Nevada: Nevada Overhauls Construction Defect Laws for Residential Construction
Nevada's construction defect laws – primarily NRS 40.600 et seq. -- have long been regarded as one (if not the) most plaintiff-friendly laws when seeking recovery for construction defects in residential construction. Plaintiff attorneys were virtually guaranteed recovery of their attorney fees, costs and expert costs which often far exceeded the actual cost to repair the alleged defect. NRS 40.600 et seq. also liberally defined what constituted a "constructional defect" and NRS 116.3102 granted homeowner associations standing to pursue claims on behalf of its unit owners. Moreover, a claimant could bring an action up to 12 years after substantial completion of an improvement and only had to provide minimal notice of the alleged deficiencies. For over a decade, multiple efforts to revise many of these statutory provisions failed.
For the first time in decades, Republicans swept to victory in the November 2014 election and gained control of the Nevada Legislature. As a result, combined with a Governor who identified construction defect reform as a "top priority", changes to Nevada construction defect laws were inevitable. With lighting speed (e.g. it was the first bill signed by the Governor during the 2015 legislative session) AB 125 made sweeping changes to NRS 40.600 et seq. and other statutes effective February 24, 2015.
Under Nevada's construction defect laws generally, before a homeowner can commence a civil action against a contractor, subcontractor, supplier or design professional for constructional defects, the homeowner must comply with certain pre-litigation requirements including providing notice of the defect to the contractor. Once notice issues to a contractor, it has 30 (after the date on which the contractor receives the notice), to forward the notice to all subcontractors, suppliers or design professionals associated with the construction of the residence or appurtenance. Subcontractors, suppliers and design professionals receiving the notice are required to inspect the alleged constructional defect and may elect to perform repairs. See NRS 40.645, 40.646, 40.647.
While NRS 40.600 et seq. and other statutes continue to provide a framework for actions involving claims for constructional defects, AB 125 significantly changed many provisions which will likely have a far reaching impact on construction defect litigation in Nevada. Some of the most significant changes are highlighted below.
Definition of "Constructional Defect"
Revisions to the definition of what constitutes a "constructional defect" represent one of the most significant changes. Under the prior law, a "claimant" simply had to establish the design, construction, manufacture, repair or landscaping of a new residence, or an alteration of or addition to an existing residence or appurtenance was: (1) done in violation of law including local codes or ordinances, (2) which proximately causes damage, (3) not completed in a good and workmanlike manner in accordance with industry standards, or (4) which represents an unreasonable risk of injury. Under this definition, a claimant could recover for "technical violations" without a showing of actual damage.
Under the new law, "constructional defect" is now defined as: (1) there is an unreasonable risk of injury to a person or property, or (2) the work or design was not completed in a good and workmanlike manner and proximately causes damage. [Emphasis added]. As a result, establishing that certain work or services was not performed in a good and workmanlike manner is no longer sufficient. A claimant must now establish it caused actual damage or it created an unreasonable risk of injury to a person or property. See NRS 40.615.
Under NRS 40.655 in the prior statute, a claimant could recover a variety of damages including reasonable attorney's fees and costs and expert fees and costs related to the investigation of the allegedly defective conditions. Courts generally awarded all the attorneys fees, costs and expert costs claimed by the claimant. As a result, Plaintiff's attorneys were incentivized to bring questionable claims with little or no risk. It was not uncommon for the attorney fees and expert costs in a case to far exceed the cost of repair damages claimed by a claimant. This often resulted in absurd results when a subcontractor or design professional evaluated their potential damages exposure.
As revised, NRS 40.655 no longer expressly permits the recovery of attorney fees. Moreover, it limits the recovery of expert costs to the costs incurred related to constructional defects proven by the claimant. Also, NRS 40.655 clarifies that compliance with NRS 40.600 et seq. limits a claimant's recovery to the damages enumerated in NRS 40.655. The revisions to NRS 40.655 are significant inasmuch as spurious claims will likely be avoided for fear that attorney fees and expert costs may no longer be automatically recoverable.
