Background – In September of 2015, Y Levy Construction Corp. entered into a contract with Central Sutton, LLC, and its principals Moshe and Beth Weider, for Y Levy to renovate their home in Lawrence, NY, for $500,000. The parties, expressing optimism that the job would end well, but preparing for the eventuality that it might not, included the following clause: “With God’s help, all will go smoothly, and Client and Contractor will be satisfied at the completion of the project. However, if God forbid, there is any kind of misunderstanding between the parties that cannot be resolved amongst them, then both parties agree to settle their differences with legal arbitration within the City of New York.”

Unfortunately, despite the parties’ prayer that all would go well, it did not. After change orders, etc., the adjusted contract sum exceeded $1.2 million, of which Y Levy claimed that it had not been paid $880,134 (and it filed a mechanic’s lien to secure payment therefor). The owners alleged that Y Levy’s work was incomplete and defective, and they were incurring excess completion costs of more than $500,000.

In April of 2023, Y Levy filed a demand with National Arbitration and Mediation (NAM) seeking to arbitrate the dispute under the contract. In May of 2023, the owners filed a reply to the demand (in effect, an answer) containing counterclaims. The following month, the owners filed a special proceeding in court seeking to permanently stay the arbitration. In support, the owners argued that the arbitration clause was not specific enough to enforce as it did not set forth a specific tribunal, and, as to the Wieders themselves, they were not personally signatories to the agreement and, therefore, could not be compelled to arbitrate the dispute. In opposition, Y Levy argued that the owners could not seek to stay an arbitration proceeding in which they had already participated. Further, as to the inclusion of the owners themselves as parties’ respondent in the arbitration, Y Levy noted that they were signatories to the construction contract, and they did not limit their signatures to their capacities as principals of the LLC.

Decision – The court denied the petition to stay the arbitration. First, the court found that the construction contract was not limited to the LLC and, therefore, the Wieders could be included in the arbitration proceeding. Further, as to the agreement to arbitrate, the court, citing well-settled law, held that by participating in the arbitration— and going so far as to assert counterclaims—the owners waived any objection to proceeding in that forum. (Similarly, participating in litigation despite the existence of a valid arbitration agreement may waive a party’s right to arbitration should it change its mind midway through.)

Finally, as to the claimed ambiguity of the arbitration clause, the court held that it was sufficiently clear that the parties agreed to arbitration to be enforced. As to the specific tribunal, since no tribunal was designated, the contractor was free to choose any tribunal that met the contractual requirement of being in the City of New York, and since NAM has its main offices in midtown Manhattan, its selection was appropriate. (The legitimacy and enforceability of arbitration in New York is found in Article 75 of the CPLR, which can provide missing terms and procedures for vague arbitration clauses, such as the one here.)

Comment – Since resolving a dispute by arbitration constitutes a waiver of a party’s Sixth Amendment right to a trial by jury, such a party cannot be compelled to arbitrate a dispute absent clear consent to proceed in that alternate forum. One way to conclusively demonstrate your consent is to participate in the arbitration proceedings. Accordingly, if you are the subject of a demand for arbitration but do not believe that such is permitted under the contract, seek out experienced counsel immediately in order to seek to stay the proceeding. Participating in the arbitration in any substantive way (such as by asserting counterclaims, as the owners did here) demonstrates your consent to proceed in such fashion, and waives any argument that you cannot be compelled to proceed in that forum.

Further, and regardless of whether you agree or disagree that arbitration is the way to resolve construction disputes (based on the clear positives and negatives, which are always the subject of debate), it is important to tailor the ADR clause in your contract or subcontract to suit your own needs before signing the contract. The Y Levy Contracting case shows the dangers of treating an arbitration clause as mere boilerplate and not negotiating it like any other provision. Here, the owners were compelled to arbitrate before NAM, instead of, for instance, JAMS or the construction panel of the American Arbitration Association, because the only requirement was that the arbitration take place within New York City (which either of those alternate tribunals, and others, would have met the requirement). If your fears about an arbitration are, for instance, the limited review available, you can negotiate in some form of appellate review. However, before blindly signing such a provision—or any other provision—it would be prudent to seek the advice of experienced construction arbitration counsel to explain the positives and negatives of what is being presented, and to negotiate it so that it is more favorable to your cause.

About the author: Thomas H. Welby, an attorney and licensed professional engineer, is General Counsel to the Construction Industry Council of Westchester and the Hudson Valley and the Building Contractors Association, and is the Founder of, and Senior Counsel to the law firm of Welby, Brady & Greenblatt, LLP, with offices located throughout the Tri-State/Greater Metropolitan Region. Gregory J. Spaun, General Counsel to the Queens and Bronx Building Association, and an attorney and a partner with the firm, co-authors this series with Mr. Welby.