OPE International LP v. Chet Morrison Contr

• Court: Court of Appeals for the Fifth Circuit
• Decided: August 9, 2001
• Docket: 00-20964
• Status: Published

Opinion

Revised August 9, 2001

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 00-20964 Summary Calendar

OPE INTERNATIONAL LP,

Plaintiff-Appellee,

VERSUS

CHET MORRISON CONTRACTORS, INCORPORATED,

Defendant-Appellant.

Appeal from the United States District Court for the Southern District of Texas

August 1, 2001 Before EMILIO M. GARZA, STEWART, and PARKER, Circuit Judges.

PER CURIAM:

Appellant Chet Morrison Contractors argues that the district

court erred by compelling arbitration pursuant to an arbitration

agreement with OPE International. Appellant claims that section

9:2779 of the Louisiana Revised Statutes nullifies the terms of the

parties’ agreement that require the parties to submit to

1 arbitration in Texas and to resolve their dispute under Texas law.

See LA. REV. STAT. ANN. § 9:2779. We must determine whether the

Federal Arbitration Act preempts the Louisiana statute.

I.

On January 23, 1998, OPE International (“OPE”), a Texas

limited partnership with its principal place of business in

Houston, Texas, and Chet Morrison Contractors (“CMC”), a Louisiana

corporation with its principal place of business in Houma,

Louisiana, entered into a subcontract for CMC to fabricate a deck

structure for OPE to use in extracting hydrocarbons in the Gulf of

Mexico. The subcontract contained an arbitration clause selecting

a Houston forum.1 The subcontract also contained (1) a choice-of-

law provision requiring the application of Texas law,2 (2) a

stipulation that portions of the subcontract work were to be

1 Clause 21.2 states in pertinent part: ...if any question, dispute or difference shall arise between CONTRACTOR and SUBCONTRACTOR, and the parties cannot mutually agree on a resolution thereof, then the Parties agree that such question, dispute or difference shall be finally settled by arbitration in Houston, Texas, or in such other location as may be mutually agreed, in accordance with the Construction Industry Rule of the American Arbitration Association with a single arbitrator.

2 Clause 23.5 states: ALL MATTERS RELATING TO THE VALIDITY, PERFORMANCE OR INTERPRETATION OF THIS SUBCONTRACT SHALL BE GOVERNED BY THE RELEVANT PROVISIONS OF THE MAIN CONTRACT OR, IN THE ABSENCE OF ANY PROVISIONS IN THE MAIN CONTRACT, BY THE LAW OF THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.

2 performed outside of Louisiana, and (3) a waiver of CMC’s right to

remedies pursuant to Louisiana Revised Statute section 9:2779.3

Disagreements arose between OPE and CMC. On July 20, 1998,

OPE filed a Demand for Arbitration with the Houston office of the

American Arbitration Association. After the second day of

arbitration, OPE and CMC agreed to temporarily suspend the

proceedings and attempt settlement through mediation. Mediation

proved unsuccessful. OPE notified CMC that it wished to resume

arbitration proceedings, but CMC refused. On February 18, 2000,

CMC filed suit in the 32nd Judicial District Court for the Parish

of Terrebonne, Louisiana, seeking damages and a declaration that

the subcontract’s arbitration clause and choice-of-law provision

violated public policy and were void.

OPE responded by filing a petition in the Southern District of

Texas to compel arbitration. The district court granted OPE’s

motion on September 29, 2000. The district court ordered CMC to

submit to arbitration in Houston, Texas and ordered that the

pending Louisiana suit be stayed. The district court determined

that the Federal Arbitration Act (“FAA”), 9 U.S.C. § 4, preempts

section 9:2779 of the Louisiana Revised Statues to the extent that

the Louisiana statute prohibits the parties from enforcing out-of-

3 Clause 23.13 states: “The Parties stipulate and agree that the portions of the Subcontract Work shall be performed outside of Louisiana and that Subcontract Work is in interstate commerce and, therefore, SUBCONTRACTOR specifically waives all redress to and rights and remedies under Louisiana Revised Statutes Section 9:2779.”

3 state choice-of-venue provisions. The court ordered CMC to submit

to arbitration in Houston under the terms of the agreement. CMC

timely appealed.

II.

This court reviews a district court's grant of a motion to

compel arbitration de novo. Local 1351 Int’l Longshoremen’s Ass’n.

v. Sea-Land Serv., Inc., 214 F.3d 566, 569 (5th Cir. 2000), cert.

denied, 121 S. Ct. 771 (2001). The FAA "establishes that, as a

matter of federal law, any doubts concerning the scope of

arbitrable issues should be resolved in favor of arbitration,

whether the problem at hand is the construction of the contract

language itself or an allegation of waiver, delay, or a like

defense to arbitrability." Moses H. Cone Mem’l Hosp. v. Mercury

Constr. Corp., 460 U.S. 1, 24-25 (1983).

Courts conduct a two-step inquiry when deciding whether

parties must submit to arbitration. See Webb v. Investacorp, Inc.,

89 F.3d 252, 257-58 (5th Cir. 1996). The first step is to decide

whether the parties agreed to arbitrate their dispute. See id. at

258. “This determination involves two considerations: (1) whether

there is a valid agreement to arbitrate between the parties; and

(2) whether the dispute in question falls within the scope of that

arbitration agreement.” Id. To resolve these issues, "courts

generally . . . should apply ordinary state-law principles that

govern the formation of contracts." Id. (quoting First Options of

4 Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 1924

(1995)). Once a court determines that the parties agreed to

arbitrate, the court must assess "'whether legal constraints

external to the parties' agreement foreclosed the arbitration of

those claims.'" Id. (quoting Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)).

