Article by: Nell M. Hurley

A concrete subcontractor was required to arbitrate a non-payment claim asserted by its materials supplier after a New York trial court determined that an unsigned quote was an enforceable contract, including the arbitration agreement it contained.¹ The court also held, however, that the supplier’s failure to comply with its obligations under the Prompt Payment Act² (“PPA”) precluded the arbitration of those claims. The case teaches important lessons for those on either side of such disputes. 

The matter arose from a $9.2 million construction project in Brooklyn, New York, where the concrete subcontractor (“Sub”) performed excavation, foundation and superstructure work. Sub had solicited a quote in January 2022 from a concrete supplier (“Supplier”) to provide the concrete. The quote was never signed by the parties or otherwise updated to delete the large “DRAFT” watermark that appeared across its pages. Nonetheless, Supplier provided the concrete that Sub integrated into the project over the next year or so. Ultimately, the project’s general contractor failed to pay Sub over $3.5 million in contract balance and, in turn, Sub failed to pay Supplier for nearly $300,000 of the concrete it supplied. 

In August 2023, Supplier commenced an arbitration, asserting claims for payment under the PPA and for breach of contract under the quote document calling it a purchase order.³ Soon after, Sub petitioned the court for an order staying the arbitration, arguing that there was no enforceable contract and that the PPA did not apply.

The court observed that, despite the broadly drafted PPA provisions in favor of arbitrability, an arbitration claim alleging violation of the PPA requires that the prerequisites of
§ 756-b(3) be satisfied. Only after that occurs can the claim proceed to arbitration where the non-paying party may raise defenses to support its non-payment, said the court. With no evidence of Supplier’s service of a written complaint upon Sub, or of the required settlement efforts, the court found that the prerequisites were not met, Supplier’s claims were outside the ambit of the PPA and thus were not arbitrable. 

Regarding Supplier’s common law contract claims, the court ruled differently, finding that the claims were arbitrable because “the quote became a valid contract despite the absence of the parties’ signatures.” The court observed that the quote states that it “becomes a valid contract upon signing and/or acceptance of materials ordered by [the Sub].” In addition, it was undisputed that Sub ordered and received concrete prior to the quote’s expiration date, with the parties operating under its terms regarding price and delivery. Thus, concluded the court, the quote became a valid, binding contract upon [Sub’s] acceptance of the concrete. The court stated:

“Although [the law] requires that an agreement to arbitrate be in writing, there is no requirement that the agreement be signed, so long as there is other proof that the parties intended to be bound by documents containing arbitration obligations.” 

Since the Sub did not dispute the concrete delivery, price, or assert issues with the amount or quality of the concrete, the court found that Sub intended to be bound by the quote, including the arbitration clause. 

Despite public policy favoring arbitration, non-signatories are not generally subject to arbitration agreements, the court acknowledged, but it also ruled that the question of arbitrability for such non-signatories was a threshold issue to be determined by the court. Relying on a limited theory that allows the binding of non-signatories to arbitration, the court held that the direct benefits estoppel theory applied. Under that theory:

“A non-signatory may be compelled to arbitrate where the non-signatory ‘knowingly exploits’ the benefits of an agreement containing an arbitration clause and receives benefits flowing directly from the agreement.” 

The court found that the Sub derived a direct benefit from the unsigned quote, receiving concrete per its terms, all in furtherance of Sub’s project work. Sub was thus estopped (precluded) from avoiding arbitration of the contract claims and the stay of the arbitration was denied.⁴ 

This case is an example of the constant tension between broad public policy in favor of arbitration, the legal principles that require certain limitations on that policy, and narrow exceptions to those limitations. For contractors and suppliers, the lessons are evident: (1) Under the PPA, compliance with explicit statutory notification by written complaint to the adverse party and seeking dispute resolution MUST be demonstrated or the expedited arbitration option is lost; and (2) While an enforceable agreement to arbitrate generally requires a signed document demonstrating both parties’ assent, there are limitations. If parties operate under an unsigned purported agreement, as happened here, it can and will be enforced as a contract, including its arbitration clause.

1. SEG Servs. Corp. v. Smyrna Ready Mix Concrete, LLC, 2024 WL 1659730 (N.Y. Sup.), 2024 N.Y. Slip Op. 31389(U)(Trial Order) (Sup Ct, Kings County 2024).
2. N.Y. Gen. Bus. Law § 756-b(3) authorizes arbitration of non-payment claims where the aggrieved party has delivered a written complaint as specified to the non-paying party and made efforts to resolve the claim.
3. The Sub referred to the quote document as a supply agreement. 
4. Adding stress to the situation, the arbitrator and court concurrently considered the questions of arbitrability of the two types of claims. Only a last-minute temporary stay of the arbitration prevented the likely waiver of Sub’s right to litigate by participating in the arbitration prior to the court’s determination. The arbitrator agreed that the contract claims were arbitrable and that PPA claims were not but added that it would be “illogical” to force Supplier to litigate PPA claims in court.