Assurance = Estoppel

Any blog entry with the word "estoppel" in the title has got to be dry and boring, right? Not this one, read on.

Nobody wants to be on the hook for liability indefinitely. Statutes of limitations are designed to solve this problem. But what if the result is patently unfair, where a Contractor assures the Owner a problem is taken care of and it is later discovered it was not? Red Dirt Properties, LLC v. Prime Building Company Inc. of North Carolina (North Carolina Lawyers Weekly No. 07-16-0119) is instructive.

So what's the dirt on Red Dirt? In June 2000, Owner and Contractor signed a contract for the removal of trees, roots, stumps and other debris for the Owner's property and dispose of them off-site. Five months later, Owner received notice from the site engineer that instead of disposing debris off-site, the Contractor was burying it under the future expansion area on the property. Owner contacted Contractor and thereafter received Contractor assurances that the matter was investigated and there were no problems. In December 2003, Owner was working on its future expansion and discovered the hidden organic material buried on the property. Owner sued the Contractor in August 2004 - three years and three weeks after the original project was completed. However, in North Carolina there is a three-year statute of limitations for contract actions. Is the Owner's action time barred?

No, ruled the North Carolina Court of Appeals. The reason? The equitable doctrine of "estoppel" essentially stops the Contractor from raising the statute of limitations defense because of the Contractor's assurances that there was no problem with the debris. The Owner could reasonably rely on such assurances, and therefore the three-year statute of limitations accrued starting December 2003 - upon the discovery of the hidden problem. Owner filed its lawsuit in less than one year from the date of discovery, so the action is timely.

"Estoppel" is a funny sounding word that prevented an unfair result in the Red Dirt case. Lesson learned: In the future, whether you are the giver or receiver of assurances, be aware that such assurances may give rise to an estoppel argument that could extend the statute of limitations period of a future claim. (Today's entry was published by Ken Michael of Womble Carlyle's construction and real estate development group.)

Green news from Capitol Hill

Rep. Mike Doyle (D) of Pennsylvania recently re-introduced the High-Performance Green Buildings Act of 2007 (HR 121). The Act purports to improve the efficiency of the Federal Government by using green building in federal facilities and is a near carbon-copy of a bipartisan bill introduced in the 109th Congress.

To achieve its goal, the bill directs the GSA to establish an Office of High-Performance Green Buildings. The Office Director will be required to, among other things, establish a Green Building Advisory Committee, address public outreach and education, develop a research plan for high-performance green building, identify and develop green buildings standards for federal facilities, and address current budget and contracting practices that inhibit new and existing federal facilities from becoming high-performance green buildings.

Most importantly, the bill directs the Office Director to identify incentives to encourage the Federal Government to use green buildings and related green technologies.

The bill has been referred to various House Committees: Energy and Commerce, Oversight and Government Reform, Science and Technology, and Transportation and Infrastructure. The bill died in committee during the last Congress, but there is bipartisan support for green building initiatives and it will be interesting to see whether this bill gains traction in the new Democratically controlled Congress.

Update: A version of this bill (S. 506) was introduced by Senator Lautenberg (NJ) on February 6, 2007, and was referred to the Senate Committee on Environment and Public Works.

Where goes arbitration and, who says so?

Once again a court, this time the Georgia Supreme Court, has concluded that courts, not arbitrators should decide an issue of arbitrability in the first instance--the issue being the res judicata effect of a previous arbitration. See Bryan County v. Yates Paving & Grading Co., Inc., 2006 WL 3438073 (Ga. Nov. 30, 2006). The Court's decision could expand the role of Georgia courts in deciding procedural issues that are not expressly reserved for arbitration in an agreement between the parties.

This case arose from a public works contract between Bryan County and Yates Paving & Grading Co., Inc., ("Yates"). Yates filed a demand for arbitration and, after a full hearing, won an award of monetary damages, which was confirmed by the trial court and affirmed on appeal. Three years later, Yates filed another demand for arbitration under the contract, claiming the County's wrongful conduct rendered Yates unable to bid on other government contracts. Bryan County answered and asserted in a cross-claim that the new claims for damages were barred by the doctrine of res judicata because they were not raised in the first arbitration. Bryan County filed a motion for summary judgment on its claim that res judicata barred the demand for arbitration and, following a hearing, the trial court granted summary judment to the County and denied Yates' motion to compel arbitration. The Court of Appeals reversed, holding that because the res judicata effect of the first arbitration award fell within the scope of the parties' agreement to arbitrate, the arbitrator, not the court, should have decided whether the arbitration was barred by res judicata.

A four-justice majority found the question of arbitrability is undeniably an issue for judicial determination unless the parties clearly and unmistakably provide otherwise; and, reversed the Court of Appeals--this in the face of the parties' agreement having provided that "all claims, disputes and other matters in question between [the parties] arising out of, or relating to the Contract Documents or the breach thereof will be decided by arbitration."

The three-justice dissent found quite to the contrary, that the issue was one to be decided by the arbitrator, particularly in light of the noted provision in the parties' agreement. The dissent went on to say that they would conclude that a claimed defense of res judicata does not present a "gateway dispute" about whether the agreement to arbitrate is valid or whether the particular claim in dispute falls within the scope of the agreement. Rather, it is a question, like waiver, delay, laches, and estoppel, that bears on the final disposition of the parties' dispute and, as such, presents an issue of procedural arbitrability for the arbitrator to decide.

In any event, care should be taken in crafting one's arbitration clauses to be quite express, especially in Georgia.