AB 125 substantially changed what a claimant must include in its notice to the contractor prior to commencing litigation. As revised, NRS 40.645 requires the notice to:
- State in specific detail, rather than in reasonable detail, each defect, damage and injury to each residence or appurtenance that is subject to the notice;
- State the exact location of each defect, damage and injury, rather than describe in reasonable detail the location of the defect; and
- Include a statement signed by the owner of the residence or appurtenance in the notice that the owner verifies that each defect, damage and injury exists in the residence or appurtenance.
Under the prior statute, many attorneys for claimants issued vague, non-descript notices of alleged defects with little or no specificity. As a result, it was difficult, if not impossible, to determine whether repairs were warranted. Revisions to NRS 40.645 represent a clear intent by the legislature to force claimants to provide more detailed and verified notices. Moreover, the issuance of one notice on behalf of similarly situated homeowners of residences or appurtenances within a single development allegedly having common defects is no longer permitted.
Other Significant Changes
- NRS 11.202 was revised to provide a statute of repose of six (6) years after substantial completion for all actions for damages caused by a deficiency in construction, planning or design of an improvement. As such, the new statute effectively eliminates the prior distinction of limitation of actions for patent defects (6 years), latent defects (8 years) and known defects (10) years and eliminates prior provisions permitting a claimant to bring a claim within 2 years of the injury if the injury was discovered in the last year. The new statute of repose applies retroactively to actions in which substantial completion of the improvement occurred before February 24, 2015.
- NRS 116.3102 previously provided that a homeowners' association could initiate or defend litigation in the name of the association and on behalf of two or more homeowners. AB 125 revised NRS 116.3102 whereby an association may not pursue a constructional defect claim on behalf of itself or homeowners, unless the claim pertains to the common elements of the association.
- A claimant must first submit a claim under the homeowner's warranty and the insurer must deny the claim prior to issuing a notice pursuant to NRS 40.645. The notice may only include those alleged defects denied by the insurer. See NRS 40.650(3)(a). The statutes of limitation or repose are tolled from the time the claimant submits a claim under the homeowner's warranty until 30 days after the insurer denies the claim. See NRS 40.650(3)(d).
- The revised statute creates circumstances whereby a residential construction contract that requires a subcontractor to indemnify or hold harmless other parties is void and unenforceable. In addition, the statute contains provisions and changes to the law, including: When a subcontractor's duty to defend arises; the manner in which a party may pursue indemnification from a subcontractor; and when consolidated insurance programs covering two or more contractors or subcontractors for work and defects associated with construction.
Interestingly, only subcontractors are specifically referenced when defining the parameters of the enforceability of a contractual duty to defend and indemnify. "Design professionals" and "suppliers" are noticeably absent from this portion of the statute.
Under Nevada law, parties in a civil action can agree to have a judgment entered against them pursuant to an offer of judgment, and under such circumstances, the prevailing party was not awarded costs or attorney's fees if the prevailing party fails to obtain a more favorable judgment at trial. See NRS 17.115; N.R.C.P. 68. Changes to existing law provide a similar procedure allowing parties that have given notice of constructional defect to a contractor, subcontractor, supplier or design professional the opportunity to have a judgment entered against them before a civil action on constructional defect.
The revised statute requires a claimant and an expert who provided an opinion concerning constructional defects, to: (1) be present when a contractor, subcontractor, supplier or design professional conducts the required inspection of the alleged defect; and (2) identify the exact location of the alleged defect. See NRS 40.647(b).
Previously, statutes of limitation and repose were tolled from the time that a claimant gave notice of a claim for constructional defects until 30 days after the mandatory mediation. The revised statute mandates the period for which the statutes of limitation and repose are tolled may not exceed one year. Under this section, the court may extend the tolling period if the homeowner demonstrates good cause. See NRS 40.695(2).
