Court Refuses to Force Arbitration on Subcontractor Absent Any Evidence of a Contract that Included an Arbitration Provision

Earlier this year, the Alabama Supreme Court overturned a lower court ruling that would have forced a subcontractor to arbitrate its dispute with a contractor rather than litigate the matter in court. The case was Dannelly Enterprises, LLC v. Palm Beach Grading, Inc., and the successful appellant Dannelly Enterprises was represented before the Alabama Supreme Court by our own Leon A. (Bo) Boyd V

Our client Dannelly Enterprises, LLC (Dannelly) had performed retaining wall work on a construction project that was contracted by Palm Beach Grading, Inc. (PBG). When PBG was sued for negligence or defective work regarding the retaining wall, PBG sought to bring Dannelly into the litigation. The dispute between PBG and its contractors was being arbitrated rather than litigated in court, and PBG got the court to order arbitration between PBG and Dannelly as well. Dannelly appealed this decision to the Supreme Court, arguing that it should not be compelled into arbitration against its will.

Dannelly had submitted a bid for the job to PBG and received a work order, under which it performed the work. Neither the bid nor the work order had an arbitration provision. Although PBG’s standard subcontractor agreement does contain an arbitration provision, PBG could not produce a signed agreement between Dannelly and PBG. Although PBG said they had a contract, this was disputed by Dannelly, and there was no solid evidence that Dannelly was operating under anything other than the work order.

PBG also tried to argue that Dannelly should be bound to the master subcontractor agreement PBG had with its employers, but the court held that Dannelly was not a “third-party beneficiary” to this contract, as PBG claimed, and should not be bound to its terms.

The order compelling Dannelly into arbitration was reversed, and the case was returned to the lower court to litigate the question of whether or not Dannelly was working under PBG’s standard subcontractor agreement, in which case the dispute may still be forced back into arbitration.