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Since this column is written for a national audience, it focuses on general legal concepts in cases from around the country instead of particular state statutes or codes. While cases from outside your jurisdiction are often not binding on courts in your jurisdiction, they are still persuasive authority in a legal argument.
Similarly, courts consider unreported or unpublished cases (i.e., cases appearing only electronically — think Westlaw or Lexis-Nexis — and not in print volumes) to nonbinding and persuasive authority. Since lawyers need to be as persuasive as possible when they appear before a judge, it is important for them to stay abreast of these extra-jurisdictional and unpublished cases.
One such unpublished case crossed my desk recently — from my own state (New Jersey), no less. The case deals with arbitration and interprets certain provisions of a standard contract document published by the American Institute of Architects (AIA). Here, it appears the parties were using the “A101-2017 Standard Form of Agreement Between Owner and Contractor where the basis of payment is a Stipulated Sum.”
While AIA contract documents enjoy widespread use in the construction industry, there is a disproportionately small number of cases interpreting provisions in these contracts.
Binding Dispute Resolutions
In Arbor Green Condominium Association, Inc. v. Start 2 Finish Restoration & Building Services, LLC, No. A-2056-21, 2023 WL 3047459 (N.J. App. Div. April 24, 2023), the plaintiff (condominium association) hired the defendant (Start 2 Finish) to rebuild two condominium buildings which sustained more than $3 million in damages due to a storm.
The parties entered into a detailed, written contract on a standard AIA form (which was likely edited by their attorneys after it was selected). One section that was not edited is Section 6.2, entitled “Binding Dispute Resolution.” This section provides as follows:
“§ 6.2 Binding Dispute Resolution
“For any [c]laim subject to, but not resolved by, mediation … , the method of binding dispute resolution shall be as follows: (Check the appropriate box.)
“[ ] Arbitration pursuant to Section 15.4 of [the contract]
“[ ] Litigation in a court of competent jurisdiction
“[ ] Other (Specify)
“If the [o]wner and [c]ontractor do not select a method of binding dispute resolution, or do not subsequently agree in writing to a binding dispute resolution method other than litigation, [c]laims will be resolved by litigation in a court of competent jurisdiction.”
Arbor Green, 2023 WL 3047459, at *1.
The plaintiff put an “X” in the first box, purportedly selecting arbitration as the method of binding dispute resolution for this contract. Section 15.4.1 of the contract provides that claims not resolved by mediation shall be resolved by arbitration before the American Arbitration Association (AAA) using its Construction Industry Arbitration Rules.
The agreement also provides that an arbitration award is final and “judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof.” Arbor Green, 2023 WL 3047459, at *1.
After finding construction defects in the buildings, the condominium association hired an expert, who prepared a report implicating the defendant’s workmanship. Approximately one year later, the condominium association terminated the contract with Start 2 Finish. The defendant subsequently filed liens against the property and sought to enforce them by filing Demands for Arbitration with the AAA.
Since the condominium association failed to respond timely to the Demands for Arbitration, the arbitrator entered awards (in the amount of the liens) in favor of the defendant. Arbor Green, 2023 WL 3047459, at *2.
Start 2 Finish then sought to enforce the awards by commencing legal actions in which it sought to have the awards converted into judgments. Plaintiff moved to dismiss the actions and filed its own, separate, 14-count complaint in court, seeking damages for the construction defects allegedly caused by Start 2 Finish. The condominium association’s arguments against arbitration are “interesting”:
• The arbitration provision was unenforceable because it contained multiple, confusing cross-references; and
• There is no language in the contract saying that the condominium association is waiving its right to a jury trial.
Arbor Green, 2023 WL 3047459, at *2.
The condominium association also argued that Start 2 Finish waived its right to arbitration when it filed its complaints seeking monetary damages. Start 2 Finish filed a motion to dismiss the complaints and compel arbitration. While Start 2 Finish acknowledged that it improperly sought only to confirm its liens, it did not waive its right to arbitrate its dispute under the parties’ contract.
