Reply Brief — Frizzell Construction Co. v. Gatlinburg, L. L. C.

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sup eme Court, us. |

si FILED

No. 99-1353 MAY 2.2 onng

| CLERK

IN THE OCR ewapiualeeeb

, Supreme Court of the Anited States

FRIZZELL CONSTRUCTION COMPANY, INC.,

Petitioner,

GATLINBURG, L.L.C.,

Respondent.

On Petition for a Writ of Certiorari to the

Supreme Court of Tennessee

REPLY BRIEF FOR PETITIONER

C. PAUL HARRISON DAVID G. LEITCH*

DIANA M. THIBODAUX GREGORY G. GARRE

LONG, RAGSDALE LORANE F. HEBERT

& WATERS, P.C. HOGAN & HARTSON L.L.P.

1111 Northshore Dr., N.W. 555 Thirteenth Street, N.W.

Suite S-700 Washington, D.C. 20004

Knoxville, TN 37919 (202) 637-5822

(423) 584-4040

DONALD A. HARPER

THE HARPER LAW FIRM

135 S. Main Street

Greenville, SC 29602

(864) 235-5535

* Counsel of Record Counsel for Petitioner

Tag

LAA,

TABLE OF AUTHORITIES

Page

CASES:

Allied-Bruce Terminix Cos. v. Dobson, 513

RR We IID rch snccicdscosticsnasiarebdcs ans seccs, 9

City of Blaine v. John Coleman Hayes & j

Assocs., Inc., 818 S.W.2d 33 (Tenn. Ct.

| IRATE ir AMER T ON. CMSA RADE 3

Enterprise Irrigation Dist. v. Farmers Mut.

Canal Co., 243 U.S. 157 (1917) ceeecccccesecseece. 5

Ferro Corp. v. Garrison Indus., Inc., 142

see Mr IE AE III iin cadsetickeciincseaicecinizches 6

Jeereddi A. Prasad, M_D., Inc. v. Investors

Assocs., Inc., 82 F. Supp. 2d 365 (D.N.J.

cg, RI LINE ae SNES CE ER 7

Mastrobuono v. Shearson Lehman Hutton,

5 a ee CD ilisiictinivcecse cess, passim

Moses H. Cone Mem'l Hosp. v. Mercury

Constr. Corp., 460 U.S. 1 (1983) .....ceeeccecceee. 5,6

Perry v. Thomas, 482 U.S. 483 (1987) .......0.0..+. 4

Prima Paint Corp. v. Flood & Conklin

Mfg. Co., 388 U.S. 395 (1967) .......... iattitiaialclbieas 3,4

Shearson/American Express, Inc. v.

McMahon, 482 U.S. 220 (1987) wo.ceeccceeeseese 4,9

Smith Barney, Inc. v. Critical Health Sys.

Gr, me, - PM; Re WL

hE gla kg | ER SUE es ORO 5,6

Southland Corp. v. Keating, 465 U.S. 1

TABLE OF AUTHORITIES—Continued

Page

Volt Info. Sciences, Inc. v. Board of

Trustees of Leland Stanford Junior Univ.,

SOP V.B. GB CIF) eniciisnitinaataiaaniaiian passim

CONSTITUTION:

US. Comm: GR VE (BS csciciticseenian 3

STATUTES:

Federal AsOUIRtiO AE .ncssccescssaccssecncesasssenssoncs passim

Tennessee Uniform Arbitration Acct ................ 2,3,8

Tenn. Code Ann. § 29-5-301 ef seg. ...........:.200. 3

RULE:

SS. CR, BRD TOE aiscscssicncecedabsenrsieanieainaannaans 7

IN THE

Supreme Court of the United States

No. 99-1353

FRIZZELL CONSTRUCTION COMPANY, INC..,

Petitioner,

Vv.

GATLINBURG, L.L.C.,

Respondent.

REPLY BRIEF FOR PETITIONER

1. While it tries to conjure up various reasons not to

resolve it, respondent does not deny the basic conflict

giving rise to this petition: in a case involving a dispute

arising under the same form contract subject to the

Federal Arbitration Act (“FAA”), the federal courts

will—and, indeed, under this Court’s decision in Mas-

trobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 58

(1995), must—enforce the parties’ agreement to arbitrate

“all claims or disputes” arising under the contract

regardless of any contrary state law rule, while the

Tennessee Supreme Court will—in direct conflict with

Mastrobuono and numerous other federal and state court

decisions—refuse to enforce that agreement with respect

to claims that are not arbitrable under state law. Same

FAA contract. Same claim. But “necessarily different”

result (Opp. at 15), depending on whether the case is in

federal or state court. The FAA was enacted to prevent

just this sort of dichotomy, see Pet. 17, and this Court

_ should grant certiorari to eliminate it here.

