Construction contracts typically contain a dispute resolution provision, which explains how any disagreement will be handled, including which laws apply, the process to resolve disputes, and where any disputes will be settled. These provisions are often tailored to minimize costs by compelling arbitration, as opposed to litigation, or by mandating that the dispute is resolved at a convenient venue.
A recent Maine Superior Court Order underscores why it is important for everyone involved in a construction project—owners, architects, engineers, general contractors, subcontractors, and subconsultants—to coordinate their dispute resolution process so as to not incur unnecessary legal costs.
The case: Smith v. Hilliker
In Smith v. Hilliker, Smith, individually and on behalf of Riverbend LLC and Lisbon Cannabis Company, sued Hilliker, alleging that Hilliker, a member of Riverbend LLC, breached his fiduciary duty. Hilliker asked the court to pause the lawsuit and send the dispute to arbitration, relying on a clause in Riverbend LLC’s operating agreement. In relevant part, this clause in the operating agreement provided that disputes “aris[ing] between or among the Members relating to this Agreement or the Company’s Business or affairs” would be settled through arbitration.
Relying on this language, the Court issued an order compelling arbitration of Smith’s claims, but not for those asserted by Lisbon Cannabis Company. The Court reasoned that Smith’s claims against fellow LLC member Hilliker should be arbitrated given “the plain meaning of the language used” in the LLC operating agreement and Maine’s public policy favoring arbitration. However, because Lisbon Cannabis Company was not a member of the LLC and thus not bound by the operating agreement, its claims would not be arbitrated.
What it means for construction contracts
This case highlights several important points for anyone involved in construction contracts:
- All parties involved in a construction project should carefully review and coordinate their dispute resolution provisions to ensure that they do not incur avoidable costs.
- Ensure that your dispute resolution provision is appropriately broad, or narrow, to protect your interests and include all relevant claims and parties in the same proceeding.
- Maine courts will determine the terms of the dispute resolution provision “from the plain meaning of the language used and from the four corners of the instrument.”
- Maine public policy favors arbitration as a form of dispute resolution, as it tends to be quicker and less costly than going to court.
Smith v. Hilliker is a reminder that even small inconsistencies in dispute resolution provisions can create significant procedural headaches—and real financial exposure. Aligning these clauses across all project contracts is one of the simplest ways to protect your interests before a dispute ever materializes.
Conor Shankman is a Shareholder in Bernstein Shur’s Construction Law practice group, where he represents owners, developers, contractors, and design professionals on contracts, risk management, claims, and litigation. Co-author Matt Kaplan is a JD candidate at the Boston University School of Law and a former Summer Associate at Bernstein Shur. The Construction Law group guides developers, contractors, and suppliers through every project phase, combining deep industry knowledge with transactional and litigation expertise across real estate, land use, labor, and municipal law.