Washington State Court Affirms $155M Jury Award Against Contractor and Surety Stemming from Claim of Default Due to Delayed Performance, Sustaining Denial of Contractor’s Differing Site Condition Defense

Joseph T. Imperiale, Partner, Pepper Hamilton LLP
James M. Kwartnik, Jr., Associate, Pepper Hamilton LLP

King County v. Vinci Construction Grands Projects/Parsons RCI/Frontier-Kemper, JV, 2015 Wash. App. LEXIS 2735 (Wash. Ct. App. Nov. 9, 2015)

The Court of Appeals of Washington recently decided King County v. Vinci Construction Grands Projects/Parsons RCI/Frontier-Kemper, JV, a dispute between a joint venture contractor (the "Contractor") and King County, Washington (the "County"). The dispute stemmed from problems that arose and significant delays that occurred during a major expansion of the County’s wastewater treatment system, known as the Brightwater project. The case illustrates the potential pitfalls of a contractor’s claim of differing site conditions.

The Brightwater project consisted of the construction of a new treatment plant and a new 13-mile underground conveyance system that involved extensive tunneling work. Construction of the underground conveyance system was divided into three contracts, one of which was awarded to the Contractor (the "Project").

Prior to the award, the County and its consultants prepared contract documents, including specifications and two geotechnical reports (the "Contract Documents"), to assist with the solicitation and preparation of bids for the Project. According to the Contract Documents, the entire Project would be situated below the groundwater table, which meant there would be conditions that would require special excavation techniques and equipment in order to apply constant pressure to the face of the tunnel to prevent it from collapsing. The Contract Documents contained information about the soil samples extracted from boreholes drilled roughly 300 to 400 feet apart on the Project, as well as baseline estimates of the expected numbers and percentages of “tunnel soil groups” that would be encountered on the Project.

The Contractor received and analyzed the Contract Documents and retained two geotechnical consultants to assist with preparing the bid. Relying on the Contract Documents, the consultants developed reports attempting to identify the types and locations of soils that would be encountered on the Project. The Contractor submitted the lowest bid and was awarded the Contract.

The Contractor encountered many difficulties during the construction of the tunnels, and the Project was significantly delayed as a result. When the Contractor failed to meet contractual deadlines, the County retained a new contractor to complete portions of the work. The County then sued the Contractor and its surety for default.

In its defense and counterclaim, the Contractor asserted, among other things, that the County breached the Contract by failing to grant change orders and time extensions for differing site conditions. One of the Contractor’s differing site condition claims was based on the Contractor’s assertion that “the soil conditions encountered [were] materially different than what was anticipated.” Specifically, the Contractor contended “that the frequency of transitions between one soil condition and another [in particular, from plastic to non-plastic soils] was higher than what was indicated in [the Contract Documents] and what was anticipated.” The Contractor claimed that the increased number of changes in soil conditions substantially slowed progress because the Contractor had to repeatedly stop work and readjust excavation parameters. The Contractor asserted that this change constituted a differing site condition, which, under the Contract’s “Differing Site Condition” clause, entitled the Contractor to an equitable adjustment in time and price.

The trial court denied the Contractor’s differing site condition claim on summary judgment. On appeal, the King County court identified the following requirements for establishing a differing site condition claim: 1) the contract documents indicated certain conditions; 2) the contractor reasonably relied on those indications when making its bid; 3) actual conditions materially differed from those that were indicated in the contract; and 4) the materially different conditions were not foreseeable. Applying this test, the court affirmed the trial court’s grant of summary judgment because the Contractor failed to satisfy the first two requirements.

First, the King County court found that the Contractor admitted that “the Contract documents contained neither location-specific baselines for soil types between the boreholes nor indications of expected transitions from plastic to non-plastic soils.” Further, the court was not persuaded by the Contractor’s argument that, “even though there was no explicit representation in the Contract documents about the frequency of transitions,” the Contractor made a reasonable interpretation about the number of transitions based on the information presented in the Contract Documents.

