A recent Louisiana Court of Appeal decision emphasized the significance of expert testimony in design professional liability cases, with an almost bizarre twist.

In that case, City of Alexandria v. Ratcliff Construction Company, LLC, No. CA 11-1200, 2/8/2012, the Court of Appeal held the claims by a project owner, the City of Alexandria, against the two architects for the design and construction of a performing arts center, were properly dismissed by the trial court, because the City’s own expert gave a written report concluding that the design of the performing arts center was in accordance with industry standards.

The court first established what has now become commonly understood regarding architect liability.  The court acknowledged that architects are held liable for damages if the design professional or architect performed services which were not of “the same care and skill required by others engaged in the same professional and the same locality” citing the previous Third Circuit case of Weill Construction Co. v. Thibodeaux, 491 So.2d 166, 171 (La. App. 3 Cir. 1985).  The court then took the next step and established that the “failure to submit expert testimony to prove the standard of care is a ‘fatal omission’” citing Greenhouse v. C.F. Kenner Associates Ltd. Partnership, 98-496, p. 5 (La. App. 4 Cir. 11/10/98), 728 So.2d 1004, 1008.

The court of appeal noted that the architect’s motion for summary judgment was based on a pre-litigation expert report by the City of Alexandria’s own expert.  In the bizarre part of the case, the City never provided a supplemental report or an affidavit or any evidence from any expert to contradict the original pre-lawsuit opinion of its own expert that the architect’s conduct did not fall below the applicable standard of care.

Instead, the City argued the pre-litigation report was a privileged communication which should not have been used by the architects in evidence.  The court quickly dispensed with that argument noting La.C.C.P. art. 1425 specifically provides that “a party may… discover… opinions held by a person who has been identified as an expert….”

Perhaps the most important part of the Third Circuit opinion is its rejection of the plaintiff argument that a motion for summary judgment based on expert testimony cannot be heard until a court scheduling order cutoff date for submission of expert reports.  The Court of Appeal pounded that argument as a “misplaced strategic move” citing an earlier medical malpractice case out of the Third Circuit, Dupree v. Louisiana Medical Mutual Insurance Co., 11-366, p.2 (La. App. 3 Cir. 10/5/11), 74 So. 3d 880, 882.

Accordingly, the criticality of expert testimony is not only in the substance of that testimony but also in the timing of that testimony.  This Third Circuit case means that parties and attorneys in a professional liability case (or any other technical case which requires expert testimony) need to retain experts sooner rather than later in the dispute.  These are not car wreck cases, in which all the factual testimony has to come in first before the experts can reach their conclusions.

Additionally, this case underscores the need for preliminary expert reports in construction and other technical cases.  Without preliminary expert reports, the lawyers frequently do not know what questions to ask in written discovery or in depositions.  Construction cases are highly technical and have a myriad of technical issues on which expert guidance is needed, both from the party being represented and the opponent.

In summary, expert testimony is critical to professional liability cases and that testimony should be evaluated early.

Accepting the President's Award

Brooke Barnett received the President’s award for her work on the 2011 Bench Bar Conference. Her practice areas primarily include construction litigation, business litigation, professional liability and insurance defense.

2012 Chair of the Baton Rouge Bar Association Young Lawyers Section Council

Jamie Watts will be sworn in as Chair of the Young Lawyers Section of the BRBA at the January Baton Rouge Bar Association luncheon. Jamie Watts’ practice areas include business structure and transactions; commercial litigation; energy, telecommunications and utilities; and wills and successions.

    New Anti-indemnity Act for Design Professionals and Contractors in Louisiana: LA. R.S. 9:2780.1

During the 2010 Regular Session, Senate Bill No. 625 by Senator Martiny (R, Dist.10) and Representative Ligi (R, Dist. 79), was passed by the Louisiana State Legislature.  Senate Bill No. 625 was signed by Governor Jindal on June 23, 2010, and became Act No. 492, effective August 15, 2010.  Act No. 492 enacts La. R.S. 9:2780.1, which provides that certain types of indemnity and insurance provisions contained in construction contracts will be deemed invalid under Louisiana law.  This new law applies prospectively only.

Basically, La. R.S. 9:2780.1 provides that parties who execute “construction contracts” after January 1, 2011, will only be allowed to assume responsibility for any damages arising from their own fault.  La. R.S. 9:2780.1 further provides that these parties will not be required to furnish insurance/defense for the acts, omissions, or fault of others.

