Background
Armory Builder III, LLC was the general contractor on a Brooklyn mixed-use development project that included affordable housing. In 2019 it entered subcontracts with Concrete Structures, Inc. to complete concrete work on the site. Work proceeded through early 2020. On March 30, 2020 — the day New York state construction shutdown orders related to COVID-19 were pending — Concrete Structures sent no workers to the site. Armory Builder terminated the subcontracts, accusing Concrete Structures of abandoning the job and violating worker-staffing provisions.
Concrete Structures contested the termination, arguing it had been wrongfully discharged. After the parties commenced litigation, they stipulated to resolve the dispute through arbitration under the subcontracts’ arbitration clause. Following a nine-day hearing, the arbitration panel ruled that the termination was not warranted and awarded Concrete Structures $1,092,757.82. Concrete Structures moved under CPLR 7510 to confirm the award; Armory Builder cross-moved under CPLR 7511 to vacate it. The Supreme Court confirmed the award, and Armory Builder appealed.
The Court’s Holding
The Appellate Division affirmed. Because the subcontracts involved interstate commerce, the Federal Arbitration Act (FAA, 9 U.S.C. § 1 et seq.) governed the dispute — not the CPLR vacatur framework alone. Under the FAA, an award may be vacated only in narrow circumstances, including when it exhibits a “manifest disregard of the law.” That standard requires both that the arbitrators knew of a governing legal principle and refused to apply it, and that the ignored principle was “well-defined, explicit, and clearly applicable.” The doctrine gives extreme deference to arbitrators and demands more than a mere error of law.
Armory Builder argued that the panel had acted in manifest disregard of the law and the parties’ agreements. The court rejected this in full, finding that the panel did not refuse to apply a known legal principle, that the award was supported by evidence in the record, and that there was at minimum “a barely colorable justification” for the outcome — the standard under which an award must be enforced even if a court disagrees with the merits. Armory Builder’s specific argument that the project’s affordable-housing component made it an “essential service” exempt from the COVID-19 shutdown orders — which would mean Concrete Structures had no valid basis for sending no workers that day — was an argument for the arbitrators to assess, not a basis for judicial vacatur after the fact.
Key Takeaways
- Construction subcontracts that “affect interstate commerce” fall under the FAA, which provides the governing standard for vacating arbitration awards — a more demanding standard than CPLR 7511 alone.
- The FAA’s “manifest disregard of the law” vacatur ground is exceedingly narrow: to prevail, a party must show the arbitrators knowingly refused to apply a well-established, clearly applicable legal principle — ordinary legal error, misapplication, or disagreement with the outcome is not enough.
- COVID-19 construction shutdown orders and essential-services exemptions were live factual and legal disputes during 2020 New York construction litigation; this ruling confirms that how parties’ obligations should have been interpreted during that disrupted period was a question for the arbitral forum to decide, not a basis for post-award judicial second-guessing.
- Where an arbitration award is supported by evidence — even if the court might have decided differently — it must be confirmed; the “barely colorable justification” threshold keeps courts from substituting their judgment for the arbitrators’.
Why It Matters
The COVID-19 construction shutdown generated a wave of contract disputes in New York: subcontractors claimed wrongful termination; general contractors claimed abandonment; essential-services carveouts were contested; and force majeure clauses were tested across the industry. This decision confirms that parties who agreed to arbitrate those disputes are held to the outcome of that process. The FAA’s strong pro-enforcement presumption means that construction industry arbitral awards are practically immune from judicial second-guessing absent corruption, partiality, or deliberate disregard of settled law.
For general contractors managing complex projects with multiple subcontractors, this ruling is a reminder that once work is sent to arbitration, the panel’s factual and legal determinations are effectively final. Careful drafting of termination-for-cause provisions — including notice requirements, cure periods, and express definitions of what constitutes abandonment — remains the best prophylactic measure, as post-award vacatur efforts under the FAA face an extremely high bar.