Town Solicitor presents council with memo on recent arbitration
Editor's note: As a service to our readers we are printing this memo in its entirety regarding the recent settlement between the town and Siegmund and Associates.
MEMORANDUM To: Jamestown Town Council From: J. William W. Harsch, Esq. Date: June 7, 2006
Re: Siegmund & Associates Arbitration
This is to clarify the outcome of the Siegmund arbitration.
1. Siegmund and Associates Claim. The claim made against the Town under the mandatory arbitration provision of the contract for engineering services on the sewer rehabilitation project was for a total amount of $48,752. Of this, $21,337 was for bills actually issued by Siegmund to the Town for engineering work the firm claimed to have performed. The Town did not believe these bills represented actual work on the design plans for the wastewater treatment plant and, consequently, refused to pay them. Also included was a claim for $19,400 for alleged lost profits associated with termination of the contract. Siegmund also made claim for work allegedly performed beyond the scope of the contract in the amount of $8,025, of which $5,775 was for its own engineering work and the balance of $2,250 was for overtime work performed by its inspector on subcontracts as well as other coordination fees. At the close of the arbitration hearing, there was a demand for expert services in the amount of $53,536, as well as a demand for attorneys fees in the amount of $61,920, claims associated with the defense of the Town's counterclaim that were made on behalf of the Siegmund's insurance company. The total amount sought from the Town between Siegmund's claim, and the claim by its insurance company, was $164,208.
2. The Award to Siegmund and Associates. The arbitrators denied Siegmund's claim of $21,337 for alleged engineering services associated with its unpaid invoices. Siegmund failed to prove that the Town owed any further money for the design plans for the wastewater treatment plant; in other words, the Town was found to have been correct in refusing to pay the Siegmund bills in question. The arbitrators further denied Siegmund's claim for lost profits in the amount of $19,400 as well as the claim for expert witness fees in the amount of $53,536; a total of $94,273 in claims were denied. Compared to this demand, Siegmund was in fact awarded $2,340 plus $585.02 interest for certain additional design work. Accordingly, the actual amount awarded to the Siegmund firm itself for its claimed additional services was $2,925.02, as compared to a total demand of $164,208.
3. The Award to the Insurance Company. Siegmund's insurance company, which handled Siegmund's defense of the Town's counterclaim, but did not assume any responsibility for the Siegmund claim, received a portion of its legal fees in the amount of $30,000, or less than half of its claim of $61,920. This amount has now been negotiated down to $20,000 in exchange for the Town's agreement not to pursue an appeal of the arbitrators award. Additionally, the claim for expert witness fees in the amount of $53,536 was denied by the arbitration panel.
4. Other Awards. The arbitrators re-apportioned the prepaid costs of the arbitration based apparently on the amount of time each party took to present their case before the Board. The Town's case having taken far more time than Siegmund's case and the insurance company's defense of our counterclaim combined, the reapportionment increased the Town's share of the arbitration fee by $12,043.20. An award of $1,710 was made for claimed overtime work owed by Siegmund to inspectors on the construction subcontracts, plus $427.48 interest or a total of $2,137.48. Such fees were a pass-through and not money earned by Siegmund.
5. Origin of the Siegmund and Associate's Claim. The Town tried to negotiate a simple "walkaway" settlement with Siegmund when it became apparent that the sewer project work was badly behind schedule and was experiencing multiple problems. As it could not justify further payments to Siegmund despite demands represented by bills, the Town properly refused to give Siegmund any more money. Siegmund's response was to invoke the compulsory arbitration clause in the contract, which gave Siegmund a distinct tactical advantage from the outset.
6. The Town's Counterclaim. The Town's attempt to negotiate in good faith combined with the lack of recourse directly to the courts created an immediate problem. When Siegmund abruptly broke off negotiations and made demands which the Town knew to be unwarranted and unjustified, the Town had no choice but to respond or risk the loss of any rights it had against Siegmund for the failures of the engineering work. The Town had become aware, following a report from an independent outside engineering expert, that the costs to the Town to remedy the shortcomings of Siegmund's work and get the project back on track would be substantial. The only option available to the Town under these circumstances was to estimate these new costs as best it could and lay them out as a counterclaim in the arbitration in which Siegmund was attempting to get money to which the Town felt he was not entitled.
7. The Duration and Expense of the Arbitration. These costs and expenses were caused by the inability of the arbitrators to reach a timely decision on threshold jurisdictional issues. They insisted that the Town put on its entire counterclaim and then eventually based their refusal to grant the Town any relief on a preliminary procedural basis, therefore entirely avoiding reaching the merits of the Town's claim.
8. The Town's right of appeal. At the close of the arbitration, the Town did have viable appeal options. Unfortunately, the Town's early effort to be fair to Siegmund, avoid a controversy and allow Siegmund to "walk away" cast a cloud which could have affected a court's consideration of the Town's claim against Siegmund. As the saying goes "no good deed goes unpunished." The viability of the Town's possible appeal was confirmed in part by the willingness of the insurance company to agree to a $10,000 reduction in any monies to be paid by the Town.
9. Conclusion. The claim has been made that Siegmund and Associates was successful against the Town and received an award of $47,105.70. This is clearly inaccurate. The fact is that Siegmund and Associates actually received $2,340 (plus interest of $585.02) in engineering fees on its initial claim for $48,752 and the total demand by Siegmund and the insurance company for $164,208. The entire balance of the arbitration decision was composed of payments to construction subcontractors for wrap-up work on their portions of the project itself ($1,710 plus interest of $427.48), a payment to the insurance company for a portion of its legal fees in defending against the Town's counterclaim ($30,000 negotiated down to $20,000), and an adjustment in the pre-paid costs of the arbitration ($12,043.20). The fact is that the firm of Siegmund and Associates received zero for their outstanding engineering bills, zero for their claim of lost profits, and zero for the experts utilized by the insurance company to try to defend against the Town's counterclaim. I trust that the above, puts this matter in proper context and will put an end to the inaccurate claims that have been made about the arbitration decision in the Siegmund matter.