Jasper Contractors, Inc. v. E–Claim.com, LLC

• Decision Date: 04 May 2012
• Docket Number: No. 2011 CW 0978 R.,2011 CW 0978 R.
• Citation: 94 So.3d 123
• Parties: JASPER CONTRACTORS, INC. v. E–CLAIM.COM, LLC, State Farm Fire and Casualty Company, Edgewebhosting, Inc., and XYZ Insurance Company.
• Court: Court of Appeal of Louisiana — District of US

94 So.3d 123

JASPER CONTRACTORS, INC.

v.E–CLAIM.COM, LLC, State Farm Fire and Casualty Company, Edgewebhosting, Inc., and XYZ Insurance Company.

No. 2011 CW 0978 R.

Court of Appeal of Louisiana, First Circuit.

May 4, 2012.

Stephen C. Carleton, Victor R. Loraso, III, Carmen T. Hebert, Vionne M. Douglas, Baton Rouge, LA, for Plaintiff/Respondent Jasper Contractors, Inc.

Thomas G. Buck, John C. Henry, David B. Parnell, Jr., Brett W. Tweedel, Metairie, LA, for Defendant/Relator E–Claim.com, LLC.

Before GAIDRY, McDONALD, and HUGHES, JJ.

HUGHES, J.

[1 Cir. 2]This is an application for supervisory review, requesting this court to overturn a district court's denial of the defendant/relator's exception of prematurity, based on a contractual arbitration agreement in a suit in which the plaintiff/respondent had alleged fraudulent inducement in the contract between the parties. For the reasons that follow, we grant the defendant/relator's application for supervisory review, reverse the district court ruling, and order these proceedings stayed pending arbitration.

FACTS AND PROCEDURAL HISTORY

Jasper Contractors, Inc. (Jasper), the plaintiff/respondent, is a multi-state roofing contractor, having its principal place of business in Baton Rouge, Louisiana. In October 2008 Jasper signed a contract with E–Claim.com, LLC (E–Claim), the defendant/relator, a Belle Chasse, Louisiana company. The contract stated that E–Claim would provide software and a “server hosted environment” ¹ to maintain certain business records belonging to Jasper, which included plans, specifications, proposals, and insurance information for clients. Jasper's goals in entering into the contract with E–Claim included achieving a “paperless” record-keeping system, having “virtual” access to its records “24/7/365,” and dealing with a local/Louisiana-based service provider. In July of 2009 a significant number of Jasper's electronic files were lost or deleted from E–Claim's computer servers, allegedly affecting over 900 of Jasper's clients and negatively impacting its business. Thereafter, E–Claim disclosed to Jasper that it had outsourced webhosting of Jasper's files to Edgewebhosting, Inc., a company located in Baltimore, Maryland.

[1 Cir. 3]On June 17, 2010 Jasper filed suit in the 19th Judicial District Court against E–Claim and Edgewebhosting, Inc., for damages sustained and sought a declaratory judgment that its contract with E–Claim was null and void for a vice of consent arising from fraud on the part of E–Claim (based on fraudulent representations and/or misrepresentations by E–Claim, which included, among others, that Jasper's records would be stored on Louisiana-located equipment, rather than out-of-state, and that all electronically-stored data would be regularly “backed-up” and protected by “banking level security”). On August 19, 2010 E–Claim filed an exception of prematurity, contending that Jasper'spetition was premature, because its claim was subject to mandatory contractual arbitration.

Following a November 8, 2010 hearing, the district court overruled the exception of prematurity. The district court's March 31, 2011 written reasons stated: “The plaintiff's allegations of fraud in the instant suit are sufficient to require that the district court first determine the validity of the contract and based on that ruling, then determine whether the matter shall proceed to arbitration.” A judgment denying E–Claim's exception of prematurity was signed on May 2, 2011.²

On May 31, 2011 E–Claim filed a writ application with this court, assigning one error: “The trial court erred when it refused to enforce the mandatory arbitration provisions of the contract between the parties.” This court denied the writ application. See Jasper Contractors, Inc. v. E–Claim.com, LLC, 2011–0978 (La.App. 1 Cir. 8/29/11) (unpublished). [1 Cir. 4]However, the supreme court granted E–Claim's writ application and remanded the matter to this court “for briefing, argument, and full opinion.” See Jasper Contractors, Inc. v. E–Claim.com, LLC, 2011–2126 (La.11/4/11), 75 So.3d 930, 931.

On remand to this court, E–Claim contends the district court erred when it determined that it should rule on Jasper's allegations as to the validity of the contract between the parties, rather than have the issue decided by an arbitrator.

LAW AND ANALYSIS

In the contract signed by these parties, the specified applicable law and the agreement to arbitrate is contained in Article 10, Section 10.8, which states in pertinent part:

10.8 Governing Law/Choice of Forum. This Agreement shall be governed by and construed in accordance with the laws of the State of Louisiana applicable to contracts made, executed and performed therein and without reference to any conflicts of law codes, statutes, jurisprudence or principles. Any claim, dispute, or controversy, directly or indirectly, arising out of, relating to, or in connection with this Agreement, or the performance, enforcement, breach, termination, expiration, dissolution, rescission, cancelation, validity or interpretation of this Agreement (including, without limitation, interpretation and resolution of the scope of these arbitration provisions) shall be settled by binding, nonappealable, arbitration in accordance with the Commercial Rules of the American Arbitration Association and, to the extent not inconsistent therewith, the Federal Arbitration Act [9 USC §§ 1 et seq.]....

