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Scope of Arbitration Clause Does Not Extend to Ensuing Action to Collect Award - Giron v. Dodds

The District of Columbia Court of Appeals (DC’s highest court) recently held that piercing the corporate veil, i.e., disregarding the corporate entity (“PCV”) to collect on an arbitration award is outside the scope of an arbitration clause.  In a Jan. 5, 2012 opinion, the Court of Appeals refused to compel arbitration of a PCV claim initiated in order to collect on the arbitration award after the defeated party (a now-defunct Virginia-incorporated entity) claimed it was “asset-less” and unable to pay the amount awarded to the owner in arbitration.

The case, Giron v. Dodds, involved a property owner who sued a contractor (a corporate entity) for breach of contract, among other claims, after the contractor abandoned a demolition and renovation project in Northwest, DC.  The owner filed its action in DC Superior Court, whereupon the contractor moved to compel arbitration pursuant the parties’ construction contract, which provides:

Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Construction Industry Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

 

Based upon the above arbitration clause, the trial court ordered the dispute to arbitration and stayed the court case pending the outcome of arbitration.  After the arbitration hearings concluded, the arbitrator found the contractor liable to the owner and issued a final award of $120,872.42 “as full and complete settlement of the claims of both parties”.  Further, in response to a motion filed by the owner to clarify the award, the arbitrator noted that “no claim was made in [the] arbitration concerning the piercing of a corporate shield”.  

The contractor, however, refused to pay the $120,872.42, claiming that the entity was “asset-less” and unable to pay.  Upon learning that collection efforts would be futile (against the entity), the owner (i) moved in the trial court to confirm the arbitration award and (ii) filed an amended complaint seeking to pierce the company’s corporate veil and hold the entity's two shareholders individually responsible for payment of the award.  Despite the unfavorable outcome in the breach of contract arbitration proceedings, the shareholders (again) moved to compel arbitration (this time of the PCV claim).  Yet, unlike the first motion to compel arbitration, this time the trial court denied the motion (i.e., refused to send the PCV claim to arbitration).  The trial court found that the claim was outside the scope of the parties’ arbitration agreement, and thus, not subject to such proceedings.

In its Jan. 5, 2012 opinion, the Court of Appeals upheld the trial court, noting that the claim did not “ari[se] out of or relat[e] to [the] contract, or the breach thereof,” but arose “out of the [owners'] efforts to collect the arbitration award.”  The court scrutinized the matter under DC’s Revised Uniform Arbitration Act (RUAA), and, because the Federal Arbitration Act is “substantially similar to the District's act”, looked to federal precedent for guidance.

This is an important case for all parties to any contract incorporating an arbitration clause.  While this case relates to a construction dispute in particular, the reasoning is not limited to that context alone, and can impact any case in which a party institutes spin-off litigation to collect on an arbitration award.

Did You Know . . .

Members of the SLS trial group have tried in excess of 50 jury trials and 75 bench trials?

The SLS construction group has worked on sports stadiums across the country including Orioles Park in Baltimore and Paul Brown Stadium in Cincinnati?

The SLS construction group has worked on power plant projects across the country?

In 2007 SLS was selected for an Honorable Mention as one of the Best Places To Work in Washington DC?

Ron Shapiro, Steve Schram and Judd Lifschitz have all been selected as SuperLawyers by Law and Politics?

The SLS office building is an historic townhouse constructed in the late 1800s?

SLS has been selected by Martindale-Hubbell as a Preeminent Law Firm?

SLS trial lawyers have argued appeals in the U.S. Circuit Courts of Appeal for the 4th, 5th, 9th, D.C. and Federal Circuit?

SLS trial lawyers have been lead trial counsel in cases in Arizona, California, District of Columbia, Florida, Louisiana, Maryland, New Jersey, New York, North Carolina, Oregon, Texas, and Virginia, - to name just a few?

Virtually all the cases that SLS trial lawyers mediated have been favorably settled at mediation?

The transactional group at SLS was lead counsel on one of the largest, most complex mixed-use projects in downtown Washington, DC involving 4 lenders and 6 property owners?

In appreciation for the outstanding efforts of each of its employees during 2007, SLS gave everyone (attorneys, paralegals, and staff) a 4 day/3 night expense paid trip to Key West, Florida?

The transactional group at SLS has represented tenants in more than 200 retail leases in the Mid-Atlantic region?

Every attorney in the transactional group at SLS has at least 15 years experience?

The transactional group at SLS has represented developers in the purchase, construction, financing and/or sale of more than 75 multi-family apartment projects?

The transactional group at SLS has represented real estate investors and developers with respect to property in Pennsylvania, West Virginia, Delaware, Maryland, the District of Columbia, Virginia, North Carolina, South Carolina, Georgia, Florida, Texas, Tennessee, Michigan and the U.S. Virginia Islands?

Attorneys in the transactional group at SLS have represented eight national banks in commercial real estate loans?

Attorneys in the transactional group at SLS have represented the FDIC, the Resolution Trust Corporation and several banking institutions in loan workout transactions throughout the Mid-Atlantic region?

The transactional group at SLS has represented homebuilders and commercial real estate developers in work-outs of individual loans and also for work-outs of large portfolios involving dozens of properties in several states?

The trial lawyers of SLS have numerous reported decisions to their credit?