Rethinking the Role of Technical Experts in Pre-litigation Dispute Resolution

Thanh Do and David Ojala | Forum on Construction Law

Construction disputes do not always require an expert; however, an expert is typically sought if the dispute involves particularly technical or complex issues that a lay person (including counsel and triers of fact) cannot readily understand. When is the most appropriate time to call upon a technical expert in a construction dispute? Most will turn to technical experts only after the dispute has advanced to the point where damages are high and litigation or a more formal ADR process is the likely path to resolution. Many also believe that a technical expert is required mainly for testimony in court, and therefore, late appointment of an expert shortly before trial is the most economical decision, but in many cases this may not be true. It is becoming more and more common for attorneys to retain an expert early, and the pre-litigation phase is arguably the best time to do so.

Pre-litigation Phase

During a pre-litigation or claim preparation phase, a technical expert typically serves as a “consulting expert” for one of the parties in the dispute, someone who can help evaluate any technical issues in dispute and opine on the relative strengths and weaknesses of proposed claims or positions. Another way an expert may be involved is to serve as an “independent evaluator” or a member of a “dispute review board,” jointly appointed by the involved parties, to advise on the merits of each party’s position based on the position papers and supporting information provided by the parties. Regardless of the role the expert may take and by which party the expert is retained, this process usually kicks off “after the fact” that is, when the dispute has led to large damages and/or delays. In many cases, it may already be too late for the expert to show value because the parties may already have experienced a significant economic loss, both parties may share significant fault in the escalation, and neither party is likely to clearly prevail in a settlement or litigation.

Rather than wait until this point in the dispute, we have seen the dispute resolution process be more effective when parties like owners, construction managers, design-build entities, and others retain experts earlier, even before a claim is fully formulated and a formal dispute resolution process has begun. Ideally, this kicks off when the dispute is just starting to rear its head as a disagreement, damages may not be fully formed or realized just yet, and the sides may not yet be entrenched in their positions. In this situation, the technical expert serves as a neutral third party who can weigh in on the cause of a problem and help to mitigate or resolve it (such as by performing independent design peer-review and developing a remediation plan to address the identified problems) before it escalates into a full-blown dispute in need of trial, arbitration, or formal mediation.

In this role, the expert serves as a neutral fact finder, as well as a source of technical insight. The expert plays the role of an independent evaluator or a dispute review board member by hearing each side and weighing the merits of each position, but at the same time, gets more involved in the technical nuts and bolts like a consulting expert to get to the bottom of the cause. And ideally, rather than just stop at finding the cause of the problem, the expert becomes part of the solution by proposing ways to get things under control, and potentially avoid similar problems from arising during the remainder of the project. The use of an expert in this setting has the potential to be highly cost-effective because one of the objectives is to prevent escalation of the damages that initiated the dispute in the first place. If damages are low to begin with, and stay below reasonable cost contingency levels, there may be little sense in pursuing costly recovery. A skilled and amiable expert, combined with a measured facilitator (perhaps inside or outside counsel for the owner or construction manager), can also encourage all sides to engage in solving the problem collaboratively, which can further expedite the resolution and help heal the bruises of any initial finger pointing. It can turn what might have been a failure into a success story and a triumph of teamwork.

Case Study

As an example of this sort of early expert involvement, the author was engaged by a construction manager at risk to help resolve a pair of disagreements between the project structural engineer and steel subcontractor, both of which threatened increasingly large repair costs and delays. One dispute involved widespread, seemingly random weld cracking throughout the project, for which each side blamed the other, with proposed or attempted repairs (most failing) often reflecting this finger-pointing. The other dispute involved steel assemblies that were surveyed to be out of level after installation, alternately being blamed on improper design and improper fabrication. The author was given an opportunity to review relevant documents, tour the site, speak to both parties, and perform some analysis. The author was able to discover a pattern in the seemingly random weld cracking that allowed the engineer and fabricator to focus their attention and develop alternative weld procedures and details to repair existing cracks and prevent future cracks. They also performed an analysis and facilitated load testing and surveying of the questionable assemblies to show that the appearance of out-of-level assembly was a result of benign construction tolerance issues, avoiding the need for costly replacement or retrofit. The final result was cooperation between the engineer and steel subcontractor, a halt to the escalating repair costs and delays, and a much less painful process in the long run for all sides.

