Amarillo COA Holds Arbitration is Required in Construction Fee Dispute

Texas’ Seventh District Court of Appeals in Amarillo has reversed a district court’s decision to deny arbitration in a construction fee dispute. In Journeyman Const. Inc. v. Scottco Mechanical Contractors, Inc., No. 07-13-00393-CV, (Tex. App. – Amarillo, Sept. 26, 2014), a general contractor, Journeyman, entered into a number of subcontracting agreements related to the restoration of the Potter County Courthouse. Each identical subcontract included an alternative dispute resolution provision. In January 2013, several of the subcontractors (“Scottco”) filed a lawsuit against Journeyman to recover payment for services rendered pursuant to their respective subcontracting agreements. Journeyman responded by filing a motion to abate the court proceedings and compel arbitration. After the district court denied Journeyman’s motion, the general contractor filed an interlocutory appeal with the Amarillo appeals court.

On appeal, Journeyman claimed the district court committed error when it denied the general contractor’s motion to compel arbitration. According to the company, the parties’ subcontracting agreement required that any and all disputes be arbitrated. In contrast, Scottco argued the arbitral provision included in the parties’ contract was unenforceable, Journeyman’s request was untimely, arbitration was not the sole means for resolving disputes between the parties, and the general contractor waived its right to request alternative dispute resolution when it participated in the district court case.

After the Seventh District stated the validity of the arbitration provision was undisputed, the court addressed whether the parties’ contract required all disputes to be resolved using arbitration or mediation. According to the court, “the plain language of the Subcontract requires that Scottco mediate and then arbitrate its claim before any legal or equitable proceeding moves forward.” Because of this, the Amarillo court held, “Journeyman’s Motion should have been granted by the district court, i.e., Scottco’s suit should be stayed pending mediation and arbitration of its claim.”

The appellate court next addressed Scottco’s other claims by stating,

…contrary to Scottco’s assertion that mediation and arbitration are not the sole means to resolve a dispute under the Subcontracts, paragraph 28, “Additional Provisions of Subcontract” as well as paragraphs 4.3.2 MEDIATION and paragraph 4.4.1 arbitration plainly require Scottco to submit its claim to mediation and arbitration before pursuing any legal or equitable remedies it may have afterwards.

The court also dismissed Scottco’s assertion that Journeyman waived its right to engage in arbitration by substantially invoking the judicial process to Scottco’s detriment,

After being served, Journeyman timely filed its answer and, at the same time, filed its Motion. Journeyman can hardly be held responsible for the passage of time in Scottco’s suit before it became a party. In addition, other than citing the mere passage of time between the filing of Journeyman’s Motion and the district court’s hearing, Scottco points to no evidence of record indicating it was prejudiced by the passage of seven months or that Scottco performed any act, or failed to perform any act, in reliance on Journeyman’s actions or lack thereof. Accordingly, Scottco has failed to come forward with any evidence establishing Journeyman substantially invoked the judicial process to Scottco’s detriment. See In re Citigroup Global Markets, Inc., 258 S.W.3d at 626-27. Journeyman’s sole issue is sustained.

Because the district court committed error when it refused to abate the court proceedings and denied Journeyman’s motion to compel arbitration, Texas’ Seventh District Court of Appeals reversed the lower court’s decision and remanded the case.

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