded, Corman’s right to arbitrate the dispute was not barred by the statute of limitations. And because the scope of the arbitration agreement extends to all disputes relating to the Design Subcontract or its breach, and because “any doubt over arbitrability should be resolved in favor of arbitration.”

The court noted that its opinion reversing the circuit court decision does not definitively decide that this dispute is arbitrable. The court states, “We leave this determination to the arbitrator’s “skilled judgment.”  Finally, the arbitrator may also decide, in its application and interpretation of the parties’ agreement to arbitrate, that Corman’s claim lies beyond the scope of the arbitration provision.”

 

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 Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk Report, Vol. 22, No. 7 (Sep 2020).

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