In Shaler Interiors v. MKK Technologies, Inc., 2010 WL 173 637, Mich. App., January 19, 2010 (unpublished), the Michigan Court of Appeals reversed a trial court’s order denying a motion for dismissal pending arbitration filed by MKK Technologies, Inc. MKK was the general contractor for a student housing project. Shaler Interiors, whose principal is David Shaler, was involved in drywall work. Rick Schneider, a professional acquaintance of Shaler, knew that MKK was seeking a drywall subcontractor. Schneider could not take the job himself because he was a union member and the job was non-union, but Shaler was not a union member. Schneider and Shaler agreed that Schneider would arrange to obtain the job for Shaler Interiors, in return for Schneider receiving one-third of the proceeds. Schneider signed a subcontract with MKK for the drywall work on behalf of Shaler Interiors. Though Shaler did not sign the subcontract, he knew that Schneider was obtaining the work for Shaler Interiors and that he agreed to the arrangement. The subcontract included an arbitration provision requiring that all claims and disputes would be decided by arbitration unless MKK elected otherwise.
After completing its work, Shaler Interiors filed suit, claiming that it was owed approximately $59,500 by MKK for unpaid work. MKK moved to dismiss pending arbitration, arguing that discovery had established that Schneider acted as the actual or apparent agent of Shaler Interiors, which in any event ratified Schneider’s acts. Furthermore, Shaler signed a change order which adopted and incorporated the original subcontract containing the arbitration provision. Shaler Interiors acknowledged that Schneider facilitated obtaining the job, but denied that he was authorized to sign the subcontract.
The Court of Appeals analyzed agency law, determining that Shaler knew Schneider would sign a contract with MKK on behalf of Shaler Interiors, yet did nothing to dispel the notion that Schneider had the authority to act on behalf of Shaler Interiors. Accordingly, MKK reasonably believed that Schneider was authorized to bind Shaler Interiors. The Court also agreed that Shaler ratified Schneider’s acts, by accepting payments from MKK with knowledge of Schneider’s efforts on behalf of Shaler Interiors. Finally, the Court agreed that Shaler Interiors agreed to be bound by the arbitration provision when it signed a change order. The change order unambiguously stated that it “shall become part of the original subcontract agreement including all terms and conditions without exception.” Because Shaler Interiors entered into the subcontract and was bound by its terms, arbitration was the appropriate forum and the trial court erred when it denied the motion for dismissal.