The lower court agreed, finding that Start 2 Finish did not waive its right to arbitration. The condominium association appealed from the final judgments entered by the lower court.
‘Plainly Written’ Arbitration Clause
A three-judge panel of the Superior Court of New Jersey, Appellate Division addressed the above two bulleted arguments, dryly commenting, “We are unpersuaded.” Arbor Green, 2023 WL 3047459, at *3. The cross-references were not confusing; indeed, they were part of a standard form. Moreover, while the words, “The parties hereby waive their right to a jury trial” were not in the agreement, the words that were in the agreement evinced the same intent.
At the start of its analysis, the Appellate Division noted that arbitration is a creature of contract. Thus, an agreement to arbitrate “must be the product of mutual assent, which requires that the parties have an understanding of the terms to which they have agreed …. A party cannot be required to arbitrate when it cannot fairly be ascertained from the contract’s language that [they] knowingly assented to the provision’s terms ….” Arbor Green, 2023 WL 3047459, at *3 (citations omitted).
Significantly, the Appellate Division noted that “[n]o magical language is required to accomplish a waiver of rights in an arbitration agreement.” Arbor Green, 2023 WL 3047459, at *3 (citation omitted). Courts look at the contractual language to see if the parties agreed to arbitrate and knowingly waive their right to a trial by jury. Courts also look at a “party’s sophistication” in analyzing whether they knowingly and voluntarily agreed to a contract’s terms. Arbor Green, 2023 WL 3047459, at *4.
Here, the arbitration clause is “plainly written” from a standard AIA form. Arbor Green, 2023 WL 3047459, at *4. The court found that the agreement expressly provides how the parties would resolve their dispute, in a particular forum using that form’s rules. Arbor Green, 2023 WL 3047459, at *4. Moreover, both parties are sophisticated, having entered into a multimillion-dollar construction agreement.
Finally, the court found that Start 2 Finish did not waive its right to arbitrate. “[F]or there to be a waiver of arbitration rights, a party must know of the right and affirmatively reveal the intent to waive the right.” Arbor Green, 2023 WL 3047459, at *4 (citations omitted). That did not occur here. As a result, the Appellate Division affirmed the decision of the lower court, dismissing the complaints and ordering the parties to participate in arbitration.
Consider Standard Forms
While Arbor Green is a short case and not particularly groundbreaking, it is instructive, nonetheless.
First, it illustrates the benefit of using a standard AIA form, with language that has been “tested” by courts around the country. This case may be used (as persuasive authority) to argue that the language in the standard AIA form is sufficient to demonstrate a waiver of the right to arbitrate and a waiver of the right to a jury trial.
Second, Arbor Green demonstrates that you may have an enforceable arbitration clause without “micromanaging” the process (e.g., indicating the number of arbitrators, venue and other procedural rules). The AAA’s rules — in this case, the Construction Industry Arbitration Rules — are fairly comprehensive and assist the parties with conducting an arbitration that is procedurally fair to both sides. Here, the parties had a succinct arbitration provision and relied on the AAA’s rules to “fill in any holes.”
Oftentimes, when parties have a very detailed arbitration provision — some even exceeding a full page in length — they invite disputes and challenges to enforceability since a particular detail was unclear or omitted altogether. Parties may find they are best served having a clear, succinct, yet cogent arbitration clause that does not try to address every detail about the arbitration process. This is accomplished by the standard AIA contract forms, which should at least be considered in selecting the appropriate contract documentation for your specific project.
Finally, it is important to note that while Arbor Green involved a construction contract, the principles are also applicable to design professional contracts. For example, the “AIA B101-2017 Standard Form of Agreement Between Owner and Architect” and “AIA Document C103-2015 Standard Form of Agreement Between Owner and Consultant” have arbitration provisions in Articles 8 and 6, respectively, that are almost identical to the one at issue in Arbor Green.