General Contractor Prevails: Subcontractor’s Demand for Payment Dismissed

The Massachusetts Appeals Court affirmed summary judgment in favor of a general contractor in the matter Acme Abatement Contractor, Inc. v. S&R Corporation.  The general contractor, S&R Corporation, hired an asbestos abatement subcontractor, Acme, to demolish and remove materials from a water treatment plant and ball field.  The linchpin issue was whether the subcontract required the paint removed from a section of the bleachers at the ball field.

The subcontractor claimed that there was no asbestos in the paint therefore removing the paint was outside the scope of its contract.  It refused to do that work.  As a result, the general contractor was forced to hire another contractor.  When the subcontractor demanded payment for the work it had completed, the general contractor refused and did not pay the subcontractor anything.  The subcontractor sued.

The general contractor proceeded to summary judgment on two bases.  First, it argued that the subcontract had assumed that all paint contained asbestos and therefore the subcontract’s scope necessarily included removing the subject paint. Then the general contractor argued if there were disputes about scope, per the contract terms, the subcontractor was required to do the work and then litigate the scope later: 

"In the event of any dispute, controversy or claim between the Contractor and the Subcontractor, the Subcontractor agrees to proceed with the Work or extra work without delay and without regard to such dispute, controversy, claim or the tendency [sic] of any proceeding in relation to the same. The failure of the Subcontractor to comply with the provisions of this paragraph shall constitute a material breach of this agreement. . . ."

Because the subcontractor refused to perform the disputed work, general contractor asserted that the refusal was a material breach and it was justified in not paying the subcontractor for any work.  The appellate court agreed with this second argument.

The subcontractor attempted to counter that even if it breached by not doing the subject work, under a theory of quantum meruit, it still was entitled to payment for the work it did perform.  The appellate court disagreed holding that because the subcontractor "intentional[ly] depart[ed] from the contract in a material matter without justification or excuse," its claim for recovery under quantum meruit was precluded.

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The author, Katharine Kohm, is a committee member for The Dispute Resolver. Katharine practices construction law and commercial litigation in Rhode Island and Massachusetts.  She is an associate at Pierce Atwood, LLP in Providence, Rhode Island.  She may be contacted at 401-490-3407 or kkohm@PierceAtwood.com.

A Case to Watch: Highway Contractor Appeals $663M False Claims Act Judgment

Kristin H. Jones, Partner, Pepper Hamilton LLP
Thomas J. Madigan, Partner, Pepper Hamilton LLP

On August 31, 2015, highway contractors Trinity Industries, Inc. and Trinity Highway Products, LLC (collectively, Trinity) appealed to the U.S. Court of Appeals for the Fifth Circuit a $663,360,750 final judgment entered against them under the federal False Claims Act (FCA). At the conclusion of a six-day trial that commenced on October 13, 2014, the jury rendered a unanimous verdict, finding Trinity “knowingly made, used, or caused to be made or used, a false record of statement material to a false or fraudulent claim” in violation of the FCA. The jury unanimously found that the U.S. government suffered damages in the amount of $175,000,000 as the result of Trinity’s FCA violations.

After denying Trinity’s post-trial motions, the district court entered a final judgment on June 9, 2015 in which it (1) trebled the $175,000,000 damages award to $525,000,000 pursuant to 31 U.S.C. § 3729 and (2) assessed a civil penalty of $8,250 for each of the 16,771 false certifications that the jury found Trinity made in connection with false claims for payment, for a total penalty of $138,360,750. Of the final judgment amount of $663,360,750, 30 percent ($199,008,225) was awarded to the relator, who had proceeded with the prosecution of the FCA action without the participation of the U.S. government, which had declined to intervene in the case. In addition, the relator, as the prevailing party, was awarded attorney’s fees of $16,535,035.75, expenses of $2,300,000 and taxable costs of $177,830.

Trinity’s appeal of this extraordinarily large damages award could set important precedent as to what constitutes the “knowing presentation” of a false or fraudulent claim, statement or record and how damages are calculated in FCA cases.

