Arbitration Considerations in Litigating Construction Disputes

Arbitration Considerations in Litigating Construction Disputes

By: Harry Malka, Esquire

Your Construction Law FirmTM

It is very common for construction contracts to include an "arbitration provision." In essence, the arbitration provision in a clause in the contract that contains the agreement by the parties to submit their disputes arising out of the contract to binding arbitration, thus avoiding the courts. For parties to a construction contract, there are many perceived benefits to choosing binding arbitration over the courts (decision maker with more knowledge of construction law, less discovery, quicker final decisions, limited right to appeal). Over the years, state and federal courts have uniformly held in favor of upholding arbitration agreements and requiring the parties to submit their disputes to arbitration (partly because this reduces the burden on the courts).

In Pulte Home Corporation vs. Bay At Cypress Creek Homeowners' Association, Inc., Case No. 2D13-316 (Fla. 2nd DCA, August 9, 2013), the Bay at Cypress Creek Homeowners' Association, Inc. (the "HOA") sued Pulte Home Corporation ("Pulte") for alleged building code violations under section 553.84, Florida Statutes. Although Pulte had provided a written warranty for its work, the HOA chose to pursue an action for statutory violations, instead of an action for breach of warranty, because the HOA believed it could avoid the arbitration provision that was contained in the Pulte warranty. [One must assume that the HOA thought it would obtain a more favorable result before a jury than it could before an arbitration panel.]

Pulte filed a motion requesting the trial court to compel arbitration, based on the arbitration provision contained in the warranty. The HOA opposed the motion, arguing that (i) it cannot be compelled to arbitrate its statutory claims and (ii) that subsequent purchasers of the units at the development could not bound by the arbitration agreement. The trial court agreed with the HOA and denied Pulte's Motion to Compel Arbitration. Pulte appealed.

In keeping with the strong public policy in favor of upholding arbitration provisions, the appellate court disagreed with the trial court and held that the agreement to arbitrate at issue in this case applied to statutory claims as well as to claims for breach of warranty. The appellate court cited numerous other Florida cases in which the courts have held that arbitration agreements also apply to statutory claims. The appellate court also rejected the HOA's argument that subsequent purchasers could not be bound by the arbitration agreement. The Court reasoned that since the subsequent purchasers were permitted to assume Pulte's Warranty from the initial purchasers, the subsequent purchasers are third party beneficiaries to the Limited Warranty and can be compelled to arbitrate.

Certainly, there are benefits and drawbacks to arbitration. However, in most instances, once the parties have agreed to the arbitration provision, the Courts are likely to enforce it. As such, before signing your contract, it is important to fully understand what your arbitration provision includes and (more importantly) what it does not include, as all arbitration provisions are not alike.