The parties entered into a subcontract for plaintiff to perform certain remediation work upon the discovery of mold during construction. An alternative dispute resolution (“ADR”) provision was included in the subcontract, which provided that the contractor’s representative could decide all questions arising from the subcontract and the decision shall be binding and conclusive. A law suit could be commenced if the subcontractor disagreed with the representative’s finding, but the court shall be limited to determining whether the representative acted arbitrarily, capriciously, or grossly erroneous to evidence bad faith.
This suit arose out of the representative’s rejection of plaintiff’s claim that it was due certain payments on the subcontract. The representative determined that plaintiff was 30% responsible for the outbreak of mold and therefore the unpaid balance owed to plaintiff was to be offset by 30% of the total damages that defendant incurred to remediate the mold. The lower court found questions of fact remained and therefore denied both parties’ motions for summary judgment.
On appeal, defendant claimed that pursuant to the ADR provision, only a limited review was to occur and that by the court finding questions of fact, the court was required to find that the determination had a factual basis and therefore was not arbitrary and capricious. The Appellate Court disagreed with this conclusion.
The Court found that the provision at issue called for broader judicial review, similar to that under CPLR 78, not the stricter standards of arbitration review under CPLR 75. The Court ruled that since the contract embraced a claim of bad faith, it would be inappropriate to accord the representative’s determination the same deference accorded to a discretionary determination made by an administrative agency.
Decided 1/22/15 at App. Div. 3d Dept.