New Court of Appeals Decision Limits Scope of Arbitration Clause
A recent decision by the N.C. Court of Appeals interpreted an arbitration clause narrowly, limiting arbitration to disputes arising from the underlying contract. This case might raise some questions about how best to word these clauses.
In the case, Benbow & Associates, Inc. v Altamont Development, LLC; KCB Construction Company, Inc.; and West End Industries, Inc. d/b/a West End Cabinet Shop, Benbow subcontracted to design and install cabinets in a Buncombe County housing development. Benbow and Altamont, the developer, had signed an Exclusive Vendor Agreement outlining certain building standards for the development. In addition, Benbow, Altamont, and KBC, the general contractor, signed a standard Subcontract. The Subcontract clearly provided that any disputes arising from the Subcontract would be settled by binding arbitration.
During the construction, a dispute arose between Benbow, KBC and Altamont regarding pricing schedules and design of cabinet units. Ultimately, Benbow was dismissed from the job and filed a Complaint against the defendants. However, the defendants’ attempt to compel arbitration failed because the Plaintiff claimed only a breach of the Vendor Agreement, not the Subcontract. The court found that because the arbitration clause was limited to disputes arising from “the Subcontract,” it did not apply. The court made this ruling even though the dispute, in reality, seemed to involve issues in both agreements.
Had the clause had been worded more broadly and included disputes “arising from the project,” perhaps the outcome would have been different.
The Court of Appeals opinion in Benbow was filed on March 16, 2010.
If you have any questions about this or any other legal topic in the construction industry, please contact Caroline Lindsey, Associate Attorney with Anderson Jones, PLLC, at (919) 277-2541 or by email!