ARBITRATION OF CONSTRUCTION DISPUTE AND MECHANICS LIEN

Tozzi v. McLoughlin Constr. Corp., Date filed: 2022-03-24, Court: Supreme Court, Suffolk, Judge: Justice Christopher Modelewski, Case Number: 615869/2021:

"This is an action sounding in claims for breach of contract, conversion, accounting, fraud, fraud in the inducement, and willful exaggeration of a mechanic’s lien. Plaintiff commenced this action by the filing of a summons and complaint on August 18, 2021. The complaint alleges that defendant McLoughlin Construction Corp. (“MCC”) breached a construction contract for the improvement of real property located at 77 Dune Road, Bridgehampton, New York (the “subject property”). The complaint alleges that plaintiff is a resident of the State of Wyoming and is also the owner of the subject property. The complaint further alleges that plaintiff acquired the subject property “with the intent of demolishing the existing home and constructing a new beach front summer home” (the “project”). The complaint further alleges that MCC and defendant James McLoughlin (“McLoughlin”) made certain representations regarding their skills, expertise, and experience in high-end home building to induce plaintiff to enter into a contract with MCC for the construction of the Project. The complaint further alleges that plaintiff and MCC entered into a contract dated August 2, 2018 for the improvement of the subject property by the construction of a two-story single-family residence (the “contract”). By submissions filed on September 29, 2021, MCC and McLoughlin filed a verified answer, third-party complaint, and moved to compel plaintiff to arbitrate his claims pursuant to §§6.1 and 6.2 of the contract (collectively referred to herein as “the arbitration clause”). MCC and McLoughlin argue that the arbitration clause requires this dispute to be resolved by arbitration pursuant to the American Arbitration Association Construction Industry Arbitration Rules. Plaintiff opposes the motion and argues that the arbitration clause in the contract is unenforceable and void under §399-c of the General Business Law (“GBL 399-c”), that MCC and McLoughlin failed to proceed to mediation, which is a condition precedent to arbitration, and that arbitration should not be compelled because not all claims are arbitrable. MCC and McLoughlin reply.

New York State “has a long and strong public policy favoring arbitration” (Matter of Smith Barney Shearson v. Sacharow, 91 NY2d 39, 49, 666 NYS2d 990 [1997]; see also Matter of Nationwide Gen. Ins. Co. v. Investors Ins. Co. of Am., 37 NY2d 91, 371 NYS2d 463 [1975]). “Any doubts as to whether an issue is arbitrable will be resolved in favor of arbitration” (State of New York v. Philip Morris Inc., 30 Ad3d 26, 813 NYS2d 71 [1st Dept 2006] affd 8 NY3d 574, 838 NYS2d 460 [2007]). CPLR 7501 confers jurisdiction on courts to enforce written arbitration agreements (Crawford v. Merrill Lynch, Pierce, Fenner & Smith, 35 N.Y.2d 291, 299 [1974]; see also Flores v. Lower E. Side Serv. Ctr., Inc., 4 NY3d 363, 370 [2005]). Specifically, a “written agreement to submit any controversy…to arbitration is enforceable without regard to the justiciable character of the controversy and confers jurisdiction on the courts of the state to enforce it and to enter judgment on an award” (CPLR 7501). “Where there is no substantial question whether a valid agreement was made or complied with…the court shall direct the parties to arbitrate” (CPLR 7503; see also Degraw Const. Group, Inc. v. McGowan Builders, Inc., 152 AD3d 567, 58 NYS3d 152 [2d Dept 2017]). The arbitration agreement need not be signed “so long as there is other proof that the parties actually agreed on it” (God’s Battalion of Prayer Pentecostal Church, Inc., v. Miele Associates, LLP, 6 NY3d 371, 374, 812 NYS2d 435 [2006]). On a motion to compel arbitration, it must be determined “in the first instance…whether the parties have agreed to submit their disputes to arbitration and, if so, whether the disputes generally come within the scope of their arbitration agreement” (Matter of Norrtheast & Central Contractors, Inc. v. Quanto Capital, LLC, ___AD3d ___, ___NYS3d ___, 2022 WL 791296, 2022 NY Slip Op 01791 [2d Dept 2022] quoting Revis v. Schwartz, 192 AD3d 127, 140 NYS3d 68 [2d Dept 2020]; see also Degraw Const. Group, Inc. v. McGowan Builders, Inc., supra at 569, 58 NYS3d 152 quoting Sisters of St. John the Baptist, Providence Rest Convent v. Geraghty Constructor, 67 NY2d 997, 998, 502 NYS2d 997 [1986]; Highland HC, LLC v. Scott, 113 AD3d 590, 978 NYS2d 302 [2d Dept 2014]). Indeed, “arbitration is a matter of contract” and an “arbitration clause is a contractual right” (Degraw Const. Group, Inc. v. McGowan Builders, Inc., supra at 569, 58 NYS3d 152). A party to an agreement will not be compelled to arbitrate its dispute with another unless the evidence establishes the parties’ “clear, explicit and unequivocal” agreement to arbitrate (God’s Battalion of Prayer Pentecostal Church, Inc., v. Miele Associates, LLP, 6 NY3d 371, 373, 812 NYS2d 435 [2006]).

