Articles Posted in Litigation

Louisiana citizens interact with contract law every day, in many cases without even realizing it. Whether buying groceries at a supermarket with a credit card or installing a new iPhone app, countless purchases are governed by consumer agreements. What may be even less known to purchasers is that many of these agreements include an arbitration clause, which provides that any disputes arising out of that agreement must be handled by an arbitrator rather than a court. Arbitration is a form of “alternative dispute resolution” in which an arbitrator — typically a certified attorney —  evaluates the parties’ claims and renders a binding decision as to who should prevail. In general, companies prefer arbitration because it costs less than litigation. But because the rules of arbitration can vary significantly from the rules of court, the consumer does not always benefit from being kept away from the courthouse. The validity of arbitration clauses is a common point of contention. Although Louisiana generally favors arbitration, the legislature has enacted the Louisiana Arbitration Act (“LLA”) (see La. R.S. 9:4201) to ensure that arbitration proceeds fairly.

Arbitration is also common in commercial agreements. In 2013, a sales representative of UniFirst Corporation (“UniFirst”) approached the shop foreman at the Homer, Louisiana location of Fluid Disposal Specialties, Inc. (“FDS”). The shop foreman’s job title was Manager of Transportation Logistics. The purpose of the meeting was to discuss FDS’s entering into a contract with UniFirst to provide uniforms to FDS employees. After nearly six months of negotiation, a price was agreed upon and the FDS shop foreman executed a contract with UniFirst. The contract contained an arbitration clause. Later, FDS attempted to void the contract, citing that the shop foreman did not have the authority to bind the company. Unifirst argued that, based on the arbitration clause in the agreement, the matter should be settled by an arbitrator. FDS, preferring to avail itself of the court, argued that because the contract itself was invalid, any clauses within it — including the arbitration clause — could not be valid either.

The case eventually made its way to Louisiana’s Second Circuit Court of Appeal, which applied a two-step analysis commonly relied upon by the courts. The first step is to determine whether there is a valid agreement to arbitrate between the parties; the second is to determine whether the dispute in question falls within the scope of that arbitration agreement. In applying the first step, the Court determined that the agreement was invalid because the FDS shop foreman lacked the authority to enter into a contract with UniFirst. In response to UniFirst’s argument that the foreman had apparent authority, a doctrine in which an innocent third party (Unifirst) could rely on the representations of an agent (the FDS shop foreman) when entering an agreement (see American Zurich Insurance Co. v. Johnson, 850 So. 1112 (La. Ct. App. 2003)), the Court found that both the shop foreman’s job title and the six-month negotiation period should have indicated to UniFirst that the foreman was not in a position to enter into a contract for uniform services. For these reasons, the Court found that no agreement existed between the parties and therefore there was no need to apply the second step of the analysis. Arbitration cannot be compelled under an agreement that never came into being. The Court went on to note, however, that UniFirst could still proceed against FDS for any obligation or damages arising from FDS’s use of the uniforms that UniFirst provided the shop.

A non-compete clause is a common feature in many employment agreements in Louisiana. The clause is a way for an employer to restrict an employee from going to work for a competitor and thus potentially harming the original employer. Most non-compete clauses, in order to be enforceable, must contain some limitation as to time and geographical location.

Katie Urban-Kingston was hired by Billedeaux Hearing Center (“Billedeaux”) in Lafayette in May of 2014. Urban-Kingston and Billedeaux entered into an employment agreement containing a non-compete clause that applied to certain areas of Louisiana, Arkansas, Texas, and Mississippi, and allowed for the collection of any costs incurred by Billedeaux for legal enforcement of the clause. Less than a year later, Urban-Kingston left Billedeaux and became employed by Williamson Hearing Center (“Williamson”), just outside of Baton Rouge. Billedeaux sought and was granted a temporary restraining order in February 2015 to enjoin Urban-Kingston from working for Williamson, and a show-cause hearing for a preliminary injunction was set for early March.