The FCA provides that any person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval,” or who “knowingly makes, uses, or causes to be made or used a false record or statement material to a false or fraudulent claim” is liable to the U.S. government for damages and civil penalties. 31 U.S.C. § 3729(a)(1)(A) and (B). The FCA can be enforced either by the U.S. Department of Justice or by private individuals acting on behalf of the government, formally known as “relators,” but often referred to as “whistleblowers.” Generally, damages in an FCA case are measured under a “benefit of the bargain theory,” i.e., the difference between what the government actually paid and what the government would have paid absent the fraud. Under the statute, damages may be trebled. In addition, the FCA permits the United States to recover penalties, costs and attorneys’ fees in successful cases. Penalties can be between $5,500 and $11,000 for each false claim.

In the FCA case against Trinity, the relator alleged that Trinity violated the FCA by knowingly and falsely certifying that Trinity’s guardrail end terminals, known as “ET-Plus,” had been crash-tested and approved for federal reimbursement by the Federal Highway Administration (FHWA). According to the relator, in or around 2005, Trinity modified the properties and dimensions of ET-Plus that had been previously approved by the FHWA in 1999. The relator alleged that Trinity did not disclose its modifications of ET-Plus to the FHWA, the FHWA did not approve the modifications, and, therefore, Trinity falsely “certified” that the modified ET-Plus had been approved by the FHWA. According to the relator, these false certifications caused the government to pay money when it reimbursed individual states for the costs associated with installing ET-Plus on federally funded or subsidized highways.

At trial, Trinity presented evidence that, contrary to the relator’s contentions, the FHWA repeatedly affirmed that ET-Plus was compliant with all applicable federal rules and regulations. Trinity also presented evidence that the allegedly false certifications were not made to the government contracting agency and played no part in either the award of the contract or any payment decision thereunder. The allegedly false statements at issue were representations made by Trinity to its customers that ET-Plus was compliant with the applicable government rules and regulations. Trinity disputed the requisite FCA element of causation, pointing to the fact that there was no evidence that the federal government ever saw the customer certifications, let alone relied on them in making its payment decision. Trinity also argued that such statements were not material to the government’s payment decision because, once made aware of the statements, the government investigated and rejected the relator’s allegations and concluded that Trinity was entitled to payment.

Ultimately, the jury found for the relator and awarded damages using a “benefit of the bargain” calculation propounded by the relator’s expert. The relator’s expert estimated that, after the 2005 modification of ET-Plus, the government paid $218,003,273 to reimburse states for purchases of modified ET-Plus and, because modified ET-Plus had not been approved by the FWHA, it had no ascertainable value other than as scrap metal. Accordingly, the expert argued that the appropriate measure of damages was $218,003,273, reduced by the scrap value of the modified ET-Plus, which was $175,037,890. The jury awarded $175,000,000 in damages. The court then determined that there were 16,771 false claims and applied a $8,250 penalty for each claim.

Trinity is appealing the damages award as both excessive and based on speculation and conjecture. Trinity argues that the relator failed to prove how much the FHWA actually paid in reimbursements for ET-Plus, but instead merely presented an estimate prepared by its expert of the percentage of ET-Plus sales that were federally reimbursed. This estimate was derived by multiplying Trinity’s total ET-Plus sales revenue by the percentage of states’ total highway-related expenditures that were spent on federal highways, and then applying an 80 percent federal reimbursement rate. Trinity contends that these estimates fail to satisfy the requirements that damages awarded under the FCA be “just and reasonable and “based on relevant data.” Trinity is also challenging the relator’s expert’s assumption that ET-Plus has no value other than as scrap, pointing to, among other things, statements by the FHWA that Trinity  contends acknowledge that the government received value for the ET-Plus units supplied.

Trinity is appealing the district court’s determination of penalties as violating the Seventh Amendment because the court failed to submit its challenges to several of the claims to the jury for its consideration. Trinity is also challenging the award of damages and the assessment of penalties as violative of the Eighth Amendment’s Excessive Fines Clause.

The Fifth Circuit’s ruling on Trinity’s appeal has the potential to provide significant guidance on the contours of what constitutes a knowing false claim or assertion and the level of proof required to sustain an award of damages under the FCA, as well as the appropriate role of the district court in determining damages and when an FCA judgment crosses the line into being unconstitutionally excessive. In the meantime, the case against Trinity serves as a reminder of the extraordinary risk of taking an FCA case to trial, even when the government has declined to intervene.

Article originally posted October 26, 2015 on Constructlaw, an update and discussion of recent trends in construction law and construction, maintained and edited by Pepper Hamilton's Construction Law Practice Group. 

