Case Name: SUN DRILLING PRODUCTS CORPORATION v. Jerry J. RAYBORN, Sr.
Court: Louisiana Court of Appeal
Jurisdiction: Louisiana
Decision Date: 1997-12-03
Citations: 703 So. 2d 818
Docket Number: No. 97-C-2112
Parties: SUN DRILLING PRODUCTS CORPORATION v. Jerry J. RAYBORN, Sr.
Judges: Before KLEES, BYRNES and PLOTKIN, JJ.
Reporter: Southern Reporter, Second Series
Volume: 703
Pages: 818–821

Head Matter:
SUN DRILLING PRODUCTS CORPORATION v. Jerry J. RAYBORN, Sr.
No. 97-C-2112.
Court of Appeal of Louisiana, Fourth Circuit.
Dec. 3, 1997.
Rehearing Denied Dec. 30, 1997.
George Pivach, II, Pivach & Pivach, L.L.C., Belle Chasse, and Douglas Y. Christian, Robert A. Kauffman, Michael P. Walsh, Reed Smith Shaw & McClay, Philadelphia, PA, and Edward D. Wegmann, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., New Orleans, for Relators.
Peter J. Butler, Peter J. Butler, Jr., Richard G. Passler, Breazeale, Saehse & Wilson, L.L.P., New Orleans, and Philip F. Cossich, Jr., Cossich, Martin & Sumich, L.L.C., Belle Chasse, for Jerry J. Rayborn, Sr.
Before KLEES, BYRNES and PLOTKIN, JJ.

Opinion:
hBYRNES, Judge.
WRIT GRANTED; RELIEF DENIED.
We grant 'writs in order to review the trial court's judgment that fraud in the inducement of a contract containing a mandatory arbitration clause is a matter to be decided by the courts of this State rather than by the arbitrator, even where the contract is subject to the Federal Arbitration Act.
This case involves a contract containing a mandatory arbitration clause. Respondent, Jerry J. Rayborn, Sr., attacked the contract in state court and among other things alleged fraud in the inducement. The trial court denied relators' Exception of Lack of Subject Matter Jurisdiction regarding arbitration and stayed the arbitration proceedings finding that the question of fraud in the inducement is not arbitrable.
Under the Federal Arbitration Act generally applicable state law contract defenses, such as fraud, duress or unconscio-nability, may be applied to invalidate arbitration agreements without contravening Section 2 of the Act. Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, -, 116 S.Ct. 1652, 1655, 134 L.Ed.2d 902 (1996).
12Fraud in the inducement is a generally applicable contract defense in Louisiana as distinguished from one applicable only to arbitration situations.
Arbitrations are favored. It is difficult to reconcile the decision of this Court today and the judgment of the trial court with the question raised by the trial judge:
[W]hat is to stop anyone from making the allegation of fraud or invalidity of the contract to avoid an [arbitration] provision in the contract!?]
In spite of this concern, the trial court ruled that the question of fraud in the inducement is not arbitrable. We share the concern of the trial judge, but like the trial judge are compelled to reach the same result in face of the position taken by the U.S. Supreme Court in Doctors Associates, Inc., supra.
The result reached by this Court is also consistent with the reasoning of the Louisiana Supreme Court in George Engine, Co., Inc. v. Southern Shipbuilding Corp., 350 So.2d 881 (La.1977). However, George Engine did not involve the Federal Arbitration Act.
Moreover, this Court in dicta in Mt. Airy Refining Co. v. Clark Acquisition, Inc., 470 So.2d 890, 892 (La.App. 4 Cir.), unit denied 476 So.2d 351 (La.1985) noted that in Louisiana under George Engine the appellant, Clark Acquisition, Inc., "could have filed in court a motion to stay the arbitration proceeding along with a petition to rescind the contract for fraudulent inducement."
George Engine was followed most recently in Ackel v. Ackel, 97-70 p. 5 (La.App. 5 Cir. 5/28/97); 696 So.2d 140, 143.
As the policy of resolving the question of fraud in the inducement in court rather than through arbitration as originally declared by George Engine appears to continue to be the policy of this state; and as Doctors Associates permits the application of this policy; therefore, we are constrained to affirm the actions of the trial court regardless of our concerns about the potential havoc this policy could 13play with arbitration clauses in Louisiana. In that regard we take some comfort in the fact that George Engine was decided twenty years ago, and if the paucity of cases in our jurisprudence is any indication, the potential for abuse of the arbitration process noted by the trial judge has never been realized. However, as the use of alternative dispute resolution methods, including arbitration, is assuming ever increasing prominence in Louisiana and elsewhere, the Louisiana Supreme Court may wish to revisit George Engine at this time. The George Engine court referred to "a natural reluctance to surrender the historical jurisdiction of courts," a reluctance that no longer exists. We also wish to call to the attention of the Supreme Court the apparent conflict between the above cited Fifth Circuit Ackel decision and Freeman v. Minolta Business Systems, Inc., 29655 p. 13 (La.App. 2 Cir. 9/24/97); 699 So.2d 1182, 1189, where the Second Circuit stated:
Federal jurisprudence holds that if the claim is fraud in the inducement of the arbitration clause itself, an issue as to the "making" of the agreement to arbitrate, the federal court may proceed to adjudicate it. However, the statutory language does not permit the federal court to consider claims in the inducement of the contract generally.
Ackel took the contrary position stating that:
The presence of an arbitration clause in a contract does not divest the district court of jurisdiction to determine the underlying contact's validity.
Ackel, p. 6, 696 So.2d- at 143-144.
We admit to some skepticism at the attempt by the Second Circuit in Freeman to draw a distinction between fraud in the inducement of the arbitration clause and fraud in the inducement of the contract generally. Although it is a distinction that is not original to Freeman as may be seen by reference to the authorities cited therein, it strikes this court as being an overly fine distinction. As the Louisiana Supreme Court stated in George Engine, the enforcement of the right to arbitration "presupposes the existence of a valid contract as a basis for Invoking arbitration." If arbitration is the desired outcome, it would be better to face the issue head-on and hold outright that the question of arbitration is arbitrable because public policy today so favors arbitration and the alternative is open to so much abuse, than to draw what seems to be a distinction without a difference or a sound basis in reason. In response to Freeman a clever lawyer should not find it too difficult to frame his pleadings in terms of fraudulent inducement in the arbitration clause rather than fraudulent inducement in the contract as a whole.
For the forgoing reasons the judgment of the trial court denying relator's Exception of Lack of Subject Matter Jurisdiction and granting respondent's Motion to Stay Arbitration is affirmed.
WRIT GRANTED; RELIEF DENIED.
PLOTKIN, J., concurs with reasons.
. Relators are: Sun Drilling Products Corporation, Heller, Hickox, Dimeling, Schreiber & Park; Douglas P. Heller; George K. Hickox; William R. Dimeling; Richard R. Schreiber; Steven J. Park; John C. Luten; Hyppolete J. Astugue; and Susan Reese.