In Girolametti v. Michael Horton Assocs., Inc., the Supreme Court determined when a subcontractor’s rights will be affected by an arbitration in which the subcontractor did not participate. Girolametti v. Michael Horton Assocs., Inc., 332 Conn. 67, 71 (2019). This decision was based upon “the rule of claim preclusion,” which prevents the re-litigation of a claim once the claim has had a full and fair hearing “regardless of what additional or different evidence or legal theories might be advanced in support of it.” Id. at 75. In order for claim preclusion to apply, the following requirements must be met:
(1) The prior judgment must have been rendered on the merits by a court of competent jurisdiction;
(2) The parties to the prior and subsequent actions must be the same or in privity;
(3) There must have been an adequate opportunity to litigate the matter fully; and
(4) The same underlying claim must be at issue.
Id. After applying these requirements in Girolametti, the Supreme Court held that the owner’s claims against the subcontractors were barred because they were either brought or could have been brought in the owner’s arbitration against the general contractor. Id. at 71. This holding is a landmark construction law decision that will have far reaching and possibly unintended consequences.
Girolametti involved a typical situation where the dispute between the owner and general contractor included claims that the work performed by subcontractors was defective. In this case, the arbitrator found in the general contractor’s favor on both its claims for nonpayment and the owner’s claims pertaining to defective work. Thus, in this situation, the subcontractors were willing to be held to the determination of an arbitration in which they did not participate because they essentially won. However, it seems obvious that the subcontractors would not have been as willing to accept the arbitrator’s decision if the arbitrator had found their work to have been defective. Notwithstanding the foregoing, all legal claims must be analyzed by their specific elements.
When a subcontractor is being held to the decision of arbitration between the owner and general contractor in which the subcontractor did not participate, the only element of claim preclusion that would be in doubt is whether there has been an adequate opportunity to fully litigate the matter. There is no question that the prior “judgment” will have been issued by a “court of competent jurisdiction,” because it has long been established “that an arbitration award is accorded the benefits of the doctrine of res judicata in much the same manner as the judgment of a court.” Id. The second element is a little more complicated, because the parties are not the same and the court acknowledges that “privity” is difficult to define. However, the court ultimately determines that the contractual relationship between a general contractor and its subcontractors is sufficient to determine that they are “sharing the same legal right.” Id. Finally, based upon the court’s ruling that the owner is barred from re-litigating claims that have been brought “or could have been brought,” there is no question that the “same claim” is involved.
Having determined that only one element of claim preclusion is possibly in doubt, the only question is whether a general contractor will fully defend against the owner’s claim that the subcontractors performed defective work if the subcontractors are not present to defend themselves. On its face, the answer would appear to be that the general contractor does have an interest in defending its subcontractor’s work, because, if it doesn’t, it will not prevail in the arbitration and it will recover the monies it is owed. However, this decision may give the general contractor less incentive to defend against an owner’s defective work claims. For example, if the subcontractors will definitely be held to an arbitration decision reached without their participation, then the owner could prevail and the general contractor would have a slam dunk case for indemnification against its subcontractors. Thus, it may be in the general contractor’s interest to lose an arbitration to the owner and bring claims against its subcontractors because the subcontractors’ liability will already have been established.
In future cases where the owner/general contractor arbitration is decided in owner’s favor, a subcontractor may argue that it did not have a full hearing of its case because the general contractor did not adequately rebut the owner’s claims, but the court in Girolametti did not indicate whether there would have been a different result if the arbitrator had found the work defective. Moreover, this decision appears to contradict common law and statutory causes of action that provide subcontractors with direct claims against owners. Thus, further elaboration or a statutory adjustment to Girolametti may be required.
If you should have any questions about your rights in arbitration, please give me a call at (203) 640-8825.
Scott Orenstein