Arbitration: Losing Your Day in Court with a Click of the Mouse?

Many in the construction industry favor arbitration and often include an arbitration clause in their contracts. Although best practice dictates that both parties sign the contract to eliminate doubt as to legal enforceability, in practice, one or both parties sometimes fail to sign. Instead, the parties show their mutual “meeting of the minds” that an agreement has been reached by performing and accepting the work. However, if a dispute arises, will an arbitration provision in an unsigned contract be enforced?

In Patriot Construction & Industrial, LLC v. Buquet& LeBlanc, Inc., when a dispute arose over the subcontractor’s work, the general contractor sought to invoke the arbitration clause in its standard subcontract. The subcontractor argued that the unsigned, red-lined subcontract its estimator had returned to the general contractor was not enforceable, and thus neither was the arbitration clause. The court found agreement on price and scope but found that no agreement was reached on the other terms because the estimator did not have authority to bind the subcontractor. Further, a provision in the contract required that changes be initialed by both parties, yet the subcontractor’s authorized agent had not initialed any of the changes.

The Court held that the arbitration clause was not binding. The Court emphasized that Louisiana law favors arbitration; however, it held “arbitration is a matter of contract, and a party cannot be required to submit to arbitration any dispute to which he has not so agreed.” The question of who is bound by an arbitration agreement is determined from the intent of the parties as expressed in the terms of the contract. If the contract is deemed void because it was not properly confected, any arbitration clause contained therein may likewise be void. This may be true even where neither party objected to the arbitration clause per se.

Although the Patriot Court stated that generally, to be subject to arbitration, a party must be a signatory to the contract containing the arbitration clause, a signature is not a statutory requirement to enforce an arbitration clause. Louisiana’s arbitration statute, La. R.S.9:4201, requires only that the arbitration agreement be in writing. It does not require a signed contract. The jurisprudence is clear that the law does not require a signed agreement to arbitrate.  See Hurley v. Fox, holding that the defendant-architect’s motion to confirm the arbitration award could not be denied merely on the ground that the plaintiff-homeowner never signed the contract. See also Rainey v. Entergy Gulf States, Inc., in which the Louisiana Supreme Court held that a party who drafts a contract and presents it to another for signature cannot claim the contract is unenforceable because that party never signed the contract. Even where the parties contemplate that both parties will sign the contract to signify acceptance, a contract may nevertheless be valid without both signatures where the non-signing party has availed itself of the agreement or taken action evidencing its acceptance of it.*

However, the result hinges on the parties’ intent – as determined by the written agreement. For example, where the written contract expressly conditions validity on both signatures, a missing signature is likely fatal to the enforcement of any arbitration clause contained in the contract.  See Huckaba v. Ref-Chem, LP, in which the U.S. Fifth Circuit invalidated an arbitration provision in an employment contract where the employee signed it but the employer – who sought to enforce the arbitration clause – did not.

Also noteworthy, an arbitration clause in a contract signed by both parties may nonetheless be invalid where the court finds that fraud, duress, or other vice was involved in the formation of the contract such that one party did not truly consent to the contract terms. In the recent case Mapp, LLC v. Floor and Decor Outlets of America, Inc., the U.S. Fifth Circuit held that a contract was unenforceable because it was found to be adhesionary – it gave the owner, which had superior bargaining power, sole discretion to invoke arbitration.

In Carver Theater, LLC v. Melancon, another noteworthy case, an arbitration clause in a written contract signed by both parties was enforced by the Court and resulted in an arbitration award. However, it was later determined invalid – and the award was also invalidated –where the party that initially sought to enforce arbitration later changed its position and argued that the contract was invalid.  The Court invalidated the arbitration award under the Louisiana arbitration statute, finding that the award was procured using “undue means.” In seeking to compel arbitration, the party argued that the contract was valid and required arbitration. Once in arbitration, that same party argued that the contract was invalid. This misrepresentation to the Court satisfied the statute’s narrow grounds for invalidating an arbitration award.**

As a final consideration, non-signatories such as subcontractors or sureties may be compelled to arbitrate where their subcontract or bond incorporates by reference the contract containing the arbitration clause and where the language in that arbitration clause is sufficiently broad, for example – any controversy or claim arising out of or related to the contract. See The Jewish Federation of Greater New Orleans, et al. v. Fidelity & Deposit Company of Maryland, holding that the surety was bound by the arbitration clause in the construction contract because its bond incorporated it by reference, even on its counterclaim for declaratory relief based on a defense that the performance bond had lapsed.

