Ambac Assur. Corp v. Knox Hills LLC, 2018 Ky. App. Lexis 188 (June 15, 2018)

This case involves a February 1, 2007 design/build agreement governing the rights of the several parties involved with a military housing construction and renovation project at Fort Knox, Kentucky.  Knox Hills, LLC (the owner) filed a breach of contract action against Ambac Assurance Corporation (the senior lender of the project) relating to what it characterized as Ambac’s wrongful withholding of consent to a change order that would have substantially reduced the scope of the project.  Knox Hills then sought an order staying the proceedings and compelling Ambac to arbitrate.  The circuit court granted the motion and, following an arbitration, entered an order confirming the arbitrator’s award in favor of Knox Hills.  Ambac then appealed the court’s order.

On appeal, the Kentucky Court of Appeals focused on two questions:  (1) whether the court or the arbitrator should have determined whether arbitration was required between Knox Hills and Ambac, and (2) whether arbitration was actually required.
Continue Reading Kentucky Court of Appeals Draws a Distinction Between Substantive and Procedural Questions of Arbitrability, and Explains the Proper Role for the Courts

United States Home Corp. v. Ballesteros Trust, 2018 Nev. LEXIS 28 (Nev. Apr. 12, 2018)

United States Home Corporation (“U.S.H.”) built homes in a Nevada common-interest community, subject to a Covenant, Conditions, and Restrictions agreement (“CC&R”), which provided that any dispute would be resolved by arbitration.

Between August 2013 and February 2015, twelve home purchasers filed pre-litigation notices against U.S.H. for alleged construction defects.  Three of the purchasers had direct purchase and sales agreements with U.S.H. that contained arbitration clauses; the remaining homeowners did not sign such agreements, but took title subject to the CC&R.  U.S.H. demanded arbitration, but the homeowners brought claims in a Nevada district court seeking damages for breach of contract and other claims.  U.S.H. moved to compel arbitration.  The court held that the transaction did not involve interstate commerce, so the Federal Arbitration Act (“FAA”) did not apply, and invalidated the arbitration agreements as unconscionable.


Continue Reading Nevada Supreme Court Rules That Arbitration Clause in Common-Interest Community’s Covenants, Conditions, and Restrictions Binds Homeowners  

Transocean Offshore Gulf of Guinea VII Ltd. v. Erin Energy Corp., 2018 U.S. Dist. LEXIS 39494 (S.D. Tex. Mar. 12, 2018)

On March 12, 2018, in Transocean Offshore Gulf of Guinea VII Ltd. v. Erin Energy Corp., the U.S. District Court for the Southern District of Texas became the second U.S. court to recently determine that the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), as codified in the Federal Arbitration Act (“FAA”), applies to consent awards.  Although seemingly inconsequential at first glance, the question of whether consent awards—i.e., settlement agreements recorded by arbitral tribunals as awards—are subject to the New York Convention, has remained the subject of much debate within the field of international arbitration for many years.

In Transocean, the petitioners, Transocean Offshore Gulf of Guinea VII Limited and Indigo Drilling Limited, entered into an agreement to provide drilling equipment, personnel, and services in the waters off the coast of Nigeria to the respondent, Erin Energy Corporation.  Prior to the completion of the contract, a dispute arose and, pursuant to an arbitration clause, the petitioners initiated an arbitration under the rules of the London Court of International Arbitration (“LCIA”).  Before the tribunal made a decision on the merits, the parties reached a settlement and, at the parties’ request, the tribunal issued a consent award setting forth the terms of the parties’ settlement.


Continue Reading Are Consent Awards Under the New York Convention Enforceable in U.S. Courts? Federal Court in Texas Says Yes

St. George Fire Prot. Dist. No. 2 v. J. Reed Constructors, Inc. 2018, La. App. LEXIS 262 (February 20, 2018)

J. Reed Constructors, Inc. (“J. Reed”) and St. George Fire Protection District No. 2 (“St. George”) entered into two construction contracts under which disputes were subject to binding arbitration. A dispute arose in which J. Reed contested St. George’s assessment of liquidated damages and claims for breach of warranty. The matter was submitted to arbitration and the arbitrator awarded St. George $58,865.00.
St. George petitioned the trial court to confirm the arbitration award, pointing out that the three month deadline for the parties to request that the award be vacated, modified, or corrected had lapsed.  J. Reed answered the petition by objecting to the confirmation of $41,660.00 for architect and attorney fees.  J. Reed acknowledged that it did not file a motion to modify within three months of the award, as required by the Louisiana Binding Arbitration Law (the “Act”), but argued that it was not prohibited from raising its objection as an affirmative defense in its answer to the petition.

