ENSURE THAT THE DISPUTE RESOLUTION PROCEDURES IN YOUR SUBCONSULTANT AGREEMENTS ARE THE SAME AS THOSE IN THE OWNER – ARCHITECT AGREEMENT

On Behalf of | Jan 28, 2021 | Firm News

Most sizeable claims against Architects include claims related to the services provided by some Engineering Subconsultants who are under contract to the Architect and presumably have contractual indemnity and duty to defend obligations to the Architect where a claim implicates the services of that Engineering Subconsultant. To ensure that all obligations arising out of the claim get resolved in one proceeding, it is imperative that the dispute resolution procedures in the Architect-Subconsultant Agreement are the same as those in the Architect-Owner Agreement.

Dispute resolution procedures typically include some provision regarding mediation and may include some other provisions regarding pre-litigation or pre-arbitration procedures. The key procedural provision, however, is whether the claim, if not resolved through these procedures, shall proceed in litigation or in arbitration.

Issues typically can arise (1) when the Owner-Architect Agreement, for example, calls for arbitration but the Architect-Subconsultant Agreements are silent on the issue or those agreements call for litigation or (2) when the Owner-Architect Agreement calls for litigation but the Architect- Subconsultant Agreements are silent on the issue or call for arbitration.

The key statute related to this issue is Title 9 of the Code of Civil Procedure which deals with arbitrations. This title of the code sets forth a series of sections that apply to situations where there are competing dispute resolution procedures. Section 1281.2(d) states, in part, “If the Court determines that a party to the arbitration is also a party to litigation in a pending court action or special proceeding with a third party as set forth under subdivision (c), the court (1) may refuse to enforce the arbitration agreement and may order intervention or joinder of all parties to a single action or special proceeding…”

It has been this writer’s experience that despite having a contract that calls for arbitration, Courts are willing to refuse to allow the arbitration to proceed where there is litigation involving the same facts and issues. In that circumstance, the Court will even order intervention or joinder of all necessary parties to the litigation.  It has also been my experience that Courts will not overrule a contract that provides for a jury trial and require the parties to participate in arbitration. The right to jury trial is embedded as a constitutional right. This is the reason that Courts refuse to overrule contracts that provide for jury trials and order the parties to proceed in arbitration.

So how does all this work? First, where the dispute resolution procedures in the Owner-Architect Agreement and the Architect-Subconsultant Agreement are the same, there are no issues. The Owner files litigation or arbitration (whatever the contract specifies) and the Architect files the same against the Subconsultants seeking indemnity. This can be complicated where the Owner wants to involve the Contractor in the dispute and the Owner does not have an arbitration provision in the Owner-Contractor Agreement. In this instance, the Owner may choose to file litigation against the Contractor and the Architect. The Architect can file a motion to compel that any Owner-Architect dispute be resolved by arbitration since they bargained for an arbitration provision in the Owner-Architect Agreement. In my experience, however, this effort will fail and the Court will either deny the motion or stay the arbitration pending the outcome of the litigation filed by the Owner. Again, the idea is efficiency so that all disputes involving the same facts and issues be resolved in one forum at one time.

Second, where the dispute resolution procedures in the Owner-Architect Agreement provides for litigation and the Architect-Subconsultant Agreements provide for arbitration, there are statutory procedures (e.g., CCP section 1281.2) that allows the Courts to make an order compelling the Subconsultants to participate in the litigation.

Third, where the Owner-Architect Agreement provides for arbitration but the Architect-Subconsultant Agreements provide for litigation, there is a problem. Courts will not force parties to waive their rights to a jury trial. Therefore, if the Subconsultant Agreements provide for jury trial, unless they voluntarily agree to participate as a party in the arbitration between the Owner and the Architect, and to be bound by the results and the arbitration award, there is no statutory mechanism to compel them to participate.

Architects can try to persuade the Owner to drop the arbitration and to proceed in litigation which would then allow the Architect to file a cross- complaint in the litigation seeking indemnity but if the Owner declines, there is no way to compel this.

This third scenario is the one that is problematic because you now arguably have a case that could go through arbitration with an adverse award against the Architect being based on the services provided by one or more Subconsultants. The Architect would then have to bring a litigation to seek contractual (if there is a contractual indemnity provision) or equitable indemnity for these losses. This creates the specter of double the costs, inconsistent results, inconvenience to the clients, etc.

For these reasons, it is imperative that Architects make sure that their agreements with Subconsultants have the same dispute resolution procedures as in their agreements with the Owner. This can be done as easily as by attaching the Owner-Architect Agreement to the Architect-Subconsultant Agreements as an exhibit and by stating in the Subconsultant Agreement at the dispute resolution paragraphs that “all dispute resolution procedures stated in this Agreement shall be the same as those stated in the Owner- Architect agreement attached hereto as Exhibit   .         Where Architect is stated in the Owner-Architect agreement dispute resolution procedures, substitute the word Subconsultant and where the word Owner is used, substitute the word Architect for purposes of this Architect-Subconsultant Agreement. The intent is to have the dispute resolution procedures in the 2 contracts to be the same. To the extent there are any difference between the dispute resolution procedures in this Agreement and in the Owner -Architect Agreement, the provisions of the Owner-Architect Agreement shall govern.”

This should do the trick.

About the Author:  James (Jim) Castles is a partner at Furukawa Castles LLP where he specializes in construction matters and has over 35 years of trial, arbitration and mediation experience in both the state and federal courts. He has extensive experience in drafting contracts and advising clients with respect to achieving contract goals by properly managing risk through clear and unambiguous contract terms. Mr. Castles also advises clients during the performance of construction projects with respect to risk management, project documentation and strategic positioning. Jim can be reached at [email protected]