Construction Disputes: Arbitration or Litigation?

Posted by: Hilger Hammond On: 9th August 2017 | no responses.

By Stephen A. Hilger

This is Part 1 in a 20-part series of articles dealing with issues of arbitration in the construction industry.

The question of whether to arbitrate or litigate disputes comes up fairly frequently in the construction industry. From my humble perspective, with respect to construction disputes, there are very few circumstances where I would choose litigation over arbitration. Why?

Choice of Decision Maker

With arbitration, in general, you pick the decision maker(s) as opposed to being assigned a judge through a blind draw in the court system. That level of arbitrator selection may range from picking from a list under the American Arbitration Association Rules to hand picking a blue-ribbon panel of arbitrators or even a single arbitrator through private arbitration. If you are assigned a judge through the courts, you may end up with a judge who does criminal proceedings in the morning, divorce proceedings before lunch, and then handles your complex construction law dispute in the afternoon, in 15-minute increments, along with multiple other disputes in what looks to an outsider like a giant cattle call. Unless your contract provides otherwise, you may also be in the unlucky position to try your complex construction disputes to a jury.

Control of Schedule

If you choose litigation over arbitration, you have very little control over your schedule. The judge may impose a schedule which you are bound to follow regardless of the circumstances of either the case or your personal life. You may also be unlucky enough to end up on a rocket docket where the court accelerates your proceeding through the court system. By contrast, in arbitration, you generally pick the date of the hearing, within reason. Absent any obvious delay tactics, an arbitrator is much more likely to work with your schedule.

Location of Hearing

To some extent, you control where the hearing will take place.

Control of Proceeding

To some extent, you control the proceedings.

Timing of Decision

The decision of which approach to use is generally made at the contract negotiation level, while the parties still love each other and before they become embroiled in a nasty disagreement.

Fast Resolution

In arbitration, there is generally no appeal. While a party can attempt to vacate the award, that process is very seldom granted. Accordingly, there is a quicker end to the dispute.

Less Expense

Arbitration can be quicker and less expensive unless the arbitrator allows the process to get out of hand. While you have to pay arbitrators, and you do not pay judges, in the balance, you will likely still be better off in arbitration.

Decision Maker with Experience in Construction

No one can expect a trial judge to be an expert in construction law. A seasoned arbitrator-attorney, who has practiced construction law for many years, is much more likely to understand the subtle nuances of the many aspects of construction law. The likelihood is that a seasoned arbitrator will give a better, more correct decision. As a result, arbitration affords better control over the process and the outcome.

All of these factors need to be taken into consideration when deciding whether to arbitrate or litigate a dispute.

Attorney Stephen Hilger is engaged in complex commercial litigation with an emphasis on construction law, has tried many cases in multiple state courts, and has appeared in several state courts of appeal, the Michigan Supreme Court, United States District Courts, United States District Courts of Appeal, the United States Supreme Court on cert, and multiple arbitration tribunals across the country.

The One-Year Discovery Extension to the Statute of Limitations Only Applies to Tort Claims

Posted by: Hilger Hammond On: 16th November 2011 | no responses.

By: Mark A.

Rysberg

The Michigan Court of Appeals recently applied the six-year statute of limitations to bar an implied warranty claim even though the claim was discovered within the year before the lawsuit was filed. Rivers Investments LCP, LLC v cheap cialis 20mg Watson Bros. Co.

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The Court’s decision was based on a Michigan Supreme Court holding that the one-year discovery rule applies only in tort actions. The Michigan Court of Appeals determined that a claim for implied warranty arises by implication of the law and that the statute of limitations for such claims is six years.

Thought Leader in Law Stephen Hilger: Building Business

Posted by: Hilger Hammond On: 22nd March 2011 | no responses.

''Originally printed at Mlive.com
Firm: Hilger Hammond, Grand RapidsTitle: AttorneyEducation: University of Florida, bachelor’s degree in chemistry, 1979; Case Western Reserve University College of Law, J.D. 1982

Years in law: 28

Specialty: Construction law and complex commercial litigation

Stephen Hilger is dedicated to serving clients in construction — a hard-hit industry currently facing unique challenges.

