By: William F. Bresee, Esq.
The Court of Appeals of Oregon has rendered a decision which merits notice by construction subcontractors regarding the enforcement of arbitration provisions and the way contracts are worded. (Eugene Water & Electric Board v. MWH Americas, Inc., et al., 293 Or App 41 (2018))
The Eugene Water and Electric Board (“EWEB”) engaged MWH Americas, Inc. (“MWH”) for engineering and Advanced American Construction (“AAC”) under a prime contract as a general contractor for various enhancements to the Leaburg Dam. AAC subsequently entered into subcontracts with MacTaggart, Scott & Company Limited (“MacTaggart”) and Olsson Industrial Electric, Inc. (“Olsson”). When the improvements to the Leaburg Dam failed, EWEB filed a complaint in Oregon state court asserting claims against MWH, AAC, MacTaggart and Olsson.
EWEB’s prime contract with AAC contained a provision requiring arbitration of disputes. AAC’s subcontracts with MacTaggart and Olsson contained “flow-down” provisions incorporating the arbitration provision. When MacTaggart and Olsson were sued, they each appealed a denial by the trial court to stay EWEB’s claims against them and order the claims against AAC and them arbitrated.
The Court of Appeals determined that the subcontractors could not compel EWEB to arbitrate its claims against them by virtue of the flow-down clause in the prime contractor’s contract. Although it had agreed to arbitration of claims against AAC, EWEB had not expressly consented with MacTaggart and Olsson to arbitrate disputes with them, and there was no enforceable contract between EWEB and either of MacTaggart or Olsson to do so. Further, although the “flow-down” provision bound AAC, it did not bind EWEB.
The Court of Appeals (relying on DeLashmutt v. Parker Group Investments, LLC, 276 Or App 42 (2016)) reasoned that the question whether claims are subject to arbitration is one of contract interpretation to which ordinary rules of contract interpretation apply. Because a prime contract arbitration was strictly a matter of consent between owner and contractor, the Court looked to the context of the provisions to determine the parties’ intention. Because the operative provision provided for arbitration “between the parties” of “claims between Owner and Contractor,” the Court determined that the availability of arbitration did not extend to any entity in any dispute relating to the contract but was limited to disputes between EWEB and AAC as “the parties” and “Owner” and “Contractor,” respectively.
For any further analysis of how this decision will affect your interests, or if you have any questions on this article, please feel free to contact William F. Bresee of Leech Tishman Fuscaldo & Lampl at 626.796.4000.
William F. Bresee is a partner in Leech Tishman Fuscaldo & Lampl, LLC, and chairs its Construction and Energy Practice Groups. Bill can be reached at 626.796.4000 x 325 or 412.261.1600 x261 or firstname.lastname@example.org. Please feel free to contact Bill with any questions you may have on this and other design and construction matters. For more information on Leech Tishman’s legal services, please visit www.leechtishman.com.
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