Subcontractor filed suit against the prime contractor seeking money allegedly owed. Prime moved to dismiss the suit or stay the suit until the parties could submit the dispute to mediation as required by contract. The court agreed that because the contract clearly stated that parties must go through mediation before filing suit, the case could not be tried in court until after unsuccessful mediation. United States, ex rel El Paso Glass Company v. David Boland, Inc., 2018 WL 1566834.
This decision demonstrates the significance of including requirements in contract stating that before going to litigation or arbitration parties must first have their senior principals attend a “negotiation” sessions or “mediate” before filing suit.
In this case the contract expressly required claims to be submitted to mediation before initiating suit. The contract states the following in this regard:
Any claim arising out of or related to the Subcontract Agreement, other than those subject to Paragraph 13A, above, shall be submitted to the Contractor for an initial decision in its sole discretion. Thereafter, should Subcontractor disagree with the Contractor’s decision, such claim shall be subject to non-binding mediation, to be held in Orange County, Florida, as a condition precedent to the institution of legal or equitable proceedings by either party…. No legal or equitable proceeding may be filed until the conclusion of the mediation process and the Subcontractor agrees that it will stay any such proceeding that is instituted until the completion of mediation. ….
If the Prime Contract incorporated herein is one for which the Contractor has provided any bond(s) pursuant to 40 U.S.C. § 270a, the “Miller Act,” … then the Subcontractor expressly agrees to stay any action or claim under this Subcontract Agreement against the Contractor and against the Contractor’s surety and its Payment Bond and Performance Bond pending the complete and final resolution of … the Subcontract Agreement’s mediation procedure, as required by Paragraph 13, above.
The Plaintiff argued that the Defendant waived the mediation requirements by virtue of having disputed Plaintiff’s requests for payment and not returning calls to the Plaintiff. The Plaintiff also argued that I thought mediation would be futile because it believed the Defendant was going out of business. No legal authority was cited by the Plaintiff in support of its arguments to ignore the requirements of the contract to mediate. Consequently, the court found mediation was required and that the best time for such “mediation in this case is now….”
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. 24, No. 10 (December 2022).
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