2. While respondent does not deny that the contract

in this case is governed by the FAA, it nevertheless

argues that this Court lacks jurisdiction to review the

Tennessee Supreme Court judgment refusing to enforce

the parties’ agreement to arbitrate “[a]ll claims, disputes

and or other matters” arising out of the contract. Pet.

App. at 2a. Respondent is wrong. .

a. Just as in Volt Information Sciences, Inc. v.

Board of Trustees of Leland Stanford Junior University,

489 U.S. 468, 473 n.4 (1989), petitioner here “explicitly

drew in question the validity of [the pertinent state

arbitration statute] on federal grounds, contending that

the statute, as applied [to defeat the parties’ agreement

to arbitrate], was pre-empted by the FAA and thus

invalid under the Supremacy Clause.” See Appellant’s

Br. in Tenn. S. Ct. at 22 (“Frizzell argues that the [FAA]

and federal substantive law interpreting the FAA pre-

empts inconsistent Tennessee law’), 31 (“Frizzell urges

this Court to find that * * * the FAA pre-empts Tennes-

see state law, and in particular Tennessee’s Arbitration

Act”); accord at 19-22, 35. Indeed, an entire section of

petitioner’s brief below was devoted to the argument

that the FAA preempts conflicting Tennessee law

providing for the adjudication rather than arbitration of

fraudulent inducement claims. See id. at 26-32; see also

Appellant’s Reply Br. in Tenn. S. Ct. at 6-11 (same). In

—

the face of this record, the suggestion that no federal

argument was raised below is altogether specious. !

This leaves respondent’s argument that this Court

lacks jurisdiction because the Tennessee Supreme Court

chose—a skeptic might say, not unintentionally—to

ignore petitioner’s federal preemption argument and,

instead, bury its holding that the conflicting Tennessee

statute governed the arbitration dispute in this case in a

purported interpretation of the contract. See Opp. at 5-

11. But Volt answers this claim, too. There is no re-

quirement that the state court judgment “directly address

the validity of the [conflicting state] statute itself.” 489

U.S. at 473 n.4. Rather, this Court has jurisdiction to

' Petitioner cited the conflicting Tennessee statute—“Tenn.

Code Annot. § 29-5-301 et seq.,” Tenn. S. Ct. Br. at 21—by title

and, indeed, even appended a copy of it to its brief. Petitioner also

explained that City of Blaine v. John Coleman Hayes & Assocs.,

Inc., 818 S.W.2d 33, 38 (Tenn. Ct. App. 1991), interpreted the

Tennessee Uniform Arbitration Act (“TUAA”) to require “a

judiciai determination on the issue” of fraud in the inducement of a

contract, expressly disagreeing with the contrary FAA rule adopted

in Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388

U.S. 395, 400 (1967). See Tenn. S. Ct. Br. at 19-21. The courts

below also acknowledged the conflict between the TUAA and

FAA. See Pet. App. at 8a n.10; id. at 17a-18a.

Likewise, the petition plainly states the basic conflict between

federal and state law giving rise to the question presented by this

case. There is scarcely a page of the petition that does not discuss

this conflict; the petition begins by setting forth the Supremacy

Clause (Pet. at 2); and, in particular, the petition explains that

under Blaine—which was adopted by the Tennessee Supreme

Court below—the “Tennessee Arbitration Act” requires adjudica-

tion of fraudulent inducement claims—in direct conflict with the

FAA rule recognized in Prima Paint. Pet. at 6 n.1. See id. at 11.

review a state court judgment applying state law

“against the contention that such application is invalid

on federal grounds, regardless of the particular grounds

or reasons on which [the state court’s] decision is put.”

Id. (citations omitted; brackets in original). Signifi-

cantly, the Volt Court further held that this jurisdictional

rule applies “even though the [state] court’s decision

may have been premised on its interpretation of the

contract.” Id. (emphasis added). Respondent takes a

stab at distinguishing Volt on the ground that

“[p]etitioner [here] did not bring any state statute into

question on federal grounds.” Opp. at 7 n.1. But, as

explained, that statement is utterly refuted by the record.

b. None of this should come as a surprise. If re-

spondent’s understanding of this Court’s jurisdiction

were correct, an enormous loophole would be opened to

the enforcement of federal rights... State courts would be

free to extinguish federal rights—including the “national

substantive law” established by the FAA, Prima Paint,

388 U.S. at 400, to “revers[e] centuries of judicial

hostility to arbitration agreements,” Shearson/American

Express, Inc. v. McMahon, 482 U.S. 220, 225 (1987)

(citation omitted)—simply by purporting to ground their

decisions in state law, taking comfort in the fact that

their decisions would be unreviewable in this Court. But

as established in Volt and the other cases in which this

Court has found jurisdiction to review state court deci-

sions interpreting FAA contracts in a manner that

frustrates federal arbitration law,” this is not the law.

