Western Surety Company v. U.S. Engineering Company
211 F. Supp. 3d 302
D.D.C.2016Background
- U.S. Engineering (Defendant) subcontracted sheet-metal work to United Sheet Metal (Subcontractor) under a subcontract that included an arbitration clause applying to controversies or claims between Contractor and Subcontractor.
- United Sheet Metal obtained a $585,000 performance bond from Western Surety (Plaintiff), which identified United Sheet Metal as “Contractor,” Western as “Surety,” and U.S. Engineering as “Owner.” The bond incorporated the construction contract and included a clause permitting proceedings under the bond to be instituted in court.
- A dispute arose; U.S. Engineering terminated United Sheet Metal and sought $417,379 in damages while United Sheet Metal sought arbitration for $331,242. Arbitration between those parties is ongoing.
- U.S. Engineering sought to join Western Surety in the arbitration and to make a claim on the bond. Western refused and filed this declaratory/injunctive action seeking a ruling that it is not required to arbitrate.
- The central legal question is whether Western, a non-signatory surety whose bond incorporates the subcontract, is bound by the subcontract’s arbitration clause (and by extension whether it agreed to arbitrate arbitrability).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Western is bound to arbitrate disputes under the subcontract's arbitration clause | Western: did not consent to arbitration; the bond does not clearly bind it to arbitration and the bond explicitly allows court proceedings | U.S. Eng.: the bond incorporates the subcontract by reference, so Western is bound by the subcontract's arbitration clause (including arbitrability) | Court: Western is not bound by the subcontract arbitration clause; grant summary judgment for Western |
| Whether arbitrability was committed to an arbitrator | Western: no clear and unmistakable evidence Western agreed to arbitrate arbitrability | U.S. Eng.: subcontract adopted AAA rules which may delegate arbitrability to arbitrators | Court: no clear and unmistakable evidence Western agreed to arbitrate arbitrability; court decides arbitrability |
Key Cases Cited
- Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63 (arbitration is contractual; enforce agreements according to their terms)
- BG Group, PLC v. Republic of Argentina, 134 S. Ct. 1198 (a party cannot be compelled to arbitrate disputes absent agreement)
- Aliron Int’l, Inc. v. Cherokee Nation Indus., Inc., 531 F.3d 863 (arbitrability disputes evaluated under summary-judgment-type review)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (heightened standard: clear and unmistakable evidence required to show parties agreed to arbitrate arbitrability)
- Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (federal policy favoring arbitration)
- Sheriff v. Medel Elec. Co., 412 A.2d 38 (when a contract incorporates another writing, the documents are read together)
- Exchange Mut. Ins. Co. v. Haskell Co., 742 F.2d 274 (discussed for contrast: broad arbitration clause held to bind surety)
- J.S. & H. Constr. Co. v. Richmond County Hosp. Auth., 473 F.2d 212 (discussed for contrast: broad arbitration clause in prime contract bound non-signatories via incorporation)