Download a PDF
To obtain a printable copy of this newsletter, please click on the "Download a PDF" button above.
<< Prev     4        

A  P u b l i c a t i o n  b y  K A T Z   &   S T O N E ,  L . L . P .
Construction Newsletter

GENERAL CONTRACTOR’S RIGHT TO COMPEL
ARBITRATION NOT WAIVED TWO MONTHS AFTER SUIT IS FILED

Contract provisions requiring binding arbitration provide cost-effective, alternative means of resolving construction disputes. The right to compel arbitration is codified in the Federal Arbitration Act (“FAA”) (9 U.S.C. § 1 et seq.) and many states’ counterpart statutes. The same right, however, can be unintentionally waived if it is not invoked in a timely manner. As the case of S&G Electric v. Normant Security Group, 2007 U.S. Dist LEXIS 5395 (Jan. 24, 2007) illustrates, a general contractor does not lose the right to compel arbitration even if it is invoked more than two months after a lawsuit is filed.

In S&G Electric, a Pennsylvania-based subcontractor agreed to provide electrical work on a women’s jail for an Alabama general contractor. After a delay on the project, in August 2006, the subcontractor sued the general contractor alleging that the delay increased its costs beyond the anticipated bid. The subcontract provided that any dispute between the two parties would be settled by arbitration. In November 2006, two months after the law suit had been initiated, the general contractor moved to compel arbitration. The subcontractor argued that the two-month delay constituted a waiver of the general contractor’s right to compel arbitration.

The court noted that following initiation of a lawsuit, a contractor waives his right to compel arbitration in three separate circumstances. The first is if the parties engaged in  a  lengthy course  of litigation.  The

second is if extensive discovery has occurred. The third and final circumstance is if the party who opposes arbitration has been prejudiced. Delaying arbitration beyond any of these points is deemed a waiver. The court in S&G Electric, however, found no such waiver, despite the passing of two months. In fact, the court noted that the general contractor had moved to compel arbitration at the earliest possible point after the law suit was filed.

The court also examined whether the FAA applied to the contract or whether it was preempted by state law. The subcontractor believed that the FAA did not apply to the arbitration provision because the subcontract did not affect interstate commerce. The court held otherwise and stated that the FAA applies to contracts between two companies from different states that agree to undertake a large construction project. It also held that in this case, state law did not preempt the FAA.

As S&G Electric clearly shows, the right to compel arbitration must be timely invoked. While parties to a contract may think they are protecting themselves by including contractual arbitration provisions, they must recognize that the right to compel arbitration has a limited shelf-life. That is, when a dispute arises, it is critical to compel arbitration at the earliest possible moment. Sitting on this right too long may result in its unintentional waiver.
<< Prev     4