Opinion
No. 2022 CA 0024.
09-16-2022
SOUTH LA CONTRACTORS, LLC v. MAPP, LLC and Capital Area Construction, LLC.
LANIER, J.
Appellants, MAPP, LLC ("MAPP"), Capital Area Construction, LLC ("CAC"), and Albert Dale Clary, challenge the district court's September 28, 2021 judgment, which granted a preliminary injunction filed by South LA Contractors, LLC ("SoLA") and enjoined the arbitration proceedings initiated by MAPP. For the reasons that follow, we affirm and remand for the imposition of security.
FACTS AND PROCEDURAL HISTORY
According to the record, this matter arises out of a construction project in Lake Charles, Louisiana, referred to as "Chase Nelson Road" ("the Project"), for which the owner of the Project, CBRE, Inc., had entered into a contract with MAPP. MAPP subsequently subcontracted with CAC to perform a portion of the Project work (demolition, site work, storm drainage, and concrete paving) for the price of $307,782.00. We note that the subcontract between MAPP and CAC was dated May 11, 2021, and was not signed by the parties until May 19, 2021, and May 20, 2021, respectively. According to a written agreement dated May 3, 2021, CAC subcontracted with SoLA to perform essentially the same work on the project for the price of $306,600.00. The managing member of SoLA, Brad Melancon, signed this contract on May 5, 2021. However, there was no signature by a CAC representative at that time. In fact, according to Mr. Melancon, he never received a signed contract from CAC. It was not until the day of the preliminary injunction hearing that he actually realized the contract had been signed by a CAC representative on August 17, 2021.
The Project is also referred to in the record as the "Nelson Road Rebuild" project.
We note that although the record reflects that the August 17, 2021 signed contract was admitted into evidence by the trial court as Exhibit MAPP-2A, the exhibit is not in the record that was sent to this court for review. However, there is ample testimony in the record from which we are able to conclude, with certainty, that Sam Louis, III, the owner of CAC, did not sign the subcontract with SoLA until August 17, 2021.
Both subcontracts in question contain the following clauses (Section 27, "DISPUTES") regarding arbitration:
Claims and disputes between Subcontractor and Contractor, which arise out of or relate to this Subcontract (including but not limited to a breach thereof), but which do NOT involve the rights or obligations of Owner or Architect, shall be resolved by binding arbitration in accordance with this paragraph. All such dispute(s) shall be submitted to and finally resolved by the Project Neutral who will serve as the sole Arbitrator.... The Project Neutral (arbitrator) shall determine whether he has jurisdiction and authority to resolve the dispute, in accordance with the terms of this Contract....
....
If the Contractor is bound, by virtue of the Prime Contract or by any other type of agreement, to participate and resolve any dispute arising out of the Contract Documents involving the Owner, Architect or any other Third-Party through arbitration, Subcontractor, [its] suppliers, subcontractors and its guarantors, surety, or sureties, shall be bound to participate and resolve any and all disputes in the same arbitration arising out of or relating to this Subcontract, or the breach thereof.
On August 6, 2021, Michael A. Polito, MAPP's President/Chief Executive Officer, notified Mr. Clary, the Project Neutral, of a dispute among the three parties to the above-referenced contracts. In an email to Mr. Clary, Mr. Polito stated, "We have a dispute with a subcontractor that emanates from a second tier subcontractor. All parties are required per contract to resolve disputes with you as project neutral." On that same day, Mr. Melancon was copied with the email that had been sent to Mr. Clary as notification that the arbitration process had begun. On August 11, 2021, Mr. Clary added counsel for SoLA to the email communication, and on August 17, 2021, counsel for SoLA requested a stay of any decision by Mr. Clary until an injunction could be filed with the district court. Later that same day, Mr. Clary advised the parties that the request for a stay was denied and that the parties had until the following morning to present any information pertinent to whether there was a binding arbitration agreement.
Also on August 17, 2021, CAC entered into an agreement with Mr. Polito appointing him as its agent and mandatary, authorizing Mr. Polito to "[i]nitiate, prosecute and pursue claims and other dispute-resolution procedures against [SoLA] pursuant to the terms of the [SoLA subcontract]." CAC also ratified the acts previously undertaken by MAPP and/or Mr. Polito, including assertion of claims against SoLA and initiation of the subject arbitration proceeding. In response to Mr. Clary's request for information, counsel for SoLA notified Mr. Clary and the parties that SoLA did not "agree to present any issue to arbitration, including but not exclusively, the decision as to whether a binding arbitration agreement exists," a decision that SoLA argued was a matter for the district court to decide.