Specifically, La. R.S. 9:2780.1 provides:

B. Notwithstanding any provision of law to the contrary, any clause, covenant, or agreement contained in, collateral to, or affecting a…construction contract which purports to indemnify, defend, or hold harmless, or has the effect of indemnifying, defending, or holding harmless, the indemnitee from or against any liability for loss or damage arising from the negligence or intentional acts or omissions of the indemnitee, an agent or employee of the indemnitee, or a third party over which the indemnitor has no control, is contrary to the public policy of this state and is null, void, and unenforceable. (emphasis added).

C.  Notwithstanding any provision of law to the contrary, any clause, covenant, or agreement contained in, collateral to, or affecting a…construction contract which purports to require an indemnitor to procure liability insurance covering the acts or omissions or both of the indemnitee, its employees or agents, or the acts or omissions of a third party over whom the indemnitor has no control is null, void and unenforceable.  However, nothing in this Section shall be construed to prevent the indemnitee from requiring the indemnitor to provide proof of insurance for obligations covered by the contract. (emphasis added).

This new anti-indemnity law will apply to design professional contracts.  The term “construction contract” as defined by La. R.S. 9:2780.1 means:

Any agreement for the design, construction, alteration, renovation, repair, or maintenance of a building, structure, highway, road, bridge, water line, sewer line, oil line, gas line, appurtenance, or other improvement to real property, including any moving, demolition, or excavation…” (emphasis added).

However, the term “construction contract” shall NOT include any design, construction, alteration, renovation, repair, or maintenance of any road used to access oil and gas wells and associated facilities or oil or gas lines used in the transportation or production from oil and gas wells.

According to the testimony of Senator Martiny, and others, before the Senate Commerce Committee, this new law was enacted as part of a long line of tort reform.  Senator Martiny explained that it was “patently unfair” to have provisions in contracts that force parties to indemnify others for damages that do not arise out of their own fault; and thus, that such provisions should be deemed against Louisiana’s public policy.  Senator Martiny further explained that twenty (20) other states have already enacted provisions similar to those found in La. R.S. 9:2780.1.  Therefore, based on this testimony before the Senate Commerce Committee, the rationale behind the adoption of this new law is to make liability based solely upon one’s own fault.

There are two exceptions to this construction contract anti-indemnity act.  La. R.S. 9:2780.1 is not intended to alter the provisions found in two other statutes which already contain anti-indemnity provisions for oil and gas work and public works contracts, La. R.S. 9:2780 (oil and gas) and La. R.S. 38:2195 (public contracts).  Specifically, public entities are already prohibited from assuming liability for damages caused by others with whom the public entity contract.

With the adoption of La. R.S. 9:2780.1, architects and engineers, who execute contracts governed by Louisiana law, will no longer be strong armed into accepting contractual responsibility for damages caused by the fault of other parties, to provide professional services, pursuant to an indemnity clause.  Additionally, architects and engineers will be prevented from insuring against the acts and omissions of other parties with whom they contract.

Not all indemnity is nullified, only indemnity for someone else’s fault.  Accordingly, an engineer can still be required by contract to indemnify an architect who is sued because the engineer’s plans were negligently prepared.

This anti-indemnity act will have some impact on AIA standard form contracts.  For example, §3.18 in the A201-2007 General Conditions includes language which purports to require a contractor to indemnify an Owner for damages arising out of the OWNER’S fault.  That clause will become null in on January 1, 2011.

However, La. R.S. 9:2780.1 will have no effect on the insurance clause contained in current standard AIA agreements. The A201-1997 allowed the Owner to require the Contractor to purchase liability insurance for the Owner, Architect and Contractor (§11.3), but the 2007 version deleted that requirement and now says simply “the Owner shall be responsible for purchasing and maintaining the Owner’s usual liability insurance (§11.2).  Based on the testimony presented to the Senate Commerce Committee, any provisions requiring a contractor to carry builder’s risk insurance (e.g., §11.3 in the A201-2007) will not be affected by this new law.

We do not anticipate this anti-indemnity act will affect Limitation of Liability clauses which many design professionals are inserting in their contracts.  Those LOL clauses are recognized in a separate Civil Code article, and are treated differently than indemnity, even though both concepts attempt to contractually shift liability.

