By John Cory & Jordan Faux
In general, most payment and performance bonds do not include an arbitration provision. Instead, a surety may be bound to arbitrate when the bond incorporates arbitration provisions in an underlying contract. While the pros and cons of arbitration are not the subject of this article, claimants will often file a motion to compel arbitration when a surety determines it is has no duty to arbitrate.
The Nevada Arbitration Act, similar to the Federal Arbitration Act, precludes courts from ordering parties to arbitrate where there is no enforceable agreement to arbitrate. NRS 38.221(3); 9 U.S.C. § 4. Once there is an enforceable arbitration agreement, the Nevada Supreme Court resolves ambiguity regarding arbitrability in favor of arbitration. Clark County Pub. Employees Ass’n v. Pearson, 106 Nev. 587, 798 P.2d 136 (1990).
Recently, we have seen claimants renew or supplement motions to compel sureties to arbitrate citing a new Nevada Supreme Court case called DR Partners v. Las Vegas Sun, Inc., 68700, 2016 WL 2957115, at *1 (Nev. May 19, 2016). The claimants assert that DR Partners holds that ambiguities in a bond regarding incorporation of arbitration provisions in underlying contracts must be interpreted in favor of arbitration. While the language in DR Partners contains no such holding, the motions remain pending and we have yet to see how the District Courts will apply DR Partners.
The Dispute Raised in D R Partners
DR Partners involved a dispute over the joint operating agreement (“JOA”) between two Las Vegas newspapers: the Las Vegas Review-Journal (the “RJ”) and the Las Vegas Sun (the “Sun”). The JOA required that each newspaper bear its own editorial costs but would share other operating costs. Disputes regarding payments on the shared costs were subject to arbitration. DR Partners, 2016 WL 2957115 at *1.
A dispute arose regarding what constituted “editorial costs” and the Sun sought declaratory relief on that issue. Id. The RJ filed a motion to compel arbitration arguing that the dispute was really about the shared costs. Id. The Sun argued that the arbitration language was limited to accounting disputes on shared costs and did not cover disputes over what constituted editorial costs. Id.
Ultimately, the Nevada Supreme Court held that where contract disputes are relatively simple and closely related to the subject of the arbitration, it is reasonable to suppose that the parties to the agreement intended such disputes to be arbitrated. The matter was then sent to arbitration.
What this Means for You
We don’t think DR Partners represents any change to already existing Nevada law because it addressed ambiguity in an already existing arbitration agreement and not ambiguity as to incorporation of an arbitration provision in an underlying contract. However, as stated above, it remains to be seen whether the District Courts will agree with our interpretation. If not, then DR Partners will represent a significant shift in the way courts interpret incorporation language.
As always, it is best to be keenly aware of the language of the bond, the language of the underlying contracts, and the extent to which the bond and underlying contracts incorporate each other.
We will keep you updated on this issue if it becomes something with which to be concerned.