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August 2019

Recent Connecticut Case Recognizes Subcontractor Privity for Arbitration

Contracts for large construction projects can, at times, become a tangled web of general contractors, subcontractors and sub-subcontractors. Standard form construction contracts typically contain an arbitration clause between the general contractor and the owner, but not always between the subcontractors and the owner. The Supreme Court of Connecticut recently ruled in Girolametti v. Michael Horton Associates that there is a rebuttable presumption of privity between subcontractors and general contractors for purposes of res judicata respecting arbitration awards.

Following completion of a construction project in 2009, the property owners entered into arbitration with their general contractor. Ultimately, the arbitrator ordered property owners to pay sums due to the general contractor. Years later, plaintiffs brought negligence actions against the subcontractors of the project. The Supreme Court held for the subcontractor defendants reasoning that the arbitration of the construction dispute between the property owners and the general contractor was sufficient for res judicata as to the claims against the subcontractors who did not participate in the arbitration due to a rebuttable presumption of privity between the general contractor and its subcontractors.

An element which must be met to apply res judicata in Connecticut is that parties to the prior and subsequent actions must be the same or in privity. The court stated that “adopting a default presumption of privity . . . is efficient” because the standard form contracts used in the construction industry typically make the general contractor responsible for the work of all subcontractors. This rule allows owners to resolve all claims without the need to pursue subcontractors and sub-subcontractors with individual actions. The court went one step further, determining that arbitration must be final as to all subcontractors because otherwise it would lead to inconsistent outcomes. The property owners’ claims were barred principally because the court found nothing in the record to rebut the presumption that the property owners should have reasonably expected that claims against subcontractors could have been raised in arbitration.

Only one Connecticut state court has previously applied this rule. In Tierney v. Renaud Morin Siding, Inc., a subcontractor was hired by a general contractor to install cedar siding at a homeowners’ residence. The siding was deemed to be improperly installed and the homeowners filed a claim against the subcontractor. However, the homeowners previously entered into an arbitration agreement with the general contractor pursuant to an arbitration clause in their contract. Thus, the Superior Court of Connecticut, Judicial District at Fairfield found that the homeowners’ action against the subcontractors was barred by the doctrine of res judicata because there was a final judgment in arbitration as to the cause of action arising out of the defective siding. The court stated that an arbitration decision is considered a final judgment for purposes of collateral estoppel regardless of whether the court confirmed the award.

The 9th Circuit, the Southern District of Texas, the U.S. District Court of Massachusetts, the U.S. District Court of Connecticut, the Supreme Court of California, the Supreme Court of Rhode Island, and the Supreme Court of New York have all adopted the application of at least a rebuttable presumption that general contractors are in privity with their subcontractors for purposes of res judicata using similar reasoning to Connecticut. The Court of Appeals of Missouri has gone a step further and adopted legal fiction that sub-subcontractors are also in privity of contract with general contractors.

Construction

Joseph J. Blyskal



Construction