Revised August 9, 2001
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
OPE INTERNATIONAL LP,
CHET MORRISON CONTRACTORS, INCORPORATED,
Appeal from the United States District
for the Southern District of Texas
August 1, 2001
Before EMILIO M. GARZA, STEWART, and PARKER,
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 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.
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 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
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-state choice-of-venue provisions. The court
ordered CMC to submit to arbitration in Houston under the terms of the
agreement. CMC timely appealed.
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 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
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, 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, 687-89 (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
[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 . . .." 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
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
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 [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)
1. Clause 21.2 states in
...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.
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
4. We find CMC's remaining
choice of law arguments without merit.