Contract Interpretation

Florida Court Finds Arbitration Clause Expanding Authority of Courts to Vacate/Modify Arbitration Awards UnenforceableThe Florida Arbitration Code addresses the confirmation, vacation, modification or correction, and appeal of arbitration awards in Florida. In September, a Florida District Court of Appeal addressed whether parties may expand the scope of judicial review provided under the Florida Arbitration Code. In National Millwork, Inc. v. ANF Group, Inc., a subcontractor sought to void the arbitration clause in its subcontract by arguing that the provision impermissibly expanded the scope of judicial review to include a determination as to whether the arbitrator properly applied Florida law.

The Florida Arbitration Code limits the authority of Florida courts to vacate and/or modify arbitration awards to circumstances when an award is procured by corruption, fraud, or other undue means or when there is evident partiality, corruption or misconduct by the arbitrator. The Florida Arbitration Code also prohibits parties from varying the grounds for vacating or modifying an award.

The appellate court in National Millwork concluded that the subcontract arbitration provision allowing for appellate review of the arbitrator’s application of Florida law fell outside the scope of judicial review allowed under the Florida Arbitration Code. The court relied on the parallel analysis of the U.S. Supreme Court when addressing comparable considerations under the Federal Arbitration Act. As a result, the court reversed the lower court’s order compelling arbitration and remanded for consideration as to whether the portion of the arbitration clause that inappropriately expanded judicial review rendered the entire clause void or whether that portion could be severed from the rest of the clause.

The Florida appellate court’s decision clarifies the scope of permissible judicial review of arbitration awards under Florida law. Many states’ arbitration statutes mirror the Florida statute at issue in this case, and caution should be exercised when drafting contractual arbitration provisions that run counter to a state’s applicable arbitration statutes.

While the inclusion of a “severability clause” into a contract may help avoid rendering the entire arbitration clause unenforceable, that result is not guaranteed. If a court finds that the offending portion of an arbitration clause is integral to the agreement to arbitrate, it may void the entire clause. In such circumstances, a party may unexpectedly find itself litigating an action in state court and unable to take advantage of the arbitration provision duly negotiated by the parties at the start of the project. If you have questions about reviewing arbitration clauses or other contract provisions, please contact Aman Kahlon for more information.

Oregon Anti-Indemnity Statute Voids Sub-sub’s Duty to Indemnify Sub for the Sub’s Own NegligenceThe Ninth Circuit Court of Appeals recently upheld the application of Oregon’s anti-indemnity statute to a contractual indemnity provision requiring a sub-subcontractor’s insurer to indemnify the subcontractor for the subcontractor’s own negligence. In First Mercury Insurance Company v. Westchester Surplus Lines Insurance Company, Multnomah County contracted with a general contractor for the renovation of a bridge. The general contractor hired a subcontractor to furnish materials including reinforced decking. The subcontractor, in turn, contracted with a sub-subcontractor to manufacture the decking material. The sub-subcontract required the sub-subcontractor to indemnify the subcontractor for the subcontractor’s own negligence in causing damage to a third party—in this instance, the County.

After the project was completed, several defects in the bridge were discovered, including cracks in the decking. When the County sued, the subcontractor was found to have been negligent and partially liable for the defects and resulting damage to the County. The subcontractor claimed indemnity from the sub-subcontractor per the terms of the sub-subcontract, but the trial court refused to enforce the indemnity provision because it was void under Or. Rev. Stat. § 30.140(1). The relevant portion of the statute provides that any provision in a construction agreement that requires a company or its insurer/surety to indemnify another against liability for damage to property caused in whole or in part by the negligence of the indemnitee is void. Citing the plain language of the statute, the Ninth Circuit affirmed the trial court’s judgment denying indemnity.

The Ninth Circuit opinion serves as an important reminder of the variety of anti-indemnity provisions across the nation. Many states take Oregon’s approach and restrict the scope of indemnity provisions to cover only the negligence of the indemnitor and not the negligence of the indemnitee. Other states have more lenient anti-indemnity statutes or no anti-indemnity provision at all. Still others take a harsher approach than Oregon and impose stricter limitations in their anti-indemnity laws and may even have different laws for different industries.

When negotiating agreements for work outside your company’s traditional footprint, consider whether the state where the project is located has an anti-indemnity statute and how it is applied. Indemnity provisions in construction contracts can be exceptionally consequential in terms of allocating risk between parties, so it is essential to understand how such provisions will be applied and enforced in any particular state before executing an agreement and moving forward with a project in that state.

If you have questions about anti-indemnity laws or negotiating indemnity provisions, please contact Aman Kahlon for more information.

No Rights to the AIA 2007 Documents after October 2018The American Institute of Architect’s release of its 2017 documents has been a hot topic within construction law circles over the past year. In total, AIA released 29 new forms and contracts in 2017, including the AIA A101, A102, A103, and A201. Bradley’s BuildSmart blog contains a few articles discussing some significant changes in those documents.

In accordance with AIA’s customary practice, the older version of the contract documents (e.g., the 2007 version) will expire within approximately 18 months after the release of the new version of the 2017 contract documents. Once an AIA document expires, the user will no longer have the ability to create a new document from the expired version, edit the expired version, or even finalize an expired version.

So, for example, the 2017 version of the AIA A101, A102, A103, A201, A401, and B101 contract documents were released in April 2017. The 2007 versions of these documents are set to expire on October 31, 2018. After October 31, 2018, a user will no longer be able to create a contract document from the 2007 version or edit a 2007 version. Further, if parties attempt to finalize an expired 2007 document after October 31, 2018, AIA will not allow the parties to finalize that document; instead, the parties will either have to use the 2017 version of those documents or find alternate means of finalizing their contract.

It is worth noting that AIA released some lesser used contracts and form documents in October 2017, including the AIA B201 (Design and Construction Contract Administration), B207 (Architect’s Services: On-Site Project Representation) and G704 (Certificate of Substantial Completion). These documents are not set to expire until May 31, 2019.

Regardless of whether the document is set to expire at the end of October 2018 or May 2019, parties are strongly encouraged to begin using the 2017 version of the AIA documents now or risk being precluded from finalizing their contract document. If you have any questions about the recent AIA revisions or drafting a contract for your particular project, please do not hesitate to contact us.