Food For Thought

Before implementing this strategy, there are several questions that the involved parties and their counsel might consider:

  • How should parties that propose this type of dispute resolution broach the subject to their at-odds colleagues?
  • Like the engagement of an independent evaluator or dispute review board, can this type of process be written into contracts or teaming agreements?
  • Should everyone involved have a say in selecting the technical expert, or a right to veto the proposed expert?
  • What agreements need to be in place to encourage open and honest cooperation in the resolution process while protecting the rights of each party should litigation occur down the road? Is the potential for reducing the damage of the dispute enough encouragement for the parties to participate openly?
  • What happens if the involved parties do not cooperate or willingly provide necessary information to the jointly appointed technical expert?
  • If negotiation is unsuccessful and the claim proceeds to subsequent proceedings, such as litigation, what role might the technical expert be able to take? Might they hold any liability?

Conclusion

Regardless of the potential challenges, this kind of early expert engagement has the potential to facilitate dispute resolution and is worth exploring further by consultants and attorneys, as it aims to help all involved parties toward a positive outcome and to minimize costs before they become excessive. For us experts who are also practicing designers, this is also an opportunity to take lessons learned and apply them to future projects, preventing future disputes and bringing a type of deep satisfaction that our more traditional expert engagements cannot quite match.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Death, Taxes and Attorneys’ Fees in Construction Disputes

Garret Murai | California Construction Law Blog

According to Benjamin Franklin there are two certainties in this world: Death and taxes. Let me humbly add a third if you’re ever involved in non-contingency civil litigation: Attorneys’ fees.

As such, when it comes to legal disputes, sophisticated parties know that it’s not just about winning but the cost of winning. While winning is never certain – remember Poor Richard’s proverb above –  what is certain is that it will most likely cost you to find out whether you’ve won or lost. That’s why the ability to recover (or at least threaten the recovery of attorneys’ fees – that’s a separate discussion altogether) in litigation and arbitration is so important.

A few facts:

  • According to the National Center for State Courts (NCSC) in their 2013 report, Measuring the Cost of Civil Litigation: Findings From a Survey of Trial Lawyers, the median cost of litigation (i.e., attorneys’ fees) for contract disputes, of which most construction disputes would fall under, was $90,575 from case initiation through post-trial disposition.
  • The NCSC survey was conducted in 2013. Adjusting for inflation, the median cost of litigation would be nearly $115,000 in 2022.
  • Further, attorneys responding to the NCSC survey were from across the U.S. According to Clio in its 2021 Legal Trends Report, California attorneys have the fourth highest average hourly rates in the nation behind Washington, D.C., Delaware, and New York. Adjusted by state, the median cost of litigating a construction dispute in California in 2022 is approximately $135,000.

In short, even if you win, and there’s no guarantee that you will win, the mere cost of litigation can comprise a large portion of or even exceed the amount in dispute. Thus, while most cases settle before trial – According to the California Judicial Council’s 2021 Court Statistics Report, 80% of unlimited civil cases (i.e., cases involving claims over $25,000) are resolved prior to trial – it is important to know from the outset whether you would be entitled to recover your attorneys’ fees if you do win.

So, are you entitled to recover your attorneys’ fees in a construction dispute? It depends. And here, it’s important to understand the difference between “the American Rule” and “the English Rule.”

The American Rule vs. The English Rule

Under the English Rule, the losing party in litigation is required to pay the winning party’s attorneys’ fees.

Under the American Rule, each party must pay its attorneys’ fees whether they win or lose, except if provided otherwise by statute or contract.

Among legal scholars there’s debate about how and why “the English Rule” and “the American Rule” were developed. However, we’ll leave that discussion to the academics on either side of the Atlantic. What’s more important for purposes of this discussion is when a party can recover their attorneys’ fees in a construction dispute.

And that’s where the exception noted above takes on vital importance. Under the American Rule each party must pay their own attorneys’ fees whether they win or lose, except if provided otherwise by statute or contract. So under what statutes and under what contracts can a winning party recover their attorneys’ fees in a construction dispute?

Statutes and Contracts in Which Attorneys’ Fees are Recoverable by the Winning Party

Attorneys’ Fees Recoverable Under Contracts

We’ll start with contracts. First, parties to a contract can, with certain exceptions, agree to anything they wish in a contract. This includes the recovery of attorneys’ fees in the event of a dispute. A typical provision in a design or construction contract providing for the recovery of attorneys’ fee might read as follows:

Should any dispute arise relating to the work under this Contract, the prevailing party shall be entitled to recover its attorneys’ fees.

