U.S. Supreme Court Emasculates State Statutes Requiring Arbitration in the State where Project is Located.

Kegler Brown Construction Alert

Many states in recent years, including Ohio, have passed statutes mandating that construction disputes be arbitrated in the state where the project is located, and making contrary construction contract provisions unenforceable as against public policy. These states recognized the inherent unfairness in being forced to arbitrate in a faraway state.

On February 20, 2008, in an 8-1 decision, the U.S. Supreme Court held that the Federal Arbitration Act (“FAA”) pre-empted state law, including any law that attempts to place jurisdiction of the dispute in another forum. Preston v. Ferrer, 552 U.S. _______ (2008). While that case did not involve a construction dispute, but instead a feud between TV personality “Judge Alex” and his agent, it reinforces the developing case law emasculating states’ attempts to allow companies to arbitrate more cost-effectively in the state where the project was built.

This case means that state statutes making arbitrations take place in the state where the project is located are likely unenforceable. All the hard work that contractors and subcontractors have expended in the state legislatures, trying to keep disputes in the “project state,” appears to be in vain unless and until an amendment of the FAA is passed in Washington. In the interim, contractors and subcontractors should take care to ensure that their construction contracts do not mandate arbitration in a state other than where the project is located. If they fail to remove such a provision, and a dispute develops, they better be prepared to “pack their bags” and arbitrate on the home court of their opponent.