The court stated that, even if a Contractor’s “reasonable interpretation” of owner-provided documents was enough to satisfy the first requirement of a differing site condition claim, there could be no such “reasonable interpretation” here, where the Contract Documents contained no express or implied indication as to the number of transitions. Moreover, the court found that a statement in the Contract Documents that “bidders should make their own interpretations and conclusions about the soil conditions along the tunnel” shifted to the Contractor any risk associated with assumptions made by the Contractor.

Next, the court found that the Contractor failed to establish the second requirement of a differing site condition claim — that a contractor reasonably relied on the indicated conditions when making its bid. The Contractor’s geotechnical consultants, who relied on the Contract Documents, did not analyze the expected frequency of transitions between plastic and non-plastic soils. The consultants’ reports identified the soils likely to be present at various locations along the Project, but both consultants stated that they did not estimate the number of transitions and that doing so would be “difficult, if not impossible.”

The requirements of an affirmative representation as to site conditions and actual reliance on those conditions are not unique to Washington, and contractors should be cognizant of such requirements when claiming differing site conditions.

Article originally posted November 30, 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. 

U.S. District Court for Northern District of California Holds Engineer May Be Liable to Contractor for Breach of Professional Duty and Negligent Misrepresentation

James M. Kwartnik, Jr., Associate, Pepper Hamilton LLP

Apex Directional Drilling, LLC v. SHN Consulting Eng’rs & Geologists, Inc., 2015 U.S. Dist. LEXIS 105537 (N.D. Cal. Aug. 11, 2015)

The United States District Court for the Northern District of California held that an engineer that prepares plans and specifications to be relied upon by contractors in preparing their bids for a construction project owes a duty of care to those contractors, and therefore can be held liable to the contractors for breach of professional duty and/or negligent misrepresentation.

This dispute arose out of problems encountered by a contractor, Apex Directional Drilling, LLC (“Apex”), on a municipal sewage construction project (the “Project”). Apex entered into a contract with the City of Eureka, California (“Eureka”) to install a new wastewater pipeline utilizing a drilling technique known as “horizontal directional drilling” (“HDD”), a technique that can only be successful in soil that is sufficiently stable and dense. Prior to entering into the contract with Apex, Eureka hired SHN Consulting Engineers & Geologists, Inc. (“SHN”) to serve as lead engineer and project manager for the Project. As lead engineer, SHN conducted geological studies and prepared plans, reports and specifications describing the conditions on the Project.  Eureka and SHN furnished one such report, the Geotechnical Baseline Report (“GBR”), to potential bidders to allow the bidders to prepare an estimate of the cost to complete the work under the conditions represented in the GBR.  The GBR indicated that “the majority of the subterranean region targeted by the project was composed of stable soils suitable for HDD.”

Relying on the representations in the GBR, Apex submitted the lowest bid and was awarded the contract. Shortly after commencing the work, however, Apex ran into problems when it encountered mud and flowing sands that were much different than the competent soils described in the GBR.  When Apex reported these different conditions to Eureka and SHN, SHN “unreasonably continued to maintain that the project was proceeding in the competent soils described in the GBR, and, on that premise, repeatedly gave Apex illogical instructions.” When Apex started to submit change order requests seeking reimbursement for the cost overruns resulting from the adverse soil conditions, Eureka, based upon recommendations from SHN, rejected the change order requests and then ultimately terminated Apex. Apex sued Eureka and then filed a separate complaint against SHN asserting claims for breach of professional duty and negligent misrepresentation, among others. SHN moved to dismiss Apex’s complaint for failure to state a claim.

SHN argued that it could not be held liable to Apex in tort because SHN owed no duty of care to Apex. The Apex court disagreed.

