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Maryland Appellate Court Holds A Prior Agreement Was Within The Scope Of The Arbitration Provision In A Subsequent Agreement

In Gannett Fleming, Inc. v. Corman Construction, Inc., 2019 WL 6207616 (Md. App. Nov. 21, 2019), the Maryland Court of Special Appeals held that an arbitration provision contained in a subsequent agreement may still apply to work performed under a prior agreement that did not contain a similar arbitration provision.

Gannett Fleming, Inc. (“Gannett”), an engineering firm, was retained by Corman Construction, Inc. (“Corman”), a general contractor, to assist Corman in bidding on highway construction projects in North Carolina (the “Agreement”). The Agreement provided that Gannett would provide quantity and pricing estimates for building materials and Corman would use those estimates to prepare bids submitted to the North Carolina Department of Transportation (“NCDOT”).

If a contract was awarded to Corman, Corman would then retained Gannet under a separate agreement to design the highway construction project (the “Subcontract”). The Subcontract contained dispute resolution provisions that mandated a three-phase dispute resolution procedure: (1) direct discussions regarding the dispute, then (2) mediation and then (3) arbitration. The Agreement did not contain this dispute resolution provision.

Corman alleged Gannett provided faulty pre-bid quantity estimates under the Agreement, resulting in delays, cost overruns and substantial financial losses when it performed the work. Corman initiated the procedures set forth in the dispute resolution provisions of the Subcontract, despite the fact the alleged defect was contained in the estimates provided under the Agreement.

Corman filed a demand for arbitration with the American Arbitration Association. Gannett filed in the Circuit Court a petition to stay the arbitration, arguing Corman’s claim of faulty pre-bid estimates was not arbitrable, because it did not arise out of or relate to the performance or breach of the Subcontract. Gannet argued the claim of faulty pre-bid estimates arose out of the Agreement, which did not contain the dispute resolution provisions. The trial court denied Gannett’s petition because the plain language of the provision extends to disputes relating to the Agreement.

On appeal, the Maryland Court of Special Appeals affirmed the trial court’s order, holding that Corman’s claim was arbitrable because the arbitration provision was broad and encompassed disputes relating to the Subcontract, which necessarily would have also included the prior work performed under the Agreement.

Design professionals should be careful to consider the scope of the dispute resolution provisions that may affect claims arising out of separate contracts. Arbitration provisions, limitations of liability or similar contractual provisions may reach beyond the four corners of the document and affect other relationships.