2 See also, e.g., Perry v. Thomas, 482 U.S. 483, 489 n.7 (1987)

(Section 1257 confers jurisdiction to review state court judgment

refusing to enforce agreement in FAA contract to arbitrate all

some

Review of a decision rejecting a claim of federal pre-

emption can hardly be blocked by the lower court’s

reliance on the very state law claimed to be preempted.3

3. When it comes to the merits, respondent also

seeks cover in state law—and state law alone—arguing

that the Tennessee Supreme Court was free to interpret

the arbitration agreement as it saw fit, “according to

Tennessee law.” Opp. at i, 11. But in doing so, respon-

dent merely joins issue on the basic question pre-

sented—whether in refusing to enforce the parties’

arbitration agreement, the state court improperly dis-

placed federal arbitration law with conflicting state law.

a. The FAA establishes a “body of federal substan-

tive law of arbitrability, applicable to any arbitration

agreement within the coverage of the Act.” Moses H.

Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S.

1, 24 (1983); Pet. at 3. See also, e.g., Smith Barney, Inc.

v. Critical Health Sys. of N.C., Inc., __ F.3d __, 2000

claims or disputes arising under contract, due to conflicting state

law); Southland Corp. v. Keating, 465 U.S. 1, 7 (1984) (Section

1257 confers jurisdiction to review state court judgment where

“the effect of the judgment *** is to nullify a valid [FAA]

contract made by private parties under which they agreed to submit

all contract disputes to final, binding arbitration”).

3 The Court’s treatment of the jurisdictional issue in Volt and

cases cited in note 2, supra, also disposes of respondent’s related

suggestion that the decision below rests on an independent and

adequate state law ground. See Opp. at 8. This argument is also

refuted by the longstanding rule that “independent and adequate

state ground” doctrine does not divest this Court of jurisdiction

“where the non-federal ground is so interwoven with the [federal

ground] as not to be an independent matter.” Enterprise Irrigation

Dist. v. Farmers Mut. Canal Co., 243 U.S. 157, 164 (1917).

— 6

WL 572470, at *4 n.1 (4th Cir. 2000) (“arbitration

contracts [subject to FAA] must be construed in accor-

dance with federal law’). Of course, under the FAA

“parties are generally free to structure their arbitration

agreements as they see fit.” Volt, 489 U.S. at 479. But

in construing arbitration agreements subject to the FAA,

courts nevertheless remain bound by the “body of

federal substantive law of arbitrability.” Moses H.

Cone, 460 U.S. at 24. See Southland Corp. v. Keating,

465 U.S. at 12 (emphasizing that this “substantive law”

_is “applicable in state and federal court”).

One .of the federal rules governing arbitration agree-

ments subject to the FAA is that a general choice-of-law

provision should not be interpreted to incorporate state

law that would defeat the parties’ agreement to arbitrate

all claims or disputes arising under the contract. That is

the teaching of Mastrobuono, which involved the inter-

pretation of an FAA contract with virtually identical

choice-of-law and arbitration provisions, see Pet. at 8-

13; it follows directly from Ferro Corp. v. Garrison

Industries, Inc., 142 F.3d 926 (6th Cir. 1998), which is

on all fours with this case, see Pet. at 14-17; and it is

reaffirmed by the numerous other federal and state court

decisions discussed in our petition. See id. at 17-23.

Indeed, since the filing of this petition, still more deci-

sions have been issued that acknowledge and heed this

important federal rule of law. See, e.g., Smith Barney,

Inc., _F.3dat__, 2000 WL 572470, at *4n.1.4

4 The rule of Mastrobuono may also be explained in terms of

the federal mandate that in construing FAA contracts ambiguities

should be resolved in favor of arbitration. See Pet. at 10-11

(discussing Mastrobuono), Moses H. Cone, 460 U.S. at 24-25

b. The decision below directly conflicts with this

growing body of precedent, and respondent has almost

nothing to say in response. With respect to Ferro and

the other lower court decisions discussed in the petition,

respondent replies that those decisions “are not binding

on the Tennessee Supreme Court.” Opp. at 15. But of

course, that is true with respect to any conflict among

the lower courts; this Court grants certiorari to resolve

such conflicts to ensure that federal law is uniformly

enforced across the land. See S. Ct. Rule 10(b). Re-

spondent also asserts that “other federal circuits, federal

district courts and state courts have rendered decisions

consistent with the Tennessee Supreme Court decision.”

Opp. at 15. But of course, that only underscores the

entrenched nature of the conflict. See id. at 15-16 n.2.

Respondent’s effort to deal with Mastrobuono is no

more availing. Without identifying a single difference

between the contract in this case and the one in Mastro-

buono, respondent suggests that this case is distinguish-

able because the Tennessee Supreme Court “construed

the arbitration clause and the Tennessee choice-of-law

clause to mean that the parties intended to submit all

disputes to arbitration fo the extent permitted by state

law,” Opp. at 14-15 (emphasis added)—precisely the

result that this Court found “untenabie” in Mastrobuono.