* See Harp v. Succession of Bryan, 2019-0062 (La.App. 1 Cir. 9/3/20), 313 So.3d 284; La. Civil Code art. 1927.

** La. R.S.9:4210(A).

References:

PatriotConstruction & Industrial, LLC v. Buquet & LeBlanc, Inc., 2023-557 (La. App. 3 Cir. 4/24/24), 387So.3d 784.

Hurley v. Fox, 520 So.2d 467 (La. App. 4 Cir. 1988).

Rainey v. Entergy Gulf States, Inc., 2009-572 (La.3/16/10), 35 So.3d 215.

Huckaba v. Ref-Chem, LP, 892 F.3d 686 (5th Cir.2018).

Mapp, LLC v. Floor and Decor Outlets of America, Inc., 2026WL 2265969, 25-30536 (5th Cir. 2026).

Carver Theater, LLC v. Melancon, 2024-0468 (La. App.4 Cir. 5/5/25), 417 So.3d 676. The court determined that the FederalArbitration Act and its severability doctrine did not apply in this case. Theresults may have been different under the FAA.

The Jewish Federation of Greater New Orleans, etal.  v. Fidelity & Deposit Company of Maryland, 273 F.3d 1094,2001 WL 1085096 (5th Cir. 2001) (unpublished).

Almost everyone has signed a phone contract, home-repair agreement, or other contract filled with terms and provisions they might not fully understand, or navigated a website only to receive a prompt to “accept these terms and conditions” before continuing. Most, and hopefully all attorneys, have that moment of hesitation- right before they click "yes."

If you clicked "yes" or signed the contract, and the contract included an “arbitration clause,” you may have just signed away your right to access the court system; and you didn’t even know it. But are such arbitration agreements enforceable? Generally, these clauses are enforceable and found to be consistent with a strong public policy in favor of arbitration. However, a recent decision from the Louisiana Supreme Court places arbitration clauses in consumer transactions under scrutiny and may render arbitration provisions unenforceable in some cases.

In Duhon v. Activelaf, LLC, 2016-0818 (La. 10/19/16), the plaintiff brought a negligence suit against an indoor trampoline park. In an effort to prevent a formal trial, the defendants attempted to enforce the arbitration clause found in the Participant Agreement, Release, and Assumption of Risk document that was electronically signed by plaintiff to gain entry into the trampoline park. In this setting, the Court applied a "contract of adhesion" analysis to test the validity of the arbitration clause.

The Court set forth the following factors to gauge the enforceability of the arbitration clause: (1) the physical characteristics of the arbitration clause; (2) the distinguishing features of the arbitration clause; (3) the mutuality of the arbitration clause; and (4) the relative bargaining strength of the parties.

Under the facts in Duhon, the Court found that the lack of distinguishing features and the specific placement of the text served to conceal the arbitration clause from the plaintiff. While the arbitration language was consistent in size and font with the other contractual provisions, the clause was located in the eleventh line of a paragraph that covered multiple topics. The arbitration agreement also required only the plaintiff to arbitrate any dispute. Further, it required the plaintiff to pay $5,000 if he ignored the arbitration clause and instead filed a lawsuit. According to the Court, this “lack of mutuality” supported its conclusion that the arbitration clause was adhesionary.

Ultimately, the Duhon Court struck down the arbitration clause. While courts generally uphold arbitration clauses, especially in a commercial setting, Duhon shows that arbitration clauses are not per se valid and that the consumer, in some cases, still may have their day in court.