In determining the rights and obligations of the parties to a contract, it is well-established that “a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms” (Greenfield v. Philles Records 98 NY2d 562, 569, 750 NYS2d 565 [2002]; R/S Assoc. v. N.Y. Job Dev Auth., 98 NY2d 29, 32, 744 NYS2d 358 [2002]). “In construing a contract, one of a court’s goals is to avoid an interpretation that would leave contractual clauses meaningless” (Two Guys from Harrison-N.Y. v. S.F.R. Realty Assoc., 63 NY2d 396, 403, 482 NYS2d 465, 468 [1984]). The aim of the court when interpreting a contract is to arrive at a construction that gives fair meaning to all of its terms and provisions, and to reach a “practical interpretation of the expressions of the parties so that their reasonable expectations will be realized” (see Pellot v. Pellot, 305 AD2d 478, 759 NYS2d 494 [2d Dept 2003]; Gonzalez v. Norrito, 256 AD2d 440, 682 NYS2d 100 [2d Dept 1998]; Joseph v. Creek & Pines, Ltd., 217 AD2d 534, 535, 629 NYS2d 75 [2d Dept], lv denied 89 NY2d 804, 653 NYS2d 543 [1996]; see also Matter of Matco-Norca, Inc., 22 AD3d 495, 802 NYS2d 707 [2d Dept 2005]; Tikotzky v. City of New York, 286 AD2d 493, 729 NYS2d 525 [2d Dept 2001]; Partrick v. Guarniere, 204 AD2d 702, 612 NYS2d 630 [2d Dept], lv denied 84 NY2d 810, 621 NYS2d 519 [1994]). As it is a question of law whether or not a contract is ambiguous (W. W. W. Assoc. v. Giancontieri, 77 NY2d 157, 565 NYS2d 440 [1990]), a court must first determine whether the agreement at issue on its face is reasonably susceptible to more than one interpretation (see Chimart Assoc. v. Paul, 66 NY2d 570, 498 NYS2d 344 [1986]). “If the language of the agreement is free from ambiguity, its meaning may be determined as a matter of law on the basis of the writing alone without resort to extrinsic evidence” (Salerno v. Odoardi, 41 AD3d 574, 575, 838 NYS2d 156 [2d Dept 2007]).

Here, there is no dispute that the contract includes an arbitration clause, which reads, in pertinent part, that

[i]f a dispute arises from or is related to this Agreement or a breach thereof, the parties shall endeavor in good faith to solve the dispute through direct negotiations. The Parties hereto agree in the event of a dispute arising stemming from or relating to this Agreement or a breach thereof, they will submit for resolution their dispute to their named designated private arbitrator…. If a dispute cannot be settled through direct negotiations, the parties agree to endeavor to settle the dispute through mediation administered by a mutually acceptable mediator…. If the dispute is not resolved within 10 days of being submitted to mediation, the parties further agree that the unresolved controversy or claim shall be settled through binding arbitration using the American Arbitration Association Construction Industry Arbitration Rules…. Any arbitration decision and/or award is final and binding and may be enforced in the courts of Suffolk County, New York.