For over a decade, NRS 40.600 et seq.'s statutory framework heavily favored claimants seeking recovery for constructional defects in residential construction. The pendulum has now swung in the opposite direction with the passage of AB 125. It will now be much more difficult for a claimant to maintain a claim for constructional defects given the increased notice requirements, the removal of attorney fees as damages, a shortened statute of repose and limiting the standing of a homeowners association. In the short term, this will likely have a chilling effect on the number of claims -- at least until the next legislative session in 2017.
New York: Federal District Court clarifies Definitions of "Substantial Similarity" Employed when Evaluating Design Professionals' Copyright Infringement Claims
The U.S. District Court for the Northern District of New York recently clarified the definition of "substantial similarity" employed when evaluating design professionals' copyright infringement claims comparing architectural drawings to (1) another design professional's drawings, and (2) a structure in "as-built" condition. In Buttner v. RD Palmer Enters., Inc., NYLJ 120722905903, at *1 (Sup. NY, Decided March 31, 2015) plaintiff Brian R. Buttner ("Buttner"), an architect, commenced, in relevant part, a copyright infringement action against Rich and Gardner Construction Co. ("Rich and Gardner"), RD Palmer Enterprises, Inc., and Richard Palmer (collectively "Palmer"), and Dunn & Sgromo Engineers, PLLC ("Dunn & Sgromo"). Defendants each cross-moved for summary judgment on plaintiff's copyright infringement claims. Note that the Court previously dismissed Buttner's claims sounding in misappropriation, unjust enrichment and unfair competition against all defendants. See Buttner v. RD Palmer Enters., 2013 U.S. Dist. LEXIS 168559 (N.D.N.Y. Nov. 27, 2013) (Kahn, J.).
Palmer owned a gas station and convenience store located in Cortland, NY. Palmer retained Buttner to provide architectural services regarding the renovation of his gas station. Specifically, Buttner contracted to design an extension to the existing convenience store, which would allow for a combined, new Dunkin' Donuts, convenience store, and gas station to exist on site. Buttner's services entailed provision of various architectural drawings, which Buttner registered with the Copyright Office. Buttner's contract with Palmer allowed for use of the Buttner drawings to obtain contractor bids. As such, Palmer provided Rich and Gardner with the Buttner drawings to prepare a bid. Palmer retained Rich and Gardner, which drafted plans "based on, but different than the Buttner plans." The project team utilized Rich and Gardner's plans, and completed the Project in July, 2011.
In 2007, Palmer retained engineering firm Dunn & Sgromo to prepare traffic studies to submit to the New York Department of Transportation in order to obtain permits for the Project. Dunn & Sgromo worked with Palmer to modify the Buttner plans to satisfy the DOT requirements.
Plaintiff alleged two copyright infringement claims against Rich and Gardner and Palmer (1) that Rich and Gardner's earliest drawings infringed on Buttner's 2008 plans, and (2) that the project, as-built, infringed on Buttner's 2008 plans. Palmer, and Rich and Gardner each cross-moved to dismiss Plaintiff's copyright infringement claims.
U.S. Code extends copyright protection to "original works of authorship fixed in any tangible medium of expression." 17 U.S.C. §102. The Architectural Works Copyright Protection Act added architectural works to the list of "copyrightable works of authorship." See Axelrod & Cherveney Architects, P.C. v. Winmar Homes, No. 05-CV-711, 2007 WL 708798 (E.D.N.Y. Mar. 6, 2007) (citing 17 U.S.C. §102(a)(8). Courts define "architectural work" as "the design of a building as embodied in any tangible medium of expression, including a building, architectural plans, or drawings." See 17 U.S.C. §101. Copyright protection for architectural works extends to the architectural work itself, and the plans or drawings depicting the subject architectural work. See Attia v. Soc'y of N.Y. Hosp., 201 F.3d 50, 52 n.3 (2d Cir. 1999).
