In a recent United States District Court for the District of Maryland decision, U.S. ex rel. Birckhead Electric, Inc. v. James W. Ancel, Inc., 2014 WL 2574529 (D. Md. June 5, 2014), the Court found that an arbitration provision in a construction contract that binds only one party is unenforceable. This means a party can be forced to litigate a dispute even though the contract contains an arbitration provision. Since such arbitration provisions are commonplace in the construction industry, this decision is bound to have significant implications for contractors, owners and sureties in drafting and enforcing their contracts.
The US Maryland District Court Decision Facts
Birckhead Electric, Inc. (“Birckhead”) entered into a subcontract with James W. Ancel, Inc. (“JWA”), the general contractor, for the installation of electrical systems at the Baltimore Army Reserve Center. The subcontract contained an arbitration provision which, in relevant part, provided that:
All disputes between the Contractor and Subcontractor, not involving the Owner’s act, omissions or responsibilities shall, at the Contractor’s sole option, be resolved by arbitration in accordance with the rules of the American Arbitration Association. Subcontractor agrees that any such arbitration proceedings shall, at the Contractor’s sole option, be consolidated with any arbitration proceedings between the Contractor and any other party. This agreement to arbitrate shall be specifically enforceable under the prevailing arbitration law.
A dispute over payment arose between the parties and Birckhead filed a lawsuit against JWA for breach of contract and its surety under the Miller Act. JWA and its surety filed a motion to dismiss for lack of jurisdiction, or alternatively, to stay pending arbitration. JWA and its surety argued that the lawsuit should be dismissed or stayed pending outcome of the arbitration mandated by the subcontract. In response to the motion, Birckhead contended that the arbitration clause was unenforceable because it lacked mutual consideration.