617 F.Supp.3d 633
S.D. Tex.2022Background
- Global Industrial subcontracted with Red Eagle to build a concrete box structure in Texas City, TX; the subcontract excluded the cost of excavation from Global’s scope of work.
- Red Eagle excavated ground material without Global’s consent, ignored stop directives, attempted refilling, and damaged site structures during remedial work.
- Global sued in federal court in Texas for breach of contract, negligence, breach of warranty, and fraudulent lien; Global moved to compel arbitration under the subcontract’s arbitration clause.
- The subcontract’s arbitration clause required binding arbitration administered by the AAA in Baton Rouge, Louisiana, and stated that the contract would be governed by Louisiana law.
- Red Eagle agreed the dispute should be arbitrated but invoked Tex. Bus. & Com. Code § 272.001 to void the provisions selecting a non‑Texas forum and non‑Texas law; Global argued the FAA preempts that Texas statute.
- The magistrate judge concluded the FAA preempts § 272.001, compelled arbitration in Baton Rouge, and applied Louisiana law to the subcontract and disputes arising thereunder.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a magistrate judge may resolve the motion to compel arbitration | Motion to compel is non‑dispositive; magistrate can decide under § 636(b)(1)(A)/(B) | Motion is dispositive and should be decided by the district judge | Motion to compel is non‑dispositive; magistrate may rule |
| Whether a valid arbitration agreement exists and covers the dispute | Subcontract contains a valid arbitration clause covering the parties’ claims | Agreed arbitration is warranted (dispute falls within clause) | Valid arbitration agreement exists and covers the claims |
| Whether Tex. Bus. & Com. Code § 272.001 permits voiding venue and choice‑of‑law provisions | FAA preempts § 272.001; parties’ choice of forum and law enforceable | § 272.001 allows a contractor to void non‑Texas forum and law provisions in construction contracts | FAA preempts § 272.001 as applied; statute cannot nullify the parties’ arbitration venue or choice of law |
| Remedy: forum and governing law for arbitration | Compel arbitration in Baton Rouge under Louisiana law as written in the subcontract | Seek to void Baton Rouge venue and Louisiana law; urge application of Texas statute | Ordered arbitration in Baton Rouge and application of Louisiana law to the subcontract disputes |
Key Cases Cited
- OPE Int’l LP v. Chet Morrison Contractors, Inc., 258 F.3d 443 (5th Cir. 2001) (FAA preempts state law conditioning enforceability of arbitration agreements on selection of a local forum)
- Cleveland Constr., Inc. v. Levco Constr., Inc., 359 S.W.3d 843 (Tex. App.—Houston [1st Dist.] 2012) (Texas appellate court applying OPE and concluding § 272.001 conflicts with FAA)
- Volt Info. Sciences, Inc. v. Bd. of Trustees of the Leland Stanford Junior Univ., 489 U.S. 468 (1989) (federal policy enforces arbitration agreements according to their terms)
- Doctor’s Assocs., Inc. v. Cassarotto, 517 U.S. 681 (1996) (state rules disfavoring arbitration provisions must not single out arbitration for disfavored treatment)
- Fedmet Corp. v. M/V Buyalyk, 194 F.3d 674 (5th Cir. 1999) (court retains discretion under FAA to stay or dismiss proceedings after compelling arbitration)