Environmental Barrier Co. LLC v. Slurry Systems, Inc.

In 2000, the U.S. Army Corps of Engineers entered a contract with Slurry Systems, Inc. (SSI) (defendant) for SSI to perform construction work. SSI subcontracted part of its work to Geo-Con, Inc. SSI and Geo-Con agreed to work together and split costs, and the subcontract required arbitration of any subcontract-related disputes. By April 2003, SSI and Geo-Con had completed their construction work, but they still had to resolve their financial matters. Thereafter, Geo-Con separately filed for bankruptcy, and in September 2003, Environmental Barrier Co. LLC (EBC) (plaintiff) acquired most of SSI’s assets, including the subcontract. In June 2004, EBC notified SSI that EBC had succeeded to Geo-Con’s subcontract rights and that EBC believed it was owed amounts from SSI. SSI disputed that any amounts were owed. After mediation efforts failed, EBC initiated arbitration. Prior to and during arbitration, SSI alternatively argued that EBC had fully assumed the subcontract and must perform various obligations before it could be paid or that EBC could not have assumed the subcontract because EBC had not performed all its required obligations and SSI had not consented to EBC’s assumption. In this manner, SSI challenged EBC’s standing to obtain payment under the subcontract. In response to EBC’s arbitration demand, SSI asserted a counterclaim. SSI did not challenge the arbitrability of the dispute or argue that SSI had not agreed with EBC to arbitration. Following discovery, hearing, and argument, the arbitrator ruled in EBC’s favor. In district court, SSI argued for the first time that it had no arbitration agreement with EBC because EBC was not a party to the original subcontract. The court confirmed the arbitration award, and SSI appealed.