The indemnification clauses rendered null by this statute are fairly common, although not commonly used when problems arise on a project.  Good lawyers are always looking for leverage and a clause which indemnifies someone for his or her own fault is usually good leverage.  That leverage, however, will vanish in January.

There is a heavy presumption in favor of arbitration

The right to demand arbitration is strong under federal and state law.  Collins v. Prudential Ins. Co. of America, 99-1423, 3 (La. 01/19/00); 752 So.2d 825, 827;  Simpson v. Pep Boys – Manny Moe & Jack, Inc., 2003-0358, 7-8 (La. App. 4 Cir. 04/09/03); 847 So.2d 617, at 621. Further, under federal and Louisiana law, there is a strong presumption in favor of arbitrability.  Stadtlander v. Ryan’s Family Steakhouse, 34,384 (La. App. 2 Cir. 04/04/01); 794 So.2d 881, 888.  Even when the scope of an arbitration clause is fairly debatable or reasonably in doubt, the court should decide the question of construction in favor of arbitration.  Id.  Louisiana courts have recognized the heavy weight of this presumption, noting that as to issues of arbitrability, “even if some legitimate doubt could be hypothesized the Supreme Court requires resolution of the doubt in favor of arbitration.”  Stadtlander, at 888; Collins, at 827.

The Louisiana Arbitration Law is virtually identical to the United States Arbitration Act, 9 U.S.C. §§ 1-14, thus, Louisiana courts look to federal law when interpreting the Louisiana Arbitration Law.  Lakeland Anesthesia, Inc. v. CIGNA Healthcare of LA, Inc., 2001-1059 (La. App. 4 Cir. 2/6/02); 812 So.2d 695; Blount v. Smith Barney Shearson, Inc., 96-0207, 5 (La. App. 4 Cir. 2/12/97), 695 So.2d 1001, 1003.  See, also the Louisiana Supreme Court’s adoption of the federal arbitration interpretation of the Federal Arbitration Act, when the federal act and the Louisiana act have the same language.  Int’l River Center v. Johns-Manville Sales Corp., 2002-3060 (La. 12/03/03); 861 So.2d 139.

General Contract Principles Determine Whether a Nonsignatory May Enforce Arbitration

Generally, ordinary contract principles govern the question of who is bound by an arbitration agreement and a party cannot be required to submit to arbitration any dispute that he has not agreed to submit.  Ciaccio v. Cazayoux, 519 So.2d 799, 802 (La. App. 1Cir. 1987). In addition, an arbitration agreement may not typically be enforced by someone who did not sign the agreement.  These general propositions of law, however, are not always applicable.  Shroyer v. Foster, 2001-0385 (La. App. 1 Cir. 03/28/02); 814 So.2d 83.  While it is true that an arbitration agreement is a contract subject to the general rules of contract interpretation, due regard must nevertheless be given to the overwhelming state and federal policy favoring arbitration and any ambiguities as to the scope of the arbitration agreement must be resolved in favor of arbitration.  Stadtlander, at 889.  Accordingly, there are certain general contract principles that may allow a nonsignatory to enforce an arbitration provision, such as (1) agency, (2) incorporation by reference and (3) the third party beneficiary doctrine.

Agency

The principal may be forced to arbitrate even if he has not signed an arbitration agreement if an agent signs the agreement for the principal under agency principles and the doctrine of respondeat superior.  To compel a principal to arbitrate based on the agent’s act, the party seeking to enforce arbitration must show that the agent was acting on behalf of the principal and that the cause of action arises
out of that relationship.  E.I. DuPont, Denemourous and Co. V. Rhone Poulene Fiber and Resin Intermediates, S.A.S., 269 F.3d 187 (3d Cir.
2001).  While this writer has not found any Louisiana cases applying this doctrine, it is compatible given Louisiana’s agency law, the strong presumption in favor of arbitration and the fact that Louisiana courts look to federal law when interpreting arbitration agreements.