We note that when Exhibit MAPP-4 was first offered into evidence at the hearing, counsel for SoLA objected to the document based on relevance. SoLA argued that CAC had no authority on the Project "whatsoever and therefore any granting of authority is hollow and is nothing." The trial court noted, but overruled, the objection, admitting the exhibit into evidence. Later in the hearing, counsel for SoLA again objected to the introduction of Exhibit MAPP-4, arguing relevance and the fact that the agreement was executed after the arbitration had already been initiated by MAPP. The trial court allowed the exhibit to be admitted into evidence but indicated that there would be a "definitive ruling" on whether it was "admissible based upon either ... one or more" of the objections at a later date. Towards the end of the hearing, counsel for SoLA stated, "so Exhibit Four you want briefs on." The trial court responded, "if I have not ruled, I'll need to rule on that for purposes of my decision." The record is void of any briefs or any further ruling by the trial court excluding Exhibit MAPP-4. Thus, as the district court did below, we have considered this exhibit in our review.
On August 18, 2021, SoLA filed a Motion for Temporary Restraining Order, Preliminary Injunction and Petition for Permanent Injunction, naming MAPP and CAC as defendants. SoLA argued that there was no written contract between SoLA and MAPP and that whether a valid arbitration agreement existed should be determined by the district court, not Mr. Clary. SoLA alleged further that CAC had "not issued a notice, correspondence or emails to [SoLA] disputing its work, making allegations or demanding arbitration" and that "[i]f any [had] been issued, they were issued only after [MAPP] attempted to initiate this arbitration proceeding." SoLA maintained that if a temporary restraining order was not issued, it could incur irreparable injury, in that it would be forced to participate in an arbitration proceeding prior to a determination by the district court as to whether a binding arbitration agreement exists between the parties.
Thereafter, SoLA filed a Supplemental and Amended Motion for Temporary Restraining Order, Preliminary Injunction and Petition for Permanent Injunction, adding Mr. Clary as an additional defendant. SoLA noted that, over its objections and requests for a stay, Mr. Clary had issued a ruling on August 18, 2021, that the matter was arbitrable, "even though [CAC] did not execute" the subcontract in question. SoLA alleged that it was initially asked by MAPP whether it qualified as a minority owned business, which SoLA affirmed it did not. Nonetheless, MAPP's representative indicated this would not be an issue "as it had a construction company, [CAC], who did qualify as a minority owned business." SoLA argued further that this "may have been necessary for any set aside requirements," noting that "it appears and/or is likely [that] both [the subcontract between MAPP and CAC and the subcontract between CAC and SoLA] were drafted, initiated and authorized by MAPP to create the appearance of a subcontract or sub-subcontract relationships which MAPP understood did not exist."
The district court denied the temporary restraining order, and the preliminary injunction proceeded to hearing on September 23, 2021. After hearing testimony and considering the documentary evidence introduced by the parties, the district court signed a judgment on September 28, 2021, granting the preliminary injunction filed by SoLA and enjoining the arbitration proceedings initiated by MAPP. It is from this judgment that MAPP, CAC, and Mr. Clary have appealed.
Appellants assign error to (1) the district court's failure to enforce the arbitration agreement; (2) the district court's grant of a preliminary injunction in the absence of SoLA making a prima facie showing that it would prevail on the merits and in the absence of proof of irreparable harm; (3) the district court's issuance of a preliminary injunction without requiring security; and (4) the district court's refusal to admit relevant evidence related to the claims.
LAW AND ANALYSIS
Evidentiary Rulings
Appellants challenge the district court's refusal to admit what they allege was relevant evidence directly related to assertions made in SoLA's pleadings. During Mr. Melancon's testimony, MAPP sought to introduce Exhibit MAPP-8, an arbitration pleading entitled, "Specification of Claims by [CAC] Against [SoLA]." Counsel for SoLA argued that the document was inadmissible because Mr. Louis was not an attorney and was prohibited from filing a claim on behalf of CAC in the arbitration proceeding. The district court noted the objection and allowed the exhibit to be proffered, stating, "I will rule on admissibility subsequent to today's trial and I will allow you to present your respective arguments on the admissibility of the exhibit and I'll make a definitive ruling on whether I admitted it or overruled the request to admit it." The record does not contain any briefs on the issue, nor is there a ruling from the district court regarding the admissibility of the exhibit. Nonetheless, based on our review of the record and applicable law, we find Exhibit MAPP-8 to be relevant, admissible evidence and have considered same in our review.