The court observed that, under California law, courts apply a six-factor balancing test to determine whether a duty of care exists in the absence of privity in the context of a negligence claim seeking economic damages. The six factors are: 1) the extent to which the transaction was intended to affect the plaintiff, 2) the foreseeability of harm to the plaintiff, 3) the degree of certainty that the plaintiff suffered an injury, 4) the closeness of the connection between the defendant’s conduct and the injury suffered, 5) the moral blame attached to the defendant’s conduct and 6) the policy of preventing future harm. Finding no controlling California precedent, the court applied these factors and determined that SHN owed a duty of care to Apex. In particular, the court found that the first, third and fourth factors weighed in favor of imposing a duty of care, as it was clear to the court that the GBR was prepared for the purpose of establishing a baseline upon which Apex would base its bid and mistakes in the GBR and subsequent actions by SHN caused Apex to suffer considerable losses. The court also reasoned that practical considerations supported its determination that SHN owed a duty of care to Apex, as the duty was owed to “a specific, foreseeable and well-defined class” as opposed to creating the potential for “unlimited liability to a nebulous group of future plaintiffs.” Therefore, the court denied SHN’s motion to dismiss Apex’s claim for breach of professional duty.

Turning to Apex’s claim for negligent misrepresentation, the court noted that “under California law ... negligent misrepresentation is a separate and distinct tort from simple negligence and requires a unique duty of care analysis.” In Bily v. Arthur Young & Co., 3 Cal. 4th 370 (1992), the California Supreme Court adopted Section 552(2) of the Restatement (Second) of Torts as the test for identifying the category of plaintiffs that may recover for negligent misrepresentation; namely, “a plaintiff must be a member of a ‘specific class of persons’ involved in a transaction that the defendant ‘supplier of information intends the information to influence.’” The court observed that the California Supreme Court in Bily specifically contemplated the availability of claims for negligent misrepresentation in cases involving information provided by engineers. Then, applying the Restatement test, the court concluded that Apex fell firmly within the category of plaintiffs that may recover from SHN based upon alleged misstatements in the GBR, which were intended to influence the substance of bids. The court added that its conclusion was further supported by M. Miller Co. v. Dames & Moore, 198 Cal. App. 2d 305 (1961), an analogous case in which an appellate court found “a triable issue of fact as to whether an engineer owed [a] contractor a duty of care.” Therefore, the court also denied SHN’s motion to dismiss Apex’s negligent misrepresentation claim.

Article originally posted December 14, 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. 

Forum's Upcoming Meetings -- Construction Contracts (2/26 and 3/4) and Annual Meeting (4/28-30)

The American Bar Association Forum on Construction Law presents its annual Regional Program, entitled Construction Contracts: Finding Common Ground in Drafting and Negotiating Design and Construction Clauses.

These programs will provide an in-depth topic-by-topic discussion of key design and construction contract terms and conditions, including a comparison of forms and agreements from the AIA, the EJCDC, and ConsensusDOCS.  Programs will be live in Jacksonville, FL, Los Angeles, CA and New Orleans, LA on February 26, 2016; and live in Charlotte, NC, Indianapolis, IN and Newark, NJ on March 4, 2016.

Brochure: http://bit.ly/1RiQwwp

Register: http://bit.ly/1IZshk9

Jaimee Nardiello, Buck Beltzer, and Chris Dunn are going to put together a great Annual Meeting in Nashville, TN.  Save the date - April 28-30, 2016. Also, remember to book your hotel room in the Omni Nashville.

2016 marks the 40th anniversary of the ABA Forum on Construction Law and we welcome you to Nashville, TN — Music City USA, to celebrate this milestone! The festive, growing city of Nashville, home to the Grand Ole Opry and the Country Music Hall of Fame, is the perfect place to mark this incredible occasion.

Here is a link to the program brochure: http://bit.ly/1P1EHFa

#FCL40years #ABAConstruct

Leading with LEED: Considerations for the Construction Lawyer

http://betterbusiness.torkusa.com/new-leed-rules-catch-up-with-green-building-industry

This post is the first in a series about Leadership in Energy & Environmental Design (LEED).  Understanding LEED is valuable tool in the construction lawyer’s toolbox.  LEED certification has given rise to some unique disputes.  For example, issues have arisen as to what happens if a project does not meet the specified LEED certification, what if a city goes all-in with the Green movement before the industry is ready, and even a challenge to whether the LEED standards mislead the energy efficiency gains.   Given the relative newness of LEED, yet-unknown disputes may be forthcoming and getting a head start on what LEED is all about is beneficial to all construction practioners.