This is a rather straightforward example and there can be numerous variations. Some variations will provide for the recovery of attorneys’ fees arising from disputes relating to the work to be performed under the contract or to disputes concerning the terms of the contract itself. Other variations will cap attorneys’ fees to a certain dollar amount, to a “reasonable” dollar amount to be determined by a judge, jury, or arbitrator, or include no limitation at all and allow a party to recover all attorneys’ fees “actually incurred.”

One variation that is generally not allowed however is recovery of attorneys’ fees by one party alone. For example, in a construction contract between a general contractor and subcontractor (and, obviously, one drafted by the general contractor or its attorney), the general contractor might include a provision providing that in the event of a dispute only the general contractor is entitled to recover its attorneys’ fees but not the subcontractor. Civil Code section 1717 makes such provisions “reciprocal,” meaning that if the subcontractor prevails, the subcontractor would be entitled to recover its attorneys’ fees against the general contractor as well.

Attorneys’ Fees Recoverable in Arbitration: A Potential Trap for the Unwary

It is not unusual for design and construction contracts to provide that disputes be resolved through arbitration. In California, parties will often specify the arbitration provider and the specific rules that will govern disputes to be resolved through arbitration. A typical provision might read as follows:

Should any dispute arise relating to the work under this Contract, the parties agree to resolve the dispute  through the American Arbitration Association (AAA) under the AAA’s Construction Industry Arbitration Rules and Mediation Procedures.

The two most common arbitration providers in California are the American Arbitration Association (AAA) and JAMS. In Southern California, parties also use the Arbitration Mediation Conciliation Center (AMCC) in addition to AAA and JAMS.

A trap for the unwary is AAA’s arbitration rules. Under AAA’s arbitration rules, including its Construction Industry Arbitration Rules and Mediation Procedures, an arbitrator may award attorneys’ fees if: (1) all parties have requested such an award; (2) if it is authorized by law; or (3) if it is provided for in the parties’ arbitration agreement.

Many parties, including their counsel, will reflexively request attorneys’ fees in arbitration and litigation without consideration of whether there is an attorneys’ fee provision in the parties’ contract. Under the AAA’s rules, because an arbitrator can award attorneys’ fees if “all parties have requested such an award,” a party may inadvertently trigger recovery of attorneys’ fees even though the parties’ contract does not include an attorneys’ fee provision.

Attorneys’ Fees Recoverable Under Statute

Attorneys’ fees are also recoverable if provided for under statute. There are three common statutes in which construction claims are brought in which the underlying statute provides for the recovery of attorneys’ fees. The first is stop payment notice claims. Civil Code section 8558 provides for the recovery of attorneys’ fees in a stop payment notice action on private works projects.

The second is payment bond claims. Civil Code section 9564 provides for the recovery attorneys’ fees in a payment bond action on public works projects. A party may also recover attorneys’ fees if provided for under the terms of a bond on a private works project.

Finally, attorneys’ fees are recoverable on certain prompt payment penalty claims. Civil Code sections 3320, 3321, 8800 and 8818, Business and Professions Code section 7108.5, and Public Contract Code section 10262.5 provide for the recovery of attorneys’ fees in prompt payment penalty claims on private works projects and certain public works projects.

Attorneys’ Fees Recoverable in Discovery: Another Potential Trap for the Unwary

Attorneys’ fees can also be recovered through discovery. Specifically, requests for admissions served while a case is in litigation or arbitration. A request for admission is a discovery tool in which a party requests that another party “admit” to the truth to certain facts or documents. An example might be:

Admit that you were paid in full by the Owner for Subcontractor’s Pay Application No. 1

If this was discovery served by a subcontractor to a general contractor and the general contractor denies that it was paid by the owner for the subcontractor’s pay application no. 1, and this turns out not to be true, the subcontractor or its counsel can request that the court award the subcontractor its attorneys’ fees in proving the truth of the matter asserted.

Specifically, Code of Civil Procedure section 2033.420 provides:

(a) If a party fails to admit the genuineness of any document or the truth of any matter when requested to do so under this chapter, and if the party requesting that admission thereafter proves the genuineness of that document or the truth of that matter, the party requesting the admission may move the court for an order requiring the party to whom the request was directed to pay the reasonable expenses incurred in making that proof, including reasonable attorney’s fees.

