Pass-Through Claims and Prescription

If you are a property owner, stop and think about the “what ifs” before you enter into a lease with a property manager or lessee. For example, what if an invitee of the property that you own is hurt while on and/or because of a condition on the property? Who is responsible?

A property owner may be able to transfer its potential liability to a property manager or lessee of the property if the lease contains an indemnification provision. However, not all indemnification provisions are enforceable, and these critical provisions are often litigated.

The Eastern District Court of Louisiana recently enforced an indemnification provision, granting summary judgment to a landowner who sought indemnification from its property lessee in Avila v. Village Mart, LLC, Civ. A. No. 20-1850, 2021 WL 4439579 (E.D. La. 9/28/21). In the case, a shopping center leased retail space to a men’s store. Before the store opened, a painter was injured when he fell from a ladder. The owner of the shopping center argued that the lessee owed a defense. It argued indemnity applied because the plaintiffs’ claims arose out of the lessee’s buildout construction, over which the owner did not have any care, custody, or control.

In response, the lessee argued that the owner was not entitled to indemnification because the plaintiffs’ claims did not “arise out of or were connected with Tenant’s use, occupancy, management or control of the Leased Premises.” The lessee claimed that it was not using, occupying, managing, or controlling the leased space because the only permitted use of the space was to sell menswear, and the space was not being used for this purpose at the time of the accident.

Louisiana courts often apply a “but for” causation test to such “arising out of” language in indemnity provisions. Avila, 2021 WL 4439579, at *5, citing Kan. City S. Ry. Co. v. Pilgrim’s Pride Corp., No. 06-03, 2010 WL 1293340, at *6 (W.D. La. Mar. 29, 2010), and Perkins v. Rubicon, Inc., 563 So.2d 258, 259-60 (La. 1990). The court observed the lessee’s arguments contradicted language in the lease that allowed the lessee to use and occupy the store before it opened to the public. The lease also explained that the lessee was responsible for certain construction work and identified specific dates to begin work and to open the store. Thus, the lease contemplated use and occupancy before the store was open to the public. The court found that the lessee’s possession of the space and its construction obligations under the lease established its use and occupancy of the space. The court stated:

Given the broad language in the indemnity agreement – ‘arising out of or connected with’ – [the plaintiffs’] injuries, resulting from his work as a subcontractor painting the premises leased by [the retail space lessee,] are connected to [its] use and occupancy of the premises. … Because [the retail space lessee] was in possession of the space, and had assumed responsibility for the buildout and for contractors and subcontractors working on the buildout, the Court finds that the plaintiffs’ liability theories fall within the scope of the indemnity provision in the lease. Avila, 2021 WL 4439579, at *6.

The enforceability of indemnity provisions such as the one examined in Avila will continue to be litigated. In the meantime, Avila reminds us of the importance of sound indemnity language to anticipate the “what ifs.”

Arbitration is a favored method of dispute resolution in the energy and construction sectors, where complex, high-value contracts often generate multimillion-dollar disputes. Understanding the courts' standard of review of arbitration awards directly impacts risk assessment, contract drafting, and dispute resolution strategies. A recent U.S. Fifth Circuit decision reinforces the limited grounds for judicial intervention, a principle that remains central to the effectiveness of arbitration as an efficient alternative to litigation.

In United States Trinity Services, LLC v. Southeast Directional Drilling, LLC, a drilling subcontractor obtained a $1.7 million arbitration award against the general contractor for standby costs incurred on a pipeline installation project. The subcontractor incurred costs when ordered to stop work for causes outside its control, including delayed permits, mud infiltration, and COVID-19. The subcontract contained a provision that called for reimbursement of standby costs. On appeal, the general contractor sought to vacate the award in the U.S. Northern District of Texas, arguing that the arbitration panel failed to properly interpret various contract provisions related to standby costs and exceeded its authority and acted in manifest disregard of Texas law in interpreting the contract.

The Federal Arbitration Act, 9 USC §10 (“FAA”) applies and provides the exclusive grounds to vacate an award: corruption, fraud, evident partiality, misconduct in refusing to postpone the hearing, refusing to hear evidence, or where arbitrators exceeded their powers. The U. S. Fifth Circuit Court of Appeals noted that the FAA was enacted to create a national policy favoring arbitration; the arbitrator’s authority derives from the parties’ contract; and once parties agree to arbitrate, they “bargain for” the arbitrator’s, not the court’s, interpretation of their contract.