First an introduction and overview: LEED is a certification available to both projects and professionals that is offered through and administered by the U.S. Green Building Counsel. LEED refers to sustainable and efficient building and is relatively new (i.e. 2000) on the construction scene. But even in its short tenure, LEED is gaining both visibility and momentum.

LEED project certification, based on a rating system (version 4.0 went into effect in June 2015), is applicable worldwide and is sought by project owners for a variety of reasons including for procuring funding to cost savings to projecting environmental consciousness.   The certifications--platinum, gold, silver, and certified--are based upon the number of points the project achieves in various categories.  The rating system is tailored to the type of project, so points can be earned in different ways depending on what is being built.  New construction, retrofit, operations & maintenance, and neighborhood planning are the four primary project types.  The achievement categories for the construction-project types are location/transportation, sustainable sites, water efficiency, energy/atmosphere, materials/resources, indoor environmental quality, innovation, and regional priority.  For neighborhood planning, LEED looks for achievement in smart location/linkage, neighborhood pattern/design, green infrastructure/ building.  In all cases, the project must achieve certain prerequisite(s) in each applicable category before moving on to collecting points in these same categories.  Points are weighted differently depending on the impacts the criteria is meant to address.  For example, points intended to address climate change and human health are weightier than some of the others.  Also interesting, under many categories there are pilot points, which are being tested out for inclusion in the next version of LEED.


LEED professional credentials demonstrate one's expertise in green building practices and the dynamics of the various LEED rating systems.  A mastery of the building blocks are proven by passing the LEED Green Associate exam. The next level is the LEED Accredited Professional (AP), which requires an established contribution in a LEED project along with exam passage in one of the five systems - building design and construction, interior design and construction, building operations and maintenance, neighborhood development, and homes.  Even more advanced is the LEED Fellow, reserved for those who are nominated by their LEED AP peers among reaching other criteria.


Next up: we dig into the categories.


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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.

Plenary VI: Ethical Issues in Electronic Data Transfer

No data is 100% secure. That is what Adam Cohen of Berkeley Research Group in New York City and James R. Hankle of Sherrard, German & Kelly, P.C. of Pittsburgh, Pennsylvania, started with as their premise for the ethics seminar at the Midwinter Meeting.

Lawyers must be able to deal with data management in 2016. We have to be aware of how to use the technology, but we also have to be aware of the risks of how data is stored. Every one of us is at risk, so read the materials that Adam and James put together to understand your obligations.

To those of you who attended the Midwinter Meeting, thank you for attending.

To everyone, we hope that you will attend the Annual Meeting from April 28 to April 30 at the Nashville Omni Hotel in Nashville, Tennessee.

Workshop F: What to do when a Bankruptcy Petition Is Filed

It's an unfortunate fact of life in the construction industry that construction companies are affected regularly by bankruptcy. Whether it is a supplier or fabricator that suddenly goes out of business, a general contractor that gets terminated for default, or an owner that no longer can pay for a project, bankruptcy can have an affect on everyone in the industry.

Helping meeting attendees understand and navigate those issues were The Honorable Benjamin A. Kahn, United States Bankruptcy Court for the Middle District of North Carolina and Barry J. Miller of Benesch, Friedlander, Coplan & Aronoff LLP in Cleveland. 

There are a host of ways to keep projects moving -- perhaps slowly, but still moving -- through using the avenues for relief available in the bankruptcy code. Judge Kahn provided an excellent overview of many of those avenues.

Force Majeure by...Yogi Berra?