Both parties agree that the first step of the above inquiry is

met. CMC relies on the second step of the inquiry to argue that

the arbitration agreement is foreclosed by Louisiana statute.

Section 9:2779 of the Louisiana Revised Statutes states in relevant

part:

A. 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 or requiring their interpretation to be governed by the laws of another jurisdiction are inequitable and against the public policy of this state.

B. 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 either: (1) 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 this state governing similar actions.

LA. REV. STAT. ANN. § 9:2779.

The FAA declares written provisions for arbitration “valid,

5 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. “In enacting § 2 of the [FAA], Congress declared a national

policy favoring arbitration and withdrew the power of the states to

require a judicial forum for the resolution of claims which the

contracting parties agreed to resolve by arbitration.” Southland

Corp. v. Keating, 465 U.S. 1, 10 (1984); see also Moses, 460 U.S.

at 24 (“Section 2 is a congressional declaration of a liberal

federal policy favoring arbitration agreements, notwithstanding any

state substantive or procedural policies to the contrary.”).

In Southland, franchisees filed suit in California state court

alleging violations of the California Franchise Investment Law.

See 465 U.S. at 4 (citing CAL. CORP. CODE ANN. § 3100 et seq. (West

1977)). Southland petitioned to compel arbitration pursuant to an

arbitration clause in the franchise agreement. Id. The California

Supreme Court held that the Franchise Investment Law required

judicial consideration of claims brought under the statute. Id. at

5. The Supreme Court reversed, holding that the statute was

preempted by the FAA. See id. at 16. The Court explained that

“[i]n creating a substantive rule applicable in state as well as

federal courts, Congress intended to foreclose state legislative

attempts to undercut the enforceability of arbitration agreements.”

Id. at 16 (footnotes omitted).

In Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681, 687-

6 89 (1996), the Court held that the FAA preempted a Montana statute

which rendered arbitration clauses unenforceable unless “‘typed in

underlined capital letters on the first page of the contract.’” Id.

at 684. (quoting MONT. CODE ANN. § 27-5-114(4)(1995)). The court

stated that

[b]y enacting § 2 [of the FAA], we have several times said, Congress precluded States from singling out arbitration provisions for suspect status, requiring instead that such provisions be placed “upon the same footing as other contracts.” Montana’s [statute] directly conflicts with § 2 of the FAA because the State’s law conditions the enforceability of arbitration agreements on compliance with a special notice requirement not applicable to contracts generally. The FAA thus displaces the Montana statute with respect to arbitration agreements covered by the Act.

Id. at 687 (citations omitted); see also Perry v. Thomas, 482 U.S.

483, 492, n.9 (1987)(“A state-law principle that takes its meaning

precisely from the fact that a contract to arbitrate is at issue

does not comport with this requirement of § 2.”).

Although the Fifth Circuit has never determined whether the

FAA preempts section 9:2779, we have held that the FAA preempts

other state laws that preclude parties from enforcing arbitration

agreements. In Commerce Park v. Mardian Construction Co., 729 F.2d

334, 337 (5th Cir. 1984), we held that the FAA preempted provisions

in the Texas Deceptive Trade Practices Act (“DTPA”) that required

parties to submit to a judicial forum. The DTPA stated that “[a]ny

waiver by a consumer of the provisions of this subchapter is

contrary to public policy and is unenforceable and void . . ..”

7 TEX. BUS. & COM. CODE ANN. §§ 17.42 & 17.59 (Vernon Supp. 1982).

Commerce Park argued that the DTPA prohibited litigants from

resolving their claims under the statute through arbitration. We

rejected Commerce Park’s argument and concluded that if the DTPA

provisions were given effect, the statute would abrogate § 2 of the

FAA in violation of the supremacy clause. See id. at 338; see also

Ommani v. Doctor’s Assocs., Inc., 789 F.2d 298, 299-300 (5th Cir.

1986)(“[T]o the extent that [the DTPA] provides a remedy parallel

to and often overlapping claims that may fall within the scope of

the Federal Arbitration Act, we find the Southland decision clearly

apposite.”)

In Miller v. Public Storage Management, Inc., 121 F.3d 215,

217, 219 (5th Cir. 1997), the plaintiff’s employer terminated the

plaintiff for failing to return to work eight months after an on-

the-job injury. The plaintiff argued that she should not have been

compelled to arbitrate her state claims for retaliation under the

Texas Labor Code because Texas law does not favor arbitration for

personal-injury or workers’ compensation claims. Applying

Southland, we held that the FAA preempts conflicting state anti-

arbitration laws. Id. at 219.

Section 9:2779 declares “null and void and unenforceable as

against public policy any provision in [certain construction

subcontracts] . . . which [] [r]equires a suit or arbitration

proceeding to be brought in a forum or jurisdiction outside of

8 [Louisiana].” LA. REV. STAT. ANN. 9:2779(B)(1). 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. See Doctor’s Assocs., 517 U.S. at 687. The

FAA therefore preempts the Louisiana statute, which prohibits the

arbitration agreement between CMC and OPE. Accordingly, we

conclude that the district court properly compelled the parties to

submit to arbitration.4

AFFIRMED

4 We find CMC’s remaining choice of law arguments without merit.