Appellants further challenge the district court's failure to consider either Mr. Clary's testimony or the "Ruling on Arbitrability" that Mr. Clary issued on August 18, 2021, finding that the dispute in this matter was arbitrable. When MAPP called Mr. Clary to the stand to testify to the arbitration in this matter, counsel for SoLA stipulated that Mr. Clary was the arbitrator and that there was an ongoing arbitration proceeding. However, counsel for SoLA objected to the relevance of Mr. Clary's testimony with regard to the claims that were asserted in the contracts or in the arbitration. The district court sustained the objection but allowed MAPP to proffer Mr. Clary's testimony and his August 18, 2021 ruling, which was marked as Exhibit MAPP-5.
Except as otherwise provided by law, all relevant evidence is admissible. La. Code Evid. art. 402. Relevant evidence is that having any tendency to make the existence of any fact that is of consequence to the determination of the action more or less probable than it would be without the evidence. La. Code Evid. art. 401. Whether evidence is relevant is within the broad discretion of the district court, and its ruling will not be disturbed on appeal in the absence of a clear abuse of that discretion. Gaspard v. Southern Farm Bureau Cas. Ins. Co., 2013-0800 (La. App. 1 Cir. 9/24/14), 155 So.3d 24, 31. Furthermore, error may not be predicated upon a ruling that admits or excludes evidence unless a substantial right of the party is affected. The harmless error analysis applies to erroneous evidentiary rulings on appeal. See La. Code Evid. art. 103(A); Travis v. Spitale's Bar, Inc., 2012-1366 (La. App. 1 Cir. 8/14/13), 122 So.3d 1118, 1127, writs denied, 2013-2409, 2013-2447 (La. 1/10/14), 130 So.3d 327, 32.
Based on our review of the proffered evidence, we agree with the district court's exclusion of Mr. Clary's testimony and Exhibit MAPP-5. We find no abuse of discretion in the district court's ruling that this evidence was not relevant to the question that was before the district court, i.e., whether a valid arbitration agreement between the parties exists.
Preliminary Injunction/Arbitration
A preliminary injunction is an interlocutory procedural device designed to preserve the status quo between the parties, pending a trial on the merits. Hill v. Jindal, 2014-1757 (La. App. 1 Cir. 6/17/15), 175 So.3d 988, 1002, writ denied, 2015-1394 (La. 10/23/15), 179 So.3d 600. Generally, plaintiffs seeking issuance of a preliminary injunction bear the burden of establishing by a preponderance of the evidence a prima facie showing that they will prevail on the merits and that irreparable injury or loss will result without the preliminary injunction. See La. Code Civ. P. art. 3601; Paradigm Health System, L.L.C. v. Faust, 2016-1276 (La. App. 1 Cir. 4/12/17), 218 So.3d 1068, 1072.
Although the judgment on the preliminary injunction is interlocutory, a party aggrieved by a judgment either granting or denying a preliminary injunction is entitled to an appeal. See La. Code Civ. P. art. 3612(B). We are, however, mindful that appellate review of a district court's issuance of a preliminary injunction is limited. The issuance of a preliminary injunction addresses itself to the sound discretion of the district court and will not be disturbed on review unless a clear abuse of discretion has been shown. Neill Corporation v. Shutt, 2020-0269 (La. App. 1 Cir. 1/25/21), 319 So.3d 872, 878.
This court has previously held that a party objecting to arbitration would be irreparably harmed by being forced to arbitrate "in a proceeding not required by the contract." W.E. Parks Lumber Co., Inc. v. Ronald A. Coco, Inc., 297 So.2d 925, 927 (La. App. 1 Cir.), writ denied, 302 So.2d 23 (La. 1974). Thus, we must determine whether SoLA has made a prima facie showing that there is no valid arbitration agreement existing between the parties.
In Collins v. Prudential Insurance Co. of America, 99-1423 (La. 1/19/00), 752 So.2d 825, the supreme court determined that before a district court can compel arbitration, it must make two preliminary determinations: "First, the trial judge must ensure that a valid arbitration agreement between the parties exists. Second, the judge must decide whether the dispute at issue falls within the scope of the agreement. State law principles govern the first question." Collins, 752 So.2d at 831.
