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Florida’ s Fourth District Court of Appeal recently reversed an order compelling arbitration in a lien transfer bond dispute, holding that a surety cannot compel arbitration pursuant to an agreement it is not a party to. 1
In Andersen, the plaintiff,
Andersen Service Corporation
(“ Andersen”) entered into a subcontract with Marco
Contractors, Inc.(“ Marco”). 2 The subcontract contained a dispute resolution clause granting Marco the right to elect arbitration. 3 After completing work and remaining unpaid, Andersen recorded a lien, which was transferred to a lien transfer bond pursuant to § 713.24,
Florida Statutes. 4 Old Republic
Surety Company(“ Old Republic”) issued the bond, naming Marco as principal. 5 Old Republic was not a party to the subcontract. 6
The lien transfer bond did not reference or incorporate the subcontract, stating only that it
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on the lien transfer bond, declining to add Marco as a party. 8
Old Republic moved to compel arbitration pursuant to the subcontract’ s arbitration provision. 9
Andersen opposed the motion, arguing Old Republic was a non-signatory and that neither the subcontract nor its arbitration provision were incorporated into the bond. 10 The trial court granted the motion; however, on appeal the
Fourth District Court reversed. 11
The court stated that to properly compel arbitration, a court must consider three elements:( 1) whether a valid written agreement to arbitrate exists;( 2) whether an arbitrable issue exists; and( 3) whether the right to compel arbitration has been waived. 12 The Court found none of these elements were satisfied. 13
The court emphasized that the subcontract bound only Andersen and Marco. 14 Moreover, the lien transfer bond contained no arbitration language and did not
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existed between Andersen and Old Republic. 16
The Court emphasized that the dispute concerned the lien transfer bond, not the subcontract, and held that a surety cannot invoke a unilateral arbitration right reserved to the principal under a separate contract. 17 Because Marco was neither a party to lawsuit nor elected to exercise its right to arbitration, the remaining elements were not satisfied. 18
The Court also rejected Old Republic’ s reliance on equitable estoppel. 19 Although a surety’ s obligations may be coextensive with its principal’ s, the court distinguished Henderson Investment Corp. v. International Fidelity Insurance Co., 575 So. 2d 770( Fla. 5th DCA 1991), finding that the performance bond in Henderson expressly incorporated the underlying contract containing arbitration clause. 20 Here, the lien transfer bond did not. 21
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was issued pursuant to § 713.24. 7 |
incorporate the subcontract. 15 |
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Andersen sued only Old Republic |
Therefore, no arbitration agreement |
Continued on page 19 |