Monday, December 14, 2020

Don’t Mess with Texas: 5th Circuit takes Litigators Back to Law School

 In the recent decision of Sayers Construction, L.L.C.v. Timberline Construction, Inc. and High Voltage, Inc., the Fifth Circuit affirmed a federal district court’s determination that it did not have jurisdiction to vacate an arbitration award in Florida. 976 F.3d 570 (5th Cir. 2020). The court reminded us that jurisdiction really is power, just like lawyers everywhere learned in their very first civil procedure class in law school. After walking us through the trodden legal framework of Pennoyer, International Shoe, World-Wide Volkswagen, and Burger King, and hinting at the liberal policy of promoting arbitration, the court concluded, “this is Florida’s problem. Not Texas’s.” Sayers Construction, 976 F.3d at 574.

The case serves a friendly reminder of the importance of jurisdiction, especially in the context of arbitration. In this case, the Texas-based general contractor sought to vacate a Florida court’s enforcement of a Florida-based arbitration award. See id. at 572Step one of the court’s analysis highlighted the most well-known limitation of the Due Process Clause when it comes to jurisdiction of out-of-state defendants: that of “minimum contacts.” See id. at 573. The court pressed that we must always ask whether our counterparts “purposefully avail[ed] [themselves] of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” See id. (citing World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297-98 (1980)). Here, the general contractor defendant pressed that this was a standard breach of contract dispute where “minimum contacts” existed because (1) subcontractors solicited a business relationship with the general contractor in Texas, (2) the subcontractors contracted with the general contractor, which has an office in Texas, (3) subcontractors mailed invoices to general contractor’s office in Texas, and (4) the parties’ contract has a Texas choice-of-law clause. Id. The court found that none of these facts established “minimum contacts.” Importantly, in response to facts (3) and (4), the Fifth Circuit held that, mailing payments, especially when all of the work is performed outside the state, is insufficient to establish “minimum contacts” and choice-of-law clauses are probative, but not dispositive, of purposeful availment. See id. at 574.

With its terse ‘this is not our problem’ ending, the court emphasized that any doubts as to the legitimacy of arbitration should be put to bed. Case law, in conjunction with the Federal Arbitration Act (“FAA”), makes clear that there exists a liberal policy of promoting arbitration, thus making arbitration agreements “valid, irrevocable, and enforceable.” 9 USC § 2. As we all know, arbitration is favored amongst many construction clients due to its privacy, speed, and finality. But with every decision comes a cost. In agreeing to arbitrate, the cost to parties is the relinquishment of much of their right to a court’s decision. Parties may still seek court review of an arbitrator’s decision, but the courts will set that decision aside only in very unusual circumstances. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995). In fact, grounds for vacating arbitral awards are few and far between[1] – and if you’re still not convinced of just how rigorously courts enforce arbitral awards, consider the fact that the Manifest Disregard of Law Doctrine remains one of the few proper grounds of vacatur of an arbitral award and there exists a circuit split as to whether even that is proper. See Philip D. O’Neill, Jr., International Commercial Arbitration 459 (2012).

In conclusion, the case of Sayers Construction, 976 F.3d at 574, is a reminder to experienced lawyers not to lose sight of either the legal frameworks of personal jurisdiction or the FAA. And, of course, litigators everywhere beware: don’t mess with Texas.

[1] Per the New York Convention on the Enforcement of Foreign Arbitral Awards of 1958 (the “New York Convention”) and the Federal Arbitration Act (“FAA”), courts are directed to confirm arbitral awards unless it is found that there exist grounds for refusal or deferral of recognition. Those grounds include 1(a): incapacity of a party; invalidity under the law to which the parties subjected their agreement, or invalid under the law of the country where the agreement was made; (b) lack of proper notice; an inability by a party to present their case; (c) exceeding the scope of the arbitral agreement; (d) composition of the arbitral authority or process was not as the parties agreed; (e) set aside by a competent authority or in accordance with the law of the arbitral seat; (2)(a) the subject matter may not be lawfully resolved under the law of the place of enforcement; or (b) contrary to the public policy of that jurisdiction. In short, the legal framework and the New York Convention (Article V) provides that the decision to decline to enforce an award is a matter of stringent discretion, for “recognition and enforcement of the award may be refused,” but only very limited circumstances. See Philip D. O’Neill, Jr., International Commercial Arbitration 405-06 (2012).

Author Lexie R. Pereira is a third year J.D./M.B.A. candidate at Boston College Law School and Carroll School of Management, studying to become a litigator, with a specialty in construction law. Currently, she works as a Law Clerk at Consigli Construction Co., Inc., serves on the Editorial Team of the ABA’s Forum on Construction Law’s Dispute Resolver blog, and acts as the 2020 Student Liaison of the ABA's Forum on Construction Law. At school, Lexie is the President of the Real Estate Law Society and the President of the Eagle-to-Eagle Mentoring Program. Lexie grew up in the construction industry and has spent time working as an estimator, field engineer, laborer, and, of course, in the legal capacity at Consigli and formerly Hinckley Allen as a Summer Associate. 

Contact Lexie: |

No comments:

Post a Comment