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(A revised version of this article appears in The Construction
Lawyer, Volume 22, No. 1, January 2002, published by
the American Bar Association's Forum on the Construction
Industry.)
By John W. Ralls
Howrey LLP
Louisiana
Revised Statutes §9:2779.A provides, "The legislature
finds that, with respect to construction contracts, subcontracts
and purchase orders for public and private works projects,
when one of the parties is domiciled in Louisiana, and the
work to be done and the equipment and materials to be supplied
involve construction projects in this state, provisions
in such agreements requiring disputes arising thereunder
to be resolved in a forum outside of this state [Louisiana]
or requiring their interpretation to be governed by the
laws of another jurisdiction are inequitable and against
the public policy of this state."
Section
9:2779.B provides: "The legislature hereby declares
null and void and unenforceable as against public policy
any provision in a contract, subcontract, or purchase order,
as described in subsection A, which… requires a suit
or arbitration proceeding to be brought in a forum or jurisdiction
outside of this state; rather, such actions or proceedings
may be pursued in accordance with the Louisiana Code of
Civil Procedure or other laws of the state governing similar
actions."
A
Louisiana subcontractor agreed to fabricate a deck structure
for use in the erection of an offshore drilling platform
in the Gulf of Mexico. The subcontract between the Louisiana
subcontractor and a Texas general contractor called for
disputes to be resolved "by arbitration in Houston,
Texas… in accordance with the construction industry
rules of the American Arbitration Association with a single
arbitrator."
Arbitration
hearings between the general contractor and subcontractor
commenced in Houston. After two days, the parties agreed
to suspend the hearings and participate in mediation. When
the mediation failed, the subcontractor filed suit in Louisiana
state court seeking an award of damages and a declaration
that the arbitration clause and choice of law provision
violated public policy. The general contractor filed a petition
to compel arbitration in U.S. District Court in Texas. The
U.S. District Court entered an order, on the general contractor's
motion, to compel arbitration and staying the Louisiana
state court action. The subcontractor appealed. The 5th
Circuit affirmed. OPE International LP v. Chet Morrison
Contractors, Inc., 258 F.3d 443 (5th Cir. 2001).
The
subcontractor maintained that the arbitration agreement
was foreclosed by Louisiana Revised Statutes §9:2779.
The general contractor argued that the Federal Arbitration
Act pre-empts §9:2779. Section 2 of the FAA says that
written provisions for arbitration are "valid, irrevocable,
and enforceable, save upon such grounds as exist at law
or in equity for the revocation of any contract." 9
U.S.C. §2. Under Doctor's Associates, Inc. v. Casarotto,
517 U.S. 681, 687-89, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996)
and Southland Corp. v. Keating, 465 U.S. 1, 10, 104
S.Ct. 852, 79 L.Ed.2d. 1 (1984), state legislative attempts
to place conditions on the enforceability of arbitration
agreements are pre-empted by the FAA.
The
5th Circuit concluded: "The statute directly conflicts
with §2 of the FAA because the Louisiana statute conditions
the enforceability of arbitration agreements on selection
of a Louisiana forum, a requirement not applicable to contracts
generally."
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For more information about the issues covered in this report, please contact John Ralls in our San Francisco office at 415-848-3362 or at rallsj@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
©2001 Howrey LLP
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