A plaintiff claiming copyright infringement pertaining to architectural work must demonstrate the following three factors "1) that his work is protected by a valid copyright, 2) that the defendant copied his work, and 3) that the copying was wrongful." Buttner, NYLJ 120722905903, at *9 (quoting Zalewski v. Cicero Builder Dev. Inc., 754 F.3d 95, 100 (2d Cir. 2014)).
The Court's decision herein turns on whether Buttner demonstrated that the copying of his work "was wrongful" under the third Zalewski requirement. In order to determine whether wrongful copying occurred, courts apply the "substantial similarity" test: "The standard test for substantial similarity between two items is whether an 'ordinary observer, unless he set out to detect the disparities, would be disposed to overlook them and regard [the] aesthetic appeal as the same." Id. at *11 (quoting Yurman Design, Inc. v. PAJ. Inc., 262 F.3d 101, 111 (2d Cir. 2001)). The "ordinary observer test" requires the Court to determine whether "an average lay observer would recognize the alleged copy as having been appropriated from the copyrighted work." Id. (quoting Knitwaves, Inc. v. Lollytogs Ltd. (Inc.), 71 F.3d 996, 1002) (2d Cir. 1995)).
If a copyrighted work, such as Buttner's, contains "protected and unprotected elements" the Court "is principally guided by comparing the contested design's total concept and overall feel with that of the allegedly infringed work." Id. (internal citations and quotation omitted.) More specifically, the Buttner court clarified that "in the end, our inquiry necessarily focuses on whether the alleged infringer has misappropriated the original way in which the author has selected, coordinated, and arranged the elements of his or her work...the narrow scope of protectable expression necessitates that plaintiffs show something akin to 'near identity' between the works in question to prevail." Id. at 12 (internal quotations and citations omitted).
However the Court noted that "protectable expression" does not include the following elements under Zalewski: "(1) standard configurations of spaces...; (2) individual standard features, such as windows, doors, and other staple building components...; (3) market expectations...;(4) any design elements attributable to building codes, topography, structures that already exist on the construction site, or engineering necessity...; (5) generalized notions of where to place functional elements, how to route the flow of traffic, and...methods of construction...; (6) design parameters, described as "constraints placed on an architect by the way her client plans to use the building"...; (7) "features that are essential or common to the architectural style within which the builder designed the structure." Id. at 13 (citing Zalewski, 754 F.3d 95).
The Court rejected Plaintiff's "wholly conclusory" claims in support of his contention that the earliest Rich and Gardner drawings constituted an infringement, because Plaintiff fails to assert any facts establishing substantial similarity, or identifying which, if any, elements in his drawings constitute protectable expression. Id. at 14. Thus, the Court denied Plaintiff's motion for summary judgment as to the copyright infringement claims.
However, the Court considered a list of 15 design elements Plaintiff submitted in opposition to Palmer and Rich and Gardner's cross-motions for summary judgment to determine whether any of such elements constitute "protectable expression" under Zalewski. Of the 15 elements, the Court found that only two constitute protectable expression that warranted examination as to whether Palmer or Rich and Gardner improperly appropriated such elements. The two elements the Court identified are "(1) the stone facing on the main entry columns, and (2) the cupula on the Dutch hip roof." Id. at 21.
With regard to the stone facing on the main entry columns, the Court noted that the building "as-built" did not include such element. Though the stone facing was included on the early Rich and Gardner drawings, the element was not substantially similar to the Buttner plans, because Buttner's drawings depicted square stones, whereas Rich and Gardner's drawings depicted rounded stones. Thus, the Court held that Rich and Gardner's rounded stones were not "substantially similar" to Buttner's square stones because "when viewed broadly, a pattern comprised of circular versus rectangular shapes gives a different overall concept and feel. Moreover, the main entry columns on the Rich and Gardner drawings are significantly taller than in the 2008 Buttner plans." Id. at 20.
