Owner’s Claim for Defective Work Not Barred by Prior Arbitration

A contractor who successfully pursued payment in arbitration objected when the public authority owner subsequently filed a lawsuit claiming defective work. The contractor argued that the lawsuit was barred by doctrines of res judicata or collateral estoppel, but the Appellate Court of Connecticut has ruled in favor of the owner. Thus continues a lengthy battle. But there is more to the story.

The project for twenty-two buildings was started in 1991 and completed in 1996. Issues then arose concerning the construction and alleged defects. The contractor eventually filed for arbitration, seeking the contract balance. In that arbitration, the contractor attempted to assert a claim for declaratory judgment, in effect seeking a decision that the work was “free from defect.” But the public authority objected, arguing that the attempted declaratory judgment action was barred by CT General Statutes §4-61, in that the contractor had not given the proper notice to pursue this claim. The authority further stated that it was reserving the right to pursue claims concerning defects in a different forum.

The arbitration had focused on delays in the project, and ended with an award in favor of the contractor for $82,812.81. No claims for defective construction were advanced in the arbitration. In fact, the arbitrator decided that he lacked jurisdiction to hear the contractor’s attempted declaratory judgment claim.

On this record, the trial court in the subsequent lawsuit held:

The conduct of the arbitration and its resolution by the arbitrator demonstrates that the [public authority] never asserted in arbitration the claim of defective construction it makes here. Furthermore, when the [contractor] attempted to force the issue by its proposed amendment of the arbitration complaint, the arbitrator refused to entertain the amendment because he lacked jurisdiction to do so. Finally, whether or not [the contractor]’s performance was in conformity with its contract with the state was never litigated in the arbitration, the arbitrator ordering payment of the retainage based on the state’s admission of that allegation for purposes of the arbitration.

The appellate court noted, first, that Connecticut is a permissive counterclaim jurisdiction. So the public authority was not required to assert its counterclaim in the arbitration. The counterclaim not having been filed, the arbitrator had made no findings as to whether the contractor’s work was without defect. Thus, the doctrine of res judicata did not apply. And since this issue was not “fully and fairly litigated” in the first action, the doctrine of collateral estoppel did not apply. Thus, the contractor’s efforts to cut off that claim by motion did not succeed. The case is State v. Bacon Construction Co., 160 Conn. App. 75 (Sept. 22, 2015).