Schnader Team Wins Appellate Victory in New York

Schnader attorneys won an appellate decision on behalf of surety client Federal Insurance regarding the preclusive effect of arbitration awards against payment bond principals in subsequent judgment enforcement suits against their sureties. On April 21, 2015, the New York Appellate Division unanimously reversed the lower court’s grant of summary judgment against Federal and another surety, which had held that the sureties were collaterally estopped from challenging liability for an arbitration award rendered in favor of claimant Five Star Electrical Corp.

The controversy arose in connection with a construction subcontract for the installation of a signage and public address system in the New York subways. Five Star’s work was intended to be performed within two years, but was impacted by massive delays. Five Star commenced an arbitration proceeding for $25 million against its upstream contractor, Transit Technologies, LLC (“Transit Tech”). After a five-year, 48-session arbitration, Five Star was awarded $12 million on its claims.

Five Star then moved for summary judgment against the sureties in a separate action which it had commenced in New York Supreme Court, based on the payment bond they issued in connection with the subway project. Schnader represented Federal in the Supreme Court action.

Five Star’s summary judgment motion argued that the sureties were collaterally estopped from challenging liability to Five Star by virtue of the arbitration award against Transit Tech. Federal took the lead for the sureties in opposition, arguing that the sureties had been deprived of a full and fair opportunity to defend against Five Star’s claims at the arbitration.

The motion court granted partial summary judgment to Five Star on the basis of collateral estoppel, but the Appellate Division reversed, holding that the sureties did not have a full opportunity to contest the determination against Transit Tech.

Scott St. Marie and Thomas Giordano represented Federal Insurance in the Supreme Court action.