By: WBG, LLP Published: August 2013

Arbitration Award in Favor of Subcontractor

On February 13, 2013, the Supreme Court issued a decision holding that an arbitration award in favor of a subcontractor disposed of the general contractor's claim that the subcontractor willfully exaggerated its mechanic's lien.1

In 5 Bros., Inc. v D.C.M. of New York, LLC, 39 Misc 3d 711 [Kings Co. 2013], a subcontractor and general contractor arbitrated their claims pursuant to a mandatory arbitration clause contained in their agreement. The arbitrator, Melvin J. Kalish, rendered a decision in favor of the subcontractor in the amount of $76,539.13 and indicated that the "monetary award ... is intended to include all claims of [the subcontractor], its subcontractors, and suppliers" and directed the subcontractor to "simultaneously [with payment] provide ... a Satisfaction of Mechanic's Lien of the $207,000.00 Mechanic's Lien." Thereafter, the general contractor, who had a pending claim against the subcontractor for willful exaggeration of its mechanic's lien in a separate lien foreclosure cause of action that was pending before the Court, moved to (1) vacate the arbitration award, (2) for summary judgment dismissing the subcontractor's lien claim, and (3) for summary judgment on its lien exaggeration claim.

Among other things, the general contractor argued that (1) "the award [was] irrational because it [was] based on an exaggerated mechanic's lien, pointing to the disparity between the award amount of $76,539.13 and the subcontractor's lien amount of $207,000.00" and (2) "the award must [be] vacated as indefinite and contrary to public policy because the arbitrator was without authority to address the willfully exaggerated lien claim, thus precluding [the general contractor's] recovery of treble damages" under Lien Law § 39-a.

Judge Demarest denied the general contractor's motion for summary judgment on its lien exaggeration claim on the basis that the correct amount of the lien had already been determined in the arbitration. Judge Demarest determined that the arbitrator did not "irrationally" rely upon or endorse the subcontractor's lien given the substantial documentary evidence, testimony, and briefs which the arbitrator relied upon to determine the amount of the arbitration award. Furthermore, Judge Demarest found that the arbitrator was within his authority to dispose of the claim for willfull exaggeration of the lien, and did so since the "issue [was] necessarily subsumed within the agreement to arbitrate" and since the arbitrator did not award any penalties. The Court determined that the arbitrator had assessed the relative values of each parties claims, weighed the contentions of both sides, made findings well-supported by the evidence, and that in finding the subcontractor's claim meritorious, the arbitrator implicitly rejected the general contractor's exaggeration claim. The Court ruled that the parties effectively waived litigation of the viability of the lien claim in agreeing to arbitrate the dispute as to compensation under the contract.

As demonstrated in this case, construction professionals and their counsel should take the time to understand the claims covered by mandatory arbitration clauses, and to raise all of their claims to the arbitrator during the arbitration.

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