Developers Surety & Indemnity Co. v. Resurrection Baptist Church
759 F. Supp. 2d 665
D. Maryland
2010

Background

  • AHL Development built a worship facility for Resurrection Baptist and performed site development work; contracts were amended increasing prices.
  • Developers Surety issued performance and payment bonds for AHL, naming Resurrection Baptist and PNC Bank as co-obligees, with the bonds incorporating the Building Contract by reference.
  • Resurrection Baptist declared default in February 2010; project was only 80% complete and funds were insufficient to finish.
  • Resurrection Baptist demanded completion under the bond; Developers Surety refused, citing deviations from the payment application process and improper payments.
  • This suit seeks declaration that Developers Surety’s bond obligations are discharged and argues mediation/arbitration are required under the Building Contract.
  • Resurrection Baptist and PNC Bank move to stay the case pending mediation and arbitration; Developers Surety opposes, arguing non-binding arbitration clause.

Issues

Issue Plaintiff's Argument Defendant's Argument Held
Whether the dispute is arbitrable due to bond incorporation Surety argues no arbitration clause binds it. Building Contract mandates mediation/arbitration and is incorporated by reference. Arbitrable; Surety must arbitrate.
Whether equitable estoppel binds Surety to arbitration Surety should not be forced to arbitration as non-signatory. International Paper estoppel applies; non-signatory can be bound if benefits from contract. Equitable estoppel applies; Surety must arbitrate.
Waiver of arbitration right by defendants Waiver by participating in litigation could bar arbitration. No prejudice; delay alone is insufficient to prove waiver. No waiver; stay pending arbitration appropriate.

Key Cases Cited

  • Commercial Union Ins. Co. v. Gilbane Bldg. Co., 992 F.2d 386 (1st Cir. 1993) (surety bound to arbitrate when bond incorporates contract containing arbitration clause)
  • Exchange Mut. Ins. Co. v. Haskell Co., 742 F.2d 274 (6th Cir. 1984) (arbitration favored for disputes under bonds incorporating contract)
  • United States Fidelity & Guar. Co. v. West Point Constr. Co., 837 F.2d 1507 (11th Cir. 1988) (arbitration compelled where bonds reference contracting documents)
  • Compania Espanola de Petroleos v. Nereus Shipping, 527 F.2d 966 (2d Cir. 1975) (arbitration clauses preserved when incorporated by reference)
  • Cianbro Corp. v. Empresa Nacional de Ingenieria y Tecnologia, S.A., 697 F. Supp. 15 (D. Me. 1988) (incorporation by reference can bind surety to arbitration)
  • O'Connor & Co. v. Insurance Co. of North America, 697 F. Supp. 563 (D. Mass. 1988) (arbitration terms transmitted via contract incorporation)
  • Liberty Mutual Ins. Co. v. Mandaree Public School Dist. # 36, 503 F.3d 709 (8th Cir. 2007) (Mandaree distinguished; in this case, bond language shows intent to arbitrate)
  • International Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411 (4th Cir. 2000) (nonsignatory estopped from avoiding arbitration when directly benefited by contract)
  • Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1 (Supreme Court 1983) (federal policy favoring arbitration; FAA preempts contrary state law)
  • Perry v. Thomas, 482 U.S. 483 (1987) (arbitrability governed by federal law under FAA)
  • Glass v. Kidder Peabody & Co., Inc., 114 F.3d 446 (4th Cir. 1997) (FAA preempts state policies conflicting with arbitration goals)
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