Louisiana Allows Attachments and Sales in Aid of Arbitration
The Louisiana Supreme Court recently answered an important certified question from the United States Court of Appeals for the Fifth Circuit. The Court ruled that Louisiana Code of Civil Procedure article 3542 allows asset attachments in aid of arbitration if the underlying arbitration claim pursues monetary damages. See Stemcor USA Inc. v. CIA Siderurgica do Para Cosipar, et. al, 2019 WL 2041826 (La. 2019). This is a significant commercial decision for companies doing business in Louisiana as commercial disputes and litigation can potentially be short-circuited through the use of pre-arbitration attachment. Nothing is more likely to seize the attention of a counter-party then the attachment and sale of assets before arbitration even begins.
In Stemcor, the dispute impacted two creditors with separate contracts for the purchase of pig iron (i.e. “crude iron”) from a common seller. After receiving payments on the contracts, the seller failed to ship the pig iron to either purchaser. One of the creditors filed suit in the Eastern District of Louisiana seeking to compel arbitration (under its contract) and requesting a writ of attachment against certain cargo owned by the seller in Louisiana. The federal court granted the attachment. The second creditor filed suit in Louisiana state court seeking damages and a writ of attachment against the same cargo. The state court also granted the attachment. The second creditor intervened in the federal case and the federal judge granted both parties’ motion to sell the attached cargo and place the funds into the registry of the court.
The seller/debtor eventually moved to vacate the federal court attachment arguing that Louisiana Code of Civil Procedure article 3542 does not permit asset attachment in aid of arbitration. Specifically, La CCP Article 3542 provides: “A writ of attachment may be obtained in any action for a money judgment, whether against a resident or a nonresident, regardless of the nature, character, or origin of the claim, whether it is for a certain or uncertain amount, and whether it is liquidated or unliquidated.” (emphasis added).
The federal court initially agreed with the seller/debtor, reasoning that the underlying federal suit to compel arbitration was not an “action for a money judgment” under article 3542.[i] “In ruling on a petition to compel arbitration, a court does not rule on the merits of the underlying claims, much less award damages to the prevailing party. Instead it conducts only a limited inquiry into whether there is a (sic) agreement to arbitrate the matter . . .” Id. The fact that a party also includes a request for a provision attachment remedy does not transform the suit to an action for a money judgment. Id.
On appeal, however, the Fifth Circuit initially vacated the district court’s order on other grounds but also ruled that the suit to compel arbitration is not an action for a money judgment under Louisiana law. On rehearing, the Fifth Circuit withdrew its opinion vacating the district court’s order and affirmed the district court’s view of article 3542. The parties filed separate rehearing petitions and the Fifth Circuit exercised its privilege to seek certification of the question regarding the applicability of La CCP Article 3542 to the Louisiana Supreme Court.[ii]
Subsequently, the Louisiana Supreme Court accepted the question and began its analysis utilizing Louisiana’s rules of statutory construction. As noted by the Court, the preliminary issue to be determined was the proper interpretation of the phrase “in any action for a money judgment” as used in the statute.
According to the Court, “a suit to compel arbitration is simply the required first step in order to recover damages. An arbitral party seeking money damages can obtain an award for money damages, have that award confirmed in a court, and thereby obtain a money judgment that is docketed as if it rendered in a court action.”[iii] Thus, in considering whether an “action for a money judgment” exists for purposes of Article 3542, the Louisiana Supreme Court found that the necessary factor is that the origin of the claim be one of indebtedness. The fact that an arbitral party must engage in a different progression of steps and process to pursue that claim of indebtedness and obtain a money judgment does not bar application of Article 3542.[iv]
Next, with respect to the writ of attachment, the Court noted that the ultimate goal of attachment remedy is to protect a creditor by enabling satisfaction of an eventual judgment through preservation of the debtor’s property. The necessity of such relief is equally applicable in arbitral claims. Thus, “to read the statutory language of Article 3542 in a way to exclude arbitral parties from seeking attachment in aid of arbitration would produce a result demonstrably at odds with the clear intent of the statute.” [v]
Lastly, the Louisiana Supreme Court considered the legislative intent and history of the attachment remedy in Louisiana, specifically focusing on the prior codes and acts leading up to the formal enactment of Article 3542 in 1960. Through Article 3542, the Court found that the legislature further expanded attachment by confirming that it is available in any action for money judgment, no matter what may be the basis for the writ and removing the limitation the defendant be a non-resident: “A writ of attachment may be obtained in any action for a money judgment, whether against a resident or nonresident, regardless of the nature, character or origin of the claim…” This intentional change in language over time to “any action” was indicative of the legislature continued broadening of the scope of the attachment remedy.
As such, the Louisiana Supreme Court held that Article 3542 no longer specifically limits attachments to suit instituted in a Louisiana court and, thus, the statutory language is sufficiently broad to include an arbitration claim for money damages.
With this decision, creditors seeking to be made whole have maintained the attachment “tool” at their disposal despite and need not fear the procedural venue they utilize in seeking that attachment.
[i] See Stemcor USA, Inc. v. Am. MetalsTrading, LLP, 199 F.Supp.3d 1102 , 1122-23, vacated in part sub nom., Stemcor USA Inc. v. Cia Siderugica do Para Cosipar, 870 F.3d 370 (5th Cir. 2017), opinion withdrawn and superseded on reh’g, 895 F.3d 375 (5th Cir. 2018).
[ii] Stemcor USA Inc. v. Cia Siderurgica do Para Cosipar, 740 F. App’x 70, 70-71 (5th Cir. 2018).
[iii] Stemcor USA Inc. v. CIA Siderurgica do Para Cosipar, et. al, 2019 WL 2041826 (La. 2019).