(b) The court shall make this order unless it finds any of the following:

(1) An objection to the request was sustained or a response to it was waived under Section 2033.290.

(2) The admission sought was of no substantial importance.

(3) The party failing to make the admission had reasonable ground to believe that that party would prevail on the matter.

(4) There was other good reason for the failure to admit.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Contractor Disputes Report Amid Amazon Warehouse Collapse Lawsuit

James Leggate | ENR Midwest

Area first-responder concedes report highlighted by wrongful death case lawyer was only preliminary

A contractor facing a lawsuit related to the December partial collapse of an Amazon.com Inc. warehouse that was hit by a tornado is pushing back on claims in a fire marshal’s report that highlighted possible “significant structural issues” with the building. 

Austin McEwan, 26, was one of six people killed when an EF3 tornado hit the 1.1-million-sq-ft Amazon fulfillment center in Edwardsville, Ill., last Dec. 10. Winds as fast as 150 mph, or faster, caused two walls and a section of the roof to collapse. McEwan’s family is suing Amazon, contractor Contegra Construction Co., developer Tristar Property Associates, Stock & Associates Consulting Engineers, Gray Design Group and McNealy Engineering, alleging negligence and wrongful death. 

Attorney Jack Casciato, who is representing the family, pointed to a report from Dan Bruno, a St. Louis-area fire marshal. A licensed professional engineer in Missouri since 2001 and certified professional traffic operations engineer, Bruno responded to the collapse at the warehouse, built using the tilt up method, on Dec. 10 as a FEMA-trained structures specialist for a St. Louis regional government terrorism and disaster response team. He is not licensed in Illinois.

In the report, Bruno wrote that the remaining trusses he observed were not properly oriented on columns and no longer straddling knife plates. Many of the columns “appeared to have been lifted out of the floor,” he added, writing that the failed columns did not appear to be ripped from the base, but lifted like a loose peg out of a hole. Amazon_Warehouse_Tornado_damage_ENRwebready.jpgA report raises questions about the design and construction of the warehouse. Photos courtesy of West County EMS & Fire Protection District

“Looking at the base of the columns more closely, I could find no weld or bolted connection at the base of any column, but only a bead of what appeared to be some sort of caulk around the column at the finished floor line,” Bruno’s report states.

However, Contegra, in a statement provided by its attorney, disputed the conclusions drawn by Casciato from Bruno’s report. According to the contractor, the design used a common alternative to bolted or welded base-plate connections for warehouses. Instead, a metal sleeve is anchored to the concrete foundation beneath the floor slab. After each column is placed in its sleeve, it is connected with a perimeter weld between the top of the sleeve and the side of the column. A bead of caulk is then placed around the column as part of finishing work.Amazon_warehouse_weld_caulk.jpgContegra says a weld line is concealed under caulk on the columns. Photo courtesy of Wiss, Janney & Elstner Associates, Inc.

Bruno questioned in the report whether the building’s design met the requirements for securing against uplift under the International Building Code’s 2006 edition, which is in force in Edwardsville. Contegra said in its statement that the building did meet the code and that the building was able to withstand 90-mph winds as required, but that the EF3 tornado hit with even stronger force. 

Contegra also in the statement said the steel erector that installed the columns and performed the welding followed the engineer’s design. The contractor’s attorneys with Greensfelder, Hemker & Gale hired Wiss, Janney & Elstner Associates, Inc. as consulting experts.

The columns that appeared to be lifted out of the floor had actually been ripped from the column sleeves with such force that the welded connections were sheared and the column base bent, Contegra said. 

“Contegra firmly stands behind our company’s record of quality construction and we will vigorously defend our company’s work and our reputation against these unsound claims,” the company said in a statement.

Bruno noted in the report that his statements regarding the design were only advisory and it would need more analysis by other professionals. His narrative also includes that he was busy with tasks like directing a heavy equipment operator removing a collapsed wall section during his time at the scene. He spent about six hours there on Dec. 10 and left after the effort switched from rescue to recovery at about 3:41 a.m. on Dec. 11.

Citing the litigation, West County EMS & Fire Protection District Chief Jeff Sadtler said Bruno and the department would not speak further about the report.

Casciato told reporters during a press conference that he learned of the report when Bruno called him, and then obtained it through an open-records law request. The lawyer said he believes columns in some parts of the building were anchored, but others were not.

