Opinion ID: 1218802
Heading Depth: 2
Heading Rank: 1

Heading: Did the Performance Bond Contain an Agreement To Arbitrate?

Text: Mandaree argues that, since the bond incorporated a construction contract that obligated Mandaree and Tooz to arbitrate their disputes under the contract, the bond contained an agreement by Liberty Mutual to arbitrate its disputes with Mandaree under the bond. We apply ordinary state law contract principles to decide whether parties have agreed to arbitrate a particular matter, giving healthy regard for the federal policy favoring arbitration. AgGrow Oils, L.L.C. v. Nat'l Union Fire Ins. Co. of Pittsburgh, 242 F.3d 777, 780 (8th Cir.2001) (quotations omitted). In this regard, it is relevant that the bond contained a provision contemplating that disputes will be resolved in court, and the construction contract expressly provided that it shall not be construed to create a contractual relationship of any kind . . . between any persons or entities other than [Mandaree and Tooz]. Applying North Dakota law, we considered this same issue and resolved it contrary to Mandaree's position in AgGrow Oils, 242 F.3d at 780-82, a case involving the same bond language and a construction contract with nearly identical arbitration provisions. We held that the incorporation provision did not reflect a mutual intent to compel arbitration of all disputes between the surety and the obligee under the bond. 242 F.3d. at 782. Though it was the surety attempting to compel arbitration in AgGrow, we noted that a contrary rule would also permit a bond obligee to compel an unwilling surety to arbitrate defenses unique to the bond, such as whether the obligee had impaired the surety's position or released the principal obligor. Id. That is precisely what Mandaree seeks to compel in this case. Concluding that AgGrow Oils is controlling, the district court held that the incorporation clause in the performance bond at issue in this dispute does not mandate the surety to arbitrate. We agree. Mandaree's attempt on appeal to distinguish AgGrow Oils is unpersuasive, and its frontal attack on the merits of that decision must be addressed to the court en banc.