The Contract and Not Common Sense Determines the Proper Parties to an Arbitration

Many construction contracts require the parties to resolve their disputes through alternate dispute resolution procedures such as mediation and arbitration.  Arbitration is intended to be a cost effective alternative to litigation.  The issue of whether arbitration works as well as intended will be the subject of a future post on this Blog but the topic of discussion here is the question of determining the proper parties to any given arbitration.  The answer is counterintuitive.

When it comes to arbitration, there are several well settled rules.  For example, courts favor arbitration, arbitration is a creature of contract, and no party will be forced to arbitrate when it has not agreed to do so.  In light of the foregoing, you might believe that a party, who is named in a demand for arbitration, files an answer to the demand, and participates in the arbitration hearing, has agreed to arbitrate and should be held liable for any arbitrator’s award that enters against it.  If you did believe that, however, you’d be wrong.

In CDIFUND, LLC v. Lenkowski, disputes arising out of home construction contracts were arbitrated.  CDIFUND, LLC v. Lenkowski, 2011 Conn. Super.

The Standard Procedure for Obtaining Lien Waivers May Be Ineffective

A recent Superior Court decision should cause general contractors and owners to reevaluate their procedures for obtaining lien waivers.  Typically, signed lien waivers are submitted after the work is performed but before payment is received.  On a basic level, the procedure makes sense because the owner does not want to issue payment to its general contractor unless it is sure that it’s protected from potential mechanic’s liens.  While the general contractor and its subcontractors may argue that they should not have to provide lien waivers until they receive payment, they are generally protected if the owner does not actually issue the payment described in the lien waiver because standard lien waiver language makes it clear that the waiver is not effective unless the payment described therein is actually received.

In Milone & MacBroom, Inc. v. Winchester Estates, 2011 Conn. Super. LEXIS 2688, the Superior Court considered whether a lien waiver is valid when:

1. The lien waiver is issued after the work is performed:
2. The lien waiver is executed before payment is received; and
3. The payment described in the lien waiver is received three weeks after the lien waiver was signed.

Court Rules That the Government Contractor Defense is Not Applicable to Road Reconstruction Projects

As articulated by the United States Supreme Court, the government contractor defense provides that “[l]iability for design defects in military equipment cannot be imposed, pursuant to state law, when (1) the United States approved reasonably precise specifications; (2) the equipment conformed to those specifications; and (3) the supplier warned the United States about the dangers in the use of the equipment that were known to the supplier but not to the United States.”  Boyle v. United Techs. Corp., 487 U.S. 500, 512 (U.S. 1988).  The Connecticut Supreme Court recognized the government contractor defense in Miller v. United Technologies Corp., 233 Conn. 732 (Conn. 1995).  Nonetheless, a Connecticut Superior Court has just refused to apply the government contractor defense to a claim arising out of a road reconstruction project.

In Fox v. Town of Stratford, 2012 Conn. Super. LEXIS 1443 (Conn. Super. Ct. June 1, 2012), the plaintiff alleged that his property was damaged by flooding caused by a road reconstruction project.  The contractor asserted that, under the authority of Miller and Boyle, it cannot be held liable for plaintiff’s alleged damages because it strictly complied with the government’s plans and specifications. 

Subcontractors Only Have Very Limited Rights Against Public Owners

On private construction projects, subcontractors and/or suppliers that furnish labor, material, or services but are not paid by the project’s general contractor have a variety of claims that they may assert against a private owner.  For example, such subcontractors and/or suppliers may assert claims for unjust enrichment or file a mechanic’s lien.  No such rights exist, however, where the project owner is the State of Connecticut or one of its cities or towns.

As an alternative to the typical claims a subcontractor or supplier has against a private owner, Conn. Gen. Stat. § 49-41 requires general contractors that enter contracts for public projects over a certain dollar amount to post surety bonds that guarantee payment to their subcontractors and suppliers.  The exact language of Conn. Gen. Stat. § 49-41 states that “[e]ach contract . . . [for] any public building or public work of the state or a municipality shall include a provision that the person to perform the contract shall furnish . . . a bond . . . for the protection of persons supplying labor or materials . . .”  By the plain language of the statute, the onus is put on the general contractor to supply the bond;