Fifth Circuit Emphasizes Compliance in Contractual Dispute Resolution; Reverses Arbitration Award and Affirms Waiver of Litigation Rights
Case: Mary John Family LLC v. Stevens Construction & Design LLC, — So.3d —- (2024), 24-132 (La. App. 5 Cir. 10/30/24).
Authors: Christopher K. LeMieux and Jennifer Mura
Mary John Family, LLC (“MJF”) contracted with Stevens Construction & Design, LLC (“SC&D”) in 2020 for the renovation of a Chevron gas station. MJF alleged SC&D breached its contract in various ways including the failure to pay subcontractors, project delays, poor supervision, and performing defective work.
The Fifth Circuit Court in reviewing the trial court’s confirmation of an arbitration award as final and the dismissal of the MJF’s claims addressed two key issues on appeal: 1) whether there was a valid agreement to arbitrate and 2) whether MJF waived the right to litigate by not first proceeding with mediation.
The Court first analyzed the contact’s language to determine if a valid arbitration agreement existed. The contract based on American Institute of Architects (AIA) forms consisted of a three-step process: 1) an initial review by an Initial Decision Maker (in this case, the project architect), 2) mediation, and 3) binding dispute resolution, which the parties designated as litigation. The Court found the contract explicitly offered a choice between litigation and arbitration and the parties had expressly selected litigation, not arbitration. Thus, the Court held there was no valid arbitration agreement and that the trial court erred in treating the architect’s decision as a binding arbitration award.
The Court next considered whether MJF waived its right to litigate by failing to initiate mediation. Under AIA provision A201 § 15.2.6 either party could file for mediation if dissatisfied with the architect’s initial decision. Further, under AIA provision A201 § 15.2.6.1 either party could demand the other party initiate mediation within 60 days of the architect’s decision. MJF issued a demand to SC&D to initiate mediation, but they declined. MJF, then, did not initiate mediation itself within the 60-day window. The Court found that MJF’s failure to pursue mediation effectively waived its right to litigate, as the contract mandated mediation before litigation could proceed. Consequently, the Court affirmed the dismissal of MJF’s claims.
Strict compliance with multi-step contractual dispute resolution processes is key, otherwise failure to follow each required step can result in waiving the right to litigate (and arbitrate).
