Court Finds Oral Waiver Of Arbitration Clause Is Enforceable

• Posted on: Sep 22 2017

It has long been the policy in New York to favor and encourage arbitration as a means of expediting the resolution of disputes and conserving judicial resources. Rio Algom Inc. v. Sammi Steel Co., Ltd., 168 A.D.2d 250, 251 (1st Dept. 1990). For this reason, when parties have chosen arbitration as their forum for dispute resolution, they are precluded “from using the courts as a vehicle to protract litigation.” Matter of Weinrott (Carp), 32 N.Y.2d 190, 199 (1973).

Notwithstanding, there are times when parties choose not to invoke their arbitration clause. For example, if a defendant believes that the plaintiff’s claims are without merit, it may prefer to have a court rule on a motion to dismiss, rather than an arbitrator who is not bound by a court’s procedural and substantive rules. If a party ignores the arbitration provision, and runs to court, does that party waive its right to arbitration? In Primer Constr. Corp. v. Empire City Subway Co., Ltd., 2017 NY Slip Op. 31909(U) (Sup. Ct. N.Y. County Sept. 6, 2017), Justice Bransten of the Supreme Court, New York County, Commercial Division, answered the question, yes.

Primer Construction Corp. v. Empire City Subway Co., Ltd.

Background

The case arose from an agreement between Primer Construction Corp. (“Primer”), a general contractor that provides capital municipal work for New York City and its agencies, Verizon-New York, Inc., d/b/a Verizon Communications (“Verizon”), a private utility company that owns and/or operates surface and subsurface utility facilities within New York City, Empire City Subway Company, Ltd. (“Empire City”), a wholly-owned subsidiary of Verizon, and the New York City Department of Design and Construction (“DDC”). Pursuant to the agreement, the defendants agreed to cooperate with and compensate contractors, such as the plaintiff, working on DDC projects involving the defendants’ utility facilities.

In June 2014, Primer entered into an agreement with the DDC for the construction of a culvert (e.g., a tunnel that allows water to flow under a road) in Queens, New York. The project, however, interfered with an underground network of utility lines owned by the defendants, requiring Primer to move, protect, or secure those facilities. In October 2014, Primer and the defendants entered into an agreement pursuant to which Primer would place the utility lines above the culverts (the “Interference Agreement”).

The Interference Agreement contained a binding arbitration clause, which stated that “[a]ny and all disputes arising out of this Agreement or a breach thereof shall be submitted to arbitration ….” The agreement also contained a binding written modification clause, which stated that the agreement “shall not be modified or rescinded, except by a writing signed by a duly authorized representative of both parties.”

Soon after work began, Primer found that the interference work could not be completed as originally agreed. Primer alerted the defendants to the problem, but the defendants refused to provide alternative methods for project completion. Nevertheless, Primer continued to perform the work as set forth in the Interference Agreement.

Primer claimed that the defendants owed it $1.3 million for the work it performed.

Primer filed the action in May 2015, and an amended complaint in November 2016, asserting three causes of action against the defendants: (1) fraudulent misrepresentation/fraudulent inducement; (2) breach of contract; and (3) quantum meruit.

The defendants moved to dismiss.

The Court’s Ruling

Before ruling on the motion to dismiss, the Court addressed the question of whether it had subject matter jurisdiction to hear the dispute in light the arbitration provision in the Interference Agreement.

The Court held that the parties had waived the arbitration requirement in the Interference Agreement. The Court found that Primer waived the right to arbitrate “by choosing to litigate the dispute in” court and the Defendants “waived the right” to arbitrate “by participating in the instant litigation.” Thus by “choos[ing] to take the course of litigation,” the parties had “waived the[ir] right to submit the question to arbitration.” Matter of City of Yonkers v. Cassidy, 44 N.Y.2d 784, 785 (1978).

The Court also found that even if the parties had not manifested their “acceptance of the judicial form” by participating in the lawsuit (Stark v. Molod Spitz DeSantis & Stark, P.C., 9 N.Y.3d 59, 66 (2007)), they had orally waived the arbitration provision in the Interference Agreement. The Court held that such waiver was enforceable notwithstanding the “written modification provision at issue.” Taylor v. Blaylock & Partners, LP., 240 A.D.2d 289, 290 (1st Dept. 1997).

As a result, the Court concluded that it had subject matter jurisdiction to hear the matter.

Takeaway

Arbitration is an alternative way to resolve a dispute without going to court. It can be binding, in which the arbitrator issues a decision that can be enforced by the courts, or non-binding, in which the arbitrator issues an advisory opinion that the parties can accept or reject.

Before the parties can arbitrate their dispute, they must have agreed to do so. However, like any contract, the parties to an arbitration agreement can modify, waive or abandon the right to arbitrate. They can choose to litigate in court or they can agree to waive the agreement to arbitrate. And, they can waive the agreement orally even if the contract requires modification only in writing. Primer exemplifies these principles.