Third Party Beneficiary

A party may be required to arbitrate a given dispute on the basis of an agreement containing a mandatory arbitration clause, even if that party is not a signatory to that contract, if the party is a third-party beneficiary to the contract.  Lakeland Anesthesia, Inc. v. CIGNA Healthcare of LA, Inc.,  2001-1059 (La. App. 4 Cir. 2/6/02); 812 So.2d 695, at 701-702 (“we acknowledge the principle established by the federal jurisprudence that a third-party beneficiary to a contract containing a mandatory arbitration provision is subject to that provision”); Alford v. Johnson Rice & Co., L.L.C. 1999-3119 (La. App. 4 Cir. 11/15/00);773 So.2d 255 (“broker and its employees [were]  third-party beneficiaries of” agreement between customer and clearing house broker, and the terms and conditions thereof, “including the arbitration provision,” were applicable to beneficiaries); and Collins, supra, (noting that the employer of an employee executing a Form U-4 agreement has been held to be a third-party beneficiary of the agreement capable of enforcing the arbitration provisions contained therein).

Incorporation by Reference

Louisiana jurisprudence allows an arbitration agreement to apply if “an arbitration clause is incorporated by reference to another written contract . .”  Dufrene v. HBOS Manufacturing, L. P., 2003-2201 (La. App. 4 Cir. 04/07/04); 872 So.2d 1206, 1211, citing,  Woodson Const. Co. v. R.L. Abshire Const. Co., 459 So. 2d 566, 569 (La. App. 3 Cir. 1984); and Russellville Steel Co., Inc. v. A & R Excavating, Inc., 624 So.
2d 11, 13 (La. App. 5th Cir. 1993).  It is well established that there is no requirement under La. R.S. 9:4201 or the FAA that an arbitration  agreement be contained in a single document in order to be considered part of the contract.  Dufrene, at 1210-1211, citing, Personal Sec. & Safety Systems, Inc. v. Motorola, Inc., 297 F.3d 388, 393 (5^th Cir. 2002); and Bartley, Inc. v. Jefferson Parish School Bd.,302 So.2d 280 (La.1974).  The incorporation of an arbitration clause by reference into another writtencontract is a suitable method of evidencing the parties’ intent to arbitrate as long as the arbitration clause in the contract that is referred to has a “reasonably clear and ascertainable meaning.”   Id.

Other situations whereby a nonsignatory may have the right to arbitrate

There are other scenarios wherein a nonsignatory may have rights to an arbitration agreement based on general contract principles. For example, corporate officers may be able to compel arbitration (or be compelled to arbitrate) based on an arbitration agreement entered into by the corporation under certain circumstances.  A spouse may be compelled to arbitrate pursuant to an arbitration provision signed by the other spouse and, likewise, a minor may be compelled to arbitrate a claim in accordance with an agreement to arbitrate executed by the parent.

Equitable Estoppel is broader theory whereby a nonsignatory may compel arbitration

Louisiana courts have recognized that a signatory to an arbitration agreement  may be compelled to arbitrate claims arising out of that agreement against a nonsignatory pursuant to an equitable estoppel principle.  In Lakeland, at 394, FN 19.  This principle was also recognized in Lakeland and Lakleland and Grigson v. Creative Artists Agency, LLC., 210 F.3d 524 (5 Cir 2000) Billieson.  There, the Fifth Circuit noted that other circuits have, in a few instances, allowed a non-signatory to a contract with an arbitration clause to compel arbitration under an equitable estoppel theory, including when the action is intertwined with, and dependent upon, that contract.

Grigson then described two different ways a signatory can be compelled into arbitration by a non-signatory. First, equitable estoppel applies when the signatory to a written agreement containing an arbitration clause must rely on the terms of the written agreement in asserting its claims against the non-signatory. When each of a signatory’s claims against a non-signatory makes reference to or presumes the existence of the written agreement, the signatory’s claims arise out of and relate directly to the written agreement, and arbitration is appropriate.  Second, application of equitable estoppel is warranted when the signatory to the contract  containing an arbitration clause raises allegations of substantially interdependent and concerted misconduct by both the non-signatory and one or more of the signatories to the contract. Otherwise the arbitration proceedings between the two signatories would be rendered meaningless and the federal policy in favor of arbitration effectively thwarted.  Grigson, at 528.

Conclusion

There are several theories under Louisiana and Federal law whereby a nonsignatory to an arbitration agreement may compel arbitration or be bound to arbitrate pursuant to the agreement.  When selecting disputeresolution provisions for a contract, it is important, therefore, to consider all of the potential ramifications of including an arbitration agreement, especially in complex, multi-party transactions.

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