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A subcontractor brought into a lawsuit as a third party defendant is still entitled to invoke the arbitration clause in its subcontract, even when the main lawsuit involves a master contract that lacks an arbitration provision, according to a federal district court in Kentucky.
In FMC Technologies, Inc. v. Sequoia Energy, L.L.C., No. CIVA 6:05-376 DCR, 2006 WL 2540377 (E.D. Ky. Aug. 31, 2006), FMC, a contractor, sued Sequoia for breach of a construction contract. Sequoia counterclaimed, alleging negligence and breach of implied warranty. After receiving the counterclaim, FMC filed a third-party complaint against Pacific and Colony, two of its subcontractors. Pacific filed a motion to compel arbitration pursuant to the arbitration clause in its subcontract with FMC. In opposing the motion to compel, FMC argued that the dispute arose under the master contract, not the subcontract.
The Court disagreed. It found that the subcontract contained a broad arbitration agreement encompassing all disputes between FMC and Pacific relating to the subcontract. FMC’s claim, the Court found, was based on Pacific’s performance of the subcontract and, in fact, specifically alleged a breach of the subcontract. FMC also sought indemnification and contribution from Pacific as a result of Sequoia’s alleged damages. Therefore, even though the underlying claim arose from the master contract between FMC and Sequoia, FMC’s claim against Pacific arose from Pacific’s subcontract, and the claims were arbitrable.
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