With regard to the cupula on the Dutch hip roof, the Court found that the "element is significantly different in the Station As-Built" explaining that the building as-built utilized a hexagonal cupula with no spire, centered on the roof, whereas the 2008 Buttner plans called for a four-sided, spired cupula offset to the right-of-center on the building's roof. Id. at 20.
The Court did find potential improper appropriation between the cupula designed in the earliest Rich and Gardner drawings and the Buttner drawings (as opposed to the later Rich and Gardner drawings utilized to construct the Station in its as-built condition), because the placement of the cupula was only slightly altered. However, Rich and Gardner's appropriation of the cupula did not constitute an infringement because "substantial similarity requires that the copying [be] quantitatively and qualitatively sufficient to support the legal conclusion that infringement (actionable copying) has occurred." Id. at 21 (internal quotations and citations omitted) Here, the quantitative component of Rich and Gardner's copying was minimal. As such, the Court granted Rich and Gardner and Palmer's motions for summary judgment on Plaintiff's copyright infringement claims in their entirety.
The Court similarly denied Plaintiff's motion as to Dunn & Sgromo, and granted Dunn & Sgromo's motion for summary judgment as to plaintiff's copyright infringement claims. The Court held that "Dunn & Sgromo was granted, at a minimum, Plaintiff's permission to make certain defined changes and submit on one occasion the Buttner Plans to the DOT; yet, plaintiff has failed to adduce any facts demonstrating how [Dunn & Sgromo] exceeded that permission" or otherwise "specify what acts taken by Dunn & Sgromo constituted copyright infringement." Id. at 23.
This case demonstrates that design professionals taking over projects from other design professionals may take proactive steps during design and construction to pre-empt potential copyright infringement claims by ensuring their design "gives a different overall concept and feel" than their predecessor's design. If an architect chooses to incorporate design elements depicted within a predecessor firm's drawings, the architect may protect itself against a potential copyright infringement by modifying the copied element in a fashion that qualitatively differs from the pre-existing element.
Texas: Texas Supreme Court Refuses to Extend Sovereign Immunity to Engineering firm Hired by Government to Design Toll Road
In its April 2015 Brown & Gay Engineering, Inc. v. Olivares opinion, the Texas Supreme Court declined to extend sovereign immunity to an engineering firm that designed a toll road for a county toll road authority.
By way of background, the family of a driver killed after being hit head on by a drunk driver travelling the wrong way on a toll road brought suit against multiple parties, including the engineering firm that designed the toll road. Subsequent to the county toll road authority prevailing on sovereign immunity grounds, the engineering firm convinced the trial court it was simply an extension of the authority and, therefore, should also be dismissed on the basis of sovereign immunity. After the plaintiff prevailed in the appellate court, the engineering firm appealed the issue to the Texas Supreme Court.
After analyzing the history and purpose of the doctrine of sovereign immunity, the Texas Supreme Court held: (1) that the extension of sovereign immunity to the engineering firm would not further the doctrine's rationale and purpose; and (2) that the engineering firm was not entitled to sovereign immunity on the grounds that a statute authorized the county toll road authority to engage a private engineering firm's services and would have been immune from liability had it performed those services itself.
In addition to noting that "a long line of Texas case law recognizes government contractor's liability for their negligence in road and highway construction" and that the authority required the engineering firm to procure private insurance, the Court reasoned it would be inappropriate to "extend to private entities the same immunity the government enjoys for reasons unrelated to the rationale that justifies such immunity in the first place [e.g., to guard against unforeseen governmental expenditures and the paying judgments that could hamper government functions]."
The concurring opinion of three justices offered a simpler explanation: "Immunity protects the government. An independent contractor is not the government. Therefore, immunity does not protect an independent contractor. That simple syllogism seems to me to resolve this case."
New York: Architect Sued for Personal Injuries Unable to Pursue Contractual Indemnification Action Against Contractor, Because Indemnification Clause Within Contract Did Not Apply to Circumstances Related to Plaintiff's Injury
On July 30, 2015, the New York Appellate Division, Third Department published a decision that limits design professionals' ability to seek contractual indemnification from contractors responsible for performing work pursuant to design professionals' drawings and specifications.