Federal District Court in California Holds that Subcontract Provision Binding Subcontractor to Result of Dispute Resolution Under Prime Contract Was Not an Effective Waiver of Miller Act Rights

Robert A. Gallagher, Associate, Pepper Hamilton LLP

DVBE Trucking and Construction Co., Inc. v. McCarthy Building Companies, Inc., 2015 U.S. Dist. LEXIS 90052 (N.D. Cal. July 10, 2015)

This payment dispute case arises out of a Veterans Affairs (“VA”) construction project located in Palo Alto, California. McCarthy Building Companies, Inc. (“McCarthy”) was the prime contractor, Federal Insurance Company and Travelers Casualty and Surety provided the performance and payment bonds on behalf of McCarthy mandated by the Miller Act, and DVBE Trucking and Construction Company, Inc. (“DVBE”) was McCarthy’s subcontractor. Section 11.1 of DVBE’s subcontract required that, for any dispute involving the VA, it would follow the dispute resolution procedures agreed to by McCarthy in its contract with the VA, and agreed to be bound by the result of any such dispute resolution procedures to the same degree as McCarthy.

During the project, the VA issued a notice of suspension of the work, preventing McCarthy and DVBE from beginning work as planned. The work was also delayed due to differing site conditions relating to underground utilities. As a result, both McCarthy’s and DVBE’s work was performed behind schedule, during the winter. Once performed, the work was impacted by adverse weather.  McCarthy was also required to perform additional unforeseen work. McCarthy, on behalf of itself and its subcontractors (including DBVE) submitted claims to the VA for additional compensation.

While McCarthy’s claims remained pending with the Civilian Board of Contracting Appeals (“CBOCA”), the DVBE sued McCarthy, Federal Insurance Company and Travelers Casualty & Surety for recovery on the Miller Act Payment bond, breach of contract, account stated and quantum meruit. While the parties initially stipulated to stay the action pending resolution of McCarthy’s action before the CBOCA, they later agreed to lift the stay. Defendants then moved to stay the proceedings pending the outcome of McCarthy’s CBOCA appeal, arguing that Section 11.1 of the subcontract bound DVBE to the result of McCarthy’s proceeding with the VA. Defendants argued that, because the outcome of DVBE’s claim was entirely dependent on the outcome of McCarthy’s pending claim against the VA, the action should be stayed until McCarthy’s claim was resolved. In response, DVBE argued that Section 11.1 of the subcontract was not an effective waiver of its Miller Act claim.

The Court denied Defendants’ motion to stay. It concluded that it was contrary to the intent of the Miller Act to require DVBE to await, and be bound by, the result of a process in which it was not permitted to participate. The Court concluded that Section 11.1 of the subcontract would, if effective, waive DVBE’s Miller Act rights. The Court noted that an effective waiver of the Miller Act must be (1) in writing, (2) signed by the person whose right is waived, and (3) executed after the person whose right is waived has furnished labor or material for use in the performance of the contract. The Court also noted that the waiver must be clear and explicit. The Court found that Section 11.1 was not an effective waiver of DVBE’s Miller Act claim for two reasons. First, the subcontract was signed before the work began. And second, it was not a “clear and explicit” waiver of DVBE’s Miller Act rights. As such, the Court refused to enforce Section 11.1 of the subcontract and denied Defendants’ motion for stay of the proceedings. 

Article originally posted October 22, 2015 on Constructlaw, an update and discussion of recent trends in construction law and construction, maintained and edited by Pepper Hamilton's Construction Law Practice Group. 

Register Now For the Forum's Midwinter Meeting in San Francisco, CA (Jan. 21-22, 2016)

REGISTRATION IS NOW OPEN
FOR THE FORUM'S MIDWINTER MEETING

Please join us at the Forum's 2016 Midwinter Meeting "Livin’ on the Fault Line:  Cutting Edge Solutions for Seismic Events that Threaten Your Construction Client,” at The Westin St. Francis, Union Square, in San Francisco, CA on January 21-22, 2016.  When something goes wrong on a construction project, this program and its materials will provide you with answers and solutions to assist your construction client through the crisis.  Whether your client suffers a cybersecurity attack, the loss of a key project manager, an owner audit, or a variety of other challenges, you will be prepared.

“Houston, we have a problem,” has become a catch-phrase for an impending disaster. Our kickoff speaker literally lived through the moment when it was first spoken. Apollo 13 astronaut, Fred Haise, will describe for us how that crisis was met and provide steps for facing a crisis, whether in space or down here on earth! In addition, Carla Christofferson, AECOM's Executive Vice President and General Counsel, will address building diverse teams.

