This month’s practice spotlight is our construction law department.
The firm’s construction law practice covers various types of matters for our clients in all phases of the construction process. One aspect of the practice is representing clients in disputes arising from the work. While very often disputes end up in court, many construction contracts have mandatory arbitration clauses that require the parties to arbitrate their disputes. Although arbitration in theory and often in practice is an efficient and cost-effective method to resolve disputes, construction arbitrations often become protracted and very costly proceedings. These arbitrations also sometimes involve both the arbitration proceeding itself and post-arbitration litigation. Clients should take these matters into consideration when entering into contracts that contain mandatory arbitration clauses and when going into the arbitration process.
A recent result for one of our construction clients that reached the Supreme Court of Pennsylvania highlights not only the types of legal proceedings that a client can encounter after arbitration hearings are concluded.
The case involved a commercial project in Philadelphia. Our firm represented the claimant (concrete placement subcontractor) against the general contractor and the concrete testing company engaged by the general contractor to conduct on-site tests of concrete materials delivered to the site. After arbitration hearings in Philadelphia, the arbitrator entered an award in favor of our client. Having gone through the process and won, our client hoped to be paid the awarded damages and move on with its business. Not so fast. Rather than accept the decision as a “final and binding” adjudication as clearly provided in the subcontract agreement, and despite the very high standard to challenge arbitration awards, the general contractor sought to challenge the award. This started a multi-county, two-plus year journey through the Pennsylvania courts and up to the Pennsylvania Supreme Court.
The Pennsylvania Arbitration Act provides that actions to challenge (or vacate) arbitration awards must be filed within 30 days of the award and that all post-arbitration petitions must be filed in the county where the arbitration hearings were held – in our case, Philadelphia County. Not content with following that mandatory venue requirement, the general contractor sought to challenge the award in its home county (not Philadelphia). In response, we filed a motion to strike the appeal in that county. We then filed a petition to confirm the award in Philadelphia County. This set the stage for a decision on whether the general contractor filed in the wrong county and lost its right to challenge the arbitration award.
The court granted our motion to strike the general contractor’s appeal because it was filed in the wrong county. The Philadelphia court then granted our petition to confirm the underlying arbitration award and entered judgment in our client’s favor on the arbitration award. Again, our client thought the end had been reached and it would be paid. Again, not so fast.
The general contractor then filed two appeals to the Pennsylvania Superior Court. It appealed the decision striking its challenge to the arbitration award that it filed in the wrong court. It also appealed the decision that granted the petition we filed for a judgment on the arbitration award. To maintain these appeals and avoid execution on the judgment entered in our client’s favor, the contractor had to file an appeal bond in the amount of 120% of the judgment amount. After extensive briefing and oral argument, the Pennsylvania Superior Court issued two unpublished opinions rejecting both of the general contractor’s appeals and affirming the lower courts.
Remarkably, the general contractor then filed two petitions for allowance of appeal to the Pennsylvania Supreme Court. In unpublished opinions dated December 1, 2010, more than two and a half years after the arbitrator’s award, the Pennsylvania Supreme Court denied both petitions for allowance of appeal. Our client then received full payment of the arbitration award and post-judgment interest.
This story is an extreme example of what can happen in the world of arbitration. Unfortunately, we see more and more arbitration awards being challenged in court. If you are evaluating whether to agree to arbitration, or if you are involved in a project that has mandatory arbitration, we believe it is important to have a full understanding of the arbitration process and potential post-arbitration litigation, which can be protracted and costly.
If you would like further information concerning common law construction arbitration proceedings or if you have a construction law matter that you would like to discuss with our lawyers, please contact Mason Avrigian, Jr. (610-834-3450) or Jeffrey P. Wallack (610-834-3454).