The arbitration clause is clear and unambiguous and no party herein is arguing that the clause contains an ambiguity. Further, the arbitration clause is broadly worded and pertains to all claims arising from or relating to the contract. The Court of Appeals has determined that “an arbitration clause is generally separable from substantive provisions of a contract, so that an agreement to arbitrate is valid even if the substantive provisions of the contract are induced by fraud” (Ferrarella v. Godt, 131 AD3d 563, 566, 15 NYS3d 180 [2d Dept 2015] citing Matter of Weinrott (Carp), 32 NY2d 190, 344 NYS2d 848 [1973]). Thus, as a general rule, the issue of fraud in the inducement should be determined by the arbitrator, except where the arbitration clause specifically excludes fraud in the inducement from the issues to be determined by arbitration” (Anderson St. Realty Corp. v. New Rochelle Revitalization, LLC, 78 AD3d 972, 974, 913 NYS2d 114 [2d Dept 2010] citing GAF Corp. v. Werner, 66 NY2d 97, 105, 495 NYS2d 312 [1985] after remand 115 AD3d 1021 [1986] cert denied 475 US 1083 [1986]). Here, the fraud claims are not specifically excluded from arbitration. Further, fraud claims only affect the validity of the arbitration clause when the fraud relates to the arbitration provision itself. Here, there are no allegations “that the agreement was not the result of an arm’s length negotiation, or that the arbitration clause was inserted into the contract to accomplish a fraudulent scheme” (Ferrarella v. Godt, supra 131 AD3d at 566-67; Anderson St. Realty Corp. v. New Rochelle Revitalization, LLC, supra at 974, 913 NYS2d 114). Based upon the foregoing, the breach of contract, conversion, accounting, and fraud claims are to be determined by the arbitrator. There is no dispute that the mechanic’s lien claim is not arbitrable; such liens falling within the exclusive jurisdiction of the Court (see Lien Law §41). Despite plaintiff’s claims to the contrary, GBL 399-c (1)(a) does not apply herein. That statute defines a consumer as a natural person residing in New York. Plaintiff admits in his complaint that he is a resident and citizen of the state of Wyoming. Therefore, he cannot be considered a consumer subject to the provisions of GBL 399-c, which prohibits arbitration clauses in contracts for the sale or purchase of consumer goods. Due to this finding that the prohibitions of GBL 399-c do not apply, the Court need not reach the issue of whether GBL 399-c is preempted by the Federal Arbitration Act (9 USC §1 et seq.). Further, the argument that MCC was required to engage in mediation as a condition precedent to arbitration and that MCC’s failure to mediate precludes it from compelling arbitration are not issues for this Court to decide. Indeed, the issue of whether plaintiff and/or MCC waived mediation or whether MCC waived arbitration, are procedural questions for the arbitrator to decide under the subject arbitration clause (see Matter of Barbalious v. Exterior Wall Sys., Inc., 14 AD3d 508, 787 NYS2d 715 [2d Dept 2005]; Chain Sales Mktg., Inc. v. Roach, 65 Misc3d 1232 (A), 119 NYS3d 829 [Sup. Ct. Suffolk County 2019]; 33 Calvert Props. LLC v. AMEC LLC, 70 Misc.3d 295, 310, 135 NYS3d 767, 779 (Sup. Ct. Westchester County 2020]). The Court has considered the remaining arguments of plaintiff and finds that they lack merit.

Accordingly, the motion by defendants/third-party plaintiffs McLoughlin Construction Corp. and James McLoughlin is granted except as to the mechanic’s lien claim."