514 U.S. at 64. But unless the Tennessee Supreme

(“The [FAA] establishes that, as a matter of federal law, any

doubts concerniug the scope of arbitrable issues should be resolved

in favor of arbitration,” including when “the problem at hand is the

construction of the contract language itself.”) (emphasis added);

Jeereddi A. Prasad, M.D., Inc. v. Investors Assocs., Inc., 82 F.

Supp. 2d 365, 369-370 (D.N.J. 2000) (discussing Mastrobuono).

Court is free to disregard the rule of Mastrobuono—the

basic question presented here—the fact that the Tennes-

see high court would interpret the same FAA contract

differently—and thereby incorporate state law abrogat-

ing the parties’ agreement to arbitrate a// claims arising

under the contract—is not a distinction that should allow

for the displacement of federal law. If anything, it

simply underscores the need for this Court’s review to

safeguard the important federal interests at stake.*

c. Respondent aiso argues that this case is governed

by Volt, not Mastrobuono. See Opp. at 12-14. As we

have explained (Pet. at 21-23), a good reason to grant

certiorari here is to resolve the deepening conflict and

confusion that exists in the lower courts over the signifi-

cance of Volt in the wake of Mastrobuono. This case

provides an ideal vehicle to do so, and to reaffirm that

the substantive federal law of arbitration extends with

equal force—just like every other arm of federal law—

to the state courts. In any event, as we also explained

(Pet. at 13), Volt is readily distinguishable from this case

and Mastrobuono: in Volt this Court upheld a state

court decision holding that a general choice-of-law

provision incorporated state procedural rules that “gen-

erally foster[ed] the federal policy favoring arbitration,”

> Respondent also tries to distinguish Mastrobuono on the

ground that it involved “a New York statute,” whereas “[t]here is

no Tennessee statute at issue in this case.” Opp. at 14. It is not

apparent why this distinction should make any difference, but in

any event the conflicting state law in Mastrobuono was a ruling of

“the New York Court of Appeals * * * that in New York the power

to award punitive damages is limited to judicial tribunals and may

not be exercised by arbitrators.” 514 U.S. at 55. As explained, the

conflicting state law here is the TUAA.

489 U.S. at 476 & n.5 (emphasis added), whereas this

case and Mastrobuono concern whether a general

choice-of-law provision incorporates state law that, if

given effect, would directly contravene the federal

policy favoring arbitration. See Pet. at 13. Respondent

never even addresses this basic distinction.

4. Contrary to the suggestion of respondent (Opp. at

16-19), the decision below assuredly does not promote

the policies underlying the FAA. Just the opposite. The

Tennessee Supreme Court invoked conflicting state law

to abrogate the parties’ agreement to arbitrate all claims

or disputes arising out of their contract. The decision

below therefore evidences just the sort of “judicial

hostility to arbitration agreements” that led to the en-

actment of the FAA. Shearson/American Express, 482

U.S. at 225-226. See also Allied-Bruce Terminix Cos. v.

Dobson, 513 U.S. 265, 270 (1995) (“[T]he basic purpose

of the [FAA] is to overcome courts’ refusals to enforce

agreements to arbitrate.”). At the same time, the deci-

sion below makes the federal “right to enforce an arbi-

tration contract * * * dependent for its enforcement on

the particular forum in which it is asserted,” Southland

Corp. v. Keating, 465 U.S. at 15, again frustrating

Congress’ intent. See Allied-Bruce Terminix, 513 U.S.

at 272 (“Congress would not have wanted state and

federal courts to reach different outcomes about the

validity of arbitrations in similar cases.”); Pet. at 17. |

5. Finally, the fleeting suggestion that this case is

not of general importance (Opp. at 19) is resoundingly

answered by the brief of the Associated General Con-

tractors of America, Inc. (“AGC”) in support of certio-

rari. Thousands of AGC’s members—engaged in

myriad projects across the land—-rely on standard form

contracts just like the one at issue here to guarantee that

disputes will be resolved by arbitration. AGC Br. at 8.

These contracts—most of which are subject to the

FAA—“seek to bring uniformity and predictability to

the business and legal transactions attending to the

construction business.” /d. at 8-9. The Tennessee

Supreme Court decision in this case “effectively thwarts

this objective,” “will serve as a basis for other state

courts to undermine the national policy of the FAA,”

and, thus, creates enormous uncertainty as to the en-

forceability of hundreds if not thousands of existing

arbitration agreements across the country. /d. at 9.

* * * *

For the foregoing reasons, and those in the petition, the

petition for a writ of certiorari should be granted.

Respectfully submitted,