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October 31, 2019 Articles

Connecticut’s Evolving Jurisdiction Issues in Construction Arbitration

A review of the progressive erosion of the finality of arbitration decisions under the Connecticut Arbitration Statute applicable to disputes between contractors and the state of Connecticut because of perceived deficient notice of claim.

By Raymond A. Garcia

The recently decided case of Department of Transportation v. White Oak Corp., 332 Conn. 776 (Aug. 20, 2019), ended what may well be the longest running battle ever between the state of Connecticut and a contractor over claims arising from a construction project. The construction began in 1994. A second job started in 1997. There have been at least six decisions resolving various issues by courts as well as arbitration panels. The unfortunate element of the litigation was that the contractor won favorable decisions in arbitration or a trial court, but the decisions were reversed or vacated by the appellate courts. The consistent basis for the appellate decisions was the asserted lack of jurisdiction of the arbitration panel to decide certain issues. The jurisdiction issues arose because of a complex notice requirement inserted into the Connecticut statutes that govern arbitrations between contractors and the state.

In its day, White Oak Corporation was perhaps the largest and most successful road contractor of its time. From its main office in downtown Plainville, Connecticut, the Tofolon family operated an integrated road construction business that reached into all the surrounding states. The Tofolon brothers, Roger and John, who owned White Oak, developed double wall and other precast concrete products still in use today. They organized a steel fabricating company that designed and fabricated steel for many of the bridges around the region. White Oak also had a history of litigating disputes that arose on its projects.

There are perhaps more cases involving the state and White Oak than any other single contractor. The final epic battle between White Oak and the state arose from two projects: the construction of the Tomlinson Bridge in New Haven, which commenced in June 1994, and the construction of three northbound lanes of the Yellow Mill River Bridge in Bridgeport, which commenced in April 1997. The cases demonstrate the manipulation of the dispute resolution process by the state to prevent a contractor from resolving disputes in one relatively quick and efficient arbitration proceeding. They also illustrate the problem of providing adequate notice of the nature and extent of a dispute.

In Connecticut, arbitration between the state and contractors is a matter of statute. A contractor has the option of commencing arbitration or initiating an action in superior court to resolve claims under section 4-61 of the Connecticut General Statutes. Since the statute was enacted, no contractor has sought resolution of a claim in a state trial court. The arbitration process was fast and also provided the industry with an effective process to manage the risk arising from poorly planned and executed construction projects. In large part, most of the arbitrators available to decide disputes were from the private sector. It has been a recent phenomenon that retired state construction employees have come into the potential arbitrator pool.

Over the years, the state lost quite a few arbitrations. The state contended it was often surprised by claims made by contractors. The state proposed amendments to the statute to require more detailed notice of claims and a period of time between filing the claim and the first hearing so that the state would have time to investigate the allegations. During legislative sessions considering these potential amendments, an assistant attorney general representing Connecticut’s Department of Transportation complained that the state had never won a case. The state’s record in arbitration did not improve as a result of the changes implemented by the legislature. But its record in appealing in court and reversing adverse arbitration awards did.

The change that led to increased court intervention was the modification of the otherwise simple statute to require a contractor to provide detailed written notice of its claim and then to wait six months before it could have a hearing on its claim. The written notice defines or limits, depending on your vantage point, the “jurisdiction” of the arbitration panel to hear a particular claim. The notice requirement is technical and burdensome and often becomes the focus of pre-arbitration and post-award litigation. After an arbitration, the state invariably argues that the contractor failed to provide adequate notice and, as a result, that the arbitration panel did not have jurisdiction to decide the merits of the contractor’s claims. Appeals from arbitrators’ decisions almost always reach the Connecticut Supreme Court.

The Connecticut Supreme Court’s decisions in the White Oak cases address critical and determinative procedural issues. One decision provides more insight into the level of detail required to give adequate notice of a claim against the state. Dep’t of Transp. v. White Oak Corp., 319 Conn. 582 (2015) (login required). One decided whether a party could have multiple arbitrations (potentially splitting claims) arising from one project. The decision seems to require that all claims be asserted in one arbitration at the end of a project. Dep’t of Transp. v. White Oak Corp., 287 Conn. 1 (2008). And most recently, the court decided that collateral estoppel may not apply to an arbitration award as matter of discretion. The case decided that the state could simply deduct back taxes that it wishes to use to offset an adverse award even though the state had asserted such taxes as a counterclaim and setoff in the arbitration and then failed to prove that any taxes were due. In the broader sense, the decision will be cited for the proposition that the state cannot waive certain rights even if it asserts and loses claims based on those rights in an arbitration. Dep’t of Transp. v. White Oak Corp., 332 Conn. 776 (Aug. 20, 2019).

Critical factors in each case were questions about the scope of the arbitrations as defined by the written notices filed in accordance with the statute, the acquiescence of the state in allowing the arbitrators to decide an issue without objection, and the express agreement of the assistant attorney general representing the state in the arbitration to submit certain questions to the panel for decision. The White Oak cases resolved issues that are normally negotiated as a predicate to the arbitration or as part of the preparation of the arbitration provisions or worked out during the arbitration itself. One can only wonder whether the aggregate amount at issue in each case—in excess of $75,000,000—was an unarticulated consideration.

The Connecticut Supreme Court’s decisions in the White Oak cases should be contrasted with decisions about arbitration awards in the private sector. The results are different and irreconcilable except to the extent the supreme court interpreted the statute to limit the authority of arbitrators or even the attorney general representing the state. The court’s interpretation of the statute creates an exception to the generally well settled principles governing the deference accorded to private arbitration awards. When the court second-guesses procedural issues that the parties voluntarily submitted to the arbitrators, it dramatically tips the scales in favor of the state. It gives the Office of the Attorney General the opportunity to get a second bite at the apple after it sees whether a tactic it employs in arbitration succeeds or fails. And, of course, it also deprives the parties of key benefits to arbitration: speed and finality.

As advocates (the author was counsel to White Oak in some of the cases), we cannot be so cynical that we see every intervention by a court that imposes a decision adverse to our client’s interest as an unwarranted intrusion. Nonetheless, this article is intended to illustrate the pitfalls of litigating with the government and the lengths to which the government will go even when the designated fact finders determine that the government was wrong. In each of the White Oak cases, the arbitration decisions were adverse to the government’s position. In each, the parties’ arbitration agreement covered “any and all disputes arising from” the construction project. In each, there were precedents from litigation between private litigants that supported the decisions reached by the arbitrators. And in each case, the Connecticut Supreme Court acknowledged that unless a result reached by arbitrators looked like a product of a Ouija board session, the decisions of arbitrators should be affirmed. Garrity v. McCaskey, 223 Conn. 1 (1992).

In the broadest sense, the lesson of the White Oak cases is that one must be critically aware of the jurisdiction of the panel of arbitrators charged with deciding a case. On a more pragmatic basis, litigators should approach writing an arbitration demand with details that would satisfy the requirements of a complaint in fact-pleading states. Contractual claim notice requirements that may have been solved in some general way in the early years of arbitration must be more rigorously scrutinized and followed to eliminate appellate issues. And no matter what happens during the arbitration, the scope of the arbitration agreement must be copiously committed to writing and authorized by one with the appropriate authority.

Raymond A. Garcia is with Garcia & Milas, P.C., in New Haven, Connecticut, and New York City, New York.

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