Plaintiff Diamond Materials filed suit in the Delaware Superior Court against defendant Tutor Perini in connection with plaintiff acting as a subcontractor to defendant, a general contractor, in connection with Delaware highway projects. Plaintiff alleged that defendant breached the parties’ subcontracts (the Subcontracting Agreements) because defendant failed to make timely progress payments as required under the subcontracts.
The Subcontracting Agreements expressly incorporated and were governed by a “Prime Contract” between defendant and the Delaware Department of Transportation (the Department), and the Subcontracting Agreements contained an arbitration and forum selection clause that required any claims by the plaintiff “arising out of acts or omissions of [the Department of Transportation]” to be presented to the Department by defendant and “finally resolved through the claims procedure [culminating in arbitration].” The arbitration clause provided that defendant “shall decide whether [plaintiff’s] claims arise out of the acts or omissions of [the Department],” with any other claims to be submitted to a Delaware court:
All claims of Subcontractor arising out of acts or omissions of [the Department] shall be presented to [the Department] by Contractor on behalf of Subcontractor and finally resolved through the claims procedure...applicable between Contractor and Owner [to be finally resolved by arbitration]. For purposes of applying the preceding sentence, Contractor shall decide whether Subcontractor’s claims arise out of the acts or omissions of [the Department].... All other claims and disputes between the parties shall be decided by the appropriate court in New Castle County, Delaware.
A separate provision in the Subcontracting Agreements provides that the venue for claims to enforce the Subcontracting Agreements “shall lie in the appropriate Court in New Castle County, Delaware.”
Venue shall lie in the appropriate Court in New Castle County, Delaware. The parties expressly agree to submit to the service of process in and to the jurisdiction of the Courts of the State of Delaware in connection with any dispute, claim or controversy arising under the Subcontract.
Defendant moved to dismiss for lack of subject matter jurisdiction, arguing that plaintiff’s claims were subject to arbitration under the Subcontracting Agreements. Plaintiff argued that the arbitration clause was inapplicable because its claims did not “arise out of the acts or omissions of [the Department of Transportation],” and, regardless, giving defendant unfettered discretion to determine whether claims fall under the clause would unreasonably deprive plaintiff of the benefit of the venue provision in the Subcontracting Agreements, which provides that venue “shall lie in the appropriate Court in…Delaware.”
The court’s decision
The Superior Court rejected plaintiff’s attempt to avoid arbitration and held that arbitration was mandated because the Subcontracting Agreements provide defendant with unilateral authority to determine whether plaintiff’s claims fall within the scope of the arbitration provision. The court explained that disregarding defendant’s authority would effectively rewrite the parties’ agreements.
A court applying Delaware law will lack subject matter jurisdiction to adjudicate disputes that the parties have contractually agreed to arbitrate. Under Delaware law, “[a] strong presumption exists in favor of arbitration and, accordingly, contractual arbitration clauses are generally interpreted broadly by the courts…. In the case of contracts that contain arbitration provisions, ‘the policy in favor of arbitration requires that doubts regarding whether a claim should be arbitrated, rather than litigated, be resolved in favor of arbitration.”’