The trial court rejected J. Reed’s argument and confirmed the award.  The Court of Appeals affirmed, holding that J. Reed’s right to challenge the award had been waived and could not be revived by characterizing the challenge as an affirmative defense to the petition to confirm.


Continue Reading Contractor Who Failed to Challenge Arbitration Award Within Statutory Three Month Period Cannot Resurrect the Challenge as an “Affirmative Defense” to a Later Action for Confirmation

Smith Jamison Constr. v. Apac-Atlantic, Inc., 2018 N.C. App. LEXIS 132 (N.C. Ct. App. Feb. 6, 2018)

General contractor APAC-Atlantic (“APAC”) hired Smith Jamison Construction (“Jamison”) as a subcontractor to perform concrete work on a highway project.  The APAC-Jamison subcontract included an agreement that the parties would arbitrate all claims arising out of or relating to their subcontract.  Jamison alleged that APAC later sought to have Jamison further subcontract the concrete work to Yates Construction Company (“Yates”).  According to Jamison, APAC terminated the subcontract when Jamison refused to subcontract with Yates.

Jamison sued APAC and Yates in state court, alleging that APAC had breached its subcontract with Jamison and that Yates had committed fraudulent misrepresentation, tortious interference, civil conspiracy, and violations of the North Carolina unfair and deceptive trade practices statute.  Both APAC and Yates sought to compel arbitration of the claims Jamison asserted against them.  The court ordered arbitration of Jamison’s claims against APAC based on the arbitration agreement in their subcontract.  The court denied Yates’s attempt to compel arbitration.  Like APAC, Yates also based its argument on the arbitration agreement in the subcontract between Jamison and APAC – a contract to which Yates was not a party.  Yates appealed.


Continue Reading Can a Nonsignatory to an Arbitration Agreement Compel Arbitration by Estoppel? North Carolina Court of Appeals Says Yes — But Not in This Particular Case

Adams v. Barr, 2018 VT 12, 2018 Vt. LEXIS 10 (VT 2018)

On February 24, 2016, Barr Law Group (“Barr”) filed a demand for arbitration with the American Arbitration Association to recover $40,000 in unpaid legal fees from its client, Adams Construction VT, LLC (“Adams”).  Adams responded by filing an answer and counterclaim, seeking to recover $97,000 in damages from Barr.  Thereafter, Adams and Barr each actively participated in the arbitration, including arbitrator selection, preliminary conferences, extensive discovery and motion practice over a period of more than five months.  At the request of Adams, the matter was set for a three day hearing.

In October of 2016, just one week before the three day hearing was set to begin, Adams filed an objection and motion to dismiss the arbitration, arguing that the arbitration clause in its fee agreement with Barr was unenforceable.  Specifically, Adams argued that Barr, as Adams’ counsel, owed a fiduciary duty and ethical obligations that required it to disclose to Adams the rights it would forego by signing the agreement.  According to Adams, Barr had failed to explain the legal implication of the arbitration clause and failed to advise Adams to obtain independent counsel before signing the agreement.  However, Adams’ objection and motion to dismiss was the first time it had raised any objection to the arbitration proceedings.


Continue Reading Supreme Court of Vermont Holds That Contractor Waived its Right to Challenge the Validity of Arbitration Agreement by Actively Participating in the Arbitration for Six Months Before Raising an Objection

Koudela v. Johnson & Johnson Custom Builders, LLC, 2017 Ohio App. Lexis 5800 (December 29, 2017)

In this case, Nicolas and Monica Koudela (the “Koudelas”) entered into a construction contract with “Johnson & Johnson Builders” (the “Agreement”), whereby Johnson & Johnson Builders agreed to construct a single family home for the Koudelas in Ohio.  However, Johnson & Johnson Builders was a fictitious name for Johnson & Johnson Custom Builders, LLC (“J&J”), and was not an entity registered with the Ohio Secretary of State.

In the Agreement, the parties agreed to submit all disputes to binding arbitration in Cleveland, Ohio.  The arbitration clause further provided that the cost of the arbitration would be borne by the party initiating the claim.

After disputes arose on the project regarding the work performed by J&J, the Koudelas filed suit in the State Court of Ohio against J&J and its principals, alleging claims for fraud in the inducement, breach of contract, negligence, conversion, unjust enrichment/detrimental reliance, and a declaratory judgment that the arbitration clause in the Agreement was unenforceable.  J&J moved for an order dismissing the complaint, or, in the alternative, staying the litigation pending binding arbitration.  The trial court granted J&J’s motion and stayed the litigation pending binding arbitration.