You will have the opportunity to taste local wines, both during the Sunset Wine Tasting and Welcome Reception at the top of the St. Francis on Thursday evening and on the Napa Valley Getaway on Saturday (ticketed event). A Forum After Dark event on Thursday will be available for night owls. Friday afternoon, you can Escape to Alcatraz for a twilight tour of the infamous island prison in the Bay (ticketed event).

San Francisco is always an incredible location for the Forum's meetings, so be sure to register for the Midwinter Meeting and reserve your room at the St. Francis right away!

DOWNLOAD THE BROCHURE

#FCLSanFran #ABAConstruct

A Litigator's Guide to Thriving in the Digital Age -- Recap of Division 1's Lunch Program in Austin

What applications should I buy?

How do I try a case without carrying 4 boxes everyday? 

Email - love it and hate it, how do I find a balance?

Karl, Rob, Drew, and Tom gave answers to D1 members in Austin.

Karl Seelbach, Rob Ruesch, Drew Harris, and Tom Dunn

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Rob Ruesch, Division 1 Steering Committee Member, the lunch program for Divisions 1 and 2 at the Fall Meeting in Austin, Texas.  The topic maxed out the occupancy of the room given to us and there was active participation by the attendees during the program.  

During the presentation, Karl Seelbach talked about technology and the mobile litigator.  He highlighted the "go to" applications. I asked Karl to recap his presentation for Division 1 members who could not join:

Attorneys who want to stay organized and get a leg up on the competition should use technology to their advantage. Consider using a task management app (e.g., Todoist) to organize your projects, assign tasks to your entire team and monitor their progress. Stop printing reams of paper and carrying heavy boxes to depositions. Instead, use electronic exhibits (e.g., AgileLaw) to go paperless. Stop writing your notes on paper. Instead, use a note taking app (e.g., Evernote) to make your notes searchable and shareable with team members. Or at the very least, scan your handwritten notes for safekeeping (bonus:  some apps convert your handwritten notes to searchable text). If you’d like more free tech tips or a list of recommended apps for attorneys, contact me at karl@doyleseelbach.com or sign up for my monthly newsletter at http://www.doyleseelbach.com/. 

Drew Harris walked us through Trial Director for ipads.  He demonstrated the "must have" tools for a trial attorney's toolbox and conducted a live demonstration of trial he recently conducted.  By the end of the presentation, the vast majority of the attendees raised their hand that they will consider using an ipad for their next trial.

I (Tom Dunn) spoke about email practice management.  I went through the answers to the 10-Question survey of Division 1 members and shared my own experience / strategies to manage and control email and not let it control me.  Click HERE to view my presentation.  

Thank you to all of the Division 1/2 members who attended the meeting.  If you want access to some of the written materials provided at this program (or past programs), please contact Nick Holmes (nholmes@devinemillimet.com), Division 1 Chair, for access to the Division 1 dropbox account.  

If you come across new applications or strategies to deal with the "digital age" as a litigator or trial attorney, please contact one of the editors of The Dispute Resolver and we may be able to share it with Division 1 members.

#ABAConstruct #FCLAustin #TheDisputeResolver

Effectively Tracking Labor Productivity

Many contractors say that they have lost productivity due to change orders, sequencing issues, overtime, or trade stacking.  But how can we as lawyers go about proving that lost productivity?  

Peter Vosbikian is a Certified Cost Engineer and Certified Forensic Claims Consultant with over twenty years of experience in construction claims consulting.  For the past ten years, he has worked with Forum Sponsor Greyhawk. Peter has provided three tips on how to document and prove labor productivity claims.  

Effectively Tracking Labor Productivity

Many of us have heard the adage, ‘If it’s not written, then it didn’t happen.’  We’re all aware that productivity is an important concept in our industry.  Low productivity can result in delays and damages, which can lead to disputes and claims.  Effectively documenting the work progress and monitoring productivity can provide stakeholders with the necessary visibility for tracking whether or not they are working towards a successful bottom line.  It can also help in situations involving damages caused or alleged to have been caused by productivity loss.  While appropriately documenting the information is important, the daily demands of managing a construction project can shift focus away from such daily data compilation, and this in turn could result in challenges to being able to effectively demonstrate the causation for actual losses incurred.  The following summarizes some of the data that may be helpful for stakeholders to better track their actual productivity.

