constructionattorneyblog

Arbitration: Condition Precedent

A Delaware case, Tekmen & Co. v. Southern Building, Inc., 2005 WL 1249035 (Del.Superl, May 25, 2005), held that arbitration must proceed, even though the claim was not presented to the architect, where the claim arose after completion of the project. Leaks developed after substantial and final completion. After several attempts by the contractor to fix the problems, the owner filed suit. The contractor moved to dismiss on the basis that the owner failed to meet the condition precedent of submitting the matter to the architect for an initial determination. The court rejected this argument based on the contractual language that ended the architect's role as neutral upon final completion. The issue of whether conditions precedent had been met are for the arbitrator to determine.

Revised Uniform Arbitration Act Update

The following states have now adopted the Revised Uniform Arbitration Act:

• Alaska
• Colorado
• Hawaii
• Nevada
• New Jersey
• New Mexico
• North Carolina
• North Dakota
• Oregon
• Utah

Several other states now have legislation pending....

Class Action Arbitration Permitted

The Illinois Appellate Court, 5th District, has reversed the trial court and allowed a class action arbitration to proceed in Kinkel v. Cingular, No. 5-03-0774 (5/2/05). The court held that the contract's prohibition on class actions was unconscionable and therefore unenforceable.  "Thus, Cingular's provision barring class arbitrations is a one-sided limitation on its customers' ability to seek relief for claims where damages are quite low." The court held that the unenforceable provision could be severed and the arbitration could proceed.

Punitive Damages in Arbitration

On May 17, 2005, the Connecticut Supreme Court released its opinion in Medvalusa Health Programs, Inc. v. Membership, Inc. (Nos. SC 17116 and 17117). The plaintiff sells discount health care subscriptions to the public and the defendant provides membership service programs that give consumers access to discounts on a variety of products and services. The parties entered into an agreement whereby plaintiff was to become a wholesale vendor of one of defendant's dental and health plans. A dispute arose and plaintiff filed a demand for arbitration for breach of contract, breach of the implied covenant of good faith and fair dealing and a violation of the Connecticut Unfair Trade Practices Act. The arbitration panel ruled in favor of plaintiff on all counts, but awarded no compensatory damages, finding that plaintiff had failed to establish damages with reasonable certainty. However, the panel awarded $5million in punitive damages to plaintiff for defendant's unfair and deceptive acts.

The case found its way all the way up to the Connecticut Supreme Court, which upheld the punitive damages award in a split opinion. The court found no well-defined public policy against the award of excessive punitive damages. It also found that the defendant's right to due process was not violated because and arbitration award does not constitute state action and is not converted into state action by the trial court's confirmation of that award, therefore an arbitration panel's award of punitive damages does not implicate the due process clause of the fourteenth amendment of the United States constitution, regardless of how excessive that award may be.

With regard to the due process argument, the court considered BMW of North America, Inc. v. Gore, 517 US 559 (1996) (punitive damages exceeding 10 times the actual damages sought may violate a defendant's due process rights). "Thus, althought Gore supports a finding of a public policy against the imposition of grossly excessive punitive damages by the state, an issue we do not address in this opinion, it cannot serve as a basis for concluding that Connecticut has a public policy against hte imposition of excessive punitive damages by a private actor, such as an arbitration panel."

This case should come as a warning to anyone drafting arbitration agreements. A well written clause in a contract that prohibits punitive damages would have avoided this result.

Arbitration Clause replaced with “Legal Proceedings”

The Sixth Circuit Court of Appeals has effectively upheld the trial court’s determination concerning a modified contract that replaced arbitration with "legal proceedings." Beers Construction v. Pikeville United Methodist Hospital, 2005 WL 977264 (6 Cir. (Ky.)). The parties apparently modified the AIA A201 General Conditions and replaced every reference to "mediation and arbitration" with the phrase "legal proceedings." When a dispute arose, the contractor sued the owner for breach of contract. The court stayed proceedings because a determination by the architect was a condition precedent to legal proceedings. Thereafter, the architect rendered a decision and the contractor filed a motion to lift the stay. The owner then moved to dismiss, arguing that the parties were required to arbitrate the dispute, notwithstanding the contract language that modified the arbitration language. The court dismissed the appeal for lack of appellate jurisdiction, sending the matter back to the lower court for trial on the merits.

According to Library Stuff, the U.S. Copyright Office has launched four RSS feeds:

• Copyright Office Home Page
• NewsNet
• Federal Register
• Current Legislation

This should make it easier to keep up with recent developments at the Copyright Office.

Law and Economics of Blogging

A very interesting and informative article by Larry Ribstein, professor at the University of Illinois College of Law is Initial Reflections on the Law and Economics of Blogging.

Copyright: Non-dischargeable Debt - Fraud

A recent bankruptcy case discusses copyright issues in the context of an adversary proceeding to have certain debt declared to be non-dischargeable. In re Olson, 2005 WL 993026 ((Bankr.N.D.Iowa) April 21, 2005).

Olson was a developer who met Dr. Sneller, president of Integrated. Sneller wanted to have a new clinic constructed, and Olson convinced Dr. Sneller to hire him to manage the project. During the initial stages, Olson obtained a set of architectural plans, which he ultimately had copied without permission. This court proceeding followed Olson's bankruptcy. Dr. Sneller convinced the court that Olson had acted fraudulently concerning the architectural plans ....

Arbitration: Equitable Estoppel grounds to enforce Arbitration

Typically, in order to compel arbitration, you need a contract containing an arbitration clause. What happens if the other side did not sign such a contract? Courts have still compelled arbitration in a limited number of circumstances.

In Nitro Distributing v. Jimmy Dunn (Mo.CA, April 15, 2005), the court analyzed these issues and held that equitable estoppel required arbitration of a dispute where the party that wanted to avoid arbitration had accepted the benefits of membership in a trade organization.

Architectural Works: Copyright

In T-Peg, Inc. v. Isbitski, 2005 WL 768594 (D.N.H.), April 6, 2005, the court discusses the Architectural Works Protection Act ("AWPA"). Under pre-AWPA law, a building was not considered a copy of the underlying plans, and construction of the structure did not constitute infringement. Of course, if the underlying plans were copied in the course of that construction, there would be infringing activity.  The court here left open the question of whether, post-AWPA, a building can be a copy of an architectural work, although that was, presumably, what AWPA was meant to establish.

In this case, the plaintiff claimed that its work was infringed by the design and construction of a structural frame of a building. The court found that the frame did not reflect any particular "overall form" or "arrangement and composition of spaces and elements. The court concluded that, as a matter of law, neither the shop drawings nor the structure was so similar to the plaintiff's architectural work so as to constitute copyright infringement.