The Court instructed that a party challenging an award bears a high burden to show that the arbitrator ignored the contract. It is not sufficient to show the arbitrator erred in interpreting the contract. The question the court asks is “whether the arbitrators construed the contract at all” not “whether they construed it correctly.” A court should not reassess the merits of the arbitrator’s decision. Here, the award recited the pertinent contract terms and the arbitrators’ analysis. This showed the arbitrators considered the contract provisions, thus ending the Court’s inquiry.

The Court rejected the argument that the arbitrators manifestly disregarded the law in interpreting the contract. “Manifest disregard” – a judicially-created concept – is not a freestanding ground for vacatur. It does not serve as a separate basis to establish that arbitrators exceeded their powers. Otherwise, the FAA’s stated grounds for vacatur would be expanded to essentially a “full-bore” judicial review process.*

However, the Circuits are split on the validity of manifest disregard of the law or contract as a basis to vacate an award. See for example, Dewan v. Walia, where the U.S. Fourth Circuit Court of Appeals vacated an award after finding the arbitrator’s contract interpretation ‘untenable.”

Mary Anne Wolf, PE, FCIArb, is an arbitrator, mediator, and attorney in construction, energy, commercial and complex cases.

References:

United States Trinity Services, LLC v. Southeast Directional Drilling, LLC, 2025 WL 1218096 (5^th Cir. 2025).

Dewan v. Walia, 544 Fed Appx 240 (4th Cir. 2013).

* Hall Street Assoc., LLC v. Mattel, 128 S.Ct. 1396 (2008).

In 2021, the Louisiana Legislature amended La. R.S. 9:2800.9 to provide that a legal action against a person for sexual abuse of a minor, if barred by liberative prescription prior to the effective date of the amendment, is revived for a three-year period after the effective date of the amendment. In 2022, La. R.S. 9:2800.9 was amended again to specifically state the Legislature’s intent to revive any cause of action related to sexual abuse of a minor that previously prescribed under any Louisiana prescriptive period.

On March 22, 2024, the Louisiana Supreme Court issued its decision in Douglas Bienvenu, et al. v. Defendant 1 and Defendant 2, and found the statute was unconstitutional because it conflicted with due process protections set forth in the Louisiana Constitution. Specifically, the Court found that a defendant has a vested property right in accrued prescription and that revival of a prescribed cause of action violated due process.

However, the Louisiana Supreme Court granted the plaintiffs’ request for rehearing, and on June 12, 2024, the Court vacated its prior ruling and found that the amendments to La. R.S. 9:2800.9 were constitutional.

On rehearing, the court agreed that a defendant has a vested property right in accrued prescription but found another step in constitutional analysis was required— examination of whether the legislature’s revival of prescribed causes of action for sexual abuse of minors “comports with substantive due process.” The Court noted, “The essence of substantive due process is protection from arbitrary and capricious action.”

In Bienvenu, the defendants’ right to plead prescription was an economic interest that did not implicate fundamental rights. The statute at issue was social welfare legislation, enacted to address societal costs of child sexual abuse. Therefore, the Court found the applicable due process test was whether the legislation was reasonable in relation to the goal to be attained and was adopted in the interest of the community as a whole. The statute needed only to have a rational relationship to a legitimate governmental interest to survive due process scrutiny.

The Court found the amendments to La. R.S. 9:2800.9 passed this test because (1) the provision assists in identifying hidden child predators so children will not be abused in the future; (2) shifts the costs of the abuse from the victims and society to those who actually caused it; and (3) educates the public about the prevalence and harm from child sexual abuse to prevent future abuse. These interests were found legitimate and compelling. Thus, the statute was constitutional and could be applied retroactively “to revive, for the period stated, all causes of action related to sexual abuse of a minor that previously prescribed under any Louisiana prescriptive period.”

References:

Bienvenu v. Defendant 1, 2023-01194 (La. 3/22/24), 382 So. 3d 38, reh'g granted, 2023-01194 (La. 5/10/24), and opinion vacated on reh'g, 2023-01194 (La. 6/12/24).

Bienvenu v. Defendant 1, 2023-01194 (La. 6/12/24).