Sandy Kaplan of Gordon Rees Scully Mansukhani, LLP of San Francisco and David Senter of Nexsen Pruet in Greensboro, North Carolina, spoke in the first plenary session of Day 2 of the Midwinter Meeting about force majeure events. Sandy and David incorporated various witticisms from baseball legend Yogi Berra to help teach the key points in drafting and negotiating the contract clauses for force majeure events.

Stoned Superintendents! Harassed Receptionists! Undocumented Workers!

It's Labor-Palooza! Albert Brannen of Fisher & Phillips in Atlanta and Michael A. Schwartz of Pepper Hamilton in Philadelphia provided an intriguing update on labor laws relevant construction contractors. 

As many of us know, marijuana legalization in some form -- whether for recreational use or medical use -- is happening in many jurisdictions. So, can employers still test for it and fire an employee for use? Should employers have testing programs for employees immediately after they are involved in accidents on the job? Or on the road?

Bert Brannen covered these issues and more. Labor law affects all of our clients, so knowing something about it to help with issues is important.

D1 Lunch and Learning about Builders Risk Policies

The Division 1 Lunch at the Midwinter Meeting was filled with excellent stories. Those of you who attended got to share great war stories regarding trials, depositions, expert engagements, and even a criminal case featuring three hung juries followed by a very quick cab ride to the bus station!

Once we finished our fellowship, we split up and went into the two different workshops. The Workshop I attended features Dan King of Frost Brown Todd, LLC in Indianapolis and Steve Niparko from Aon Risk Solutions in Denver. They discussed the genesis of builders risk insurance coverage, how it applies, and what the purpose of these policies is.

With insurance seemingly ever-present in the construction industry, an understanding of what these policies cover is vital for construction litigators.

How to deal with Ex-Employees when a Project Goes to Litigation

Division 1's Tom Dunn of Pierce Atwood, LLP in Providence, Rhode Island, and Daniel Terrell, in-house counsel for PLH Group, Inc. of Irving, Texas, walked attendees through the practical litigation issues involved when a key employee on a project leaves the company. The seminar was sponsored by the Construction Litigation Committee of the Litigation Section of the American Bar Association.

Not only did the presentation deal with communication issues involved with opposing counsel contacting the employee, but it also dealt with trade secrets and other proprietary information that the employee may have accessed.

When key employees leave, what should your clients do?

The Owner Wants to Audit My Records!

Paul Ficca of FTI Consulting and Scott Fitzsimmons of Watt, Tieder, Hoffar & Fitzgerald LLP walked attendees of Workshop B at the Midwinter Meeting through the issues that will help you guide your clients through an owner's audit of project records. 

Cybersecurity and Construction

Jeff Birnbach from The Sylint Group in Sarasota, Florida, and Janice Mock from Nossaman LLP in San Francisco kicked off the CLE portion of our Midwinter Meeting by discussing the fact -- not the theory, but the fact -- that you and/or your clients will probably be hacked at some point in the near future. Whether the hacking comes from people trying to get passwords, e-mail spoofing, phishing, or mirror attacks that bring down your website, everyone is susceptible.

Indeed, one of the major takeaways from this seminar was this: change your passwords regularly. As the slide behind Jeff mentions, 90% of people use the hardly secure password of "1234" for multiple passwords. Even people who take precautions and have different passwords tend to use only 5 different username/password combinations.

So, don't be *that* person. Change your passwords regularly. And, ask someone who attended this meeting how all construction contractors are conduits for phishing scams and targeted hacks.

The Forum on Construction Law Welcomes Fred Haise

Thanks to the generous sponsorship of Nelson Forensics, the Forum enjoyed hearing from Apollo 13 astronaut Fred Haise today at the Midwinter Meeting in San Francisco. Mr. Haise kicked off our meeting as the Keynote Speaker at the Westin St. Francis Hotel with incredible stories about the explosion on Apollo 13, his experience as a NASA astronaut generally, and his current nonprofit endeavors.

One incredible story he told related to the amount of computing power that his fellow astronauts had available to them for use in running the space craft. On board, the computing systems had only 1/2 megabyte of storage and memory. At Mission Control, the whole program was being run off computers with just 4 megabytes.  

