In County Glass & Metal Installers, Inc. v. Pavarini McGovern, LLC, County Glass & Metal entered into a contract with the property owner and Parvini, the construction manager. County Glass was to install a glass curtain wall manufactured by Alumicor and Alumicor and County Glass agreed to arbitrate their disputes. The owner and the construction manager claimed that the glass curtain wall leaked and, therefore, refused to pay County Glass leading to this litigation. Alumicor was eventually added as a defendant (sorry - the decision doesn't tell us how long the action was pending when Alumicor was added or the circumstances that led plaintiffs to add Alumicor). The Appellate Division, First Department, held that "where arbitrable and nonarbitrable claims are inextricably interwoven, the proper course is to stay judicial proceedings pending completion of the arbitration, particularly where, as here, the determination of issues in arbitration may well dispose of nonarbitrable matters."
It appears that the Appellate Division is hopeful that the arbitration will determine whether there were, in fact, any defect and that determination should simply, if not eliminate, the issues to be litigated. This is an interesting situation because the contractor, County Glass, could have simply continued its claim against the construction manager and property owner for non-payment and then arbitrated the claim later on if they did not win the litigation. It may have been prudent to continue that litigation, let the defendants prove that the manufacturer provided defective materials and then used defendants' proof in the arbitration. By adding the party with the arbitration clause to the lawsuit the contractor may have gotten itself into more legal fees by being forced to arbitrate the defect claim first (usually a more complicated and expense claim) and then litigate the payment issue if the defect claim did not hold water. Of course there are probably a lot of facts that we don't know about from this decision but we are left guessing with what the First Department gave us.
This decision is something to keep in mind in the future if you have arbitrable and non-arbitrable claims.
Vincent T. Pallaci is a New York construction lawyer. He can be reached at email@example.com