Latest Developments in Arbitration for the Construction Law Practitioner

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The article concludes with a discussion of the latest changes to the American Arbitration Association’s Construction Industry Rules.

G. T. Leach Builders V. Sapphire V.P.: Non-Signatories’ Right to Compel Arbitration; Waiver of Right to Arbitrate

By far, the most recent, significant arbitration development for construction law practitioners was the Texas Supreme Court’s decision in G. T. Leach Builders v. Sapphire V.P., which reiterated the limits on compelling arbitration by non-signatories, and clarified what litigation conduct can trigger waiver of the right to compel arbitration.

Background of the Dispute

A luxury condominium project being constructed by a developer was damaged by a hurricane midway through construction. The conduct of work on the project was covered under AIA Doc. Nos. A-111 and A-201.

After attempting unsuccessfully to obtain insurance proceeds to cover its losses, the developer sued its insurance brokers, claiming that they allowed a builders’ risk insurance policy to lapse prior to the hurricane. Later, the insurance brokers designated as responsible third-parties, the general contractor, two subcontractors, an engineering contractor, and one of its principals.  The developer then amended its pending claims to add as defendants all of those designated by the insurance brokers as responsible third-parties.

Claims of the Parties

Thus, there were pending disputes between the developer and the general contractor, as well as between the developer and several subcontractors. The subcontractors claimed that the developer had agreed to arbitrate its claims against them, as well as its claims against the general contractor.

The agreement between the developer and the general contractor contained an arbitration clause. The general contractor moved to compel arbitration pursuant to the terms of that agreement, but only after submitting to the court, where the lawsuit was pending, pretrial motions for a continuance and partial relief, and participating in discovery for six months. The other defendants (the insurance brokers and subcontractors) moved to compel arbitration on the basis of the same arbitration clause (to which they were not signatories), and on the basis of the terms of the subcontractor agreements with the general contractor (which the developer never signed).

The lower courts denied all motions to compel arbitration.

Conclusion

Recent cases have revealed the following developments in the arbitration of construction-related disputes:  the extent to which non-signatories can compel arbitration; the waiver of the right to compel arbitration; the procedures and the timetable to be followed in adjudicating arbitrability; the extent to which an arbitration process can resolve the disposition of interplead funds; the impact of a prior award on a present dispute; and the limits of post-proceeding review of an arbitration award.

It is anticipated that courts will continue to grapple with the challenges presented by non-signatories seeking to compel arbitration by claims of waiver, attacks on the involvement of the neutral in the process, and the limits of post-proceeding review of an award, particularly a trial court’s ability to interject additional relief into a judgment or otherwise attempt to revise the outcome of an award.


Published in the Construction Law Journal: Volume 12, Number 2. Republished here with permission.

To read more about analysis of the case and law, download the PDF here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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