“Construction experts, consultants that we put together on our team on the construction side of the case, indicated that many buildings in this area historically can withstand an EF3 tornado when the actual support columns are properly anchored,” Casciato said. 

The lawsuit seeks more than $50,000 from each of the companies named as defendants. In addition to its claims about the building, the suit alleges that Amazon did not have an appropriate refuge area or emergency action plan for severe storms. Also, the lawsuit accuses Amazon of making employees and delivery contractors continue working until moments before the tornado hit, despite alerts from the National Weather Service. 

Amazon spokesperson Kelly Nantel said the building passed inspection when construction was completed in 2018 and again in 2020 when the company leased it.

“Investigators continue to conduct a comprehensive forensic examination of the building and debris—so it’s premature and misleading to suggest there were any structural issues,” Nantel said in a statement. 

Other companies named in the lawsuit either declined to comment or did not respond to inquiries.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Home-Court Rules and Construction Disputes: An Update

Christopher N. Thatch, Kevin O’Brien and Daniel D. McMillan | Jones Day

In Short

The Situation: A growing number of states have enacted “home-court” laws of varying scope that require construction disputes to be litigated or arbitrated in the state where the project is built, and under the governing law of that state.

The Result: While these statutes differ in some respects, most of them declare unenforceable any provision in a construction contract that requires litigation or arbitration in a state other than the home state or under another state’s law.

Looking Ahead: Construction industry participants should know where home-court statutes exist and how the rules might impact their construction contracts. Because several federal courts have held that the Federal Arbitration Act (“FAA”) preempts home-court statutes, the most predictable way to guard against a home-court statute nullifying a forum-selection clause is to specify in the contract that the parties’ agreement involves interstate commerce and that all disputes will be arbitrated pursuant to the FAA.

Home-Court Statutes Continue to Spread. Forum-selection and choice-of-law provisions are meant to give contracting parties control over where a potential dispute between them will be litigated, and what law will govern their dispute. In the case of construction contracts, “home-court” statutes limit that control by mandating that disputes arising out of contracts to build in-state projects must be litigated or arbitrated in the home state under that state’s governing law. Most home-court statutes expressly declare that any contract provision requiring litigation or arbitration in another state under another state’s law will be considered void and unenforceable as a matter of public policy. In some states, the home-court statutes also invalidate contract provisions that require that mediation or other settlement processes take place outside the home state. In large part, states have enacted home-court statutes in response to advocacy by the subcontracting community, who maintain that requiring a local subcontractor to litigate or arbitrate a dispute in another state would increase the subcontractor’s costs and make pursuing relief impractical.

As we described eight years ago in our original Commentary, several states have adopted home-court rules for disputes that stem from construction contracts to build in-state projects. There are now 31 states with home-court laws on the books that apply specifically to in-state projects: Arkansas, Arizona, California, Colorado, Connecticut, Delaware, Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Minnesota, Montana, Nebraska, Nevada, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Wisconsin, and Wyoming. Most of these states’ laws require that litigation occur in the home state and that the laws of the home state govern the parties’ disputes. Four states (Florida, South Carolina, Utah, and Virginia) control the forum for the litigation but not the governing law. One state (Colorado) controls the governing law but not the forum.

The end of this Commentary links to a map that shows which states have enacted home-court rules applicable to construction contracts, as well as a list of the statutes and relevant excerpts from each. Each statute must be carefully considered to determine its scope and applicability.

Exceptions to Enforceability and Applicability. Of course, for every rule there is usually an exception. In our original Commentary, we described several scenarios in which construction-specific, home-court rules may not apply.

For instance, where a construction project is located within a federal enclave, the state’s home-court statute likely will not render a contractual forum-selection clause void and unenforceable. See, e.g.United States ex rel. J-Crew Mgmt. v. Atlantic Marine Constr. Co., 2012 U.S. Dist. LEXIS 182375 (W.D. Tex. Aug. 6, 2012) (Fort Hood, Texas); United States ex rel. Milestone Contractors, L.P. v. Toltest, Inc., 2009 U.S. Dist. LEXIS 44382 (S.D. Ind. May 27, 2009) (Camp Atterbury, Edinburg, Indiana).

