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By: Catherine Bednar
The Supreme Court of Connecticut recently affirmed the Appellate Court’s determination that when a property owner and a general contractor enter into binding, unrestricted arbitration to resolve disputes, the subcontractors are presumptively in privity with the general contractor for purposes of precluding subsequent litigation against them. In Girolametti v. Michael Horton Assocs., 332 Conn. 67 (June 25, 2019), Connecticut’s Supreme Court joined other jurisdictions in adopting a rebuttable presumption of privity between general contractors and subcontractors on a construction project in applying the doctrine of res judicata.
The Plaintiffs in Girolametti owned a retail store and hired the general contractor, Rizzo Corporation, to construct an expansion. After completion of the project, Plaintiffs and Rizzo entered arbitration to resolve various disputes concerning the Project, including Plaintiffs’ claims for alleged construction defects and delay and Rizzo’s claims for additional payments owed. Perhaps believing they would fare better in separate litigation, Plaintiffs abandoned the proceedings on the thirty-third day of the arbitration, which concluded two days later, and failed to present their damages claim contrary to the arbitrator’s recommendations. The arbitrator ultimately entered an award in Rizzo’s favor.
Plaintiffs then pursued two lawsuits against Rizzo and five subcontractors collectively, which focused on the design and construction of the building. All defendants moved for summary judgment on the grounds that Plaintiffs’ claims had or could have been raised and resolved during the arbitration and were therefore barred. The trial judge granted Rizzo’s motion for summary judgment, but denied the subcontractors’ motions, holding the subs were not parties to the arbitration and not in privity with Rizzo. The Appellate Court reversed and granted summary judgment to the defendants.
In affirming the Appellate Court’s decision, the Supreme Court of Connecticut explained that “[w]hen applying the law to complex endeavors such as large-scale commercial construction, it often is desirable to adopt default rules, whether in the form of legal presumptions or standardized contracts.” The court reasoned the new default rule was an efficient and fair tool for resolving construction disputes. A presumption of privity makes sense because not only is the general contractor in privity of contract with its subcontractors, but the general contractor is also responsible for the work of the subcontractors. The court noted that absent a default rule, a property owner could relitigate its failed claims against the general contractor by bringing piecemeal, fact-intensive claims against subcontractors. The court also recognized that the default rule (which parties may contract around if they choose) is beneficial to both property owners and contractors by, resolving all outstanding disputes involving work on a project in the context of an owner-general contractor arbitration.
Having adopted the rebuttal presumption of privity between general contractors and subcontractors for the purposes of res judicata, the court found the facts and circumstances in the Girolametti case did not support an exception to the default rule. The court found the Plaintiffs reasonably should have understood the arbitration with Rizzo was the proper forum for addressing any claims against the subcontractors which were foreseeable at the time. In particular, the court pointed to the parties’ use of a standard form owner-contractor construction contract for their prime contract as evidence of their intent to abide by industry norms, making the general contractor responsible for all subcontractor work not separately contracted by the owner. The contract also contained a broad, unrestricted arbitration provision.
The Connecticut Supreme Court’s decision in Girolametti serves as a reminder to parties engaged in complex construction disputes to carefully consider the scope of their arbitration provisions and evaluate the potential need to add claims and join third parties.
If you have any questions or would like more information, please contact Catherine Bednar at [email protected].