Eugene Water & Elec. Bd. v. MWH Americas, Inc., 2018 Ore. App. LEXIS 879 (July 25, 2018)
On July 25, 2018, an Oregon appellate court concluded that a pair of subcontractors could not compel an owner to arbitrate its claims against them by virtue of a “flow-down” provision in a prime construction contract which also contained an arbitration clause. The case is a reminder that principles of contract interpretation govern the enforcement of arbitration agreements and that courts will not compel arbitration where both parties have not expressly consented to arbitrate their disputes.
As part of an improvement project for the Leaburg Dam near Eugene, Oregon, the Eugene Water and Electric Board (“EWEB”) entered into a prime contract with Advanced American Construction (“AAC”) as the general contractor for the project. 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 against AAC and, shortly thereafter, asserted claims against the two subcontractors in an amended complaint.
During the proceedings, AAC sought to compel arbitration of EWEB’s claims against AAC because the prime contract contained an arbitration clause. As litigation proceeded, both MacTaggart and Olsson also sought to compel arbitration of EWEB’s claims against them. Problematically, however, because MacTaggart and Olson, as subcontractors, were only in direct privity with AAC, and not EWEB, no express agreement to arbitrate existed between EWEB and the two subcontractors.
Continue Reading When a Flow Down Provision Doesn’t Flow Up: Oregon Appellate Court Holds That a Flow Down Provision From a Prime Contract With an Arbitration Clause Does Not Grant Subcontractors a Right to Compel Arbitration With Owner