Is Ohio’s Statute Mandating That Arbitrations Take Place in Ohio Pre-Empted by the FAA and Therefore Unenforceable?
Kegler Brown Construction Newsletter December 1, 2005
Ohio has a statute mandating that any dispute on an Ohio construction project be litigated or arbitrated in Ohio (R.C. §4113.62(D)(2)); and that Ohio law apply (R.C. §4113.62(D)(1)). Any contrary provisions applying the law of another state or making the dispute go to another state are prohibited.
However, the Federal Arbitration Act ("FAA") arguably pre-empts state law that attempts to restrict arbitration proceedings under the FAA. Some have argued that the FAA makes any state law governing the venue of arbitrations, or which law applies, unenforceable.
There have been some cases that say state law is pre-empted and therefore unenforceable when it attempts to say where the arbitration shall be conducted. Nevertheless, there does not appear to be any binding authority which says that Ohio's statute mandating the application of Ohio law is unenforceable.
One might reasonably conclude that Ohio's statute (R.C. §4113.62(D)(2)) is unenforceable when it attempts to say where the arbitration may be conducted. Ohio's statute (R.C. §4113.62(D)(1)) is likely enforceable when its states that what law applies (Ohio law on an Ohio construction project).
While the final word on this subject has not arrived from the U.S. Supreme Court, it is unfortunate that courts have so broadly construed the FAA to emasculate the State's attempts to allow companies to arbitrate more cost-effectively in the state where the project was built.
It would appear that an amendment to the FAA, or a favorable Supreme Court decision is in order, and truly necessary to address the problem of forcing construction companies to arbitrate their disputes in faraway states.