Mr. Haise is a native of Biloxi, Mississippi, and his accomplishments and awards are legion.  This list from his NASA biography (which has not been updated since 1996) shows this.

He was awarded the Presidential Medal for Freedom (1970); the NASA Distinguished Service Medal; the AIAA Haley Astronautics Award for 1971; the American Astronautical Society Flight Achievement Awards for 1970 and 1977; the City of New York Gold Medal in 1970; the City of Houston Medal for Valor in 1970; the Jeff Davis Award (1970); the Mississippi Distinguished Civilian Service Medal (1970); the American Defense Ribbon; the SETP's Ray E. Tenhoff Award for 1966; the A.B. Honts Trophy as the outstanding graduate of Class 64A from the Aerospace Research Pilot School in 1964; the NASA Exceptional Service Medal (1978); the JSC Special Achievement Award (1978); the Soaring Society of America's Certificate of Achievement Award (1978); the General Thomas D. White Space Trophy for 1977 (1978); the SETP's Iven C. Kincheloe Award (1978); the Air Force Association's David C. Schilling Award (1978).

Again, thank you very much to our good friends at Nelson Forensics for making a donation to Mr. Haise's charity to allow us all to hear this incredible man speak.

Guided Choice CLE Program

Paul Lurie

Back in the Fall of 2014 at the Chicago meeting, we were fortunate to have Paul Lurie speak about the concepts of Guided Choice Dispute Resolution. I moderated the session and learned a great deal from Paul and about Guided Choice being a way for our clients to resolve their disputes more quickly and more cost effectively.  

In concert with the American Arbitration Association, Paul has developed a webinar called "Using Guided Choice to Increase Satisfaction with the Value of Mediators." The instructor staff includes multiple luminaries in the world of dispute resolution and construction law, including (of course) Paul Lurie as well as Adrian Bastianelli, Steve Paul, Peter van Osselaer, Michael Leech, Karl Bayer and Denise Madigan. 

Once you register for this webinar, the other great thing about this program is that you can view it at any time on your computer or on your tablet or smartphone. It is a 1.6 hour presentation with slides, and it is available currently (and until the end of February, 2016) for just $50 by going to the AAA's Education Services website.

If you are not sure what Guided Choice is, Paul has also launched a new Guided Choice Mediation/Early Dispute Resolution website. There, you can find out the basic principles of Guided Choice, learn how to choose a mediator consistent with early dispute resolution, and see what role a lawyer plays in this process. In addition, there is a full bibliography for articles discussing and advocating for Guided Choice (including the blog post I wrote for the Dispute Resolver in anticipation of the Chicago meeting).

Finally, if you have specific questions about Guided Choice, I have found that Paul Lurie is very willing to respond to any inquiries. You can e-mail him here.

Meet the Dispute Resolver Staff: Brendan Carter

Meet the Dispute Resolver Staff

Brendan Carter, Esq. – Navigant

Brendan Carter started in the construction industry 16 years ago as a laborer performing general labor on commercial job sites and has been involved in the field in some capacity ever since.  A few of the other (hard) hats Brendan has worn over the years include estimator, project engineer, and project manager.   He is currently a Senior Consultant with Navigant’s Global Construction Practice focusing on dispute resolution consulting for construction litigation and ADR proceedings. Along with his Forum Division 1 membership, he is also a member of the Boston Bar Association’s Construction Law Committee.

Brendan grew up in Framingham, Massachusetts in a construction family with both his grandfathers in the trades, one owned a small town plumbing business and the other was a union bricklayer foreman. His father was also a professor of Construction Management and following in the family business, Brendan received his undergraduate degree in Construction Management from Wentworth Institute of Technology in Boston and a Masters of Construction Management from Western Carolina University in Cullowhee, N.C.  In his construction management role, Brendan was an onsite member of project teams that completed the Gaylord National Hotel and Convention Center in Washington, D.C., the former Pier Shops at Caesars in Atlantic City, NJ, and Merck Pharmaceuticals’ Boston Research Center in Boston, MA.

