(This story by Chris Mays was published in the Brattleboro Reformer on June 6, 2017.)
DEERFIELD VALLEY — The Vermont Supreme Court has ruled that a contract dispute between the Hermitage Club and Extreme Contracting LLC should be resolved via arbitration rather than litigation. The court wrote: “Notwithstanding the many delays and missteps by defendant’s [Extreme’s] attorney, the court issued an erroneous order, and based on that order ultimately granted a sanction — a default judgment — that was unsupported by the facts and the law. We reverse the court’s decision and remand for entry of an order requiring plaintiff [the Hermitage Club] to initiate arbitration or face dismissal of its suit.”
The parties entered into a contract in December 2013, with the Hermitage agreeing to pay Extreme about $681,987 for work related to a new base lodge that was constructed near Haystack Mountain. The Hermitage owns a private ski resort on Haystack, and a golf course, hotel and restaurants in the Deerfield Valley.
Extreme was held responsible by Chittenden Superior Court “for enforcing a mandatory arbitration clause” within the two parties’ contract. The contractor was ordered to initiate arbitration by a certain date but did not. That was considered a failure to obey a scheduling order under the state’s rules of civil procedure and the Hermitage was granted default judgement.
Extreme argued that “default judgment was inappropriate here,” the Supreme Court wrote. “It maintains that the court should have granted its motion to dismiss plaintiff’s suit given the mandatory arbitration provision, and that as the defendant, it should not have been required to ‘initiate’ arbitration.”
The cited arbitration clause for the base lodge work stated: “In the event of any dispute arising here under, the matter shall be submitted to and settled by binding arbitration in accordance with the Construction Industry Rules of the American Arbitration Association. The parties shall be bound by the decision rendered and such decision may be enforced by any court of competent jurisdiction.”
The Hermitage sued Extreme in October 2014 over claims of breach of contract and indemnification for liens imposed on the base lodge property by Extreme’s unpaid subcontractors, according to the Supreme Court. In January 2015, Extreme filed a pro se answer and a counterclaim for $185,000 saying that it could not afford to hire lawyers “as a result of financial strain from not being paid.” Extreme asked for an extension of time to prepare its defense.
The Hermitage “apparently did not receive this filing,” the Supreme Court wrote, “and on January 20, 2015, it moved for a default judgment based on defendant’s failure to answer the complaint. The court denied [the Hermitage] motion in February 2015. It stated, however, that because defendant was an LLC, it must hire counsel or seek permission to have a non-attorney appear.” The court granted Extreme’s request for more time. The contractor then missed its deadline on April 13, 2015. The Hermitage moved for default judgment for the contractor’s failure to plead or defend.
On behalf of Extreme, attorneys asked for an extension of time to respond to the Hermitage’s motion. The trial court gave Extreme until July 24 and struck the contractor’s pro se answer. Attorneys met the deadline and Extreme moved to dismiss the Hermitage Club’s complaint. The contractor also moved to enforce the contract’s “mandatory arbitration clause.” The Hermitage opposed the requests, and “asked the [trial] court to reject [Extreme’s] answer as insufficient and to grant it a default judgment,” according to the Supreme Court. The Hermitage claimed the contractor’s answer failed to comply with the court’s order and that should be treated as a failure to obey a scheduling order.
The Hermitage “argued that the case should be stayed pending the completion of arbitration rather than dismissed,” the Supreme Court wrote. The Hermitage also said Extreme should be required to initiate arbitration under AAA rules and Extreme should be responsible for filing the associated administrative fee. The Hermitage asked the trial court to make a deadline for the contractor to do so.
In September 2015, the trial court denied the Hermitage’s motion for a default judgement and Extreme’s motion to dismiss. The trial court found that Extreme “cited no law to support dismissal as opposed to the stay requested” by the Hermitage, according to the Supreme Court.
“The [trial] court thus stayed the case pending arbitration, contingent upon [Extreme] properly initiating such arbitration by October 1, 2015” and gave Extreme two more weeks to initiate arbitration, the Supreme Court wrote.
The Hermitage said the behavior was part of a long pattern that purposely sought to delay the case’s resolution. Default judgment was granted to the Hermitage on Oct. 21, 2015. The Hermitage was to be awarded about $451,411 — or about $566,881 with interest and attorney’s fees added in — then Extreme appealed the court’s decision for final judgment.
The Supreme Court called the order requiring Extreme to initiate arbitration “improper” and said default judgment “would not be the proper remedy even if the order were proper.”
“There is no question that the contract agreement between plaintiff and defendant required that this dispute be submitted to arbitration, and plaintiff failed to submit it to arbitration,” the Supreme Court wrote, later adding that some courts have concluded “that dismissal is the norm when all claims must be submitted to arbitration” while others have not.
The Supreme Court said plaintiffs should initiate arbitration rather than defendants, citing AAA Construction Industry Rules: “Generally, it is the party seeking substantive relief which must initiate the arbitration, rather than the respondent.” The Supreme Court said court orders must be consistent with the terms of the parties’ arbitration agreement.
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