Arbitration Award Ruling That, Because of Cultural Differences, a Local Afghan Subcontractor Is Not Bound by the F.A.R. Provisions Incorporated Into the Subcontracts Is Vacated as Contrary to the Subcontract Terms

Aspic Eng’g & Constr. Co. v. ECC Centcom Constructors, LLC, No. 17-cv-00224-YGR, 2017 U.S. Dist. LEXIS 111767, at *10-12 (N.D. Cal. July 18, 2017)

This matter came before the Court on a motion to vacate a final arbitration award (the “Arbitration Award”) entered in favor of Aspic Engineering and Construction Company “Aspic”) and against ECC International, LLC and ECC CENTCOM Constructors, LLC (collectively, “ECC”).  ECC entered into two prime contracts with the U.S. Army Corp of Engineers (“USACE”) in connection with two reconstruction projects for police training facilities in Afghanistan (the “Projects”).  These prime contracts incorporated, among other things, Federal Acquisition Regulations (“FAR”) Sections 49.206 and 52.249-2, which allowed USACE to terminate the Projects for convenience.  ECC subcontracted portions of the work on the Projects to Aspic.  The subcontracts between ECC and Aspic likewise incorporated several FAR sections.  Although Aspic is an Afghan engineering and contracting firm, it had experience in contracting with the U.S. government and a familiarity with the U.S. Government contract requirements, including FAR clauses.  After ECC and Aspic had partially performed work on the Projects, USACE issued a notice of termination for convenience, which ended the Projects in their entirety.

Aspic filed a demand for arbitration, seeking to recover its lost profits on the Projects.  Continue reading “Arbitration Award Ruling That, Because of Cultural Differences, a Local Afghan Subcontractor Is Not Bound by the F.A.R. Provisions Incorporated Into the Subcontracts Is Vacated as Contrary to the Subcontract Terms”

When Surety Bond Incorporates the Subcontract by Reference, Is the Subcontract’s Arbitration Clause Also Incorporated? Federal Court in South Carolina Says Yes; Federal Court in Kansas Says No — In Two Matters Involving the Same Parties

Developers Sur. & Indem. Co. v. Carothers Constr., Inc., 2017 U.S. Dist. LEXIS 111021 (D.S.C. July 18, 2017); Developers Sur. & Indem. Co. v. Carothers Constr., Inc., 2017 U.S. Dist. LEXIS 135948 (D. Kan. Aug. 24, 2017)

Two recent decisions from United States District Courts for the District of South Carolina and the District of Kansas, respectively, reached opposite conclusions when presented with the same issue:  Is a surety bound to arbitrate claims against it when the surety’s bond incorporates its principal’s contract by reference, and the principal’s contract contains an agreement to arbitrate disputes.  The District of South Carolina, applying South Carolina law, held that a surety is bound by the arbitration agreement in the incorporated contract, while the District of Kansas held that a surety is not so bound.

These cases both arise from an arbitration demand filed by the general contractor, Carothers Construction, Inc. (“Carothers”) against the surety, Developers Surety and Indemnity Company (“DSI”).  DSI issued performance and payment bonds on behalf of subcontractors Liberty Enterprises Specialty Contractor (“Liberty”) and Seven Hills Construction, LLC (“Seven Hills”) in favor of Carothers for their work on Projects located in South Carolina and Kansas, respectively.  Each subcontractor defaulted on its contractual obligations.  Carothers initiated arbitration against DSI regarding both Projects.  According to Carothers, the bonds incorporated by reference the subcontracts’ mandatory arbitration clauses and thus, DSI was subject to binding arbitration.  In declaratory judgment actions before Federal District Courts in South Carolina and Kansas, DSI asked the courts to declare that the arbitration clause did not bind it to arbitrate Carothers’ claims.  Each court reached the directly opposite conclusion.  This article discusses the decision reached by each court in turn. Continue reading “When Surety Bond Incorporates the Subcontract by Reference, Is the Subcontract’s Arbitration Clause Also Incorporated? Federal Court in South Carolina Says Yes; Federal Court in Kansas Says No — In Two Matters Involving the Same Parties”

Federal District Court in South Dakota Compels Arbitration Despite Defendant’s Failure to First Submit the Dispute to the Project Engineer as Required by the Disputes Clause

Dlorah, Inc. v. KLE Constr., LLC, No. CIV. 16-5102-JLV, 2017 U.S. Dist. LEXIS 11043 (D.S.D. July 17, 2017)

Plaintiff, Dlorah, Inc. (“Dlorah”), filed suit against defendant, KLE Construction, LLC (“KLE”), in connection with an agreement for KLE to perform construction services at an apartment complex in Rapid City, South Dakota.  According to Dlorah, KLE’s actions while carrying out the construction breached the agreement and constituted fraud/deceit.

KLE moved the court to compel arbitration or alternatively stay the proceedings pursuant to an arbitration clause contained in the parties’ agreement.  Dlorah objected to KLE’s motion on three grounds: (i) defendant had not satisfied the conditions precedent to compel arbitration; (ii) the dispute at issue did not fall within the scope of the arbitration clause; and (iii) the arbitration clause was permissive, not mandatory, and therefore permitted Dlorah to file suit in court.  After concluding that the parties had in fact entered into a binding arbitration agreement, the court considered and rejected each of Dlorah’s arguments. Continue reading “Federal District Court in South Dakota Compels Arbitration Despite Defendant’s Failure to First Submit the Dispute to the Project Engineer as Required by the Disputes Clause”