At the hearing, the parties stipulated that Urban-Kingston was trained by Billedeaux, that she left Billedeaux’s employ and worked for Williamson at the time of the trial, and that Williamson is in direct competition with Billedeaux. Urban-Kingston claimed as a defense against the issuance of a preliminary injunction, however, that the non-compete clause in her employment agreement with Billedeaux was too broad. The trial court determined that the only issue to decide based on Urban-Kingston’s defense was whether the two hearing centers were actually in competition. But since the parties had already stipulated that point, the court rejected the defense, issued the preliminary injunction in Billedeaux’s favor, and ordered Urban-Kingston to pay Billedeaux’s attorney fees of approximately $6,000.

The old saying goes:  nothing is certain but death and taxes. In the case of property taxes on real, or immovable, property, failure of payment can permit the sheriff of the parish in which the property is located to hold a “tax sale.” In a tax sale, the delinquent property taxes are paid out of the proceeds of the property’s sale. Removing a homeowner from his residence in order to pay overdue taxes is a very serious and potentially damaging action — both financially and emotionally — for the homeowner. For this reason, under Louisiana law, property owners who lose their homes due to a tax sale have options for reclaiming their property after a tax sale if they can obtain sufficient funds to make good on what they owe. This process is known as redemption of the property. If redemption is not feasible, a homeowner can still seek an annulment of the tax sale if certain conditions are met. A case that came before Louisiana’s Fifth Circuit Court of Appeal illustrates how these procedures operate.

Mark Manganello owned a condominium on Avant Garde Circle in Kenner, Louisiana. He failed to pay property taxes for the condo in 2009. In April 2010, the Jefferson Parish Sheriff’s Office notified Manganello of his property tax delinquency by certified mail. Two months later, the Sheriff’s Office advertised a tax sale of the property, and the property was purchased by Virtocon Financial Services. A Tax Sale Certificate in favor of Virtocon was recorded in the immovable property records of Jefferson Parish. Virtocon subsequently assigned its rights to the Tax Sale Certificate to Philnola, LLC.

Four years later, Philnola filed a lawsuit against Manganello to confirm the tax title of the property. Philnola asserted that Manganello was properly notified of the tax sale, but that he neither paid the taxes due nor redeemed the property within the three year period provided by Louisiana law. Phinola’s motion for summary judgment was denied by the trial court, however, because the court found genuine issues of material fact existed in relation to whether Mangenello sought redemption of the property. Then Phinola filed a second motion for summary judgment, arguing that Manganello failed to begin a proceeding to annul the tax sale within the six-month service notice of sale as required by Article 7 of the State Constitution. Philnola argued that because Manganello failed to seek an annulment of the tax sale, the property should belong to Phinola. Manganello argued that because the 2009 taxes had either been paid or because he had begun the redemption process within the statutory redemption period, there was no reason to seek an annulment of the tax sale. The trial court granted the second motion for summary judgment and confirmed Philnola’s tax title to the property. Manganello appealed to the Fifth Circuit.

It really does go without saying, but lawsuits tend to progress slowly.  Delays abound and the realities of finite court resources mean that lawsuits can take years to complete.  As an alternative to using this system, some parties will agree to arbitrate disputes. Arbitration takes place outside the court system before a contractually agreed upon third party who hears evidence and renders a final decision (much like a judge). Although it is sometimes successful, arbitration can often result in court litigation anyway. After a dispute arose over the quality of some condo construction in Biloxi, Mississippi, the New Orleans Glass Company attempted to litigate rather than arbitrate.  

The New Orleans Glass Company (“NOG”) was a subcontractor for the Roy Anderson Corporation (“RAC”) on a project building condos in Mississippi.  The parties executed a subcontract which required any subcontractors to participate in arbitration proceedings between RAC and a third-party when the subcontractor had claims against RAC arising out of the same general subject matter as the already-pending proceeding. NOG interpreted the contractual provisions to mean that arbitration was only required in regards to that third-party and not for disputes between NOG and RAC.      

Predictably, a dispute did arise between RAC, the condo developer, and the condo owner’s association over the quality of the construction. Developer and owners initiated arbitration proceedings.  RAC determined that many of the claims for damages involved work performed by subcontractors and subsequently filed a demand requiring NOG to participate in the arbitration proceedings. NOG filed a complaint before the United States District Court for the Southern District of Mississippi requesting the District Court to issue a judgment stating that NOG and RAC did not agree to arbitrate but to litigate.