In the wake of recent hurricanes, Louisiana courts were flooded with cases property owners filed against their insurers alleging improper denial or underpayment of hurricane claims. Many of those cases were stayed and the parties were compelled to arbitration, despite Louisiana law prohibiting arbitration provisions in insurance contracts, La. R.S. 22:868(A)(2).

In a typical case involving commercial property, a property owner filed suit against its insurers, often including both domestic and foreign companies. One or more insurance policies contained an arbitration agreement requiring all disputes to be resolved by arbitration in a specified U.S. city. Undeterred, the insured filed suit in Louisiana state court. The insurers removed the case to federal court and filed a motion to compel arbitration.

The foreign insurers sought to enforce the arbitration agreement under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (aka the New York Convention). The New York Convention is an international treaty that requires signatory countries to enforce an arbitration agreement where four requirements are met: (1) a written arbitration agreement exists, (2) that provides for arbitration in a signatory country, (3) which arises from a commercial legal relationship, and (4) at least one party is not a U.S. citizen. These conditions are met where a foreign insurer issues a commercial policy that contains an arbitration provision to a U.S. property owner. Under such circumstances, the courts were bound to compel the parties to arbitration.

The cases presented some interesting questions. For example, could domestic insurers also compel arbitration? Yes. Under the doctrine of equitable estoppel, where the claims against the insurers are interdependent, the domestic insurers, even if they were not signatories to the arbitration agreement, could compel arbitration.

Does the McCarran-Ferguson Act, a federal law that maintains the states’ power to regulate the insurance industry, cause Louisiana’s law prohibiting arbitration in insurance contracts to reverse-preempt the Convention? No, the Act does not apply to treaties.

What about the arguments that the contract was not freely negotiated, or that under conflict of laws principles Louisiana law should apply, or that the federal courts should abstain because the state has a vital interest in regulating insurance? The courts rejected these arguments as well.^

Recently, the U.S. Fifth Circuit Court of Appeals, in Bufkin Enterprises, LLC v. Indian Harbor Ins. Co., affirmed that equitable estoppel applied to allow domestic insurers to compel arbitration under the New York Convention even where the insured dismissed the foreign insurers with prejudice.* However, the U.S. Second Circuit has held the opposite in two recent cases involving insurance contracts between foreign insurers and Louisiana property owners – that Louisiana law applied to prohibit the enforcement of the arbitration provision in the insurance policy.^^

With the exception of the Second Circuit split, the numerous cases arising from recent hurricanes confirm a strong policy favoring arbitration under the New York Convention, which overrides potential state law obstacles to enforcing arbitration provisions in insurance policies.

Mary Anne Wolf is an arbitrator on the commercial, construction and large, complex cases panels of the American Arbitration Association and is a neutral at Perry Dampf Dispute Solutions.

References:

^ See for example, General Mill Supplies, Inc. v. Underwriters at Lloyd’s, London, et al, 23-6464, 2024 WL 216924 (E.D. La. 1/19/2024), - F.Supp.3d – (2024); Dryades YMCA v. Certain Underwriters at Lloyds, London, et al, 23-3411, 2024 WL 398429 (E.D. La. Jan. 31, 2024); Parish of Lafourche v. Indian Harbor Ins. Co., et al, 23-3472, 2024 WL 397785 (E.D. La. Feb. 2, 2024).

* Bufkin Enterprises, LLC v. Indian Harbor Ins. Co., et al, 96 F.4th 726 (5th Cir. Mar. 26, 2024).

^^ See Certain Underwriters at Lloyds, London v. 3131 Veterans Blvd. LLC, 22-9849, 2023 WL 5237514 (S.D.N.Y. Aug. 15, 2023); and Certain Underwriters at Lloyd’s, London v. Mpire Properties, LLC, 22-9607, 2023 WL 6318034 (S.D.N.Y. Sept. 28, 2023) (appeal filed).