 
1.  DOCUMENT material quantity installed

How much material was installed?  Track the quantity of material installed, or work completed on an operation and crew basis.  The units used to track production for a given material should remain consistent throughout the life of the project (whether they are cubic yards, cubic feet, lineal feet, or other).  For example a concrete contractor may track its production in cubic yards.  Therefore this unit of measure for tracking the installed quantity should remain the same unless unique circumstances dictate otherwise.  The installed or completed quantities should be tracked no less than once per day or shift.  Ensure that the tracked quantity is consistent with the time and labor units expended on that specific material or operation.

2.  DOCUMENT labor expended

How many man-hours were expended performing the work corresponding to the material installed?  Document the labor that was expended to install the materials noted.  The labor expended reflects the required resources to perform a given amount of work or achieve a specific amount of output.  Record the number of working laborers, man-hours for each, and the work shift specific to the operation and crew.  It is equally as important to track downtime, or the number of hours that labor was assigned to work a specific task or operation, but couldn’t.

3.  DOCUMENT impacts and disruptions

What delays or impacts were encountered in performing the work and what were the causes?  Record any impact or disruption to the work.  In particular, any start and stops, suspensions, interruptions to the operation, remobilizations, or any slowed progress.  Record any disruption (disturbance or problems that impacted the work) or any events that caused the work to not be performed in the fashion or manner intended.  Any record of such work disruptions should be accompanied by an explanation or photos of what event(s) or impact(s) that resulted in the lower productivity.  For example, merely noting an effect only description, “The installation of conduit was delayed”, may be insufficient.  Rather, a cause and effect description of, “The conduit installation on the first floor was impacted during the AM shift because of a design change that required rerouting previously installed conduit”, may be more helpful in establishing causation.

For us lawyers, this is a good guide to the kind of information we should be asking our clients to provide to us when they want to make a claim for lost labor productivity. It is also the information that we should request in discovery when faced with such a claim.

Peter is glad to answer any questions you may have regarding this article.  If you do have a question, please e-mail him.

Where Are We Going in Dispute Resolution?

Pepperdine Professor Tom Stipanowich spoke in our first plenary session of the day about trends in arbitration and its use. The use of arbitration has declined over the past 10 years in the construction industry.

Will that trend continue? Should it continue?  More to the point, how can the problems with arbitration be addressed?

Let us know your thoughts.

Incorporating TED Talks Presentation Styles into Presentations

Kate Bergin of TEDTalks Manhattan Beach spoke today in Austin about presentations. Specifically, she talked about incorporating stories into presentations as the way to make an excellent impression on your crowd.

Ms. Bergin spoke at the Diversity Breakfast for those of us who made it to the 7 AM start.

Rock Stars of Mediation

The secret to mediating a construction dispute successfully?

Eric Green says there is some magic in it -- and he and fellow super-mediator Tony Piazza know that magic.

We are happy they shared some secrets with us.

Division 1 Lunch at #ADRSummit -- litigation technology

Karl Seelbach, Rob Ruesch, Drew Harris, Tom Dunn

The Supreme Court of the United States To Review California’s Contract Severance Rule as Applied to Agreements to Arbitrate.

On its docket this term, the Supreme Court of the United States will consider MHN Government Services, Inc. v. Zaborowski, case no. 14-1458, and whether the Federal Arbitration Act (“FAA”) preempts the application of a California statute.  California's law affords courts discretion when faced with agreements containing unconscionable provisions -- strike entirely or sever and save.  At issue is whether, in practice, the application of this law to arbitration agreements has resulted in more striking than saving.  If history is a guide to the possible outcome, consider that in 2011 in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) , the Court’s 5-4 majority struck down another California rule, concerning class-action prohibitions in arbitration agreements, because it “interfere[d] with fundamental attributes of arbitration” in violation of the tenets of the FAA.

Underlying the Zaborowski dispute are military consultants who were classified as independent contractors rather than employees.  As a result of this classification, the consultants did not receive overtime compensation and asserted various claims against their defendant employer.   In turn, the defendant employer, relying the parties’ services contract, moved to compel mandatory arbitration.  To oppose arbitration, the plaintiff consultants argued that many terms in the arbitration agreement were unconscionable and therefore the whole arbitration agreement was unenforceable.

