In La Salle Group, Inc. v. Electomation, 880 N.E.2d 330 (
Ind. App., 2008), the
Indiana Court of Appeals recently found that Section 17 of Indiana’s mechanic’s lien statute (I.C. § 32-28-3) was preempted by the Federal Arbitration Act (9 U.S.C. §2). The suit involved a breach of contract claim brought by a subcontractor against a general contractor arising out of the construction of a Wal- Mart in
Muncie,
Indiana. When the general contractor moved to stay the litigation to enforce an arbitration provision in the agreement, the trial court denied the motion and the general contractor appealed.
The arbitration provision of the contract provided that the general contractor had sole discretion to invoke arbitration and provided that venue for the arbitration was in
Michigan. The subcontractor responded to the motion to stay by invoking Ind. Code § 32-28-3-17, which provides that a provision in a contract for the improvement of real estate is void if it makes the contract subject to the laws of another state or requires litigation or alternative dispute resolution in another state. Accordingly, the trial court denied the general contractor’s motion on the basis that the forum selection clause was void under
Indiana law.
On appeal, the general contractor argued that the
Indiana statute was preempted by Federal Arbitration Act and the court of appeals agreed. The federal statute provides that a provision to arbitrate in a contract “evidencing a transaction involving [interstate] commerce” “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” The validity of the Federal Arbitration Act was previously upheld by the U.S. Supreme Court in Allied-Bruce Terminix Cos. V. Dobson, 513
U.S. 265 (
U.S. 1995). The federal law has been applied in several jurisdictions, but had yet to be applied in
Indiana.
Citing the U.S. Supreme Court’s ruling in Dobson, the Indiana Court of Appeals held that, while courts may invalidate an arbitration clause on the same grounds that they invalidate any contract, they may not single out the arbitration clause as unenforceable. Insofar as the
Indiana statute and the Federal Arbitration Act were in conflict, the
Indiana statute is preempted by the federal statute.
The court declined to address the argument that the arbitration provision was void because it required litigation (as opposed to arbitration) to be commenced in another state. Had the general contractor invoked the forum selection clause in the context of the litigation and not arbitration, then the Federal Arbitration Act would not have applied and the provision would likely have been unenforceable under the
Indiana workers’ compensation statute. Contractors should keep in mind that, while foreign forum selection clauses for litigation remain unenforceable in
Indiana, those clauses will likely be enforceable in the context of a mandatory arbitration provision.
