Tower Insurance Company of New York v. davis/gilford, a Joint Venture
967 F. Supp. 2d 72
D.D.C.2013Background
- Davis/Gilford is the general contractor for the Residences at Progression Place project in DC and subcontracted POST for $2,281,400.
- Tower issued a performance bond guaranteeing POST’s work, stating the Subcontract is referred to and made a part of the Bond.
- Davis/Gilford terminated POST for default; Tower elected to complete the Subcontract and and executed a Takeover Agreement incorporating the Subcontract by reference.
- Disputes clause in the Subcontract requires arbitration under AAA rules for disputes with Davis/Gilford, with no direct liability by Davis/Gilford and arbitration judgments enforceable in court.
- The Takeover Agreement contemplated incorporation of the Subcontract’s terms; signature was not completed, yet the parties treat the Subcontract as incorporated.
- Davis/Gilford filed a Demand for Arbitration on March 13, 2013; Tower participated in arbitration with a reservation about the tribunal’s jurisdiction.
- Tower filed suit on May 29, 2013 seeking a declaration that it need not arbitrate fraud-in-the-inducement claims and seeking an injunction to stop arbitration; the court denied expedited relief and the related stay was contested.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Arbitration scope under incorporated Subcontract | Tower contends the Disputes Clause is not incorporated into the Bond/Takeover as to all disputes. | Davis/Gilford argues the clause, incorporated by reference, covers all disputes with Davis/Gilford. | Arbitration clause is incorporated and broad, binding Tower. |
| Fraud in inducement defense arbitrability | Tower argues Prima Paint precludes arbitration of fraud in the inducement of the bond. | Davis/Gilford contends Tower’s fraud defense is arbitrable as part of the contract incorporated into the bond. | Tower must arbitrate the fraudulent inducement defense. |
| Judicial vs arbitrator determination of arbitrability | Tower asserts that arbitrability can be resolved by the court first and arbitration limited. | Davis/Gilford maintains arbitrability is a question for the arbitrator when the contract includes an arbitration clause. | Arbitrability questions are resolved by the court; the court finds the dispute arbitrable. |
Key Cases Cited
- Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1995) (liberal federal policy favoring arbitration; issues should be resolved in favor of arbitrability)
- AT&T Technologies, Inc. v. Communications Workers of Am., 475 U.S. 643 (1986) (arbitrability questions are judicial unless contract specifies otherwise)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) (courts should not assume arbitrability unless clear and unmistakable evidence)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) (state-law principles govern formation; but arbitrability is governed by federal law)
- Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395 (1967) (fraud in the inducement of the contract itself is for the arbitrator; merits of contract validity not for court)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) (courts must enforce arbitration agreements and address validity issues via the arbitrator)
- John W. Johnson, Inc. v. Basic Construction Co., 429 F.2d 764 (D.C. Cir. 1970) (incorporation language can bind subcontractor to prime-contract disputes; no limitation absent language)
- Parsons & Whittemore Contractors Corp. v. Fidelity & Deposit Co. of Maryland, 397 N.E.2d 380 (N.Y. 1979) (fact-specific analysis of incorporation into performance bonds; broader language supports surety arbitration)