Jane Fox Lehman | Pepper Hamilton LLP | September 15, 2016
Blackman & Co., Inc., v. GE Bus. Fin. Servs., Inc., 2016 U.S. Dist. LEXIS 87904 (D.N.J. July 7, 2016)
Grove Street Realty Urban Renewal, LLC (“Grove Street”) contracted with Blackman & Co., Inc. (“Blackman”) to manage a project (the “Project”) to construct a four-story apartment building in West Deptford, New Jersey between 2007 and 2009 (the “Contract”). The Contract incorporated AIA Document A201-1997 – General Conditions of the Contract for Construction.
GEBFS acquired the Project from Grove Street pursuant to foreclosure proceedings in 2012. Three years after it acquired the Project (and six years after construction was complete), GEBFS filed a $4,000,000 Demand for Arbitration with the American Arbitration Association (“AAA”) against Blackman for alleged post-construction defects, asserting claims for breach of contract and breach of implied warranty. Blackman filed an action in response to GEBFS’ Demand for Arbitration, seeking a judgment that the dispute was not governed by any agreements to arbitrate.
In the Third Circuit, a court will enforce an agreement to arbitrate “when it is apparent, based on ‘the face of a complaint , and documents relied upon in the complaint,’ that certain of a party’s claims ‘are subject to an enforceable arbitration clause.’” Guidotti v. Legal Helpers Debt Resolution, LLC, 716 F.3d 764 (3d Cir. 2013). Accordingly, the court looked to the language of the Contract to determine whether GEBFS’s claims were arbitrable.
GEBFS argued that the Contract’s arbitration provision, which was supplied in AIA Document A201, could be parsed to provide that “Any Claim . . . arising out of or related to the Contract . . . shall . . . be subject to arbitration.” The court, however, found that GEBFS’ parse omitted a key phrase: a Claim “shall after decision by the Architect or 30 days after submission of the Claim to the Architect, be subject to arbitration.” The court noted that AIA A201, like many construction contracts, designates the project architect as the arbiter of contract disputes. Such designation supports the conclusion that the arbitration provision only applies to claims that arise during construction because it would not make sense for the architect to be designated as the first-line arbiter in a sequential dispute resolution process that applied to post-construction claims.
The court found the Contract provision that made a decision by the architect a “condition precedent to mediation, arbitration or litigation of all Claims between the Contractor and Owner arising prior to the date final payment is due” to be dispositive. The phrase “arising prior to the date final payment is due” exemplified that “Claims” did not include post-construction claims. The fact that any decision by the architect would result in, if merited, a change in the contract sum or time also supported the conclusion that the arbitration provision only applied to claims that arose during construction because such remedies would be moot after construction is completed and paid for.
The court also noted that “Claim” included disputes arising out or relating to the Contract where the Contract was titled and defined as a “contract for construction,” and that a Claim had to be submitted to the architect for decision within 21 days of the occurrence or condition giving rise to the Claim. The requirement of timely notice of a dispute to the architect concerning a “contract for construction” further suggested that the entire Contract, including the dispute resolution process, related to the process of construction, and not occurrences or conditions that are discovered after construction is complete, because the entire purpose of the architect serving as the arbiter was to ensure that construction is completed in a proper and timely manner.
The court held that GEBFS’s claims were non-arbitrable.