In Cusson v. The Hillier Group, Inc., 2015 NY Slip Op 06389 (3d Dept. Jul. 30, 2015), Plaintiff, an employee of Cornell University, alleged that he sustained personal injuries in March, 2005 when snow and ice fell from the roof of Mews Hall on Cornell's campus, and struck him. Plaintiff contended that the snow and ice fell as the result of defendant Hillier's (an architecture firm) professional malpractice with regard to the design, planning, and construction of Mews Hall in 2000. The Architect, in turn, commenced a third-party action against the roofing subcontractor alleging entitlement to contribution and common-law indemnification arising from the roofing contractor's alleged negligence. The roofing contractor moved for summary judgment. The Architect opposed, and cross-moved to amend its Third-Party Complaint to plead an additional cause of action sounding in contractual indemnification.
The Third Department reversed the trial court's decision granting the roofing contractor's motion for summary judgment, because the contractor did not demonstrate that it installed the snow guards called for in the architect's plans. Rather, the roofing contractor admitted during his deposition that he could not determine if the guard he installed on the Mews Hall roof was the same snow guard called for in the Architect's plans. As such, the Third Department held that an issue of fact existed sufficient to deny the roofing contractor's summary judgment motion.
However, the Third Department held that the trial court properly denied the architect's cross-motion to assert an additional claim against the roofing contractor for contractual indemnification, because the indemnification clause in the architect's contract with the roofing contractor "did not apply to the circumstances related to the alleged injury."
In light of the Third Department's decision in Cusson, design professionals should ensure that indemnification clauses within their agreements with contractors are sufficiently comprehensive so as to ensure coverage for claims sounding in property damage or personal injury arising from the contractor's work, including damages arising from the contractor's failure to follow the design professional's plans and/or specifications.
Illinois: Appellate Court Exonerates Architect Under the Implied Warranty of Habitability
In Board of Managers of Park Point at Wheeling Condo. Ass'n v. Park Point at Wheeling, LLC, 2015 IL App (1st) 123452 (Sept. 30, 2015) the Appellate Court of Illinois, First District held, in relevant part, that the Plaintiff, a Condominium Board of Managers failed to state a claim for breach of implied warranty of habitability against the architect of the building.
In Illinois, contractors may be held liable for breach of the implied warranty of habitability for the following public policy reasons: as a matter of fairness; because buyers depend on builders' and contractors' honesty; and because an investment in a home constitutes most investors' largest lifetime purchases.
The Board's breach of implied warranty claim in Park Point arose from alleged latent construction defects at the Condominium. The Board claimed that the developer, general contractor, trade contractors, and the architect breached the implied warranty of habitability owed to Plaintiff. The Board argued that architects, like contractors, should be held accountable for physical defects at a building, and thus, liable for a breach of the implied warranty of habitability. The Board alleged that "faults in the efforts of either a contractor or an architect may create latent defects in a completed building and that the public policy underlying the implied warranty of habitability of construction work is to protect new homeowners from latent defects by holding the responsible party liable."
In a ruling very favorable to architects, the Illinois Appellate Court disagreed, noting that it would be a "considerable extension of the law" to apply the implied warranty of habitability to architects because the implied warranty's fundamental purpose is to protect a buyer or homeowner, who lacks a contractor's knowledge of "contemporary construction practices and must to a substantial degree rely on the integrity and skill of the builder or on the entity that has chosen the builder." In contrast to contractors and developers, the Court explained that "engineers and design professionals...provide a service and do not warrant the accuracy of their plans and specifications." Contractors, however, assume responsibility for physically implementing the architect's plan.
