Question

Specialized Fraud Areas

Case 4

Cindy Williams is the owner of Williams Concrete Company. Her company fabricates and supplies pre-cast concrete slabs for home construction throughout the Omaha area. Dunn Construction, one of her highest volume customers recently discovered a problem with slabs supplied by Williams Concrete. Dunn is a major home builder that focuses on the upscale housing market. In most months, Williams Concrete supplies Dunn with hundreds of pre-cast slabs.

Because of an error in the fabrication process, the concrete slabs for 23 of Dunn’s new homes did not meet basic materials requirements. This was not discovered until after the homes were completed. It has been determined that none of these homes are safe for habitation. Homeowners must move out and the slabs must be replaced at a considerable cost and months of inconvenience for the homeowners. As a result, Dunns’ reputation has suffered.

The slab fabrication process is complex and the possibility of a problem like this was not unforeseen. For this reason, Williams’ sales contracts with all vendors make it the responsibility of the purchaser to test the quality of all slabs before installation.

Dunn contends that despite this provision in the contract, Williams could be reasonably expected to supply quality slabs and they should assume the liability for the current problems. Dunn is demanding that Williams pay $20 million to cover the damages.

Write responses to the following:

1) From Williams’s point of view, is litigation or Alternative Dispute Resolution (ADR) preferred? Why?

2) From Dunn’s point of view, is litigation or ADR preferred? Why?

3) Which form of ADR could be preferred by the two companies?

Answer 1

1. From Williams’s point of view ADR will be preferred. This is because Williams Concrete Company would like to keep the information with regards to problems in its slabs confidential. Keeping this information confidential is possible only in case of ADR and not in case of litigation. Litigation will make this information public and all the customers will become aware of the problems in slabs manufactured by Williams. This will make a big dent in the future sales of the company. Secondly the company would like to resolve the issue as early as possible and this is possible in case of ADR. Litigation will be more time consuming in addition to being less flexible than ADR.

2. Dunn Construction will prefer litigation. This is because Dunn’s reputation has already suffered and the company will have to incur considerable costs to make the houses that have been built by it habitable. Litigation will give the impression to home buyers that Dunn Construction is taking reasonable steps to rectify the situation and this will eventually restore the buyer’s confidence back. Secondly Dunn Construction has suffered large amount of loss and will want to claim maximum possible damages from Williams Concrete Company. This is more probable in case of litigation in which the court of law will award damages after hearing the case facts and legal opinions of both the plaintiff and the defendant.

3. The form of ADR that could be preferred by the two companies is ‘neutral evaluation’. In this form of ADR both Williams and Dunn will get a chance to present their case before a neutral person called ‘evaluator’. The evaluator will be an expert in the construction business and as technical issues are involved in this case this will be the most suitable form of ADR.