Staviski v. Christa Construction 2011 WL 1413302 (3d Dept. April 14, 2011) Plaintiff and Christa entered into a subcontract for plaintiff to perform drywall installation. A dispute arose between the parties over the cause of mold and bacteria that damaged the drywall. Plaintiff asserted that the damage was due to water flowing into one of the buildings in which he was working. Christa however argued that the drywall was damaged because it had not been properly stored by the plaintiff. During the course of plaintiff’s work he submitted invoices for payment. Christa’s project manager rejected the invoices claiming that plaintiff was 30% responsible for the damage The subcontract contained an ADR provision which was required to be followed prior to any legal action. The ADR provision stated that Christa’s representative, acting personally, will decide all conflicts between the parties in relation to the subcontract and that “his [or her] decision shall be conclusive, final and binding on the parties.” Pursuant to a section of the subcontract entitled “Appeal,” the plaintiff was permitted to commence a legal action to protest the determination of Christa’s representative. However, judicial review was limited to whether the “determination is arbitrary, capricious or grossly erroneous to evidence evidence of bad faith.” The plaintiff argued that this provision rendered the ADR process a “sham.” However the 3d Dept held that it had previously reviewed this ADR clause and found it to be enforceable. [ Attention is also directed to the Westinghouse decision in which the Court of Appeals refused to rewrite a contract to change a similar owner controlled ADR.] In response to Christa’s motion for summary judgment, the plaintiff argued that the project manager’s determination failed to articulate the basis for attributing to 30% of the responsibility for the mold damage. Viewing the evidence in the light most favorable to the plaintiff as the non-moving party, the court found no error in the trial court’s conclusion that plaintiff had raised a question of fact as to whether the project manager’s determination was arbitrary, capricious or grossly negligent. The lessons here are that your contracts may contain an obviously one-sided ADR provision which permits one of your employees to essentially act as the arbitrator. In such case, it is better not to include a standard of review as it may narrower than the broad standard permitted by law. Also if a dispute is submitted to the ADR, the basis for the decision should be reduced to writing to support its rationale in the likely event the decision is challenged.
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