Also, some courts have held that the scope of the home-court statute does not extend to certain services or project participants and therefore cannot be enforced. Compare Landform Eng’g Co. v. Am. Prop. Dev., Inc., 2007 U.S. Dist. LEXIS 47183 (D. Minn. June 28, 2007) (holding that Arizona statute was inapplicable to “preliminary engineering services” contract for improvement to real property) and Cashman Equip Corp. v. Kimmins Contracting Corp., 2004 U.S. Dist. LEXIS 44 (D. Mass. Jan. 5, 2004) (“Florida venue provision statute is simply irrelevant, because the Charter selected Massachusetts law to govern the dispute,” while also noting the statute’s inapplicability given that the Charter was not “a contract for improvement to real property.”) with Vita Planning & Landscape Architecture, Inc. v. HKS Architects, Inc., 240 Cal. App. 4th 763 (2015) (extending California home-court statute to dispute between architect and landscape design sub-consultant even though statute applies to “contract between the contractor and subcontractor”).

Similarly, where a lawsuit originates outside the home court but in the state that is identified as the proper forum in the parties’ contract, and that state has jurisdiction over the claims, courts may look past the home-court statute and refuse to apply it. See, e.g., Walbridge Aldinger Co. v. Angelo Iafrate Constr. Co.,2013 Mich. App. LEXIS 1287 (Mich. Ct. App. July 25, 2013) (“[The] mere fact that an Indiana statute voids a choice of law provision under Indiana law does not preclude Michigan courts from properly exercising the jurisdiction provided under Michigan law.”).

Finally, if neither party objects to resolving their dispute pursuant to the forum-selection and choice-of-law clause in the contract, then they will have no reason to fight over whether the home-court rule should determine jurisdiction, and the question may never come up at all.

Unfortunately these exceptions are difficult to plan for and cannot always be controlled.

FAA Preemption of Home-Court Statutes. The FAA, by contrast, gives parties a more predictable option for maintaining control over questions of jurisdiction in the face of home-court statutes applicable to construction disputes. Under Section 2 of the FAA, a “written provision in any … contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction … shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2; id. § 1 (with limited exceptions, commerce defined as “interstate” or “foreign” commerce). The Supreme Court has held that this “primary substantive provision” of the FAA “is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary.” Moses H. Cone Mem’l Hospital v. Mercury Constr. Corp., 469 U.S. 1, 24 (1983).

Applying the FAA, courts have generally held that, where parties mutually agree to submit their construction dispute to arbitration in a state other than where the project is located, home-court jurisdiction statutes cannot void the parties’ agreement to arbitrate in their chosen location. See, e.g.OPE Int’l LP v. Chet Morrison Contractors, 258 F.3d 443, 447 (5th Cir. 2001) (holding that the FAA preempted a state statute invalidating forum-selection and choice-of-law provisions); United States ex rel. TGK Enterprises, Inc. v. Clayco, Inc., 978 F.Supp.2d 540, 548 (E.D.N.C. 2013) (holding that question of whether Arizona home court statute applied was within the jurisdiction of the out-of-state arbitrator); Millenium 3 Techs. v. ARINC, Inc., 2008 U.S. Dist. LEXIS 111350 (D. Ariz. Oct. 28, 2008) (declining to decide whether Arizona home-court statute applied as a question properly within the jurisdiction of the out-of-state arbitrator); Sachse Constr. & Dev. Corp. v. Affirmed Drywall, Corp., 251 So. 3d 1005, 1011 (Fla. Dist. Ct. App. 2018) (upholding arbitration provision in construction contract requiring arbitration in state outside of Florida on a Florida project based upon the finding that Florida law cannot require procedure inconsistent with the FAA); Cleveland Constr., Inc. v. Lecvo Constr., Inc., 359 S.W.3d 843, 855-56 (Tex. App. 2012) (holding that the FAA preempted state statute invalidating forum-selection and choice-of-law provisions in construction contracts); R.A. Bright Constr., Inc. v. Weis Builders, Inc., 930 N.E.2d 565, 571-72 (Ill. App. Ct. 2010) (holding that, if the FAA applies to the contract at issue, the FAA preempts Illinois’s home-court statute); Tritech Elec., Inc. v. Frank M. Hall & Co., 540 S.E.2d 864, 866 (S.C. Ct. App. 2000) (finding that the FAA preempted state statute invalidating forum-selection clauses in arbitration agreements).