The Court further explained that unlike contractors, architects "are not workmen, and they are not obligated to perform their professional services in a workmanlike manner. A workman is a person who labors or is employed in manual labor, skilled or unskilled." Architects, however, may be found liable when "...the architect's conduct falls below the standard of skill and care exercised by others engaged in the same profession, in the same locality." Thus, joining several other jurisdictions, such as Minnesota, Wyoming, New Jersey, and Michigan, the Illinois Court declined to hold the architect liable under the implied warranty of habitability, stating: "architects are not like the builders...to whom the implied warranty of habitability of construction has been applied."
Although the decision was specifically limited to architects, the Court noted the similarities between the professional services provided by architects and other design professional such as engineers. Design professionals in Illinois, as elsewhere, remain subject to claims for a breach of the standard of care; i.e., professional malpractice. However, defense counsel for all design professionals in Illinois should take note of the Park Point decision and seek dismissal of implied warranty of habitability claims at the early stages of litigation.
Pennsylvania: Court Denied Architect's Motion to Stay Arbitration After Design Professional Participated in Arbitration Proceeding
In S. High Dev., L.P. v. Estate of James A. Morgan, 839 WDA 2015 (Pa. Super. 2015) the Pennsylvania Superior Court reversed the trial court's order granting an architect's motion to stay arbitration. This matter arose from the design and historic renovation of a former high school building in Pittsburgh. The developer, South High Development, L.P. acquired the building, and through Gregory Development & Management, entered into an agreement with architect James A. Morgan, Inc. to prepare preliminary drawings and specifications to convert the former high school building to residential units. In light of the building's historic nature, the developer expected to receive and thus sold Historic Tax Credits to Carlisle Historic Tax Credit Fund 1 LP to finance the project. Following completion of the project, the National Park Service denied the developer, and in turn, Carlisle the Historic Tax Credits, because "the intrusive nature of the exposed HVAC ducts and other building systems throughout the building" did not meet standards to achieve a Historic Preservation Certification of Completed Work. The developer and Carlisle pursued legal recourse against the architect by commencing arbitration on August 29, 2014, and filing a civil action in the Allegheny County Court of Common Pleas eight months later, on April 14, 2015. The developer and Carlisle's actions seek damages for "costs associated with loan extension fees, the potential loss of tax investment credits[,] and additional design and construction costs to remediate design errors in the HVAC system." Id. at *3.
Over the eight month period between the time the arbitration commenced and the time the developer and Carlisle filed their civil suit, the architect participated in the arbitration process by agreeing to appointment of an arbitrator; participating in a pre-hearing conference; scheduling the hearing; serving discovery requests; producing documents, and; serving third-party subpoenas. Despite participating in the arbitration process, the architect alleged entitlement to stay the arbitration days after Plaintiffs commenced the civil action because it only then became apparent that Carlisle was a third-party to the Architect's agreement with the developer.
The trial court granted the architect's motion. However, on appeal, the Pennsylvania Superior Court reversed, noting Pennsylvania's "well established policy of not allowing parties to sit on their right to assert an arbitration agreement" finding such policy applicable "to a party who has acted in a manner which indicates acceptance of the arbitration process. That is to say, if a party participates in the arbitration process and fails to present promptly a motion to stay arbitration, then that party waives the right to seek a stay of the arbitration proceedings in a court." Id. at *7. Here, the Superior Court found that the architect's participation in the arbitration process between August, 2014 and April, 2015 constituted acceptance of the arbitration process sufficient to deny its motion seeking a stay. The Superior Court further found the architect's contention that they were not aware of Carlisle's status as a third-party to the architect's contract "patently absurd." Thus, the Court held that the architect's participation in the arbitration proceeding and failure to promptly request a stay constituted a waiver of the architect's objection to the arbitration.
The practical lesson from this decision is that in Pennsylvania (as in many other jurisdictions), a design professional should timely raise any valid jurisdictional objections to a Demand for Arbitration before participating in the arbitration process. Failure to do so may result in a waiver of such objections and a loss of the right to trial by jury.
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