Powell Trachtman Logan Carrle & Lombardo

Design Professional's Practice Bulletin

Volume 1, Number 3 — October 1997

This Bulletin addresses recent developments affecting Design Professionals as well as business concerns as important as the specific professional and technical issues they face.

Editors: Neil P. Clain and Richard J. Davies

ADR: Have All the Project's Participants Signed-On?

By Richard J. Davies

INTRODUCTION

The Commonwealth Court of Pennsylvania recently refused to enforce an ADR provision in an agreement between an architect and its consulting engineer which the consulting engineer sought to apply to a dispute initiated by the owner against the architect. The principal reason for the court's refusal was that the owner's agreement with the architect did not contain a similar provision requiring an alternative dispute resolution process. Consequently, the engineer was forced in to the court system he had sought to avoid.

FACTS

The case arose out of the construction of Edison Senior High School in Philadelphia ("the Project"). The School District of Philadelphia ("the Owner") entered into an agreement with Livingston-Rosenwinkel ("the Architect") to provide architectural services for the Project. The agreement did not require that disputes between them be decided through an alternative dispute resolution process (e.g. arbitration, mediation, etc.).

The Architect retained Furlow Associates ("the Engineer") as the mechanical and plumbing engineer for the project and those parties executed an agreement containing an ADR provision:

All claims, disputes and other matters in question between the parties to this Agreement arising out of or relating to this Agreement or the breach thereof, shall be decided by arbitration...unless the parties mutually agree otherwise. No arbitration arising out of or relating to this Agreement shall include, by consolidation, joinder or in any other manner, any additional person not a party to this Agreement except by written consent...

Following construction of the Project, the Owner brought suit in the Court of Common Pleas against the Architect claiming that the Architect had breached its contract and had acted negligently, causing the Owner to suffer damages arising from alleged deficiencies in the design and construction administration of the Project. The Architect then filed a complaint seeking to join others to the litigation, including the Engineer, claiming that they, and not it, caused the Owner's damages. The Engineer filed preliminary objections to the Architect's complaint asserting that the Architect's claim fell within the scope of the ADR provision in their agreement and thus the complaint should be stricken and the Architect ordered to proceed with arbitration. The trial court denied the Engineer's preliminary objections and ordered the Engineer to answer the Architect's complaint and proceed with the litigation initiated by the Owner.

The Engineer appealed to the Commonwealth Court, again asserting that the ADR provision in its agreement with the Architect applied to the Architect's joinder complaint and thus precluded the Architect from bringing the Engineer into the larger dispute with the Owner in the Court of Common Pleas. The Commonwealth Court disagreed with the Engineer's assertions and affirmed the lower court's decision requiring the Engineer to continue as a party in the Court of Common Pleas litigation.

REASONING

The court identified two separate issues raised by the Engineer's preliminary objections and the ADR provision:

(1) Could all of the parties in the litigation, including the Owner, be compelled to arbitrate the entire dispute (that is, could the ADR provision in the Engineer's agreement be enforced as to all parties);

(2) If not, could the ADR provision be enforced at least as to the claims asserted by the Architect in its joinder complaint against the Engineer (that is, could the larger litigation proceed without the Engineer, thereby requiring the Architect to proceed independently against the Engi-neer through arbitration).

The Commonwealth Court decided that the answer to both of these questions was no. As to the first question, the court initially noted that the litigation pending before it did not involve an isolated dispute between the Architect and Engineer; rather, the Architect's claims against the Engineer necessarily involved the resolution of issues raised by the Owner which went beyond the scope of the Engineer's Agreement. Further, the parties to the litigation (e.g., the Owner) were not parties to the Engineer's Agreement and thus could not be bound by its ADR provision. Indeed, the court noted that the ADR provision itself evidenced that the Architect and Engineer did not intend to include in any arbitration between them any other parties since the provision prohibited such joinder.

Rather, in this case the Owner chose its forum (civil litigation) for the dispute, as permitted under its agreement with the Architect. Once the Owner chose that forum, the rules applicable to that forum (i.e., the Pennsylvania Rules of Civil Procedure) applied to the proceedings. Pennsylvania Rule of Civil Procedure No. 2252 permits a defendant (the Architect) to join other parties to the litigation whom it believes to be responsible for the damages claimed by the plaintiff, and that rule cannot be superseded by an ADR provision contained within an agreement between only two of the several parties in the litigation.

As for the second question, the court emphasized that the public policy favoring the resolution of disputes outside the courts rests upon the assumption that such alternative forums promote the "swift and orderly disposition of claims." However, the court noted that were it to enforce the ADR provision here and force the Architect both to litigate with the Owner and to proceed in arbitration against the Engineer, it would be ordering piecemeal, repetitious and uneconomical methods for resolving the disputes. Under such circumstances, the court believed that the public policy interests at issue would be best served by ensuring that all the parties relevant to all the issues raised by the Owner's claims were engaged in a single forum.

CONCLUSION

Under certain circumstances ADR can be a more useful, efficient and less expensive means for resolving disputes among project participants than litigation in the Court of Common Pleas. Whether ADR will be more useful, efficient, and less expensive in resolving a particular dispute between parties rests upon a number of factors, including, but not limited to: the method of resolution chosen (arbitration v. mediation v. mini-trial); the Project's players and the dynamics that have been established between them; the nature (i.e., the type and amount) of the dispute; and the rules that
will be applied to that method of
resolution.

However, before you can assess these factors in determining whether you should pursue ADR, you must first determine whether you can require the necessary parties to submit the dispute to ADR. As the decision above illustrates, making that determination will require that you look beyond the terms of your own agreement to see if others have agreed to ADR in their contracts relating to the Project. Indeed, because construction projects by their nature involve, and require the coordination of, several entities and distinct disciplines with their own relationships to one another, it is likely that a dispute arising out of a project will involve a number of entities who do not have contracts with one another. Thus, while you may have incorporated an ADR provision into your contract, others may not have and you may find yourself in court against your wishes. If you want to know if this can happen to you, you should not only review the ADR provision in your own agreement, but you should review the agreements with the other project entities to determine if everyone has "signed on" to ADR.

This bulletin is intended for general information purposes only and does not constitute legal advice. The reader should consult with legal counsel to determine how laws, suggestions and illustrations apply to specific situations.