Following the construction industry and related legal topics in the United States.

Thursday, November 1, 2007

Florida Court of Appeals: A201 Arbitration Requirement Survives Termination of the Contract

I recently noted in the September 2007 edition of the Construction Litigation Reporter an interesting case dealing with the timing of a party's decision to terminate a contract and that party's subsequent ability to invoke the arbitration provisions contained in the AIA A201-1997.

In Auchter Co. v. Zaloul, 949 So.2d 1189 (Fla. App. 2007), the parties entered into an AIA A111-1997 "Standard Form of Agreement Between Owner and Contractor" and A201-1997 "General Conditions of the Contract for Construction" (the "Contract"), for the construction of a home construction project. Two months after the project received its certificate of occupancy, the owner notified the contractor that it was terminating the Contract because of certain construction defects. The owner then sued the contractor for damages. The contractor then moved to dismiss or in the alternative compel mediation/arbitration under Section 4.4 of the A201. The Owner responded by arguing that because the Contract had been terminated, the mediation and arbitration provisions did not survive termination and argued that its claims were properly brought before the court. The trial court agreed with the owner's argument and denied the contractor's motion to compel mediation and/or arbitration.

On appeal, The Auchter Court disagreed. The Auchter Court held that "the dispute resolution provisions of the contract are intended to survive purported termination of the contract by a party." In so finding, the Court reversed the trial court and held that the contractor's motion to compel arbitration should be granted.

Interestingly, the Court went to great lengths to distinguish the results reached in Aberdeen Golf & Country Club v. Bliss Construction, Inc., 932 So.2d 235 (Fla. 4th DCA 2005), which reached the opposite conclusion and held that the arbitration provisions contained in the standard AIA contract do not survive termination because there is no survival provision to keep this provision alive after termination. In rejecting what the Auchter Court found to be "dicta", the Court appeared to focus on the equity or "fairness" of the results in each case. In Aberdeen, the owner terminated the contract and then when the contractor sued for damages, the owner sought to enforce the arbitration provisions of the same contract that he had repudiated by virtue of his termination of the contract. By contrast, in Auchter, the owner terminated and sued for damages and it was the contractor who sought to enforce the arbitration provisions.

The author of the Comment section of the article notes, appropriately, the equity issue presented in the two cases and notes "[i]n Aberdeen, the owner terminated the contract prior to completion, then invoked the contract's arbitration provision when it was sued by the contractor. Thus, the owner improperly sought to pick and choose which contract provisions it wished to ignore and which to enforce."

As anyone who has been involved in the construction industry can attest, the decision to terminate and "move on" or seek to enforce the terms of the Contract is never an easy decision to make. The Court's reasoning in Auchter, should, however, certainly give a party considering whether to terminate or enforce a contract pause to consider whether they prefer arbitration or litigation before any action is taken as the failure to make this early calculation may result in the court imposing a forum for dispute resolution the party may not want. (This entry published by Culley Carson, a member of Womble Carlyle's construction law practice group.)


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