Construction Contracts, Mediation and Venue

Construction Contracts, Mediation and Venue

I have preached the mantra of “read your contracts carefully” on numerous occasions here at Construction Law Musings. I have also discussed my thoughts on ADR and mandatory mediation. A recent case out of the Eastern District of Virginia mixes these two ideas quite nicely.

Dominion Transmission Inc. v. Precision Pipeline Inc. involved the construction of portions of the “Appalachian Gateway” pipelines [enhanced version available to subscribers]. As often happens on large projects like this, the contractor, in this case Precision Pipeline, presented the utility, Dominion Transmission, Inc. a large change order for payment (approximately $56 million). When these changes were not paid and the project closeout negotiations went nowhere, Precision did what any good contractor would do: it filed mechanic’s liens in Pennsylvania and West Virginia. Unsurprisingly, litigation ensued in Richmond, VA pursuant to a forum selection clause in the contract.

While this forum selection clause shows another reason to make sure your contracts are reviewed and carefully analyzed, the key provision at issue in this case was characterized by the court as follows:

Article 23 requires that in the event of a dispute, the aggrieved party must (1) notify the other party of the dispute, then, barring immediate resolution, (2) meet and discuss the issue among the project managers for both parties. If that meeting does not resolve the dispute, the parties must then (3) proceed to a meeting of senior officers. Should that meeting, in turn, fail to produce an accord, the parties must (4) proceed to mediation governed by American Arbitration Association (AAA) standards.

As you may guess, during the course of contentious communications over the liens and payment, neither party invoked the fourth of these mandatory steps.

When faced with suit by Dominion, Precision moved to dismiss the matter for lack of subject matter jurisdiction and because Dominion failed to meet a prerequisite to suit when it failed to proceed to mediation. Dominion countered that the filing of the liens and the fact that it has alleged that Precision was the first to breach amounted to Precision’s waiver of its right to mediation under the contract.

The Court disagreed finding that the contract was unambiguous and that even the filing of the mechanic’s liens did not amount to waiver by Precision. The Court then dismissed the complaint without prejudice.

The takeaway? These dispute resolution provisions will be enforced and failure to follow them can result in, at the very least, the expense of a lawsuit filing that goes nowhere. I recommend a full read of the opinion as it provides a great blueprint should you wish to enforce (or avoid) such clauses and a look into how the courts in Virginia will treat such provisions.

While I do not favor “mandatory” mediation because I believe it results in a “check the box” attitude toward the process, performing such steps when mandated by the contract is necessary if you wish to have your construction claim heard by a court in Virginia. On the flip side, with the assistance of an experienced construction lawyer, your contract can and should contain a dispute resolution clause that is to your liking.

As always, I welcome your comments. Please subscribe to keep up with this and other Construction Law Musings.

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