The district court agreed with the plaintiffs and held, inter alia, that certain terms—including the limitations period of only 6 months, a punitive damages waiver, and an arbitrator-selection procedure that permitted the defendant employer to limit the universe of possible arbitrators to three from which the plaintiffs could select one— were “overly harsh,” “generated one-sided results,” and therefore were unconscionable.  Zaborowski v. MHN Gov't Servs., Inc., 936 F. Supp. 2d 1145, 1153, 1156 (N.D. Cal. 2013).  The district court then went a step further.  It acknowledged that Cal. Civ.Code § 1670.5(a) gives courts the authority either save contracts by striking the unconscionable portions or refuse to enforce contracts altogether.  Here, the district court held that the agreement was both procedurally and substantively unconscionable and was so permeated with these one-sided terms that it declined to save the agreement by severing them.  Id. at 1157.  The court denied the motion to compel arbitration.

As an aside, consider that at issue in this matter was whether there was unconscionability in the arbitration agreement, not whether the plaintiffs were unconscionably induced into making the arbitration agreement.  Where the AAA Rules are incorporated into the agreement, as here in Zaborowski, the arbitrator has specific authority to decide “objections with respect to the existence, scope, or validity of the arbitration agreement.” AAA Commercial Rules at R-7.  Consider whether the district court could have declined to address the plaintiffs’ unconscionability arguments and left them for the arbitrator to decide.  See, e.g., Brennan v. Opus Bank, 796 F.3d 1125, 1127 (9th Cir. 2015) (holding that the determination whether the arbitration clause is substantively or procedurally unconscionable belongs to the arbitrator especially where the AAA Rules are incorporated to the agreement).

The defendant employer appealed to the 9^th Circuit, where the decision was affirmed.  Zaborowski v. MHN Gov't Servs., Inc., 601 F. App'x 461 (9th Cir. 2014).  The appellate court noted that although “Federal Arbitration Act expresses a strong preference for the enforcement of arbitration agreements,” there was no federal preemption concern because the FAA does not “license a party with superior bargaining power to stack the deck.”  Id. at 464.  It therefore concluded that the district court did not err when it applied California law and declined to sever unconscionable provisions.  Id.   There was a dissent that sided with preemption.  The dissenting judge explained that the application of the California law, as here, rejecting arbitration agreements will cause a “disproportionate impact on arbitration agreements” that is in fact preempted by the FAA.  Id. at 465 (citing AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (which held that the Federal Arbitration Act preempts California’s rule regarding the unconscionability of class arbitration waivers in consumer contracts)).

On October 1, 2015, the Supreme Court of the United States agreed to hear this preemption argument on certiorari.   The petitioner employer staged the question before the Court as an unequal application of law.   It recognized that the California law purports to be neutral and applicable to all contracts.  But in practice the law has a “disproportionate impact on arbitration agreements” especially here where the subject arbitration agreement contained its own provision for excising invalid terms, which was not given effect.  The petitioner asserted that the “California courts show a clear preference against enforcing an agreement to arbitrate” and have used this California law as their vehicle for this agenda.  The petitioner then presented a history of the disparate treatment citing various general contract vs. arbitration contract cases.  It observed that the California Supreme Court’s precedent that “multiple unconscionable provisions will render an arbitration agreement’s purpose unlawful” necessarily treats arbitration contracts differently than other contracts under the California law.  Armendariz v. Found. Health Psychcare Servs., Inc., 6 P.3d 669, 697 (Cal. 2000).  The Petitioner concluded that because the “FAA preempts state-law defenses that single out or otherwise burden arbitration agreements more than any other contract,” this California law must be preempted by the FAA.

For their part, the Respondents focused on the facially neutral language of the California law as applicable to all contracts.  They also observed that the law directed courts, as the district court did here, to exercise discretion whether to sever the terms or reject the contract altogether.   The respondents emphasized the instant arbitration agreement contained five unconscionable provisions, not just one or two, that went to material, as opposed to collateral, issues of arbitration relationship.  They noted also that numerous other courts have refused to enforce this very same agreement.

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The author, Katharine Kohm, is a committee member for The Dispute Resolver. Katharine practices construction law and commercial litigation in Rhode Island and Massachusetts.  She is an associate at Pierce Atwood, LLP in Providence, Rhode Island.  She may be contacted at 401-490-3407 or kkohm@PierceAtwood.com.