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Surety Bound By Arbitration Clause In Principal's Subcontract

Thursday, December 02, 2010 01:29 am

 

Arbitration - Surety

First Sealord Surety, Inc. v. TLT Construction Corp., 2010 U.S. Dist. Lexis 101627 (D. Mass. Sept. 27, 2010)

A court diverted a surety's fraud suit against a general contractor into arbitration, as contractually required, because the suit "involved" a subcontractor, even though that sub was not a necessary party to the suit.

Sealord Surety, Inc. (Sealord) sued TLT Construction Corp. (TLT), the general contractor of a school construction project, for fraud. Sealord tried to avoid arbitration, but TLT managed to enforce a clause incorporated into the surety bond that stated any claim "involving subcontractor" may be subject to arbitration at TLT's election. The court found that, although the alleged fraud arose from TNT's conduct, that conduct stemmed from the subcontractor's work status, scope of work, and capacity to perform that work -- and therefore "involved" the sub.

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