No Damages From Surety Until After Contractor-Sub Arbitration Outcome

Monday, December 03, 2018 9:30 am
December 2018 - Volume 40 Number 12


CIP Constr. Co. v. Western Sur. Co., 2018 U.S. Dist. M.D. N.C.

Lexis 122664 (July 20, 2018)

A performance bond surety could not compel arbitration to resolve its payment dispute with a general contractor because of a narrow arbitration clause. But it did succeed in making the contractor wait for the result of the contractor’s pending arbitration with the defaulted sub. 

CIP Construction Company (CIPC) was the general contractor and owner of the Bellemeade Village construction project in Greensboro, North Carolina. CIPC entered into a subcontract with United Forming, Inc. (UFI) to complete the reinforced concrete for the project. UFI apparently defaulted on the subcontract by refusing to perform. CIPC gave written notice of the default to UFI’s performance bond surety, Western Surety Company (Western), and demanded that Western honor UFI’s subcontract obligations.    

Because the performance bond incorporated by reference the CIPC-UFI subcontract, which contained an arbitration provision, Western refused to “meet its obligations under the performance bond [until] UFI’s liability had been determined in arbitration.”

CIPC sued Western in February 2018. Western sought to dismiss or stay judicial proceedings and to compel CIPC to pursue its claims in arbitration. A district court agreed to stay the judicial proceedings pending the resolution of arbitration between CIPC and its sub. However, it denied Western’s motion to compel arbitration on the bond issue, ruling that Western failed to show that CIPC agreed to arbitrate disputes arising from the performance bond.   

Arbitration agreement did not rob court of jurisdiction

Western first challenged the court’s subject matter jurisdiction because all issues presented were subject to arbitration, pursuant to the subcontract. Western cited Choice Hotels Int’l, Inc. v. BSR Tropicana Resort, Inc. 2001 U.S. App. Lexis 11905 (June 8, 2001), in which the court recognized that “dismissal may be a proper remedy under the [Federal Arbitration Act] where[..]