A plain reading of this section reveals that the parties intended to designate Louisiana law for construing and governing the making, execution, and performance of the contract, without resort to or the application of “conflicts” law. The parties further specified that “binding, nonappealable, arbitration” would be used to settle any “claim, dispute, or controversy” arising out of the contract, as well as those related to the contract's enforcement, dissolution, cancelation, and/or validity, et cetera.[1 Cir. 5]Arbitration was required, by Section 10.8 of the contract, to be in accordance with the American Arbitration Association's Commercial Rules (AAA Rules) and, “to the extent not inconsistent therewith,” the Federal Arbitration Act (FAA), 9 U.S.C. § 1, et seq. Thus, although Louisiana law was chosen to apply to the contract generally, the AAA Rules and, to the extent not inconsistent, the FAA were chosen to apply to the arbitration agreement contained in the contract.

While Jasper has asserted a vice of consent, i.e. fraud, as to the contract as a whole, it also contends, with respect to the arbitration agreement only, that the arbitration agreement is adhesionary, because it limits any recovery for its damages to either a “Repair Remedy” or a refund of the $7,500 “Initial License And Setup Fee” originally paid by Jasper to E–Claim. In contrast, no similar contractual limitation is placed on E–Claim's recovery of sums alleged to be due by Jasper.³

While Section 10.8 of the contract between the parties, containing the arbitration agreement, does not explicitly address damages, it states as follows:

[1 Cir. 6][T]he arbitrators shall have the power of, and authority to exercise, amiable compositeur, ex aequo et bono⁴ and “natural justice and equity;” and, provided further, that the arbitrators shall have the authority to require specific performance or impose other equitable relief hereunder, as well as imposing money damages and awards of attorneys' fees to the prevailing party.

Also pertinent are the following provisions of the contract relating to damages, which provide, in pertinent part:

6.2 Exclusive Remedy. As the sole and exclusive remedy of Customer for any warranty claim under Section 6.1(ii) for which E–Claim is responsible, E–Claim shall provide the error-correction services set forth in Section 7.2 (the “Repair Remedy”); provided, that E–Claim reserves the right at any time to elect not to provide, or to abort, the Repair Remedy and, in conjunction therewith, to terminate this Agreement and refund the Initial License and Setup Fee; and, by such termination and payment, Customer shall have no other right, remedy, recourse or claim whatsoever (for damages or otherwise) against E–Claim....

* * *

6.4 LIMITATION OF LIABILITY. ... THE CUMULATIVE LIABILITY

OF E–CLAIM FOR ALL CLAIMS WHATSOEVER RELATED TO THE CMS APPLICATION, THE SERVER HOSTED ENVIRONMENT OR THIS AGREEMENT, INCLUDING ANY CAUSE OF ACTION SOUNDING IN, OR IN THE NATURE OF, CONTRACT, TORT, QUASI–CONTRACT, STATUTORY OR STRICT LIABILITY, SHALL NOT EXCEED THE LIABILITY CAP. THE TERM “LIABILITY CAP” MEANS THE AMOUNT OF THE INITIAL LICENSE AND SETUP FEE ... [excluding obligations under Section 8.1 relative to copyright, patent, trade secret, trademark or any other third-party proprietary right].

6.5 DISCLAIMER OF LIABILITY FOR CONSEQUENTIAL AND SPECIAL DAMAGES. IN NO EVENT SHALL E–CLAIM BE LIABLE FOR ANY CONSEQUENTIAL AND SPECIAL DAMAGES WHETHER OR NOT FORESEEABLE AND REGARDLESS OF WHETHER OR NOT E–CLAIM HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH CONSEQUENTIAL AND [1 Cir. 7]SPECIAL DAMAGES. THE TERM “CONSEQUENTIAL AND SPECIAL DAMAGES” MEANS, IN ADDITION TO ITS GENERALLY ACCEPTED MEANING, THE FOLLOWING: LOSS OF PROFITS, REVENUE, PATRONAGE OR BUSINESS; DELAY DAMAGES; DAMAGE TO REPUTATION; LOSS OF GOODWILL; LOSS OR CORRUPTION TO DATA; AND ANY INCIDENTAL, INDIRECT, SPECIAL, EXEMPLARY, OR CONSEQUENTIAL DAMAGES.

The issue for this court to decide is whether Jasper's allegations of fraud as to the inducement of the contract, as a whole, and/or whether the allegations of adhesion as to the arbitration clause itself, can be decided by the 19th Judicial District Court or whether these issues must be decided in arbitration.

On this issue, the FAA is applicable, to the extent not inconsistent with the AAA Rules (as stated in the contract in this case), and supplies the following general rules, which provide in pertinent part: ⁵

§ 2. Validity, irrevocability, and enforcement of agreements to arbitrate

A written...