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AIA Responds to NY
Court Decision on Arbitration

By Suzanne H. Harness, Esq., AIA
Managing Director and Counsel
AIA Contract Documents and Susan B. McClymonds, AIA, CSI, CCS
Member, AIA Documents Committee
           
A New York state appellate court recently refused to enforce the mandatory arbitration provision contained in a standard form owner/architect agreement published by The American Institute of Architects. In its opinion, Ragucci v. Professional Constr. Servs., 803 N.Y.S.2d 139 (N.Y. App. Div. 2005), the court relied on a New York statute that prohibits mandatory arbitration provisions in various consumer transactions. While the court’s decision will be New York law unless overturned on appeal, the decision applies only to mandatory arbitration provisions in agreements with homeowners for services related to their residences and does not affect other contract provisions.

            The homeowners in this case entered into a contract with the architect to design a new home in Brooklyn and to provide contract administration services during construction. The homeowners and the architect executed AIA Document B727-1988, Standard Form of Agreement Between Owner and Architect for Special Services, which contains a mandatory arbitration clause. Disputes arose during construction, and the homeowners sued the architect. The trial court, relying on New York’s consumer protection statute (N.Y. General Business Law § 399-c), denied the architect’s request to enforce the architectural contract’s mandatory arbitration provision. The architect appealed that decision, and the Appellate Division took up the sole question of whether the scope of the New York consumer protection statute includes architectural services for homeowners. The Appellate Division determined that the New York statute does cover a contract for such services and affirmed the trial court’s decision.

            This court’s decision is not in keeping with how other states have decided this issue. The Federal Arbitration Act, which was not discussed in the New York case, generally ensures the enforceability of mandatory arbitration agreements.       
      
The U.S. Supreme Court held in Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (1995), that the FAA prevents a state statute from invalidating predispute arbitration agreements. Various state courts (e.g., Pennsylvania, South Carolina, and Tennessee) have explicitly recognized the supremacy of the federal law in such circumstances.

            The American Institute of Architects has historically included mandatory arbitration provisions in its agreements with the knowledge that the Federal Arbitration Act ensures the enforceability of mandatory arbitration provisions. The AIA has been in contact with the attorney representing the architect and has offered its assistance in pursuing a further appeal. For more information, contact Documents Information at the AIA at (202) 626-7526 or docinfo@aia.org.

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