Complaint Dismissed for Failure to Comply With Contract’s Mandatory Mediation Provisions

On February 20, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in Key Restoration Corp. v. Union Theological Seminary, 2014 NY Slip Op. 30437(U), dismissing a lawsuit for failure to exhaust pre-litigation ADR obligations.

In Key Restoration Corp., the plaintiff brought claims of foreclosure on a mechanic’s lien, breach of contract and unjust enrichment relating to construction work it did for the defendant. The defendant moved to dismiss on the ground that the plaintiff had failed to comply with the pre-litigation dispute resolution provisions of the parties’ contract. The trial court agreed, dismissing the complaint.  The trial court found that the parties’ contract required that the parties mediate any dispute between them before litigating it and rejected the plaintiff’s arguments for not doing so, explaining:

[The plaintiff's] causes of action, for foreclosure of a mechanic’s lien, breach of contract, and unjust enrichment, are based on contract. Therefore, the dispute is subject to the contractual provisions quoted above. As such, [the plaintiff] failed to satisfy the . . . contract’s conditions precedent to commencing litigation.

. . .

Moreover, the public policy of New York State favors and encourages arbitration and alternative dispute resolutions and these mechanisms are well recognized as an effective and expeditious means of resolving disputes between willing parties desirous of avoiding the expense and delay frequently attendant to the judicial process.

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

Mandatory mediation provisions have, over the past two decades, become increasingly common in commercial contracts. This decision shows that the New York courts will enforce them. And, as a practical matter, is it not better–as a general proposition–for the client to at least try to resolve a dispute by mediation before incurring the costs of litigation and risking getting a complaint dismissed for failing to comply with a contract’s mediation provisions?