Hilger is co-chair of the Legal Advisory Committee of the Michigan chapter of the Associated General Contractors and is an active board member of the Associated Subcontractors of America. In 2008, after 17 years with a large firm, he started his own firm, which specializes in construction law.

 

What made you want to practice law?

Before and during college, I was absolutely convinced that I was going to be a doctor. … After taking the MCATs and after getting past the first level of admissions procedures, I decided for a variety of reasons that I did not want to become a doctor.

I then rekindled an interest in the practice of law primarily because of a family lineage involving many very successful lawyers. My grandfather was a famous criminal defense lawyer in Germany whose claim to fame arose when he defeated the Third Reich in various war crime allegations against the defendants he represented, which rewarded him with a year-and-a-half stay in jail.

The law has always interested me, and it provides an opportunity for continuous academic stimulus.

 

Why did you choose your particular specialty?

Coming through law school, I first anticipated working in a combined area of law and medicine, and even entertained getting both degrees. However, as a law clerk in Cleveland, I had the opportunity to work on some tax litigation involving George Steinbrenner and the New York Yankees. The whole process of commercial litigation fascinated me.

In 1982, within the first week of practicing law, the senior partner dropped a file on my desk that dealt with collecting an unpaid contract amount in the multiple millions for the construction of the Epcot Center in Orlando. I had the dubious honor of informing the client that his lien rights had expired and he no longer would be able to perfect the lien against Epcot.

The client appreciated the honesty and then gave me another large case involving a hospital renovation project in Winter Haven, Fla. I ended up taking that case through trial and prevailing. He then gave me a number of other cases, as did other clients. The construction practice then started to grow significantly.

 

What is the biggest challenge for your profession?

The biggest challenge I see for the legal profession is providing value to clients. It is important for a lawyer to understand, at least in a business context, that they are essentially a business consultant who really needs to provide advice to their clients that provides a value added result in the client’s business. Many lawyers lose sight of that fact.

Lawyers also need innovation; that is the ability to see things in a new or creative way. Many lawyers get stuck on solving problems the same way they have for many years, which prevents them from changing with the times. Lawyers also need to focus on becoming better communicators. …

 

Specifically with respect to construction law, the biggest challenge in today’s market is helping clients make the right decisions in order to stay in business in this down economy.

 

What is the biggest opportunity?

The biggest opportunity for lawyers is to become a major player in any given industry. There is a lot of opportunity to participate in the organizations of their choice and to give back to some degree to the community. Too many lawyers do not give back or only participate to a small degree. Becoming a player is about developing relationships, which can only occur if the lawyer is willing to make a commitment. …

 

Another opportunity is the flexibility to do other things in life besides the practice of law. The construction law and complex commercial litigation practice has provided personal satisfaction to me because it gives me the opportunity to meet many different people in many different walks of life, and it also provides me an outlet for the academic stimulus I need.

 

What is the best advice you have ever given a client?

It seems as though some of the best advice I have given is when a client should not file a lawsuit or not engage in certain activities that they are intending. I have spent a great deal of my professional life working on ADR and resolution procedures that may be slightly different than the norm in an effort to stave off the high cost of litigation.

Bah-Humbug – Michigan Legislature Fails to Pass Statute of Limitations Reform Bill

Posted by: Hilger Hammond On: 28th December 2010 | no responses.

 

Bcapitol domey Benjamin H. Hammond

Proposed Senate Bill 882 would have revised the statute of limitations for bringing an action against an architect, professional engineer, land surveyor, or construction contractor.  This bill was introduced in September of 2009 and passed by the Senate.  There was great anticipation by many that the House would pass the bill in this lame duck session; however, the Speaker of the House did not choose to bring the matter to a vote in the final legislative session.
It is anticipated that yet another attempt to limit the statute of limitations will be introduced in early 2011.  With the Republican control of the House, it is likely that such a bill will pass during the next legislative session.

