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Arbitration Provision In Unsigned Subcontract Not Enforceable, Despite Part Performance By Subcontractor, When Express Terms Of Subcontract Required Signature

In Baker v. Rabren General Contractors, Inc., 2020 WL 12145326 (M.D. Ala. 2020), the United States District Court for the Middle District of Alabama analyzed whether an arbitration provision in an unsigned subcontract was enforceable. Defendant Rabren General Contractors, Inc. (“Rabren”) filed a Motion to Compel Arbitration in the suit brought against it by Plaintiff Charles Baker (“Baker”), pursuant to an arbitration provision in an unexecuted written contract drafted by Rabren. The subcontract purported to be for concrete work by Baker on a construction project Rabren had been awarded to build a new high school in Auburn, Alabama (the “Auburn Project”).

Rabren and Baker had worked together previously and had come to a mutual agreement that Rabren would utilize Baker as its subcontractor for concrete work for all of Rabren’s projects in Alabama. In exchange, Baker agreed not to bid against Rabren on any projects.

Per this understanding, Rabren hired Baker to do the concrete work on the Auburn Project for $952,157.00 in September 2015. Although Rabren sent Baker a 44-page long subcontract for the Auburn Project, neither party ever executed the subcontract. Nonetheless, Baker proceeded to perform the work laid out in the subcontract. Baker eventually left the Auburn Project around August 2016 due to Rabren’s alleged nonpayment and purported hostility against Baker and his employees. Baker then submitted a claim to Rabren’s surety.

Rabren demanded arbitration of Baker’s claims based on the provision within the unsigned subcontract. Rabren argued that Baker manifested his assent to the subcontract through his subsequent actions and performance of work on the Auburn Project.

The Court focused its analysis on whether the arbitration provision in the unsigned subcontract was enforceable under Alabama law when the terms of the contract explicitly required the parties’ signatures and initials on every page of the contract for it to be valid. The Court noted that the purpose of a signature under Alabama law is to show mutual assent, but counterargued that the Eleventh Circuit has found that the Federal Arbitration Act (“FAA”) requires only that arbitration agreements be in writing, not that they be signed. The Court further acknowledged that an unsigned contract can be ratified through a party’s subsequent actions manifesting assent to the terms of the agreement. Nonetheless, both state and federal courts have refused to enforce arbitration provisions in contracts that expressly require the parties’ signatures to be valid.

Here, the Court ultimately found that the parties’ partial compliance with some of the terms of the contract was not sufficient proof of Baker’s assent to be bound by the contract when the parties failed to strictly comply with the express requirement that the subcontract be signed and initialed in order to be valid. The Middle District of Alabama’s decision in this case serves as a warning to contractors who allow subcontractors to perform work prior to executing a contract in compliance with its express terms.