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Posted: June 19, 2016

Arbitration Provision of Prompt Payment Act Trumps Contract’s Dispute Resolution Clause

On June 9, 2016, Justice Platkin of the Albany County Commercial Division issued a decision in Capital Siding & Construction, LLC v. Alltek Energy System, Inc., 2016 NY Slip Op. 31043(U), holding that the arbitration provisions of the Prompt Payment Act control over the dispute resolution provisions of a contract, explaining:

[R]espondent’s claims against petitioner arise under General Business Law article 35-E, also known as the “Prompt Payment Act” (“PPA”), a statutory scheme that governs payment procedures and remedies for private non-residential construction contracts in excess of a specified dollar threshold. If efforts to resolve a dispute arising under the PPA are unsuccessful, the aggrieved party may refer the matter to expedited arbitration before the American Arbitration Association. As the foregoing statute confers upon respondent the right to initiate binding arbitration, the absence of a contractual agreement to arbitrate is of no moment.

In seeking to deny respondent the arbitral rights granted by GBL § 756-b (3), petitioner relies upon GBL § 756-a, which, in pertinent part, reads as follows:

It is the policy and purpose of this article to expedite payment of all monies owed to those who perform contracting services pursuant to construction contracts. Except as otherwise provided in this article, the terms and conditions of a construction contract shall supersede the provisions of this article and govern the conduct of the parties thereto.

Thus, petitioner argues that the mutually agreed-upon dispute resolution procedures of the Subcontract – mediation followed by litigation in a court of competent jurisdiction – are controlling.

While GBL § 756-a establishes a general policy of giving primacy to the terms of the parties’ negotiated agreement, the “except as otherwise provided” language used by the Legislature necessarily contemplates certain exceptions to that rule. As observed by respondent, one such exception is GBL § 757 (3). Added by the Legislature to the PPA in 2009, GBL § 757(3) renders void and unenforceable any contractual provision that denies an aggrieved party the right to expedited arbitration under GBL § 756-b. Thus, insofar as petitioner maintains that Section 6.2 of the Subcontract operates to deny respondent the right to pursue arbitration of its PPA claims, the clear and unambiguous language ofGBL § 757(3) renders the Subcontract void and unenforceable to that limited extent.

(Internal quotations and citations omitted) (emphasis added).

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