Continue Reading Claim of Fraudulent Inducement of a Construction Contract Does Not Invalidate Arbitration Clause in That Same Contract

SWN Prod. Co., LLC v. Long, 2017 W. Va. LEXIS 892 (W. Va. Oct. 18, 2017)

Respondents Richard and Mary Long (“Respondents” or “Lessors”) brought a state court action against Petitioner SWN Production Company, LLC (“Petitioner” or “Lessee”) seeking to recover alleged payments owed pursuant to an oil and gas lease (the “Lease”) entered into between Petitioner and Respondent.
Petitioner filed a motion to compel arbitration, relying on the Lease’s arbitration provision, which reads:  “In the event of a disagreement between Lessor and Lessee concerning this Lease, performance thereunder, or damages caused by Lessee’s operations, the resolution of all such disputes shall be determined by arbitration in accordance with the rules of the American Arbitration Association.”


Continue Reading West Virginia Supreme Court Applies Doctrine of Severability to Enforce Lease’s Arbitration Provision, Despite Other Provisions Contemplating Litigation in Court

Aspic Eng’g & Constr. Co. v. ECC Centcom Constructors, LLC, No. 17-cv-00224-YGR, 2017 U.S. Dist. LEXIS 111767, at *10-12 (N.D. Cal. July 18, 2017)

This matter came before the Court on a motion to vacate a final arbitration award (the “Arbitration Award”) entered in favor of Aspic Engineering and Construction Company “Aspic”) and against ECC International, LLC and ECC CENTCOM Constructors, LLC (collectively, “ECC”).  ECC entered into two prime contracts with the U.S. Army Corp of Engineers (“USACE”) in connection with two reconstruction projects for police training facilities in Afghanistan (the “Projects”).  These prime contracts incorporated, among other things, Federal Acquisition Regulations (“FAR”) Sections 49.206 and 52.249-2, which allowed USACE to terminate the Projects for convenience.  ECC subcontracted portions of the work on the Projects to Aspic.  The subcontracts between ECC and Aspic likewise incorporated several FAR sections.  Although Aspic is an Afghan engineering and contracting firm, it had experience in contracting with the U.S. government and a familiarity with the U.S. Government contract requirements, including FAR clauses.  After ECC and Aspic had partially performed work on the Projects, USACE issued a notice of termination for convenience, which ended the Projects in their entirety.

Aspic filed a demand for arbitration, seeking to recover its lost profits on the Projects.


Continue Reading Arbitration Award Ruling That, Because of Cultural Differences, a Local Afghan Subcontractor Is Not Bound by the F.A.R. Provisions Incorporated Into the Subcontracts Is Vacated as Contrary to the Subcontract Terms

Developers Sur. & Indem. Co. v. Carothers Constr., Inc., 2017 U.S. Dist. LEXIS 111021 (D.S.C. July 18, 2017); Developers Sur. & Indem. Co. v. Carothers Constr., Inc., 2017 U.S. Dist. LEXIS 135948 (D. Kan. Aug. 24, 2017)

Two recent decisions from United States District Courts for the District of South Carolina and the District of Kansas, respectively, reached opposite conclusions when presented with the same issue:  Is a surety bound to arbitrate claims against it when the surety’s bond incorporates its principal’s contract by reference, and the principal’s contract contains an agreement to arbitrate disputes.  The District of South Carolina, applying South Carolina law, held that a surety is bound by the arbitration agreement in the incorporated contract, while the District of Kansas held that a surety is not so bound.

These cases both arise from an arbitration demand filed by the general contractor, Carothers Construction, Inc. (“Carothers”) against the surety, Developers Surety and Indemnity Company (“DSI”).  DSI issued performance and payment bonds on behalf of subcontractors Liberty Enterprises Specialty Contractor (“Liberty”) and Seven Hills Construction, LLC (“Seven Hills”) in favor of Carothers for their work on Projects located in South Carolina and Kansas, respectively.  Each subcontractor defaulted on its contractual obligations.  Carothers initiated arbitration against DSI regarding both Projects.  According to Carothers, the bonds incorporated by reference the subcontracts’ mandatory arbitration clauses and thus, DSI was subject to binding arbitration.  In declaratory judgment actions before Federal District Courts in South Carolina and Kansas, DSI asked the courts to declare that the arbitration clause did not bind it to arbitrate Carothers’ claims.  Each court reached the directly opposite conclusion.  This article discusses the decision reached by each court in turn.


Continue Reading When Surety Bond Incorporates the Subcontract by Reference, Is the Subcontract’s Arbitration Clause Also Incorporated? Federal Court in South Carolina Says Yes; Federal Court in Kansas Says No — In Two Matters Involving the Same Parties