Notably, whether the parties’ contract involves interstate commerce sufficient to trigger application of the FAA is a question that only some of these courts have addressed. For instance, in Bright, the court reasoned that the FAA applied to the parties’ transaction because materials for the project were purchased outside of the home state and because the contractor was an out-of-state corporation. R.A. Bright, 930 N.E.2d at 568-570. Likewise, in Sachse, the court disagreed that the parties’ agreement necessarily involved interstate commerce simply because their contract described the contractor as an out-of-state LLC, and it remanded the case with instructions to “address the question of interstate commerce … because the trial court did not first determine whether the contract involves interstate commerce so as to make the FAA applicable.” Sachse, 251 So. 3d at 1007. Other courts, however, have held that the FAA preempts home-court statutes without analyzing whether the contracts at issue involve interstate commerce. See, e.g., Bell Products, Inc. v. Hospital Bldg. & Equip. Co., No. 16-cv-04515, 2017 WL 282740, at *4-5 (N.D. Cal. Jan. 23, 2017); TGK Enters., 978 F.Supp.2d at 548-49; Allen v. World Inspection Network Int’l, Inc., 911 A.2d 484, 492-93 (N.J. Super. Ct. App. Div. 2006).

Against this backdrop, construction industry participants may find it wise to contemplate whether a home-court statute exists in the state where they plan to conduct their work, and the extent to which that statute might impact the participants’ choice of forum for disputes. If a home-court statute threatens to void the parties’ disputes provision, identifying arbitration as the forum for disputes in the contract and explaining in the contract that the parties’ agreement involves interstate commerce may result in preemption of the home-court statute and enforcement of the parties’ disputes provision. These steps can help contracting parties better prepare for potential construction disputes and regain control over specifying the forum where—and under what governing law—the disputes will be heard.

Click here to see states with home-court rules applicable to construction contracts.

Click here to see the state-by-state chart of citations.

Three Key Takeaways:

  1. Parties to construction agreements should know which states have enacted home-court rules for construction disputes, and what those rules say.
  2. If both contracting parties are comfortable litigating disputes in the home state and under the home state’s laws, the construction agreement should identify that state as the proper forum and refer to the home-court statute in the agreement.
  3. If, however, the home state and its governing law are not preferrable, the parties should consider choosing arbitration pursuant to the FAA to resolve disputes, instead of litigation. The decision to arbitrate pursuant to the FAA should be clearly described in the parties’ agreement, and a recital explaining that the project involves interstate commerce can be inserted.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Successful Arbitration of International Construction Disputes

Randall F. Hafer | Kilpatrick Townsend & Stockton

Kilpatrick Townsend’s Randy Hafer recently presented on the topic of “Successful Arbitration of International Construction Disputes” at the 2022 Risk Management in Underground Construction Conference. As tunneling projects get larger and more complicated, the issue of risk becomes more important. The Risk Management in Underground Construction Conference helps stakeholders navigate the latest approaches to risk management. Issues covered during the conference include: contracting practices, geotechnical baseline reports, funding and insurance, risk registers, and guidelines and best practices.

Here are Mr. Hafer’s key takeaways from his session:

  1. In terms of industry sectors, disputes arising from construction/engineering and energy historically generate the largest number of ICC international arbitration cases – in 2020, almost 40% of all filings. Preliminary 2021 statistics show a lower number of filings than 2020 but a sharp increase in the average amount in dispute. These are turbulent times for the construction industry, and many projects around the world have been and continue to be affected in some form by delays, disruption and cost overruns.
  2. Arbitration is by far the preferred method for resolution of international claims and disputes. Advantages of arbitration include: • Party autonomy – you have a significant say in who decides your dispute, how the proceedings are conducted, and the schedule. • Decision-makers who know the industry – probably the most significant attribute next to enforceability. You can have arbitrators who not only know construction but have an understanding of the particular type of project and issues at the heart of your dispute. • Speed – the goal is to complete the arbitration process in 18-24 months, much quicker than is typical in litigation, especially complex litigation. • Confidentiality – the proceedings are private. • Finality – very limited grounds for appeal. Good result or bad, it’s effectively over and you and your people can go back to business. • Enforceability – under the New York Convention, which the vast majority of countries in the world have signed, your award generally can be enforced in the country where you opponent and its assets reside.
  3. International arbitration procedures and practices are different in many significant ways from litigation and even domestic arbitration. It is very important that you seek the counsel of an experienced practitioner in such matters.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.