On a case where traditional statute of limitations did not apply

March 2, 2020

This column published as "Not Too Late After All" in March 2020 issue

Due dates and deadlines can seem unavoidable. After all, they are ‘dead’lines.

Yes, even the law has a sense of humor. To wit: claim filing deadlines are called statutes of limitations, meaning if you miss one you are SOL. (Don’t get it? Think it through.) Under such SOLs, lawsuits for breaches of contract must be filed within a certain number of years-—typically 3-6 years for written contracts and 2-4 years for oral contracts.

As an alternative to traditional litigation in a court setting, contracts often include arbitration provisions. Most such provisions incorporate procedural rules such as those of the American Arbitration Association (AAA), the International Centre for Dispute Resolution, or Judicial Arbitration and Mediation Services Inc. (commonly known as JAMS). But many arbitration provisions do not include deadlines to initiate the arbitration process. Procedural rules may not fill that gap; e.g., AAA rules do not. Logically, it seems that the deadline to file a lawsuit instead of arbitration should answer that question. However, most U.S. jurisdictions do not fill that gap with a lawsuit SOL. 

What if the written contract is silent about a deadline, the traditional lawsuit SOL does not apply, and procedural rules do not fill the gap? In that instance, there may be no deadline. Such was the case for a bridge contractor’s arbitration demand held to be timely even though a lawsuit would have been untimely.

In the case of Gannett Fleming, Inc. v. Corman Construction, Inc., 243 Md. App. 376 (MD Ct. of Special Appeals, Nov. 21, 2019), a civil engineer and bridge contractor agreed to work together under a teaming agreement to prepare bids for several highway construction projects for the North Carolina DOT (NCDOT). This teaming agreement between engineer and contractor did not include an arbitration provision. 

NCDOT awarded to the contractor its bid to replace seven bridges and five culverts. Subsequently, the engineer and contractor entered into a design subcontract. Although the projects were located in North Carolina, the engineer and contractor chose Maryland law to govern their subcontract. The subcontract was not a standard form of agreement, such as AIA, Consensus, or EJCDC. Nevertheless, the subcontract included a typical arbitration provision that “any dispute . . . shall be decided by arbitration under the Construction Industry Arbitration Rules of the American Arbitration Association.” 

Of course, a dispute arose. As the court aptly described, the parties’ “relationship began to sour when [contractor] came to believe that some of the pre-bid quantity estimates, provided by [engineer] were faulty [which] resulted in delays, cost overruns, and, ultimately, substantial financial losses.” The contractor filed a demand for arbitration more than three years after the dispute arose. The Maryland SOL for breach of a written contract is three years. The arbitration provision in the subcontract did not include a deadline to file an arbitration demand. However, since Maryland law applied to the subcontract, the engineer argued the Maryland SOL applied, and the arbitration demand was filed too late. 

The court held in favor of the contractor. The Maryland SOL for written contracts applies “only to ‘civil action[s] at law’” and a “civil action” does not include arbitration. Moreover, Maryland Rule of Court 1-202(a) defines “action” as “seek[ing] to enforce any right in a court” (italics added). An arbitration tribunal is not a court. (By the way, outside the context of a SOL, state courts like California and Michigan have often found arbitration proceedings are not civil “actions.”)

This was the first instance that a Maryland court decided this question. But most other states agree with Maryland’s interpretation that a general SOL does not apply to arbitration provisions. Some of the other states agreeing with Maryland include Massachusetts, Minnesota, North Carolina, Washington, and Maine. A few states have decided either by specific statute (e.g., New York and Georgia) or by case law (e.g., Florida) that if it is too late for litigation, then it is too late for arbitration.

Whereas objects in a mirror may be closer than they appear, deadlines to arbitrate may be longer than seemingly logical. When the contract is silent and—as in most states—there is no specific SOL for arbitration, then it may not be too late to arbitrate.

About The Author: Straw is a partner with Kraftson Caudle, PLC, a law firm in McLean, Va., specializing in heavy-highway and transportation construction. Straw can be contacted via e-mail at [email protected].

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