Louisiana law favors arbitration. Aguillard v. Auction Management Corp., 2004-2804 (La. 6/29/05), 908 So.2d 1, 7. Whether a party is obligated to arbitrate is a matter of contract and, thus, the question of who is bound by an arbitration agreement is a function of the intent of the parties, as expressed in the terms of the agreement. Prasad v. Bullard, 2010-291 (La. App. 5 Cir. 10/12/10), 51 So.3d 35, 39. Generally, in order to be subject to arbitral jurisdiction, the party must be a signatory to a contract containing an arbitration clause. Id., 51 So.3d at 40. Not all arbitration provisions are valid under state law. Rodriguez v. Ed's Mobile Homes of Bossier City, La., 2004-1082 (La. App. 3 Cir. 12/8/04), 889 So.2d 461, 463, writ denied, 2005-0083 (La. 3/18/05), 896 So.2d 1010. Rather, the application of arbitration law presupposes the existence of a valid contract as a basis for invoking arbitration. George Engine Co., Inc. v. Southern Shipbuilding Corp., 350 So.2d 881, 884 (La. 1977); see also La. R.S. 9:4201. Thus, if a contract is void ab initio because of some fatal defect in its confection, any arbitration provision contained within it is also a nullity. State, Through Office of Governor v. L. W. Eaton Const. Co., Inc., 392 So.2d 477, 480 (La. App. 1 Cir. 1980).
Louisiana Revised Statutes 9:4201 provides:
A provision in any written contract to settle by arbitration a controversy thereafter arising out of the contract, or out of the refusal to perform the whole or any part thereof, or an agreement in writing between two or more persons to submit to arbitration any controversy existing between them at the time of the agreement to submit, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
The requirements for a valid contract are: (1) capacity; (2) consent; (3) a lawful cause; and (4) a valid object. See La. Civ. Code arts. 1918, 1927, 1966, 1971; Granger v. Christus Health Central Louisiana, 2012-1892 (La. 6/28/13), 144 So.3d 736, 760-761. It is the burden of the party seeking to enforce a contract to show the contract exists. La. Civ. Code art. 1831; FIA Card Services, N.A. v. Weaver, 2010-1372 (La. 3/15/11), 62 So.3d 709, 719; see also Kosmala v. Paul, 569 So.2d 158, 162 (La. App. 1 Cir. 1990) ("The party seeking to enforce arbitration provisions has the burden of showing the existence of a valid contract to arbitrate.") The existence of the contract and its terms must be proven by a preponderance of the evidence, either direct or circumstantial. Hornbeck Offshore Operators, LLC v. Cross Group, Inc., 2016-0174 (La. App. 1 Cir. 10/31/16), 207 So.3d 1141, 1146, writ denied, 2016-2095 (La. 1/9/17), 214 So.3d 872.
In the instant case, MAPP and CAC sought to enforce the arbitration against SoLA based on the alleged lack of performance by SoLA in connection with the Project. There is no question that MAPP and SoLA never entered into a contractual relationship. Thus, in order for arbitration to be enforced against SoLA, MAPP and CAC bore the burden of proving that there was a validly perfected subcontract between CAC and SoLA, containing a valid arbitration clause, at the time arbitration was initiated.
The evidence submitted by MAPP clearly indicates that CAC and MAPP executed a subcontract on May 11, 2021, concerning the Project. As previously noted, this subcontract contained an arbitration provision that requires all disputes arising out of the contract documents to be resolved through arbitration. The evidence further reveals that CAC entered into a subcontract with SoLA for the same work on the Project and that this subcontract contained the same arbitration provision. However, it is of note that the CAC/SoLA subcontract is dated May 3, 2021, which is before the May 11, 2021 MAPP/CAC subcontract was executed. Moreover, although the CAC/SoLA subcontract was signed by Mr. Melancon on behalf of SoLA on May 5, 2021, Sam Louis, III, the owner of CAC, did not see the subcontract until it was presented to him by MAPP for his signature on August 17, 2021, after the arbitration proceeding had been initiated by Mr. Polito on August 6, 2021. Moreover, Mr. Louis confirmed that the subcontract was drafted solely by MAPP.
Based on our review of this evidence, we find that SoLA has made a prima facie showing that it will prevail on the merits. There was clearly not a valid subcontract perfected between CAC and SoLA at the time the arbitration proceedings were initiated on August 6, 2021. In fact, when CAC accepted the terms of the subcontract with SoLA on August 17, 2021, SoLA had already effectively revoked the terms and conditions of the subcontract by requesting a stay of the proceedings and noting that it did not "agree to present any issue to arbitration, including but not exclusively, the decision as to whether a binding arbitration agreement exists," a decision that SoLA argued was a matter for the district court to decide. We find no abuse of discretion in the district court's ruling granting the preliminary injunction in favor of SoLA and enjoining the arbitration proceedings.