Looking to make a career change, but still wanting to stay involved in the construction industry, Brendan enrolled at the University of Massachusetts School of Law specifically to practice construction law.  While in law school, Brendan served as the Forum’s Student Division Liaison. As a member of the Forum he has also presented the Forum generated contract negotiation module to multiple ACE Mentor Program chapters in Boston over the past few years. He is encouraged for the future of the construction industry by the quality and acumen of the teenagers in the program that will be the next generation of architects, engineers, and construction managers.

 

When off the clock, Brendan is a big college football and hockey fan.  While Boston is not an ideal location for big time college football, he takes full advantage of the area by attending Hockey East and ECAC hockey games throughout the season.  Brendan was successful in his effort to mix his interests of construction law and college sports by hitting all three birds with one stone in 2014. At the conclusion of the Forum’s fall meeting in Chicago, he rented a car and drove out to South Bend, IN to attend a Notre Dame hockey game, toured Notre Dame Stadium the next day, then drove back to Chicago for the Northwestern/Nebraska football game that night, jumping on a plane back to Boston the next morning. He is a strong supporter of the idea that all Forum Fall Meetings should be held exclusively in SEC towns with home games that Saturday. 

Contract Cannot Eliminate Right to Vacate or Modify Arbitration Award

We have a guest post today from Atlanta lawyer Mark V. Hanrahan of the firm Autry, Hanrahan, Hall & Cook, LLP. In his article, he discusses the recent Georgia case of Atlanta Flooring Design Centers, Inc. v. R. G. Williams Construction, Inc., a case involving the Georgia Arbitration Code and whether parties to a contract could agree to eliminate the statutory right to move to vacate or modify a validly entered arbitration award.

The text of the case can be found here.


In Atlanta Flooring Design Centers, Inc. v. R.G. Williams Construction, Inc., a general contractor and subcontractor entered into a written subcontract which provided for arbitration of disputes. The arbitration provisions provided that any arbitration award shall be final and binding on the parties and that the parties “expressly agree not to challenge the validity of the arbitration or the award.” 

The parties submitted a dispute to arbitration and after the arbitrator rendered an award, the subcontractor filed a motion pursuant to O.C.G.A. § 9-9-13(a) of the Georgia Arbitration Code (“GAC”) alleging its rights had been prejudiced in the arbitration proceedings and seeking an order vacating the award on the statutory grounds set forth in O.C.G.A. § 9-9-13(b). The general contractor moved to dismiss on the basis that by their agreement to arbitrate, the parties agreed not to challenge the validity of the arbitration or award. 

The trial court found that the parties’ agreement not to challenge the arbitration or award was enforceable and granted the general contractor’s motion. The Court of Appeals reversed, finding that the parties’ agreement was unenforceable because it contravened Georgia public policy as expressed in the GAC. 

In reaching its conclusion, the court noted that in Brookfield Country Club, Inc. v. St. James-Brookfield,LLC, the Supreme Court of Georgia held as unenforceable contract language that purported to alter the GAC by expanding the scope of judicial review. Drawing analogy to Brookfield Country Club, the court found that the GAC does not permit parties to waive or eliminate, by contractual provisions, a party’s right to apply to vacate or modify an award on grounds permitted by the GAC. In this connection, the court also drew on decisions by the federal courts which concluded that the statutory grounds for vacatur under the Federal Arbitration Act may not be waived or eliminated by contract. The court noted that these federal decisions found that to rule otherwise would frustrate Congress’s intent to provide for a minimum level of due process for parties to an arbitration. 

The takeaway from this case is that parties cannot, by their contract, limit or expand their rights to judicial review of an arbitration award beyond the rights set forth in the GAC. 


This case squib was provided with the express permission of the author. It appeared initially in the Winter 2016 Newsletter of the Construction Section of the Atlanta Bar Association.