When Surety Bond Incorporates the Subcontract by Reference, Is the Subcontract's Arbitration Clause Also Incorporated? Federal Court in South Carolina Says Yes; Federal Court in Kansas Says No - In Two Matters Involving the Same Parties

Two recent decisions from United States District Courts for the District of South Carolina and the District of Kansas, respectively, reached opposite conclusions when presented with the same issue: Is a surety bound to arbitrate claims against it when the surety’s bond incorporates its principal’s contract by reference, and the principal’s contract contains an agreement to arbitrate disputes. The District of South Carolina, applying South Carolina law, held that a surety is bound by the arbitration agreement in the incorporated contract, while the District of Kansas held that a surety is not so bound.