Many Party Problems

A solution may be on the horizon for a major problem facing manyparty, construction disputes. A “manyparty dispute” is one where claims are made against several different parties involved in a construction project such as the owner, architect, engineers, contractors, subcontractors and suppliers, all together.

One example of a manyparty dispute may be a structural failure which may result in claims being made against the project architect, soils engineer, structural engineer, general contractor, erection subcontractor, structural concrete or steel fabricator, various bonding companies, insurance carriers and perhaps others as well.

A problem is presented if some but not all of the contracts between the parties contain mandatory arbitration provisions requiring arbitration instead of court litigation. If American Institute of Architects contract forms have been used in connection with the particular project, it would be likely that provisions require that the party making structural damage claims (the owner) arbitrate with his architect and general contractor in separate arbitration proceedings-and be required to sue others in still separate court proceedings.

Commonly, the owner would not have direct contracts requiring arbitration of disputes with the architect’s engineering consultants, subcontractors or suppliers and insurance carriers. He would therefore be required to bring lawsuits against them, probably in one proceeding but necessarily separate from the two arbitration proceedings.

The dilemma may become bizarre. Inconsistent results and delays are likely and massive expenses are almost assured. One arbitration panel might find the architect blameless, while another panel could decide that the design was deficient and the architect, rather than contractor, was at fault. The results in the court trial could conceivably be totally opposite and entirely inconsistent.

Added to the possibility of these conflicting results, there could be at least three separate legal proceedings, all expensive and time-consuming There could be appeals from the trial court results, but not from the arbitration awards, thus adding further complications, delay and expense.

Wisely, however, a few courts are recognizing the dilemma presented in these manyparty circumstances by refusing to enforce the mandatory arbitration provisions under circumstances described above.

A recent Colorado Supreme Court case1 recognized a many claim dilemma in a non-construction context and ruled that all claims, some requiring arbitration by contract, others not, had to be resolved in one court proceeding since the claims were so intertwined that it would have been unreasonable to require the parties to arbitrate some and litigate others in court.

The same philosophy has been followed in a few other state court cases involving manyparty construction claims. 2

In contracting for design professionals and construction work, parties should recognize problems which may be created by use of mandatory arbitration clauses and the possible limitations upon those provisions if claims are made against several parties, some of whose contractual arrangements do not contain arbitration clauses

The court decisions which have rejected arbitration requirements and allowed the entire controversy to be resolved in one proceeding are both logical and reasonable, less risky and substantially less expensive than the alternative of the three-ring circus that might otherwise result. However, since those cases are few, parties should be careful to protect themselves by contract and avoid the possibility of manyparty problems.

1 Sandefer .District Court, 635 P.2dS47 (Colo. 1981).

2 J.F. Inc. v. Vicik 426 N.E. 2d 257 (Ill. App. 1981); Jefferson County v. Barton-Douglas, 282 N.W. 2d 155 (Iowa 1979).

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