Construction: New York Appellate Court, Reversing Arbitration Order, Sends a Third-Party Claim under AIA Contract (Web)

New York’s Appellate Division held that a construction contract arbitration provision did not apply to an owners' indemnity claim when a contractor’s employee was injured at the owner’s condominium. In John Lopez, Plaintiff v. 14th St. Development LLC, et al., Defendants; Kenneth Banta, et al., Defendants/ Third-party Plaintiffs-Appellants, & Kelleran & Ass. Inc., Third-Party Defendant-Respondent, 835 N.Y.S 2d 186 (May 10, 2007)(available at http://www.courts.state.ny.us/REPORTER/3dseries/2007/2007_04027.htm).

In January 2001, appellants Kenneth Banta and Anthony Powe, the condo’s owners, hired respondent Kelleran & Associates for renovation work. The parties entered into a written contract incorporating the general conditions for American Institute of Architects’ construction contracts.

Plaintiff John Lopez, an employee of Kelleran, filed suit against multiple parties in July 2004, alleging that he sustained injury in July 2001, while working in the condominium.

The owners brought a third-party action against Kelleran for indemnification under the contract, which provides that the contractor “shall indemnify and hold harmless the Owner . . . against [bodily injury] claims . . . arising out of or resulting from performance.”

The contract’s notice provision said that after the architect’s decision, or 30 days after submission, the claim was subject to arbitration.

Though brought as a motion to dismiss the complaint, the Supreme Court–New York state’s trial division--treated the application as a motion to compel arbitration for the owners' indemnity claim, and directed that the action be stayed during arbitration.

But the Supreme Court’s Appellate Division unanimously reversed the order in a unanimous, per curiam opinion. Regarding the contract used by the parties, the opinion states that “AIA document A201 is not a model of clarity.”

The opinion notes that arbitration is expressly limited to either claims that are decided by the architect, or those that go undecided for 30 days. The decision explains that the contract “contains no further provision subjecting claims that arise after completion of the work to arbitration, whether submitted to the architect or not,” citing cf. Matter of County of Rockland [Primiano Constr. Co.], 51 N.Y. 2d 1, 10, 431 N.Y.S. 2d 478, 409 N.E.2d 951 [1980].

It further states that in the absence of any assertion by the contractor that the owners' indemnity claim was submitted to the architect for decision, the arbitration provision is inapplicable, and the dispute is subject to judicial resolution.

Agreeing with the four-vote opinion that reversal of the award was warranted, Justice James M. McGuire wrote a concurrence, citing a different reason. McGuire stated that Kelleran submitted a copy of the contract with a wrong version of the AIA document, which had defined the parties’ arbitration rights and obligations. The concurrence notes that the documents submitted failed to establish “a clear and unequivocal agreement to arbitrate.”

--Amrita Chadha, CPR Intern