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Monthly Archives: June 2012

14JUN 2012

Numerous construction contracts and subcontracts include provisions requiring the parties to arbitrate their disputes, either in lieu of litigation or as a condition precedent to trial.  Arbitration is a preferred means of alternative dispute resolution as it minimizes the time and expense of litigation and, in some cases, a jury trial.  One example of costs saving is discovery in arbitration proceedings.  Discovery in arbitration is typically limited in comparison to litigation in either the State or Federal court systems.  However, parties occasionally need information from non-parties to support their defenses or claims, which gives rise to the need to issue subpoenas. Florida’s Arbitration statute allows the arbitrator to issue subpoenas to non-party witnesses and to compel them to bring documents to the proceedings.

As a practical matter, the parties typically move the arbitrator to issue the subpoenas.  The Arbitration rule, in Florida, that controls the subpoena process, in large part, mirrors the rule in the State court system, which is found in Florida Rule of Civil Procedure 1.410.  The Federal rule, codified in the Federal Arbitration Act, Section 7, is unclear as to whether the arbitrator or parties have the ability to compel non-party witnesses to produce documents prior to arbitration.  This article discusses the problems inherent in this process and the best approach, in our view, of dealing with it when your case is in Federal Court.

There is currently a split among the Federal Appellate Circuits’ interpretation of Section 7 of the Federal Arbitration Act.  Section 7 defines an arbitral panel’s power to compel the appearance of a witness and production of documents of a non-party in a Federal arbitration hearing.  Section 7 states that “[t]he arbitrators selected either as prescribed in this title or otherwise, or a majority of them, may summon in writing any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence in the case.”  Federal Arbitration Act, 9 U.S.C. § 7.  The phrase that is at the center of the split in the Circuits is “bring with him” as it relates to any documents that the non-party witness produces based on the subpoena.

The Second Circuit, comprised of Connecticut, New York, and Vermont, and Third Circuit, comprised of Delaware, New Jersey, and Pennsylvania, have held that Section 7 gives an arbitrator the power to issue a subpoena to a non-party for the production of documents and compel his or her appearance at the final hearing, but not to compel the production of documents prior to his or her appearance at the final hearing.  These courts interpret the phrase “bring with him” to mean that the non-party witness does not need to produce the documents until he brings them with him to the final hearing.

The Sixth Circuit, comprised of Kentucky, Michigan, Ohio, and Tennessee, and Eighth Circuit, comprised of Arkansas, Iowa, Minnesota, Missouri, Nebraska, South Dakota, and North Dakota, have held that if an arbitrator can subpoena the production of documents on a non-party witness, then the arbitrator should be able to decide when the documents should be produced, which allows for the production of documents prior to the final hearing.  The Sixth and Eight Circuits have reasoned that arbitration exists and is successful due to its efficiency, and that it would be prudent to allow the arbitrator to determine how and when documents are produced by non-parties to help achieve maximum efficiency in the proceeding.

The Fourth Circuit, comprised ofMaryland, North Carolina, South Carolina, Virginia, and West Virginia, has taken a hybrid approach.  The Fourth Circuit has held that an arbitrator can force the production of documents from a non-party witness prior to the arbitration only under special circumstances, in a purported effort to aid efficiency, noting, however, that non-party witnesses only need to produce documents upon their appearance at the arbitration.  “Special circumstances” are not defined.  However, the Fourth Circuit did state that to minimally qualify as “special circumstances,” the documents would need to be unavailable to the parties through any other means.

To date, the United States Supreme Court has not addressed this issue, thus preventing a uniform interpretation in the Federal Circuit Courts.  Moreover, several of the Circuit Courts have yet to rule on the issue, including the Eleventh Circuit, comprised of Alabama, Georgia, and Florida.  As arbitration remains a potentially efficient and cost-effective means of alternative dispute resolution, it is important to understand the important potential limitations on discovery in arbitration.  Given the current state of the law, when arbitrating a claim, the key is to have the arbitrators authorize the subpoenas.  In the event that the non-party fails to respond to the subpoena, it is wise to seek court intervention for the limited purpose of addressing the failure to respond, as would be the case in litigation.  However, the non-party or opposing counsel may argue that the court has no jurisdiction to adjudicate the issue, which may be an area in which the law is equally unclear.

05JUN 2012

            The crude reality for most construction subcontractors is that after expending much time, effort and resources in preparing the lowest bid for a general contractor that is, itself, bidding a construction project, the general contractor will take the lowest subcontractor bid and go bid shopping after it is awarded the contract. A subcontractor’s conditional bid, which is when the subcontractor warns the general contractor that if its bid is used for bid shopping it shall constitute an acceptance of the bid that would create a binding contract, is unenforceable. And that is, of course, problematic for subcontractors.

In West Construction, Inc. v. Florida Blacktop, Inc., 37 Fla. L. Weekly D959, (FLA. 4th DCA 2012), the Court reversed a final judgment in favor of an asphalt subcontractor and against a general contractor. In West Construction, the subcontractor claimed that an enforceable contract was created when the general contractor went bid shopping with the subcontractor’s bid. The subcontractor, Florida Blacktop, Inc., had submitted a bid for asphalt paving in response to a request from West, who used the subcontractor’s bid in its own bid of a general construction project. The bid proposal from the subcontractor included a fine print statement that was basically intended to create a binding contract with the general contractor if the bid was the lowest bid and the general contractor was awarded the project.

West was awarded the project and a letter to the project’s owner listed Blacktop as its paving asphalt subcontractor. Blacktop thought it had the job, even sending a thank you note to West. As is not uncommon in the industry, West did not contract with Blacktop and contracted with another paving subcontractor, one which was likely willing to meet or beat Blacktop’s offer. Blacktop argued that there was an understanding with West that amounted to an enforceable verbal contract. The 4th District disagreed. The court reasoned that in the absence of evidence of the existence of a previous agreement by West to the conditions in Blacktop’s bid proposal, the mere use of Blacktop’s bid in submitting its bid did not constitute acceptance.

If a subcontractor doesn’t want its bid to be used for bid shipping without an assurance it will get the job, a prior (separate) agreement needs to be in place with the general contractor.