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A general contractor and insurance company’s motion to enforce an arbitration agreement and stay litigation in a lawsuit brought by a housing developer should not have been denied, the Court of Appeals of Indiana ruled Wednesday in reversing a trial court’s order.
According to court records, in 2020, Historic Walnut Square, LLC solicited bids for a construction project for the development of a 40-unit, multi-family housing project in Terre Haute and ultimately selected Professional Construction, Inc. as general contractor for the project.
On Aug. 6, 2020, they executed two standard form American Institute of Architects’ agreements.
Professional Construction obtained a payment bond and a performance bond, also AIA standard form agreements, through West Bend Mutual Insurance Company in the amount of the construction contract.
The construction contract provided for binding arbitration of any claim subject to or not resolved by mediation and expressly indicates that the Federal Arbitration Act shall govern.
Contractual disputes arose between Professional Construction and Historic Walnut Square and came to a head in the beginning of 2022.
Professional Construction initially communicated a claim to the architect – the project’s initial decision maker under the construction contract.
Unsatisfied with the architect’s decision and anticipating a breach of the construction contract by Historic Walnut Square, Professional Construction stopped work on the project on Feb. 11, 2022.
Historic Walnut Square then declared Professional Construction in default and made a claim against West Bend on the performance bond.
Professional Construction, by email and certified mail, sent a written demand for mediation/arbitration to Historic Walnut Square and the architect.
West Bend denied Historic Walnut Square’s claims on the bonds and provided a detailed explanation of its denial.
The insurance company claimed that Historic Walnut Square had repudiated the construction contract prior to Professional Construction stopping work and that the owner’s subsequent refusal to mediate or arbitrate the dispute also constituted a breach of the contract.
Two days after West Bend’s denial of Historic Walnut Square’s claims, Professional Construction filed a four-count complaint against the owner in Waukesha County, Wisconsin and named West Bend as an involuntary plaintiff.
The complaint alleged that Historic Walnut Square had refused Professional Construction’s written demand for mediation/arbitration of the claims and disputes arising out of the construction contract and that “[b]ecause of [Owner’s] contractual breaches and refusal to mediate or arbitrate, [Contractor] has been left with no recourse except litigation to seek resolution of the claims.”
Among its specific requests for relief, Professional Construction asked the Wisconsin court for: “Order compelling [Owner] to comply with the Contract’s mediation and arbitration clauses as it relates to all claims arising of the contract.”
Historic Walnut Square filed an instant complaint in Marion County Superior Court on June 29, 2022, against Professional Construction and West Bend, asserting breach of contract and other associated claims and arguing that Indiana was the proper venue for litigation related to the construction contract and the bonds.
In February 2023, a Wisconsin court ordered Historic Walnut Square and Professional Construction to arbitration in Wisconsin.
Later that month, the trial court denied Professional Construction and West Bend’s motion to enforce the arbitration agreement and stay litigation pending arbitration.
The trial court, in a written order, determined that Professional Construction waived its contractual right to arbitration by initiating the action in Wisconsin rather than filing for mediation or arbitration with the AAA.
Further, the court determined that the Professional Construction and West Bend could not “get around” the contractor’s waiver by arguing that West Bend had a right to enforce the arbitration provision in the construction contract.
The trial court denied the appellants’ subsequent request to reconsider its ruling regarding arbitration.
Professional Construction and West Bend appealed the trial court’s order.
The appellate court has now reversed the trial court’s order and remanded the case with instructions for the trial court to stay litigation pending arbitration.
Chief Judge Robert Altice wrote the opinion for the appellate court.
According to Altice, the disagreement between the parties was focused on whether Professional Construction waived its right to demand arbitration by pursuing the action in Wisconsin.
Altice wrote that the trial court based its waiver determination solely on the fact that Professional Construction filed its action in Wisconsin without filing for mediation or arbitration with the AAA.
“We believe the waiver determination required a deeper analysis and consideration of the specific facts of this case,” Altice wrote.
The appellate judge noted that Professional Construction and West Bend each urged Historic Walnut Square to mediate the contractual dispute, and the contractor sent a clear written demand for mediation/arbitration to the owner and architect on Feb. 14, 2022.
But those demands were rebuffed by Historic Walnut Square, who wanted to deal only with West Bend.
Historic Walnut Square complained that Professional Construction “jumped straight to litigation” instead of following “the clear dispute resolution steps in the Construction Contract,” Altice wrote.
“But this argument confuses the separate concepts of waiver through litigation conduct and failure to satisfy conditions precedent to enforcing arbitration. The latter determination is for the arbitrator, not us,” Altice wrote.
Altice wrote that the trial court erred in determining that Professional Construction waived its right to demand arbitration and in refusing to stay the proceedings pending arbitration in Wisconsin.
Judges Melissa May and Peter Foley concurred in Professional Construction, Inc., and West Bend Mutual Insurance Company v. Historic Walnut Square, LLC, 23A-PL-654.
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