Michigan Builder’s Trust Fund Act: Contractor Jailed for Not Paying Sub

Posted by: Hilger Hammond On: 10th December 2010 | no responses.

By Benjamin H. Hammond and Mark A. Rysberg

Pay moneyDid you know that you can actually go to jail for “robbing Peter to pay Paul”? Recently, the Michigan Building Contract Fund Act, commonly known as the Builders’ Trust Fund Act (“Act”) requires you hold monies paid to you for the benefit of “the person making the payment, contractors, laborers, subcontractors, or materialmen.” When projects go south it is often difficult to comply with this requirement. In early 2010, the Michigan Court of Appeals upheld a criminal conviction under the Act even though the builder who received the funds claimed that he used the funds to pay himself for work he performed. People v Wedel, Unpublished Opinion Docket No. 290324 (Mich App 2010). This case is a strong reminder that one must be very careful with the funds that they are paid – not paying your sub could get you a trip to the local jail.

Class Action Lawsuit Filed Against USGMC

Posted by: Hilger Hammond On: 1st December 2010 | no responses.

December 1, 2010

By: Mark A. Rysberg
glass building

Henry Gifford, owner of Gifford Fuel Saving, filed a class-action lawsuit against the U.S. Green Building Council (USGBC) and its founders. Mr. Gifford alleges that the USCGBC intentionally misrepresents that LEED certified buildings are more energy efficient than non-LEED certified buildings. Mr. Gifford also claims that USGBC’s representations about LEED performance have steered consumers toward chasing LEED certification and away from using non-LEED affiliated consultants, like Gifford. The next step will likely determine if the lawsuit will proceed as a class-action lawsuit. Certifying a class for purposes of such lawsuit is a steep uphill climb for Mr. Gifford.

Superior Knowledge Doctrine Allows Contractor To Recover From Owner…

Posted by: Hilger Hammond On: 2nd November 2010 | no responses.

 

…For Non-Disclosure of Material Information


By Benjamin Hammond

 

In Los Angeles Unified School District v Great American Insurance Company, the California Supreme Court held that a public entity owner can be required to pay additional compensation if it fails to disclose material facts which affect a contractor’s bid.

 

 

The Los Angeles Unified School District was forced to find a replacement contractor after the original contractor failed to meet certain requirements of the contract. As part of the re-bidding process, the District provided the original plans and specifications as well as a punch-list of items detailing necessary corrections. The replacement contractor was also required to correct any unlisted defects in any existing work performed by the original contractor.

 

The winning bid came in at a cost not to exceed $4.5 million, but as the replacement contractor delved into the repairs, it found additional deficiencies that would need to be corrected and were not previously disclosed. For example, a punch-list item to repair a few floor tiles led to the reinstallation of all tile. The contractor submitted the extra costs, totaling approximately $2.8 million, which led to litigation to determine who would bear the extra cost – the owner or the contractor.

 

The Court stated that, in certain circumstances, a contractor may be entitled to additional compensation for a public entity’s non-disclosure where:

 

a)    The contractor submitted its bid or undertook to perform work without material information that affected performance costs;

 

b)    The public entity was in possession of information and was aware the contractor had no knowledge or reason to seek it out;

 

c)    Contract specifications or other information furnished by the public entity to the contractor misled the contractor or did not put it on notice to inquire; or

 

d)    The public entity failed to provide relevant background information.

 

This legal doctrine, known as the “superior knowledge doctrine”, was previously adopted by the United States Supreme Court and allows relief in cases where a public entity owner is aware of material information, but fails to disclose that information to the bidding contractor. The superior knowledge doctrine requires public entities to provide accurate plans and specifications, but they are not required to disclose information that the contractor should have discovered through due diligence.

 

Concern that public entities will now be exposed to more claims as a result of this decision was tempered by the Court, which stated that nondisclosure is only actionable on a limited basis and when the information materially affects the cost of performance.