Alternative Dispute Resolution An Option For Construction Contractors Under NY’S Prompt Payment Act

 

Perhaps the most common construction-related dispute is the refusal of a party to make payment to its contractors or subcontractors. While litigation is the traditional avenue for resolving such disputes, methods of alternative dispute resolution such as arbitration and mediation are enjoying growing importance in the field of construction law.

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5 Reasons to Consider Arbitration for Your Construction Dispute

 

In a recent client conference, I was asked, “So what is arbitration, anyhow?” In the context of a construction claim or in seeking to prevent such a claim, there are several significant advantages that arbitration can provide in lieu of litigation. In today’s challenging business environment, this signifies awareness of the various options available that could make an important impact on your business’ circumstance.

Briefly stated, arbitration is a private, informal process by which all parties agree, in writing, to submit their dispute to one or more impartial persons authorized to resolve the controversy by rendering a final and binding award.[i] What makes this process unique is the ability, with some advance consideration, to customize and tailor the dispute resolution process to suit the needs of the company.

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Challenging Construction Arbitration Awards in New York

Arbitration is an established alternative to court litigation in construction disputes. Challenging an unfavorable construction arbitration award is so difficult that homeowners may wish to give serious thought before submitting their disputes with contractors to arbitration. Courts give great deference to the decisions of arbitrators, refusing to review arbitration awards even for errors of law or fact.[1] There are few exceptions to this rule, and courts only invoke them in rare circumstances.

Under New York law, a construction arbitration award can be vacated for (1) corruption, fraud or misconduct in procuring the award, (2) partiality of the arbitrator, (3) the arbitrator exceeding his power, or (4) failure to follow the procedures of CPLR Article 75.[2] New York courts have also found that an arbitration award should be vacated if “it violates public policy, is irrational, or clearly exceeds a specifically enumerated limitation on the arbitrator’s power.”[3] To emphasize how rarely the courts vacate an arbitration award, only one case I reviewed in preparation for this article overturned the challenged arbitration award.

Construction Arbitration Case Study

In the Matter of Omega Contracting, Inc. v. Maropakis Contracting, Inc., the court found that an arbitrator had abused his discretion when he refused an adjournment, and one of the parties was consequently prevented from presenting crucial evidence.[4] In every other instance, the court refused to vacate the award regardless of its underlying merits.

A prime example of the injustice that may be worked by this standard is the all-too-common situation when a contractor employed by a homeowner turns out to be unlicensed. While strong public policy precludes an unlicensed home improvement contractor from collecting from homeowners, the deferential standard of judicial review of arbitration awards allows for judgments that arguably violate that public policy.

One case on point is the Matter of Hirsch Construction Corp. v. Anderson, in which a homeowner sought to vacate an arbitration award in favor of a contractor whose license had temporarily lapsed during construction.[5] The homeowner argued that the amount awarded by the arbitrator included payment for work performed when the contractor was unlicensed, but the court refused to delve into the facts of the case and confirmed the construction arbitration award.[6] Since the arbitration award did not say in so many words that the award included monies sought for the time during which the contractor was unlicensed, the court could not inquire further, regardless of any evidence that the homeowner might have presented to the court.

Home Construction Arbitration
Home Construction Arbitration

Cases such as Hirsch caution that, for all its benefits, arbitration may not suit homeowners in all situations. Keeping in mind the difficulty of vacating an unfavorable award, special care and consultation with experienced construction law counsel are necessary before homeowners agree to arbitration and in selecting an arbitrator and bringing a case through arbitration.


[1] Matter of Matra Building Corp. v. Kucker, 2 A.D.2d 732, 734 (2d Dep’t 2003).
[2] CPLR § 7511(b).
[3] Matter of Sheriff Officers Assn., Inc. v. Nassau County, 113 A.D.3d 620, 621 (2d Dep’t 2014) (quoting Matter of Shenendehowa Cent. Sch. Dist. Bd. of Educ. [Civil Servs. Empls. Assn., Inc., Local 1000, AFSCME, AFL-CIO, Local 864] 20 N.Y.3d 1026, 1027 [2013]).
[4] 160 A.D.2d 942, 943 (2d Dep’t 1990).
[5] 180 A.D.2d 604, 604 (1st Dep’t 1992).
[6] Id. at 604-05.

Top 3 New Construction Arbitration Rules That Expand Powers and Challenge Assumptions

When it comes to construction contracts, arbitration and mediation (Alternate Dispute Resolution) are both commonly specified for out of court dispute resolution.  The use of mediation and arbitration in construction contracts, both for small and large construction, has been increasingly common over the past decade.

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Enforcement of New York Arbitration Awards

An arbitrator has ruled in your favor. What do you do now? In a perfect world, the other side would just pay you and be done with it, but we all know that this world is less than perfect, and you may find yourself having to enforce your arbitration award. Before you can avail yourself of the enforcement techniques that are provided by New York law, you’re going to have to follow some formalities. The following elements may be necessary for have your arbitration award ‘confirmed’ and seek collections.

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