Appellants correctly argue, however, that the injunction should not have issued without the furnishing of security. The district court is prohibited from issuing a temporary restraining order or preliminary injunction unless the applicant furnishes security in the amount fixed by the court, except where security is dispensed with by law. La. Code Civ. P. art. 3610. When an injunction has been granted without security, an appellate court may either set aside the preliminary injunction or remand the matter to the district court for the fixing of security. Hernandez v. Star Master Shipping Corp., 94-1553 (La. App. 1 Cir. 4/7/95), 653 So.2d 1318, 1321. No useful purpose would be served in this case by dissolving the injunction for lack of security. The interests of justice and judicial economy would be best served by remanding this matter for the imposition of security. Lassalle v. Daniels, 96-0176 (La. App. 1 Cir. 5/10/96), 673 So.2d 704, 710, writ denied, 96-1463 (La. 9/20/96), 679 So.2d 435, cert.denied, 519 U.S. 1117, 117 S.Ct. 963, 136 L.Ed.2d 848 (1997); see also Wilson v. Allums, 47,147 (La. App. 2 Cir. 6/8/12), 94 So.3d 908, 916, writ denied, 2012-1611 (La. 10/26/12), 99 So.3d 650.
DECREE
For the above and foregoing reasons, we affirm the September 28, 2021 judgment of the district court. We remand the matter to the district court with an order to fix the amount of security to be furnished by South LA Contractors, LLC. We assess all costs associated with this appeal against appellants, MAPP, LLC, Capital Area Construction, LLC, and Albert Dale Clary.
AFFIRMED; REMANDED WITH ORDER.
Penzato, J., dissents and assigns reasons.
PENZATO, J., dissents.
I respectfully disagree with the majority's conclusion that South LA Contractors ("SoLA") made a prima facie showing that it will prevail on the merits and further disagree with the finding that "[t]here was clearly not a valid subcontract perfected between [Capital Area Contractors] and SoLA." I find that a valid contract exists between SoLA and Capital Area, which contains an enforceable arbitration clause.
Louisiana Civil Code article 1837 provides that an act under private signature must be signed by the parties. Nevertheless, a jurisprudential exception to this statutory requirement exists when only one party has signed an agreement and the other party has availed himself of the agreement or taken actions evidencing his acceptance thereof. Thus, it follows that a party who has signed an agreement lacking the signatures of all parties may bind himself to the agreement where he avails himself of the agreement or demonstrates acceptance thereof. Harvey v. Collins, 2020-0840 (La. App. 1st Cir. 4/16/21), writ denied, 2021-00683 (La. 9/27/21), 324 So.3d 96. See also Stevens Construction & Design, LLC v. Hillman, 2019-1329 (La. App. 1st Cir. 6/12/20), 2020 WL 3109444, *3 (unpublished), applying this jurisprudential exception to Article 1837 to find that a valid construction contract existed.
It is clear from the testimony and evidence presented during the hearing on the preliminary injunction that SoLA signed the subcontract with Capital Area and availed itself to the agreement, demonstrating its acceptance thereof, by performing the work contemplated by the subcontract. Additionally, as noted by the majority, Capital Area contracted with MAPP to perform the same dirt work that Capital Area subcontracted with SoLA to perform. The testimony established that SoLA — not Capital Area — performed this dirt work. By allowing SoLA to perform the work, which Capital Area contractually agreed with MAPP to perform, Capital Area availed itself to the agreement with SoLA and demonstrated its acceptance of the terms of the Capital Area/SoLA subcontract. Therefore, I disagree with the majority that Capital Area's failure to sign the agreement with SoLA is fatal to the contract's validity.
A challenge brought to the very existence of the contract containing the arbitration clause must be decided by the court, not by the arbitrator. FIA Card Services, N.A. v. Weaver, 2010-1372 (La. 3/15/11), 62 So.3d 709, 714. However, challenges to the validity of the contract as a whole, such as SoLA's argument that the contract is ambiguous, unenforceable, or against public policy, must be considered by the arbitrator, not the court. See Vishal Hosp., LLC v. Choice Hotels International, Inc., 2004-0568 (La. App. 1st Cir. 6/28/06), 939 So.2d 414, 418, writ denied, 2006-2517 (La. 1/12/07), 948 So.2d 152, citing Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006). Additionally, the parties may contractually delegate the authority to decide issues of arbitrability, including the validity of the arbitration clause, to the arbitrator. Florida Gas Transmission Co., LLC v. Texas Brine Co., LLC, 2017-0304 (La. App. 1st Cir. 12/6/18), 267 So.3d 633, 636-37, writ denied, 2019-0333 (La. 6/26/19), 275 So.3d 876. The/Capital Area/SoLA written agreement gives the project neutral (arbitrator) authority to determine whether he has jurisdiction and authority to resolve the dispute.
Thus, I find the trial court abused its discretion by granting the preliminary injunction and erred by failing to enforce the arbitration agreement. I would reverse the judgment and deny South LA Contractors' request for a preliminary injunction.